Question 1

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

Accepted Answer

A)  Nash equilibrium. 
B)  dominant strategy. 
C)  collusion. 
D)  payoff matrix. 
A)  Nash equilibrium. 
B)  dominant strategy. 
C)  collusion. 
D)  payoff matrix.

Question 2

Which of the following is not a characteristic of monopolistic competition?

Accepted Answer

A)  There are many buyers and sellers. 
B)  There are low barriers to entry. 
C)  Average revenue is equal to price. 
D)  The products sold by all firms are identical. 
A)  There are many buyers and sellers. 
B)  There are low barriers to entry. 
C)  Average revenue is equal to price. 
D)  The products sold by all firms are identical.

Question 3

Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9.

Accepted Answer

A)  $270 
B)  $20 
C)  $4 
D)  $2.50 
A)  $270 
B)  $20 
C)  $4 
D)  $2.50

Question 4

Consider two craft bourbons distilled in Brooklyn,New York: Kings County and Stillhouse.If the distilleries advertise,they can both sell more bourbon and increase their revenue.However,the cost of advertising more than offsets the increased revenue so that each distillery ends up with a lower profit than if they do not advertise.On the other hand,if only one advertises,that distillery increases its market share and also its profit.
a.Construct a payoff matrix using the following hypothetical information: If neither distillery advertises: each earns a profit of $500,000 per year.If both advertise: each earns a profit of $250,000 per year.If one advertises and the other does not: the distillery that advertises earns a profit of $750.000 and the distillery that does not advertise earns a profit of $125,000.
b.If the two distilleries agree to coordinate their strategies,what is the outcome?

Accepted Answer

a∙The payoff matrix:
 @#IMG-DLM& b∙If th

Question 5

The value of the four-firm concentration ratio that many economists consider indicative of the existence of an oligopoly in a particular industry is

Accepted Answer

A)  anything greater than 10 percent. 
B)  anything greater than 20 percent. 
C)  anything greater than 30 percent. 
D)  anything greater than 40 percent. 
A)  anything greater than 10 percent. 
B)  anything greater than 20 percent. 
C)  anything greater than 30 percent. 
D)  anything greater than 40 percent.

Question 6

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

A)  P = ATC and MR = MC. 
B)  P = ATC and P = MC. 
C)  P > ATC and P > MR. 
D)  P > MR and MC = ATC. 
A)  P = ATC and MR = MC. 
B)  P = ATC and P = MC. 
C)  P > ATC and P > MR. 
D)  P > MR and MC = ATC.

Question 7

Figure 11-7
   Figure 11-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market.
-Refer to Figure 11-7.Which of the following is the area that represents the profit or loss experienced by the firm?

Accepted Answer

A)  a loss represented by the rectangle P₂uvP₁ 
B)  a loss represented by the rectangle P₂uwP₀ 
C)  a loss represented by the rectangle P₁vwP₀ 
D)  an accounting profit equal to P₁vwP₀ 
A)  a loss represented by the rectangle P₂uvP₁ 
B)  a loss represented by the rectangle P₂uwP₀ 
C)  a loss represented by the rectangle P₁vwP₀ 
D)  an accounting profit equal to P₁vwP₀

Question 8

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

Accepted Answer

A) True 
 B)False

Question 9

Table 11-3
 $\begin{array}{|c|c|c|c|c|}
\hline \text { Quantity } & \begin{array}{c}
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Revenue } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Variable } \
\text { Cost (dollars) }
\end{array} & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} \
\hline 0 & \$ 21 & \$ 0 & \$ 0 & \$ 50 \
\hline 1 & 20 & 20 & 16 & 66 \
\hline 2 & 19 & 38 & 31 & 81 \
\hline 3 & 18 & 54 & 45 & 95 \
\hline 4 & 17 & 68 & 59 & 109 \
\hline 5 & 16 & 80 & 75 & 125 \
\hline 6 & 15 & 90 & 93 & 143 \
\hline 7 & 14 & 98 & 112 & 162 \
\hline 8 & 13 & 104 & 140 & 190 \
\hline 9 & 12 & 108 & 180 & 230 \
\hline 10 & 11 & 110 & 230 & 280 \
\hline
\end{array}$ Table 11-3 shows the demand and cost schedules for a monopolistically competitive firm.
-Refer to Table 11-3.What is its average variable cost of production at its optimal output level?

Accepted Answer

A)  $0 (because its optimal output = 0) 
B)  $15 
C)  $14.75 
D)  $29 
A)  $0 (because its optimal output = 0) 
B)  $15 
C)  $14.75 
D)  $29

Question 10

Monopolistically competitive firms face a perfectly elastic demand curve.

Accepted Answer

A) True 
 B)False

Question 11

Figure 11-14
   Figure 11-14 illustrates a monopolistically competitive firm.
-Refer to Figure 11-14.Which of the following statements describes the firm depicted in the diagram?

Accepted Answer

A)  The firm is making no economic profit and will exit the industry. 
B)  The firm is suffering an economic loss by producing at Q₀ but will break even if it increases its output to Q₁. 
C)  The firm achieves productive efficiency by producing at Q₀. 
D)  The firm is in long-run equilibrium and is breaking even. 
A)  The firm is making no economic profit and will exit the industry. 
B)  The firm is suffering an economic loss by producing at Q₀ but will break even if it increases its output to Q₁. 
C)  The firm achieves productive efficiency by producing at Q₀. 
D)  The firm is in long-run equilibrium and is breaking even.

Question 12

Monopolistic competition is a market structure in which

Accepted Answer

A)  firms produce and sell products for which there are no close substitutes. 
B)  the demand curve for a typical firm is horizontal. 
C)  firms cannot influence the market price. 
D)  barriers to entry are low. 
A)  firms produce and sell products for which there are no close substitutes. 
B)  the demand curve for a typical firm is horizontal. 
C)  firms cannot influence the market price. 
D)  barriers to entry are low.

Question 13

Figure 11-10
   Figure 11-10 shows cost and demand curves for a monopolistically competitive producer of iced tea.
-Refer to Figure 11-10.to answer the following questions.
a.What is the profit-maximizing output level?
b.What is the profit-maximizing price?
c.At the profit-maximizing output level,how much profit will be realized?
d.Does this graph most likely represent the long run or the short run? Why?

Accepted Answer

a∙The profit-maximizing output

Question 14

Figure 11-8
   Figure 11-8 shows cost and demand curves for a monopolistically competitive producer of iced tea.
-Refer to Figure 11-8.Based on the diagram,one can conclude that

Accepted Answer

A)  some existing firms will exit the market. 
B)  new firms will enter the market. 
C)  the industry is in long-run equilibrium. 
D)  firms achieve productive efficiency. 
A)  some existing firms will exit the market. 
B)  new firms will enter the market. 
C)  the industry is in long-run equilibrium. 
D)  firms achieve productive efficiency.

Question 15

Table 11-2
 $\begin{array}{|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity } \
\text { (cases) }
\end{array} & \begin{array}{c}
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Revenue } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} \
\hline 1 & \$ 75 & \$ 75 & \$ 60 \
\hline 2 & 70 & 140 & 85 \
\hline 3 & 65 & 195 & 105 \
\hline 4 & 60 & 240 & 115 \
\hline 5 & 55 & 275 & 130 \
\hline 6 & 50 & 300 & 155 \
\hline 7 & 45 & 315 & 190 \
\hline 8 & 40 & 320 & 230 \
\hline 9 & 35 & 315 & 280 \
\hline
\end{array}$ Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 11-2 shows the firm's demand and cost schedules.
-Refer to Table 11-2.What is Eco Energy's profit?

Accepted Answer

A)  $125 
B)  $140 
C)  $145 
D)  $150 
A)  $125 
B)  $140 
C)  $145 
D)  $150

Question 16

Consider two oligopolistic industries selling the same product in different locations.In the first industry,firms always match price changes by any other firm in the industry.In the second industry,firms always ignore price changes by any other firm.Which of the following statements is true about these two industries,holding everything else constant?

