Question 1

The equilibrium in the prisoner's dilemma is a Nash equilibrium.

Accepted Answer

A) True 
 B)False

Question 2

There are two firms in the residential paint industry,Cool Shades (C)and Warm Hues (W).They collude to share the market equally.They jointly set a monopoly price and split the quantity demanded at that price.Here are their options:
i.They continue to collude (no cheating)and make $36 million each in profits.
ii.One firm cheats and the other does not.The firm that cheats makes a profit of $42 million whereas the firm that doesn't makes a profit of $27 million.
iii.They both cheat and each firm makes a profit of $21 million.
a.Construct a payoff matrix for these two firms.
b.How does this situation relate to the prisoner's dilemma?
c.If each firm acted noncooperatively,how much profit would each make?
d.Are the firms better off colluding (with no cheating)or competing? Explain.

Accepted Answer

a∙The payoff matrix:
 @#IMG-DLM& 
b∙With a prisone

Question 3

When new firms are encouraged to enter a monopolistically competitive market

Accepted Answer

A)  some existing firms must be earning economic profits. 
B)  they do so because there is insufficient product differentiation. 
C)  the demand curve facing an existing firm shifts to the right. 
D)  the marginal cost curve facing an existing firm shifts downwards. 
A)  some existing firms must be earning economic profits. 
B)  they do so because there is insufficient product differentiation. 
C)  the demand curve facing an existing firm shifts to the right. 
D)  the marginal cost curve facing an existing firm shifts downwards.

Question 4

A monopolistically competitive firm should lower its price if its marginal revenue exceeds its marginal cost.

Accepted Answer

A) True 
 B)False

Question 5

Table 11-4
 $\begin{array}{|c|c|c|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity } \
\text { Sold }
\end{array} & \text { Price } & \begin{array}{c}
\text { Total } \
\text { Revenue }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Revenue }
\end{array} & \begin{array}{c}
\text { Total } \
\text { Cost }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Cost }
\end{array} & \text { Profit } \
\hline 0 & \$ 10 & \$ 0 & \cdots &\$ 2& \ldots & -\$ 2 \
\hline 1 & 9 & 9 & & 82 & \
\hline 2 & 8 & 16 & & 13 & & \
\hline 3 & 7 & 21 & & 17 & & \
\hline 4 & 6 & 24 & & 20 & & \
\hline 5 & 5 & 25 & & 22 & & \
\hline 6 & 4 & 24 & & 26 & & \
\hline
\end{array}$ Table 11-4 lists estimated revenues and costs (per week) for plastic vials (100 vials per box) for the Victoria Biological Supplies Company. Victoria sells plastic vials to universities and private research laboratories.
-Refer to Table 11-4.At Victoria's profit-maximizing output

Accepted Answer

A)  profit equals $2. 
B)  total revenue equals $24 and total cost equals $20. 
C)  total revenue equals $25 and total cost equals $22. 
D)  total revenue equals $21 and total cost equals $17. 
A)  profit equals $2. 
B)  total revenue equals $24 and total cost equals $20. 
C)  total revenue equals $25 and total cost equals $22. 
D)  total revenue equals $21 and total cost equals $17.

Question 6

Figure 11-6
  
-Refer to Figure 11-6.Suppose the above graph represents the relationship between the average total cost of producing notebook computers and the quantity of notebook computers produced by Dell.On a graph,illustrate the demand,MR,MC,and ATC curves which would represent Dell maximizing profits at a quantity of 100,000 per month and identify the area on the graph which represents the profit.

Accepted Answer

The answer of Figure 11-6
  
-Refer to Figure 11-6.Suppose...

Question 7

Figure 11-4
   Figure 11-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 11-4.If the firm represented in the diagram is currently producing and selling Qₐ units,what is the price charged?

Accepted Answer

A)  P₀ 
B)  P₁ 
C)  P₂ 
D)  P₃ 
A)  P₀ 
B)  P₁ 
C)  P₂ 
D)  P₃

Question 8

Table 11-13
   Two rival oligopolists in the coffee industry, Wide Awake and Zuma, have to decide on their pricing strategy. Each can choose either a high price or a low price. Table 11-13 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts.
-Refer to Table 11-13.If the two firms collude,is there an incentive for either to cheat on the collusion agreement?

