Question 1

Which of the following statements about a monopolistically competitive firm in the short run is true?

Accepted Answer

A) Profits will be maximized at the point at which price equals marginal cost and hence there is no deadweight loss. 
B) The firm may be able to earn a super normal profit in the short run and the long run. 
C) Entry into the market is difficult. 
D) Advertising may enable a firm to charge a higher price than that charged by rival firms. 
E) It faces a perfectly elastic demand curve 
A) Profits will be maximized at the point at which price equals marginal cost and hence there is no deadweight loss. 
B) The firm may be able to earn a super normal profit in the short run and the long run. 
C) Entry into the market is difficult. 
D) Advertising may enable a firm to charge a higher price than that charged by rival firms. 
E) It faces a perfectly elastic demand curve

Question 2

In order to survive,cartels must be able to enforce contracts.However,when a cartel is trading in an illegal commodity:

Accepted Answer

A) it can use the judicial system to enforce contracts. 
B) it relies on altruism of members to enforce contracts. 
C) it is inherently stable because the market is underground. 
D) violence becomes a means of contract enforcement. 
E) authorities are effective in preventing the trade. 
A) it can use the judicial system to enforce contracts. 
B) it relies on altruism of members to enforce contracts. 
C) it is inherently stable because the market is underground. 
D) violence becomes a means of contract enforcement. 
E) authorities are effective in preventing the trade.

Question 3

The following table shows the payoff matrix of the two firms (Firm X and Firm Y) in dollars when they advertise and when they do not advertise. Table 11.1  
- According to the payoffs in Table 11.1:

Accepted Answer

A) Firm X will not advertise,no matter what,if Firm Y does not advertise. 
B) Firm X will advertise only if Firm Y does not advertise. 
C) Firm X does not have a dominant strategy,but Firm Y does. 
D) Firm Y does not have a dominant strategy,but Firm X does. 
E) Both firms would be better off if neither advertised. 
A) Firm X will not advertise,no matter what,if Firm Y does not advertise. 
B) Firm X will advertise only if Firm Y does not advertise. 
C) Firm X does not have a dominant strategy,but Firm Y does. 
D) Firm Y does not have a dominant strategy,but Firm X does. 
E) Both firms would be better off if neither advertised.

Question 4

Which of the following is an example of price competition?

Accepted Answer

A) Nike signs LeBron James to a $90 million contract for endorsements. 
B) Kellogg's puts the images of Snap,Crackle,and Pop on boxes of Cocoa Krispies,linking the cereal with Rice Krispies. 
C) McDonald's introduces new garden McSalads. 
D) Tropicana introduces the Blue Raspberry Rush juice. 
E) Apple offers a 20% discount on its new range of iPhones. 
A) Nike signs LeBron James to a $90 million contract for endorsements. 
B) Kellogg's puts the images of Snap,Crackle,and Pop on boxes of Cocoa Krispies,linking the cereal with Rice Krispies. 
C) McDonald's introduces new garden McSalads. 
D) Tropicana introduces the Blue Raspberry Rush juice. 
E) Apple offers a 20% discount on its new range of iPhones.

Question 5

The figure below shows the revenue and cost curves of a monopolistically competitive firm. Figure: 11.2   In the figure,
D: Demand curve
MR: Marginal revenue curve
ATCS1U1B11 S1U1B0and ATCS1U1B12S1U1B0: Average total cost curves
MC: Marginal cost curve
-In Figure 11.2,assume that the average total cost of the firm is represented by the curve ATC2.In the long run,we would expect:

Accepted Answer

A) entry of firms into the market because economic profits exist. 
B) exit of firms from the market because the existing firms suffer economic losses. 
C) that demand for each firm will increase. 
D) the market to become perfectly competitive. 
E) the market to become a monopoly. 
A) entry of firms into the market because economic profits exist. 
B) exit of firms from the market because the existing firms suffer economic losses. 
C) that demand for each firm will increase. 
D) the market to become perfectly competitive. 
E) the market to become a monopoly.

Question 6

A consumer becomes loyal to a product when:

Accepted Answer

A) the good is available at a very low price. 
B) the product is as good as its substitutes. 
C) the product comes with a gift occasionally. 
D) he/she has had a positive experience with that good. 
E) discounts are offered periodically. 
A) the good is available at a very low price. 
B) the product is as good as its substitutes. 
C) the product comes with a gift occasionally. 
D) he/she has had a positive experience with that good. 
E) discounts are offered periodically.