Accepted Answer

A)  Market prices are likely to be higher in the first industry in which firms always match price changes by rival firms than in the second where firms ignore their rivals' price changes. 
B)  Market prices are likely to be lower in the first industry where firms always match price changes by rival firms than in the second where firms ignore their rivals' price changes. 
C)  Market prices are likely to be the same in both markets because they are both oligopolistic markets. 
D)  No conclusions can be drawn about the pricing behavior under these very different firm behaviors. 
A)  Market prices are likely to be higher in the first industry in which firms always match price changes by rival firms than in the second where firms ignore their rivals' price changes. 
B)  Market prices are likely to be lower in the first industry where firms always match price changes by rival firms than in the second where firms ignore their rivals' price changes. 
C)  Market prices are likely to be the same in both markets because they are both oligopolistic markets. 
D)  No conclusions can be drawn about the pricing behavior under these very different firm behaviors.

Question 17

Assume that two gyro restaurants,Alpha and Beta,are competing for customers and if they both offer a student discount,they would each earn $60,000 in profits.If neither offers a student discount,they each earn $100,000 in profits.If one offers a student discount and the other doesn't,the restaurant that offers the discount earns $80,000 in profit while the other earns $40,000 in profit.
a.Present the information above in the form of a payoff matrix.Let Beta be the row player and Alpha the column player.
b.Does each firm have a dominant strategy and if so what is it?
c.What is the Nash equilibrium?

Accepted Answer

a. See the table below.
 @#IMG-DLM& 
b. No,there i

Question 18

In an oligopoly,minimum efficient scale is likely to occur at a level of output that is a large fraction of industry sales.

Accepted Answer

A) True 
 B)False

Question 19

According to the textbook,of all barriers to entry,the most important are those that are due to

Accepted Answer

A)  ownership of a key input. 
B)  economies of scale. 
C)  government-imposed barriers. 
D)  the Herfindahl-Hirschman Index. 
A)  ownership of a key input. 
B)  economies of scale. 
C)  government-imposed barriers. 
D)  the Herfindahl-Hirschman Index.

Question 20

Every firm that has the ability to affect the price of the good or service it sells will

Accepted Answer

A)  have a perfectly elastic demand curve. 
B)  have a marginal revenue curve that lies below its demand curve. 
C)  earn a short-run profit but break even in the long run. 
D)  shut down in the short run. 
A)  have a perfectly elastic demand curve. 
B)  have a marginal revenue curve that lies below its demand curve. 
C)  earn a short-run profit but break even in the long run. 
D)  shut down in the short run.

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

Which of the following is not a characteristic of monopolistic competition?

Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9.

The value of the four-firm concentration ratio that many economists consider indicative of the existence of an oligopoly in a particular industry is

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?

Figure 11-7 Figure 11-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market. -Refer to Figure 11-7.Which of the following is the area that represents the profit or loss experienced by the firm?

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

Monopolistically competitive firms face a perfectly elastic demand curve.

Figure 11-14 Figure 11-14 illustrates a monopolistically competitive firm. -Refer to Figure 11-14.Which of the following statements describes the firm depicted in the diagram?

Monopolistic competition is a market structure in which

Figure 11-8 Figure 11-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. -Refer to Figure 11-8.Based on the diagram,one can conclude that

In an oligopoly,minimum efficient scale is likely to occur at a level of output that is a large fraction of industry sales.

According to the textbook,of all barriers to entry,the most important are those that are due to

Every firm that has the ability to affect the price of the good or service it sells will

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

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

Which of the following is not a characteristic of monopolistic competition?

Suppose a monopolistically competitive firm sells 25 units at a price of $10.Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9.

The value of the four-firm concentration ratio that many economists consider indicative of the existence of an oligopoly in a particular industry is

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?

Figure 11-7 Figure 11-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market. -Refer to Figure 11-7.Which of the following is the area that represents the profit or loss experienced by the firm?

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

Monopolistically competitive firms face a perfectly elastic demand curve.

Figure 11-14 Figure 11-14 illustrates a monopolistically competitive firm. -Refer to Figure 11-14.Which of the following statements describes the firm depicted in the diagram?

Monopolistic competition is a market structure in which

Figure 11-8 Figure 11-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. -Refer to Figure 11-8.Based on the diagram,one can conclude that

In an oligopoly,minimum efficient scale is likely to occur at a level of output that is a large fraction of industry sales.

According to the textbook,of all barriers to entry,the most important are those that are due to

Every firm that has the ability to affect the price of the good or service it sells will

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