Accepted Answer

A)  No, neither firm can gain by cheating. 
B)  Yes, but only Zuma is in a position to gain by cheating. 
C)  Yes, but only Wide Awake is in a position to gain by cheating. 
D)  Yes, either firm can gain if it, alone, cheats. 
A)  No, neither firm can gain by cheating. 
B)  Yes, but only Zuma is in a position to gain by cheating. 
C)  Yes, but only Wide Awake is in a position to gain by cheating. 
D)  Yes, either firm can gain if it, alone, cheats.

Question 9

A Nash equilibrium is

Accepted Answer

A)  reached when an oligopoly's market demand and supply intersect. 
B)  reached when each player chooses the best strategy for himself and for the group. 
C)  reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group. 
D)  an equilibrium comprising non-dominant strategies only. 
A)  reached when an oligopoly's market demand and supply intersect. 
B)  reached when each player chooses the best strategy for himself and for the group. 
C)  reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group. 
D)  an equilibrium comprising non-dominant strategies only.

Question 10

Firms are more likely to find themselves in a prisoner's dilemma in sequential games as opposed to simultaneous games.

Accepted Answer

A) True 
 B)False

Question 11

Figure 11-8
   Figure 11-8 shows cost and demand curves for a monopolistically competitive producer of iced tea.
-Refer to Figure 11-8.At the profit-maximizing output level the firm will

Accepted Answer

A)  earn a profit of $176. 
B)  break even. 
C)  earn a profit of $88. 
D)  earn a profit of $60. 
A)  earn a profit of $176. 
B)  break even. 
C)  earn a profit of $88. 
D)  earn a profit of $60.

Question 12

Assume price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19,then to maximize profits the firm should

Accepted Answer

A)  continue to produce the same quantity. 
B)  increase output. 
C)  decrease output. 
D)  shut down. 
A)  continue to produce the same quantity. 
B)  increase output. 
C)  decrease output. 
D)  shut down.

Question 13

As a measure of competition in an industry,concentration ratios have several flaws.One of these flaws is that concentration ratios

Accepted Answer

A)  assume that all industries have low barriers to entry. 
B)  assume that a ratio less than 40 percent means an industry is perfectly competitive. 
C)  assume there are only four firms in an industry. 
D)  are calculated for the national market, even though competition in some industries is mainly local. 
A)  assume that all industries have low barriers to entry. 
B)  assume that a ratio less than 40 percent means an industry is perfectly competitive. 
C)  assume there are only four firms in an industry. 
D)  are calculated for the national market, even though competition in some industries is mainly local.

Question 14

Table 11-1
 $\begin{array}{|c|c|c|}
\hline \text { Quantity } & \begin{array}{c}
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Revenue } \
\text { (dollars) }
\end{array} \
\hline 1 & \$ 7.50 & \$ 7.50 \
\hline 2 & 7.00 & 14.00 \
\hline 3 & 6.50 & 19.50 \
\hline 4 & 6.00 & 24.00 \
\hline 5 & 5.50 & 27.50 \
\hline 6 & 5.00 & 30.00 \
\hline
\end{array}$
-Refer to Table 11-1.What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

Accepted Answer

A)  output effect = $3.00; price effect = $0.50 
B)  output effect = $1.50; price effect = $2.00 
C)  output effect = $5.50; price effect = -$2.00 
D)  output effect = $4.00; price effect = -$0.50 
A)  output effect = $3.00; price effect = $0.50 
B)  output effect = $1.50; price effect = $2.00 
C)  output effect = $5.50; price effect = -$2.00 
D)  output effect = $4.00; price effect = -$0.50

Question 15

The four-firm concentration ratio of the aircraft industry is over 80 percent.Most economists would consider this industry an oligopoly.

Accepted Answer

A) True 
 B)False

Question 16

If the price exceeds the average variable cost but is less than the average total cost,a firm

Accepted Answer

A)  should further differentiate its product. 
B)  should stay in business for a while longer until its fixed costs expire. 
C)  is making some profit but less than maximum profit. 
D)  should shut down. 
A)  should further differentiate its product. 
B)  should stay in business for a while longer until its fixed costs expire. 
C)  is making some profit but less than maximum profit. 
D)  should shut down.

Question 17

An oligopolistic industry is characterized by all of the following except

Accepted Answer

A)  existence of entry barriers. 
B)  the possibility of reaping long-run economic profits. 
C)  firms pursuing aggressive business strategies, independent of rivals' strategies. 
D)  production of standardized or differentiated products. 
A)  existence of entry barriers. 
B)  the possibility of reaping long-run economic profits. 
C)  firms pursuing aggressive business strategies, independent of rivals' strategies. 
D)  production of standardized or differentiated products.