Question 7

In contrast to perfect competition,in a monopolistically competitive industry:

Accepted Answer

A) new firms entering the market produce a good that is identical to the existing ones. 
B) new firms entering the market produce a completely different product. 
C) there are legal restrictions on the entry of new firms. 
D) new firms entering the market produce a close substitute,not an identical or standardized product. 
E) new firms are allowed to enter the industry but there are legal restrictions on their exit. 
A) new firms entering the market produce a good that is identical to the existing ones. 
B) new firms entering the market produce a completely different product. 
C) there are legal restrictions on the entry of new firms. 
D) new firms entering the market produce a close substitute,not an identical or standardized product. 
E) new firms are allowed to enter the industry but there are legal restrictions on their exit.

Question 8

In an oligopoly market,firms do not produce identical product.

Accepted Answer

A) True 
 B)False

Question 9

Because of their brand names,Kodak,IBM,Honda,Daimler-Chrysler,and other well-known firms are able to charge significantly higher prices for their products than their competitors without losing any business.Expenditures made by firms to create brand names:

Accepted Answer

A) are always inefficient. 
B) provide reliability to consumers. 
C) lead to monopolies. 
D) necessarily lead to deadweight losses. 
E) would not exist if information was less costly for firms to obtain than consumers. 
A) are always inefficient. 
B) provide reliability to consumers. 
C) lead to monopolies. 
D) necessarily lead to deadweight losses. 
E) would not exist if information was less costly for firms to obtain than consumers.

Question 10

Suppose a monopolistically competitive firm is producing at the profit-maximizing output level and receiving a price that is sufficient to cover only its average variable cost.If the price falls further the firm should suspend its operations.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements about collusion istrue?

Accepted Answer

A) Collusion is legal in the United States. 
B) Its overriding goal is to enhance competition and thereby increase profits. 
C) The greater the number of firms,the less difficult it is to maintain. 
D) Collusion never results in benefits for the participants. 
E) Collusion may help to increase the profits of the participating firms. 
A) Collusion is legal in the United States. 
B) Its overriding goal is to enhance competition and thereby increase profits. 
C) The greater the number of firms,the less difficult it is to maintain. 
D) Collusion never results in benefits for the participants. 
E) Collusion may help to increase the profits of the participating firms.

Question 12

The following table shows the payoff matrix of the two firms (Firm X and Firm Y) in dollars when they advertise and when they do not advertise. Table 11.1   
-According to the Table 11.1,if the firms collude and decide not to advertise their combined payoff is:

Accepted Answer

A) $250. 
B) $260. 
C) $330. 
D) $300. 
E) $280 
A) $250. 
B) $260. 
C) $330. 
D) $300. 
E) $280

Question 13

As new firms enter a monopolistically competitive industry,the demand for a typical firm's product will most likely:

Accepted Answer

A) increase and become less elastic. 
B) decrease and become more elastic. 
C) increase and become more elastic. 
D) decrease and become less elastic. 
E) remain unaffected. 
A) increase and become less elastic. 
B) decrease and become more elastic. 
C) increase and become more elastic. 
D) decrease and become less elastic. 
E) remain unaffected.

Question 14

The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure: 11.3   In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
-Refer to Figure 11.3.A perfectly competitive outcome would exist at a price of _____ and an output level of _____.

Accepted Answer

A) P6; Q2 
B) P4; Q4 
C) P3; Q2 
D) P1; Q1 
E) P5; Q3 
A) P6; Q2 
B) P4; Q4 
C) P3; Q2 
D) P1; Q1 
E) P5; Q3

Question 15

Collusion of firms is legal in the United States.

Accepted Answer

A) True 
 B)False

Question 16

Consumers who are loyal to a brand will purchase products under that brand name even if their prices are above other competing brands.

Accepted Answer

A) True 
 B)False

Question 17

In the long run,in a monopolistically competitive market:

Accepted Answer

A) marginal revenue is greater than average revenue. 
B) price equals marginal cost. 
C) price equals minimum average total cost. 
D) the firms earn positive economic profits. 
E) resources are inefficiently allocated . 
A) marginal revenue is greater than average revenue. 
B) price equals marginal cost. 
C) price equals minimum average total cost. 
D) the firms earn positive economic profits. 
E) resources are inefficiently allocated .

Question 18

Compared with a perfectly competitive firm in long-run equilibrium,a monopolistically competitive firm will operate on the upward-sloping portion of the average-total-cost curve.

Accepted Answer

A) True 
 B)False

Question 19

Product differentiation:

Accepted Answer

A) is carried out by perfectly competitive and monopolistically competitive firms. 
B) is succesful if a firm faces a relatively inelastic demand curve. 
C) does not allow the firm to raise its price without losing all of its customers. 
D) cannot be accomplished through advertising or trivial product changes. 
E) if carried out successfully enables the firms to enjoy market power. 
A) is carried out by perfectly competitive and monopolistically competitive firms. 
B) is succesful if a firm faces a relatively inelastic demand curve. 
C) does not allow the firm to raise its price without losing all of its customers. 
D) cannot be accomplished through advertising or trivial product changes. 
E) if carried out successfully enables the firms to enjoy market power.

