Question 1

A characteristic of an oligopoly is:

Accepted Answer

A)  mutual interdependence in pricing decisions. 
B)  independent pricing decisions. 
C)  lack of control over prices. 
D)  none of the above. 
A)  mutual interdependence in pricing decisions. 
B)  independent pricing decisions. 
C)  lack of control over prices. 
D)  none of the above.

Question 2

Exhibit 9-1 A monopolistic competitive firm
  
-If all firms in the industry are the same as the monopolistic competitive firm shown in this Exhibit 9-1,firms in the long run will:

Accepted Answer

A)  leave the industry. 
B)  earn positive economic profits. 
C)  experience less competition because firms will exit the industry. 
D)  experience competition from new firms that enter the industry. 
A)  leave the industry. 
B)  earn positive economic profits. 
C)  experience less competition because firms will exit the industry. 
D)  experience competition from new firms that enter the industry.

Question 3

Cartel members have an incentive to cheat on the cartel because:

Accepted Answer

A)  the cartel does not maximize profits. 
B)  the cartel price is the competitive price. 
C)  each member's output quota is too high. 
D)  each member's MR is not equal to the cartel's MC. 
E)  the industry profit would be higher under competitive conditions. 
A)  the cartel does not maximize profits. 
B)  the cartel price is the competitive price. 
C)  each member's output quota is too high. 
D)  each member's MR is not equal to the cartel's MC. 
E)  the industry profit would be higher under competitive conditions.

Question 4

In long-run equilibrium,output is expanded to the minimum long-run average total cost by:

Accepted Answer

A)  perfectly competitive firms but not by monopolistically competitive firms. 
B)  monopolistically competitive firms but not by perfectly competitive firms. 
C)  both monopolistically competitive firms and perfectly competitive firms. 
D)  neither perfectly competitive firms nor monopolistically competitive firms. 
A)  perfectly competitive firms but not by monopolistically competitive firms. 
B)  monopolistically competitive firms but not by perfectly competitive firms. 
C)  both monopolistically competitive firms and perfectly competitive firms. 
D)  neither perfectly competitive firms nor monopolistically competitive firms.

Question 5

As new firms enter a monopolistic competitive industry,it can be expected that:

Accepted Answer

A)  market price will increase. 
B)  the output of existing firms will increase. 
C)  profits of existing firms will increase. 
D)  market demand should decrease. 
E)  profits of existing firms will decrease. 
A)  market price will increase. 
B)  the output of existing firms will increase. 
C)  profits of existing firms will increase. 
D)  market demand should decrease. 
E)  profits of existing firms will decrease.

Question 6

The two tendencies of a firm in a cartel are the incentive to:

Accepted Answer

A)  cheat to maximize joint profits and the incentive to raise prices. 
B)  cheat and avoid collusion and the incentive to raise price to maximize the firm's share of profits. 
C)  increase output in order to minimize per-unit cost and the incentive to reduce price in order to maximize joint profit. 
D)  cooperate to maximize joint profits and to cheat on the agreement in order to increase the firm's share of the profit. 
A)  cheat to maximize joint profits and the incentive to raise prices. 
B)  cheat and avoid collusion and the incentive to raise price to maximize the firm's share of profits. 
C)  increase output in order to minimize per-unit cost and the incentive to reduce price in order to maximize joint profit. 
D)  cooperate to maximize joint profits and to cheat on the agreement in order to increase the firm's share of the profit.

Question 7

Which of the following is always a characteristic of the oligopoly market structure?

Accepted Answer

A)  Many sellers, each small in size relative to the overall market. 
B)  Few sellers. 
C)  All sellers produce identical products. 
D)  Easy, low-cost entry and exit. 
A)  Many sellers, each small in size relative to the overall market. 
B)  Few sellers. 
C)  All sellers produce identical products. 
D)  Easy, low-cost entry and exit.

Question 8

Which of the following is a distinction between perfectly competitive and monopolistic competition?

Accepted Answer

A)  Perfectly competitive firms must compete with rival sellers; monopolistically competitive firms do not confront rival sellers. 
B)  Monopolistically competitive firms can raise their price without losing sales; perfectly competitive firms must lower their price in order to sell more of their product. 
C)  Perfectly competitive firms confront a perfectly elastic demand curve; monopolistically competitive firms face a downward-sloping demand curve. 
D)  Perfectly competitive firms may make either economic profits or losses in the short run, but monopolistically competitive firms always earn an economic profit. 
A)  Perfectly competitive firms must compete with rival sellers; monopolistically competitive firms do not confront rival sellers. 
B)  Monopolistically competitive firms can raise their price without losing sales; perfectly competitive firms must lower their price in order to sell more of their product. 
C)  Perfectly competitive firms confront a perfectly elastic demand curve; monopolistically competitive firms face a downward-sloping demand curve. 
D)  Perfectly competitive firms may make either economic profits or losses in the short run, but monopolistically competitive firms always earn an economic profit.

Question 9

An oligopoly is a market structure in which:

Accepted Answer

A)  one firm has 100 percent of a market. 
B)  there are many small firms. 
C)  there are many firms with no control over price. 
D)  there are few firms selling either a homogeneous or differentiated product. 
A)  one firm has 100 percent of a market. 
B)  there are many small firms. 
C)  there are many firms with no control over price. 
D)  there are few firms selling either a homogeneous or differentiated product.

Question 10

Product differentiation makes the demand for a monopolistically competitive firm's product:

Accepted Answer

A)  perfectly elastic. 
B)  more elastic than for a monopoly. 
C)  more inelastic than for a monopoly. 
D)  perfectly inelastic. 
A)  perfectly elastic. 
B)  more elastic than for a monopoly. 
C)  more inelastic than for a monopoly. 
D)  perfectly inelastic.

Question 11

A(n)____ can be used to demonstrate why a competitive oligopoly tends to result in a low-price strategy that does not maximize mutual profits.

Accepted Answer

A)  interdependence index 
B)  gini coefficient 
C)  herfindahl index 
D)  payoff matrix 
A)  interdependence index 
B)  gini coefficient 
C)  herfindahl index 
D)  payoff matrix

Question 12

Mutual interdependence among firms in an oligopoly means that:

Accepted Answer

A)  firms never practice price leadership. 
B)  firms never form a cartel. 
C)  it is difficult to know how firms will react to decisions of rivals. 
D)  no formal agreement is possible among firms. 
A)  firms never practice price leadership. 
B)  firms never form a cartel. 
C)  it is difficult to know how firms will react to decisions of rivals. 
D)  no formal agreement is possible among firms.

Question 13

Exhibit 9-2 A monopolistic competitive firm
  
-As represented in Exhibit 9-2,the maximum long-run economic profit earned by this monopolistic competitive firm is:

Accepted Answer

A)  zero. 
B)  $200 per week. 
C)  $1,000 per week. 
D)  $20,000 per week. 
A)  zero. 
B)  $200 per week. 
C)  $1,000 per week. 
D)  $20,000 per week.

Question 14

Which of the following is evidence of an ineffective cartel?

Accepted Answer

A)  Output changes are dictated by changes in demand. 
B)  Price changes are dictated by changes in demand. 
C)  Members do not agree on output quotas. 
D)  All of the above. 
A)  Output changes are dictated by changes in demand. 
B)  Price changes are dictated by changes in demand. 
C)  Members do not agree on output quotas. 
D)  All of the above.

Question 15

Compared to monopoly,the market results with monopolistic competition are usually expected to be:

Accepted Answer

A)  worse because consumers get fewer choices. 
B)  worse because consumers pay a higher price. 
C)  the same. 
D)  better because consumers get less output. 
E)  better because consumers pay a lower price. 
A)  worse because consumers get fewer choices. 
B)  worse because consumers pay a higher price. 
C)  the same. 
D)  better because consumers get less output. 
E)  better because consumers pay a lower price.

Question 16

If OPEC is an effective cartel,

Accepted Answer

A)  price changes are dictated by changes in demand. 
B)  output changes are dictated by changes in demand. 
C)  members agree on output quotas. 
D)  all of the above. 
A)  price changes are dictated by changes in demand. 
B)  output changes are dictated by changes in demand. 
C)  members agree on output quotas. 
D)  all of the above.

Question 17

When Pepsi is considering a price hike,it needs to consider how Coke may react.This situation is called:

Accepted Answer

A)  mutual interdependence. 
B)  price leadership. 
C)  collusion. 
D)  monopolistic competition. 
A)  mutual interdependence. 
B)  price leadership. 
C)  collusion. 
D)  monopolistic competition.

Question 18

Some economists argue that monopolistically competitive markets are inefficient because:

Accepted Answer

A)  the firms earn economic profits in the long run. 
B)  the firms' marginal costs and marginal revenues are not always equal. 
C)  firms do not produce the output rate that would minimize their average total cost. 
D)  barriers to entry are high. 
A)  the firms earn economic profits in the long run. 
B)  the firms' marginal costs and marginal revenues are not always equal. 
C)  firms do not produce the output rate that would minimize their average total cost. 
D)  barriers to entry are high.

Question 19

Exhibit 9-3 A monopolistic competitive firm in the long run
  
-If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 9-3,we would expect that in the long run:

Accepted Answer

A)  a number of new firms will enter the industry. 
B)  some firms will leave the industry. 
C)  firms in the industry earn zero economic profits. 
D)  all firms will leave the industry. 
A)  a number of new firms will enter the industry. 
B)  some firms will leave the industry. 
C)  firms in the industry earn zero economic profits. 
D)  all firms will leave the industry.

Question 20

Excluding foreign competition,which of the following is an oligopoly in the United States?

Accepted Answer

A)  The computer industry. 
B)  The automobile industry. 
C)  The steel industry. 
D)  All of the above are oligopolies. 
A)  The computer industry. 
B)  The automobile industry. 
C)  The steel industry. 
D)  All of the above are oligopolies.

Exam 9: Monopolistic Competition and Oligopoly

A characteristic of an oligopoly is:

Exhibit 9-1 A monopolistic competitive firm -If all firms in the industry are the same as the monopolistic competitive firm shown in this Exhibit 9-1,firms in the long run will:

Cartel members have an incentive to cheat on the cartel because:

In long-run equilibrium,output is expanded to the minimum long-run average total cost by:

As new firms enter a monopolistic competitive industry,it can be expected that:

The two tendencies of a firm in a cartel are the incentive to:

Which of the following is always a characteristic of the oligopoly market structure?

Which of the following is a distinction between perfectly competitive and monopolistic competition?

An oligopoly is a market structure in which:

Product differentiation makes the demand for a monopolistically competitive firm's product:

A(n)____ can be used to demonstrate why a competitive oligopoly tends to result in a low-price strategy that does not maximize mutual profits.

Mutual interdependence among firms in an oligopoly means that:

Exhibit 9-2 A monopolistic competitive firm -As represented in Exhibit 9-2,the maximum long-run economic profit earned by this monopolistic competitive firm is:

Which of the following is evidence of an ineffective cartel?

Compared to monopoly,the market results with monopolistic competition are usually expected to be:

If OPEC is an effective cartel,

When Pepsi is considering a price hike,it needs to consider how Coke may react.This situation is called:

Some economists argue that monopolistically competitive markets are inefficient because:

Exhibit 9-3 A monopolistic competitive firm in the long run -If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 9-3,we would expect that in the long run:

Excluding foreign competition,which of the following is an oligopoly in the United States?

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

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