Question 18

A consequence of the quota that has been imposed on the importation of sugar into the United States is

Accepted Answer

A)  consumers are protected from eating unsafe products made from cheap imported sugar. 
B)  competition in the U.S. sugar market is reduced. 
C)  the cost of producing cereal, chocolate, and candy products in the United States is reduced. 
D)  the market for sugar in the United States has become monopolistically competitive rather than oligopolistic. 
A)  consumers are protected from eating unsafe products made from cheap imported sugar. 
B)  competition in the U.S. sugar market is reduced. 
C)  the cost of producing cereal, chocolate, and candy products in the United States is reduced. 
D)  the market for sugar in the United States has become monopolistically competitive rather than oligopolistic.

Question 19

A profit-maximizing monopolistically competitive firm produces and sells an allocatively efficient quantity of output.

Accepted Answer

A) True 
 B)False

Question 20

Each member of OPEC can increase its income by selling more oil than its output quota because

Accepted Answer

A)  by selling more at OPEC's cartel price, a member will automatically earn more income. 
B)  each member's demand is more elastic than the total demand for oil. 
C)  the demand for oil is inelastic so total revenue increases. 
D)  the demand for oil is perfectly elastic. 
A)  by selling more at OPEC's cartel price, a member will automatically earn more income. 
B)  each member's demand is more elastic than the total demand for oil. 
C)  the demand for oil is inelastic so total revenue increases. 
D)  the demand for oil is perfectly elastic.

The equilibrium in the prisoner's dilemma is a Nash equilibrium.

When new firms are encouraged to enter a monopolistically competitive market

A monopolistically competitive firm should lower its price if its marginal revenue exceeds its marginal cost.

Figure 11-4 Figure 11-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 11-4.If the firm represented in the diagram is currently producing and selling Qₐ units,what is the price charged?

A Nash equilibrium is

Firms are more likely to find themselves in a prisoner's dilemma in sequential games as opposed to simultaneous games.

Figure 11-8 Figure 11-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. -Refer to Figure 11-8.At the profit-maximizing output level the firm will

Assume price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19,then to maximize profits the firm should

As a measure of competition in an industry,concentration ratios have several flaws.One of these flaws is that concentration ratios

Table 11-1 Quantity Price (dollars) Total Revenue (dollars) 1 \ 7.50 \ 7.50 2 7.00 14.00 3 6.50 19.50 4 6.00 24.00 5 5.50 27.50 6 5.00 30.00 -Refer to Table 11-1.What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

The four-firm concentration ratio of the aircraft industry is over 80 percent.Most economists would consider this industry an oligopoly.

If the price exceeds the average variable cost but is less than the average total cost,a firm

An oligopolistic industry is characterized by all of the following except

A consequence of the quota that has been imposed on the importation of sugar into the United States is

A profit-maximizing monopolistically competitive firm produces and sells an allocatively efficient quantity of output.

Each member of OPEC can increase its income by selling more oil than its output quota because

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, The Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,Production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

Filters

Exam 11: Monopolistic Competition and Oligopoly

The equilibrium in the prisoner's dilemma is a Nash equilibrium.

When new firms are encouraged to enter a monopolistically competitive market

A monopolistically competitive firm should lower its price if its marginal revenue exceeds its marginal cost.

Figure 11-4 Figure 11-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 11-4.If the firm represented in the diagram is currently producing and selling Qₐ units,what is the price charged?

A Nash equilibrium is

Firms are more likely to find themselves in a prisoner's dilemma in sequential games as opposed to simultaneous games.

Figure 11-8 Figure 11-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. -Refer to Figure 11-8.At the profit-maximizing output level the firm will

Assume price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19,then to maximize profits the firm should

As a measure of competition in an industry,concentration ratios have several flaws.One of these flaws is that concentration ratios

Table 11-1 Quantity Price (dollars) Total Revenue (dollars) 1 \ 7.50 \ 7.50 2 7.00 14.00 3 6.50 19.50 4 6.00 24.00 5 5.50 27.50 6 5.00 30.00 -Refer to Table 11-1.What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

The four-firm concentration ratio of the aircraft industry is over 80 percent.Most economists would consider this industry an oligopoly.

If the price exceeds the average variable cost but is less than the average total cost,a firm

An oligopolistic industry is characterized by all of the following except

A consequence of the quota that has been imposed on the importation of sugar into the United States is

A profit-maximizing monopolistically competitive firm produces and sells an allocatively efficient quantity of output.

Each member of OPEC can increase its income by selling more oil than its output quota because

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, The Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,Production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

Filters