Question 20

The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure 11.4   
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
-Assume that the firm in Figure 11.4 is monopolistically competitive.In the long run,we would expect:

Accepted Answer

A) the price of the firm's output to increase. 
B) entry of new firms because economic profits are positive. 
C) exit of few existing firms because economic profits are negative. 
D) the firm's demand curve to shift outward. 
E) the firm's demand curve to becomes less elastic. 
A) the price of the firm's output to increase. 
B) entry of new firms because economic profits are positive. 
C) exit of few existing firms because economic profits are negative. 
D) the firm's demand curve to shift outward. 
E) the firm's demand curve to becomes less elastic.

Which of the following statements about a monopolistically competitive firm in the short run is true?

In order to survive,cartels must be able to enforce contracts.However,when a cartel is trading in an illegal commodity:

The following table shows the payoff matrix of the two firms (Firm X and Firm Y) in dollars when they advertise and when they do not advertise. Table 11.1 - According to the payoffs in Table 11.1:

Which of the following is an example of price competition?

A consumer becomes loyal to a product when:

In contrast to perfect competition,in a monopolistically competitive industry:

In an oligopoly market,firms do not produce identical product.

Because of their brand names,Kodak,IBM,Honda,Daimler-Chrysler,and other well-known firms are able to charge significantly higher prices for their products than their competitors without losing any business.Expenditures made by firms to create brand names:

Suppose a monopolistically competitive firm is producing at the profit-maximizing output level and receiving a price that is sufficient to cover only its average variable cost.If the price falls further the firm should suspend its operations.

Which of the following statements about collusion istrue?

The following table shows the payoff matrix of the two firms (Firm X and Firm Y) in dollars when they advertise and when they do not advertise. Table 11.1 -According to the Table 11.1,if the firms collude and decide not to advertise their combined payoff is:

As new firms enter a monopolistically competitive industry,the demand for a typical firm's product will most likely:

Collusion of firms is legal in the United States.

Consumers who are loyal to a brand will purchase products under that brand name even if their prices are above other competing brands.

In the long run,in a monopolistically competitive market:

Compared with a perfectly competitive firm in long-run equilibrium,a monopolistically competitive firm will operate on the upward-sloping portion of the average-total-cost curve.

Product differentiation:

The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure 11.4 MR: Marginal revenue curve ATC: Average total cost curve MC: Marginal cost curve -Assume that the firm in Figure 11.4 is monopolistically competitive.In the long run,we would expect:

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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Exam 11: Monopolistic Competition and Oligopoly

Which of the following statements about a monopolistically competitive firm in the short run is true?

In order to survive,cartels must be able to enforce contracts.However,when a cartel is trading in an illegal commodity:

The following table shows the payoff matrix of the two firms (Firm X and Firm Y) in dollars when they advertise and when they do not advertise. Table 11.1 - According to the payoffs in Table 11.1:

Which of the following is an example of price competition?

A consumer becomes loyal to a product when:

In contrast to perfect competition,in a monopolistically competitive industry:

In an oligopoly market,firms do not produce identical product.

Because of their brand names,Kodak,IBM,Honda,Daimler-Chrysler,and other well-known firms are able to charge significantly higher prices for their products than their competitors without losing any business.Expenditures made by firms to create brand names:

Suppose a monopolistically competitive firm is producing at the profit-maximizing output level and receiving a price that is sufficient to cover only its average variable cost.If the price falls further the firm should suspend its operations.

Which of the following statements about collusion istrue?

The following table shows the payoff matrix of the two firms (Firm X and Firm Y) in dollars when they advertise and when they do not advertise. Table 11.1 -According to the Table 11.1,if the firms collude and decide not to advertise their combined payoff is:

As new firms enter a monopolistically competitive industry,the demand for a typical firm's product will most likely:

Collusion of firms is legal in the United States.

Consumers who are loyal to a brand will purchase products under that brand name even if their prices are above other competing brands.

In the long run,in a monopolistically competitive market:

Compared with a perfectly competitive firm in long-run equilibrium,a monopolistically competitive firm will operate on the upward-sloping portion of the average-total-cost curve.

Product differentiation:

The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure 11.4 MR: Marginal revenue curve ATC: Average total cost curve MC: Marginal cost curve -Assume that the firm in Figure 11.4 is monopolistically competitive.In the long run,we would expect:

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters