Question 1

Perfect competition and monopolistic competition are similar because under both market structures,

Accepted Answer

A)  there are zero economic profits in the long run. 
B)  production takes place at the least-cost combination. 
C)  there are few firms. 
D)  entry is difficult. 
E)  differentiated products are produced. 
A)  there are zero economic profits in the long run. 
B)  production takes place at the least-cost combination. 
C)  there are few firms. 
D)  entry is difficult. 
E)  differentiated products are produced.

Question 2

A picture frame company operates in a monopolistically competitive market.Its short-run equilibrium price is $80 and its ATC is $65.It sells 100 picture frames a week.From this we can tell:

Accepted Answer

A)  this firm is making a normal profit. 
B)  other picture frame companies will want to exit the market. 
C)  there are no other picture frame companies in the area. 
D)  economic profits are $1,500. 
E)  total profits are being maximized. 
A)  this firm is making a normal profit. 
B)  other picture frame companies will want to exit the market. 
C)  there are no other picture frame companies in the area. 
D)  economic profits are $1,500. 
E)  total profits are being maximized.

Question 3

In order to make oil profits as large as possible,OPEC meets to set oil production quotas for its members.OPEC is best classified as a:

Accepted Answer

A)  monopoly. 
B)  cartel. 
C)  kinked demand industry. 
D)  price-leadership industry. 
A)  monopoly. 
B)  cartel. 
C)  kinked demand industry. 
D)  price-leadership industry.

Question 4

Exhibit 9-6 Two-Firm Payoff Matrix
  
-Assume costs are identical for the two firms in Exhibit 9-6.If both firms were allowed to form a cartel and agree on their prices,equilibrium would be established by:

Accepted Answer

A)  Camel charging the low price and Marlboro charging the high price. 
B)  Camel charging the high price and Marlboro charging the low price. 
C)  Camel charging the high price and Marlboro charging the high price. 
D)  Camel charging the low price and Marlboro charging the low price. 
A)  Camel charging the low price and Marlboro charging the high price. 
B)  Camel charging the high price and Marlboro charging the low price. 
C)  Camel charging the high price and Marlboro charging the high price. 
D)  Camel charging the low price and Marlboro charging the low price.

Question 5

A monopolistically competitive firm will:

Accepted Answer

A)  maximize profits by producing where MR = MC. 
B)  not likely earn an economic profit in the long run. 
C)  shut down if price is less than average variable cost. 
D)  all of the above. 
A)  maximize profits by producing where MR = MC. 
B)  not likely earn an economic profit in the long run. 
C)  shut down if price is less than average variable cost. 
D)  all of the above.

Question 6

Exhibit 9-4 Two-Firm Payoff Matrix
  
-Suppose costs are identical for the two firms in Exhibit 9-4.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)  Beta Co. charging $1,000 and Alpha Co. charging $1,000. 
B)  Beta Co. charging $1,000 and Alpha Co. charging $500. 
C)  Beta Co. charging $500 and Alpha Co. charging $500. 
D)  Beta Co. charging $500 and Alpha Co. charging $1,000. 
A)  Beta Co. charging $1,000 and Alpha Co. charging $1,000. 
B)  Beta Co. charging $1,000 and Alpha Co. charging $500. 
C)  Beta Co. charging $500 and Alpha Co. charging $500. 
D)  Beta Co. charging $500 and Alpha Co. charging $1,000.

Question 7

When a perfectly competitive firm or a monopolistically competitive firm is making zero economic profit,

Accepted Answer

A)  no firms will want to enter or exit. 
B)  some firms will want to leave. 
C)  some firms will want to enter. 
D)  market demand shifts to the left. 
E)  the price of the output will rise in the long run. 
A)  no firms will want to enter or exit. 
B)  some firms will want to leave. 
C)  some firms will want to enter. 
D)  market demand shifts to the left. 
E)  the price of the output will rise in the long run.

Question 8

Supporters of advertising claim that it:

Accepted Answer

A)  increases the variety of products. 
B)  attacks established brand loyalties. 
C)  allows new firms to compete. 
D)  all of the above. 
A)  increases the variety of products. 
B)  attacks established brand loyalties. 
C)  allows new firms to compete. 
D)  all of the above.

Question 9

What is the key feature shared by all oligopoly markets?

Accepted Answer

A)  A large number of sellers. 
B)  Mutual interdependence. 
C)  Product differentiation. 
D)  Easy entry and exit. 
A)  A large number of sellers. 
B)  Mutual interdependence. 
C)  Product differentiation. 
D)  Easy entry and exit.

Question 10

Which of the following explains how a cartel with 100 percent control might raise price to monopoly-like levels?

Accepted Answer

A)  By setting a group output level equal to a profit-maximizing monopolist, and then assigning binding quota shares to cartel members. 
B)  By setting an official price that members can secretly undercut. 
C)  By forbidding price competition, but allowing non-cooperative rivalry in output levels. 
D)  None of the above. 
A)  By setting a group output level equal to a profit-maximizing monopolist, and then assigning binding quota shares to cartel members. 
B)  By setting an official price that members can secretly undercut. 
C)  By forbidding price competition, but allowing non-cooperative rivalry in output levels. 
D)  None of the above.

Question 11

Which of the following statements best describes the price,output,and profit conditions of monopolistic competition?

Accepted Answer

A)  Price will equal marginal cost at the profit-maximizing level of output; profits will be positive in the long-run. 
B)  Price will always equal average variable cost in the short run and either profits or losses may result in the long run. 
C)  Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero. 
D)  Marginal revenue will equal average total cost in the short run; long-run economic profits will be zero. 
A)  Price will equal marginal cost at the profit-maximizing level of output; profits will be positive in the long-run. 
B)  Price will always equal average variable cost in the short run and either profits or losses may result in the long run. 
C)  Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero. 
D)  Marginal revenue will equal average total cost in the short run; long-run economic profits will be zero.

Question 12

Which of the following is true in long-run equilibrium for both perfect competition and monopolistic competition?

Accepted Answer

A)  Accounting profit is zero. 
B)  Marginal cost equals price. 
C)  Long-run average cost is at a minimum. 
D)  Economic profit is zero. 
A)  Accounting profit is zero. 
B)  Marginal cost equals price. 
C)  Long-run average cost is at a minimum. 
D)  Economic profit is zero.

Question 13

In the long run,monopolistically competitive firms have:

Accepted Answer

A)  excess capacity. 
B)  positive profits. 
C)  minimal average costs. 
D)  homogeneous production. 
A)  excess capacity. 
B)  positive profits. 
C)  minimal average costs. 
D)  homogeneous production.

Question 14

A group of firms that collude to limit competition is called a(n):

Accepted Answer

A)  conglomerate. 
B)  oligopoly. 
C)  cartel. 
D)  kinked demand. 
E)  market concentration. 
A)  conglomerate. 
B)  oligopoly. 
C)  cartel. 
D)  kinked demand. 
E)  market concentration.

Question 15

Which of the following market structures describes an industry in which a group of firms formally agree to control prices and output of a product?

Accepted Answer

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

Question 16

In the short run both the monopolistically competitive firm and the perfectly competitive firm will charge a price equal to marginal cost.

Accepted Answer

A) True 
 B)False

Question 17

A cartel maximizes industry profit by:

Accepted Answer

A)  eliminating quotas. 
B)  producing at the kink in its demand curve. 
C)  producing where MR = MC. 
D)  giving secret price concessions. 
E)  producing more output than a monopoly would. 
A)  eliminating quotas. 
B)  producing at the kink in its demand curve. 
C)  producing where MR = MC. 
D)  giving secret price concessions. 
E)  producing more output than a monopoly would.

Question 18

Exhibit 9-2 A monopolistic competitive firm
  
-If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 9-2,we would expect that in the long run:

Accepted Answer

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

Question 19

A monopolistic competitive firm in the long run sets price equal to the minimum point on the long-run average cost curve.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is a game theory strategy for oligopolists to avoid a low-price outcome?

Accepted Answer

A)  Tit-for-tat 
B)  Win-win 
C)  Last in-first out 
D)  Second best 
A)  Tit-for-tat 
B)  Win-win 
C)  Last in-first out 
D)  Second best

Exam 9: Monopolistic Competition and Oligopoly

Perfect competition and monopolistic competition are similar because under both market structures,

A picture frame company operates in a monopolistically competitive market.Its short-run equilibrium price is $80 and its ATC is $65.It sells 100 picture frames a week.From this we can tell:

In order to make oil profits as large as possible,OPEC meets to set oil production quotas for its members.OPEC is best classified as a:

Exhibit 9-6 Two-Firm Payoff Matrix -Assume costs are identical for the two firms in Exhibit 9-6.If both firms were allowed to form a cartel and agree on their prices,equilibrium would be established by:

A monopolistically competitive firm will:

Exhibit 9-4 Two-Firm Payoff Matrix -Suppose costs are identical for the two firms in Exhibit 9-4.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:

When a perfectly competitive firm or a monopolistically competitive firm is making zero economic profit,

Supporters of advertising claim that it:

What is the key feature shared by all oligopoly markets?

Which of the following explains how a cartel with 100 percent control might raise price to monopoly-like levels?

Which of the following statements best describes the price,output,and profit conditions of monopolistic competition?

Which of the following is true in long-run equilibrium for both perfect competition and monopolistic competition?

In the long run,monopolistically competitive firms have:

A group of firms that collude to limit competition is called a(n):

Which of the following market structures describes an industry in which a group of firms formally agree to control prices and output of a product?

In the short run both the monopolistically competitive firm and the perfectly competitive firm will charge a price equal to marginal cost.

A cartel maximizes industry profit by:

Exhibit 9-2 A monopolistic competitive firm -If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 9-2,we would expect that in the long run:

A monopolistic competitive firm in the long run sets price equal to the minimum point on the long-run average cost curve.

Which of the following is a game theory strategy for oligopolists to avoid a low-price outcome?

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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