Question 1

Exhibit 9-1 A monopolistic competitive firm
  
-In the long run,which of the following is true for the firm shown in Exhibit 9-1?

Accepted Answer

A)  The firm's demand curve shifts leftward. 
B)  The firm's average total cost curve shifts upward. 
C)  Neither a nor b are possible. 
D)  Both a and b are possible. 
A)  The firm's demand curve shifts leftward. 
B)  The firm's average total cost curve shifts upward. 
C)  Neither a nor b are possible. 
D)  Both a and b are possible.

Question 2

Which of the following is a characteristic of the monopolistic competition market structure?

Accepted Answer

A)  Many firms and a homogeneous product. 
B)  Few firms and differentiated products. 
C)  Few firms and similar products. 
D)  Few firms and a homogeneous product. 
E)  Many firms and differentiated products. 
A)  Many firms and a homogeneous product. 
B)  Few firms and differentiated products. 
C)  Few firms and similar products. 
D)  Few firms and a homogeneous product. 
E)  Many firms and differentiated products.

Question 3

In which of the following market structures must the price and output decisions of an individual firm include the possible price and output reactions of the firm's rivals?

Accepted Answer

A)  Monopoly. 
B)  Oligopoly. 
C)  Perfect competition. 
D)  Cartel. 
A)  Monopoly. 
B)  Oligopoly. 
C)  Perfect competition. 
D)  Cartel.

Question 4

Which of the following is always associated with monopolistic competition?

Accepted Answer

A)  Identical products 
B)  Economic profits in the short run 
C)  MR lies above the demand curve 
D)  Demand curves become more inelastic as new entry occurs 
E)  Product differentiation 
A)  Identical products 
B)  Economic profits in the short run 
C)  MR lies above the demand curve 
D)  Demand curves become more inelastic as new entry occurs 
E)  Product differentiation

Question 5

Costume jewelry is produced in a monopolistically competitive market.One producer finds that MR = MC = $3 when output is 700 necklaces.An economist studying this information can conclude that:

Accepted Answer

A)  the producer is charging a price of $3. 
B)  economic profit is $2,100. 
C)  the producer charges a price greater than $3. 
D)  new firms will want to enter. 
E)  this producer should produce more than 700 necklaces. 
A)  the producer is charging a price of $3. 
B)  economic profit is $2,100. 
C)  the producer charges a price greater than $3. 
D)  new firms will want to enter. 
E)  this producer should produce more than 700 necklaces.

Question 6

A major characteristic of the theory of oligopoly is that:

Accepted Answer

A)  there are no real-world examples. 
B)  the reactions of each firm depends on how the firm believes rivals will react. 
C)  in reality few oligopolies survive more than 10 years. 
D)  none of the above. 
A)  there are no real-world examples. 
B)  the reactions of each firm depends on how the firm believes rivals will react. 
C)  in reality few oligopolies survive more than 10 years. 
D)  none of the above.

Question 7

Monopolistic competitive firms in the long run earn:

Accepted Answer

A)  positive economic profits. 
B)  zero pure economic profits. 
C)  negative economic profits. 
D)  none of the above. 
A)  positive economic profits. 
B)  zero pure economic profits. 
C)  negative economic profits. 
D)  none of the above.

Question 8

Which of the following is true about advertising?

Accepted Answer

A) If monopolistically competitive firms compete through advertising,that creates brand loyalty,then advertising can be an effective entry cost. 
B) Advertising may be the only way that a new entrant can penetrate a market dominated by long-established firms. 
C) Advertising has no impact on entry costs or market structure. 
D) Both a.and b.above are correct. 
A) If monopolistically competitive firms compete through advertising,that creates brand loyalty,then advertising can be an effective entry cost. 
B) Advertising may be the only way that a new entrant can penetrate a market dominated by long-established firms. 
C) Advertising has no impact on entry costs or market structure. 
D) Both a.and b.above are correct.

Question 9

Exhibit 9-1 A monopolistic competitive firm
  
-As presented in Exhibit 9-1,the short-run profit-maximizing output for the monopolistic competitive firm is:

Accepted Answer

A)  zero units per day. 
B)  200 units per day. 
C)  400 units per day. 
D)  600 units per day. 
E)  800 units per day. 
A)  zero units per day. 
B)  200 units per day. 
C)  400 units per day. 
D)  600 units per day. 
E)  800 units per day.

Question 10

The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:

Accepted Answer

A)  produce at the level in which price equals long-run average cost. 
B)  operate at minimum long-run average cost. 
C)  overutilize its insufficient capacity. 
D)  none of the above. 
A)  produce at the level in which price equals long-run average cost. 
B)  operate at minimum long-run average cost. 
C)  overutilize its insufficient capacity. 
D)  none of the above.

Question 11

An oligopoly market structure is characterized by firms closely watching their rivals' pricing policies.

Accepted Answer

A) True 
 B)False

Question 12

Firms in a monopolistically competitive industry produce:

Accepted Answer

A)  homogeneous goods and services. 
B)  differentiated products. 
C)  competitive goods only. 
D)  consumption goods only. 
A)  homogeneous goods and services. 
B)  differentiated products. 
C)  competitive goods only. 
D)  consumption goods only.

Question 13

Which of the following is true about advertising by a firm?

Accepted Answer

A)  It is not always successful in increasing demand for a firm's product. 
B)  It attempts to increase demand and to make demand more inelastic. 
C)  It may reduce per unit costs of production when economies of scale are experienced. 
D)  All of the above. 
A)  It is not always successful in increasing demand for a firm's product. 
B)  It attempts to increase demand and to make demand more inelastic. 
C)  It may reduce per unit costs of production when economies of scale are experienced. 
D)  All of the above.

Question 14

Easy entry and exit cause oligopoly profits to be zero in the long run.

Accepted Answer

A) True 
 B)False

Question 15

In a monopolistic competitive industry,short-run economic profit encourages entry of new firms until there are no economic profits in the long-run.

Accepted Answer

A) True 
 B)False

Question 16

One key characteristic that is distinctive of an oligopoly market is that:

Accepted Answer

A)  the demand curve facing each firm is downward sloping, with a marginal revenue curve that lies below the firm's demand curve. 
B)  the decisions of one seller often influences the price of products, the output, and the profits of rival firms. 
C)  there is only one firm that produces a product for which there are no good substitutes. 
D)  there are many sellers in the market and each is small relative to the total market. 
A)  the demand curve facing each firm is downward sloping, with a marginal revenue curve that lies below the firm's demand curve. 
B)  the decisions of one seller often influences the price of products, the output, and the profits of rival firms. 
C)  there is only one firm that produces a product for which there are no good substitutes. 
D)  there are many sellers in the market and each is small relative to the total market.

Question 17

In monopolistic competition if there is profit,there is:

Accepted Answer

A)  a signal for new firms to enter. 
B)  a motive for existing firms to increase prices. 
C)  proof that advertising works. 
D)  a motive for existing firms to decrease prices. 
E)  product differentiation. 
A)  a signal for new firms to enter. 
B)  a motive for existing firms to increase prices. 
C)  proof that advertising works. 
D)  a motive for existing firms to decrease prices. 
E)  product differentiation.

Question 18

Exhibit 9-5 Two-Firm Payoff Matrix
  
-Suppose costs are identical for the two firms in Exhibit 9-5.Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price.Under these "tit-for-tat" conditions,equilibrium will be established by:

Accepted Answer

A)  Widget Co. charging the high price and Ajax Co. charging the low price. 
B)  Widget Co. charging the high price and Ajax Co. charging the high price. 
C)  Widget Co. charging the low price and Ajax Co. charging the low price. 
D)  Widget Co. charging the low price and Ajax Co. charging the high price. 
A)  Widget Co. charging the high price and Ajax Co. charging the low price. 
B)  Widget Co. charging the high price and Ajax Co. charging the high price. 
C)  Widget Co. charging the low price and Ajax Co. charging the low price. 
D)  Widget Co. charging the low price and Ajax Co. charging the high price.

Question 19

What are the characteristics of an oligopoly?

Accepted Answer

An oligopoly market is characterized by

Question 20

A major cartel problem is that member firms cheat by attempting to steal customers from one another.

Accepted Answer

A) True 
 B)False

Exam 9: Monopolistic Competition and Oligopoly

Exhibit 9-1 A monopolistic competitive firm -In the long run,which of the following is true for the firm shown in Exhibit 9-1?

Which of the following is a characteristic of the monopolistic competition market structure?

In which of the following market structures must the price and output decisions of an individual firm include the possible price and output reactions of the firm's rivals?

Which of the following is always associated with monopolistic competition?

Costume jewelry is produced in a monopolistically competitive market.One producer finds that MR = MC = $3 when output is 700 necklaces.An economist studying this information can conclude that:

A major characteristic of the theory of oligopoly is that:

Monopolistic competitive firms in the long run earn:

Which of the following is true about advertising?

Exhibit 9-1 A monopolistic competitive firm -As presented in Exhibit 9-1,the short-run profit-maximizing output for the monopolistic competitive firm is:

The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:

An oligopoly market structure is characterized by firms closely watching their rivals' pricing policies.

Firms in a monopolistically competitive industry produce:

Which of the following is true about advertising by a firm?

Easy entry and exit cause oligopoly profits to be zero in the long run.

In a monopolistic competitive industry,short-run economic profit encourages entry of new firms until there are no economic profits in the long-run.

One key characteristic that is distinctive of an oligopoly market is that:

In monopolistic competition if there is profit,there is:

Exhibit 9-5 Two-Firm Payoff Matrix -Suppose costs are identical for the two firms in Exhibit 9-5.Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price.Under these "tit-for-tat" conditions,equilibrium will be established by:

What are the characteristics of an oligopoly?

A major cartel problem is that member firms cheat by attempting to steal customers from one another.

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Fiscal Policy

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

A: Appendix: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Filters