Question 1

When a monopolistically competitive firm is maximizing its profit:

Accepted Answer

A) marginal revenue is also maximized. 
B) average revenue exceeds marginal revenue. 
C) total revenue declines to zero. 
D) marginal revenue equals average revenue. 
A) marginal revenue is also maximized. 
B) average revenue exceeds marginal revenue. 
C) total revenue declines to zero. 
D) marginal revenue equals average revenue.

Question 2

In the dominant firm model,if the elasticity of market demand is 0.75,the dominant firm's market share is 0.25,and the elasticity of supply of the competitive fringe is 2,then the dominant firm's elasticity of demand is _____.

Accepted Answer

A) 3 
B) 5 
C) 7 
D) 9 
A) 3 
B) 5 
C) 7 
D) 9

Question 3

In the dominant firm model,if the dominant firm's market share is 3/7,its elasticity of demand is 10 and the elasticity of supply of the competitive fringe firms is 4,then the elasticity of market demand must be _____.

Accepted Answer

A) 4 
B) 3 
C) 2 
D) 1 
A) 4 
B) 3 
C) 2 
D) 1

Question 4

The Stackelberg model is different from the Cournot model because:

Accepted Answer

A) the Stackelberg model assumes that firms compete by varying their prices while the Cournot model assumes that firms compete by varying their output. 
B) the Stackelberg model assumes that one firm selects its output on the basis of the other firm's reaction curve while the Cournot model assumes that both firms take each other's output as given. 
C) the Stackelberg model assumes that both firms try to predict each other's reaction curves while the Cournot model assumes that the level of output of both firms is fixed. 
D) the Stackelberg model assumes that one firm dominates the market through its market share while the Cournot model assumes that all firms are small relative to the market. 
A) the Stackelberg model assumes that firms compete by varying their prices while the Cournot model assumes that firms compete by varying their output. 
B) the Stackelberg model assumes that one firm selects its output on the basis of the other firm's reaction curve while the Cournot model assumes that both firms take each other's output as given. 
C) the Stackelberg model assumes that both firms try to predict each other's reaction curves while the Cournot model assumes that the level of output of both firms is fixed. 
D) the Stackelberg model assumes that one firm dominates the market through its market share while the Cournot model assumes that all firms are small relative to the market.

Question 5

Which of the following is true of monopolistically competitive markets?

Accepted Answer

A) The economic profits of firms in a monopolistically competitive market are positive in the long run. 
B) The cost of government regulation is small relative to the social losses from monopolistic competition. 
C) Since the price and output combination in a monopolistically competitive market is efficient,there is no need for government regulation. 
D) It is possible that the value created through product differentiation outweighs the efficiency loss from monopolistic competition. 
A) The economic profits of firms in a monopolistically competitive market are positive in the long run. 
B) The cost of government regulation is small relative to the social losses from monopolistic competition. 
C) Since the price and output combination in a monopolistically competitive market is efficient,there is no need for government regulation. 
D) It is possible that the value created through product differentiation outweighs the efficiency loss from monopolistic competition.

Question 6

Figure 13-1 shows the Stackelberg model of a duopoly.Both firms face constant marginal costs equal to OJ and the market demand curve is AD.The Stackelberg firm produces an output of OF and OF is equal to FL.  
-Refer to Figure 13-1.The output of the follower firm is represented by the distance _____.

Accepted Answer

A) OF 
B) OK 
C) KL 
D) FK 
A) OF 
B) OK 
C) KL 
D) FK

Question 7

Assume that there are only two full-service airline firms in a country.The service provided to the consumers by each of them is marginally different.Given that the full-service airline industry has high entry costs,the _____ model of the market is most applicable to this industry.

Accepted Answer

A) oligopoly 
B) monopoly 
C) dominant firm model 
D) perfectly competitive 
A) oligopoly 
B) monopoly 
C) dominant firm model 
D) perfectly competitive

Question 8

Unlike a perfectly competitive firm,a monopolistically competitive firm:

Accepted Answer

A) makes zero economic profits in the short run. 
B) caters to a large portion of the market. 
C) does not face barriers to entry and exit. 
D) sells a differentiated product. 
A) makes zero economic profits in the short run. 
B) caters to a large portion of the market. 
C) does not face barriers to entry and exit. 
D) sells a differentiated product.

Question 9

Figure 13-1 shows the Stackelberg model of a duopoly.Both firms face constant marginal costs equal to OJ and the market demand curve is AD.The Stackelberg firm produces an output of OF and OF is equal to FL.  
-Refer to Figure 13-1.The Stackelberg firm's residual demand curve is given by:

Accepted Answer

A) AC 
B) BCD 
C) BE 
D) JCD 
A) AC 
B) BCD 
C) BE 
D) JCD

Question 10

Assume that a group of countries that produce 50 percent of the world's coffee decide to limit their coffee production and exports to increase their income from the sale of coffee.Which of the following are necessary for this cartel to operate successfully?

Accepted Answer

A) The world demand for coffee should be price elastic and the supply of coffee by other coffee producers should be price inelastic. 
B) The world demand for coffee and the supply of coffee by other producers should be price inelastic. 
C) The world demand for coffee and supply of coffee by other coffee producers should be price elastic. 
D) The world demand for coffee should be price inelastic and supply of coffee by other coffee producers should be price elastic. 
A) The world demand for coffee should be price elastic and the supply of coffee by other coffee producers should be price inelastic. 
B) The world demand for coffee and the supply of coffee by other producers should be price inelastic. 
C) The world demand for coffee and supply of coffee by other coffee producers should be price elastic. 
D) The world demand for coffee should be price inelastic and supply of coffee by other coffee producers should be price elastic.

Question 11

Assume that Ikea and Pottery Barn are two new firms that are planning to enter the furniture market.They face the inverse market demand curve P = 60 - Q.Given that both firms have zero marginal costs,show that Ikea's profit is lower in the Cournot model than in the Stackelberg model.

Accepted Answer

In the Cournot model,Ikea's reaction cur

Question 12

Prior to the collapse of the Soviet Union,a cartel on the supply of caviar was successful.Which of the following is the best explanation for this success?

Accepted Answer

A) The global demand for caviar was low. 
B) The Soviet government tightly regulated the annual production of caviar. 
C) Due to the high price of caviar,production in other countries increased. 
D) Sturgeon fish,the source of caviar,was abundantly available in most parts of the world. 
A) The global demand for caviar was low. 
B) The Soviet government tightly regulated the annual production of caviar. 
C) Due to the high price of caviar,production in other countries increased. 
D) Sturgeon fish,the source of caviar,was abundantly available in most parts of the world.

Question 13

From the shape of the monopolistically competitive firm's demand curve,you can imply that:

Accepted Answer

A) the firm has some degree of market power. 
B) the firm sells a homogeneous good. 
C) the firm's product has no substitutes. 
D) the firm's level of output is efficient. 
A) the firm has some degree of market power. 
B) the firm sells a homogeneous good. 
C) the firm's product has no substitutes. 
D) the firm's level of output is efficient.

Question 14

In _____,one firm uses its knowledge of the other firms' reaction functions to enhance its own profits.

Accepted Answer

A) the Cournot duopoly 
B) a monopolistically competitive market 
C) a perfectly competitive market 
D) the Stackelberg model 
A) the Cournot duopoly 
B) a monopolistically competitive market 
C) a perfectly competitive market 
D) the Stackelberg model

Question 15

Which of the following conditions holds for a monopolistically competitive firm that is in equilibrium in the long run?

Accepted Answer

A) Price equal to marginal cost 
B) Marginal cost equal to average cost 
C) Price equal to average cost 
D) Marginal cost equal to average revenue 
A) Price equal to marginal cost 
B) Marginal cost equal to average cost 
C) Price equal to average cost 
D) Marginal cost equal to average revenue

Question 16

The demand curve facing a monopolistically competitive firm is downward-sloping because:

Accepted Answer

A) substitutes for the good are easily available. 
B) the firm produces homogeneous products. 
C) there is only one seller in the market. 
D) the price/marginal-cost markup is zero. 
A) substitutes for the good are easily available. 
B) the firm produces homogeneous products. 
C) there is only one seller in the market. 
D) the price/marginal-cost markup is zero.

Question 17

Suppose a cartel is formed by the tomato farmers.Which of the following would increase the ability of this cartel to set output and prices in the domestic market?

Accepted Answer

A) Acreage restrictions by the government 
B) Highly inelastic demand for tomatoes 
C) A high supply elasticity for other tomato farmers 
D) A high import tariff on tomatoes 
A) Acreage restrictions by the government 
B) Highly inelastic demand for tomatoes 
C) A high supply elasticity for other tomato farmers 
D) A high import tariff on tomatoes

Question 18

Assume that there are only three sellers in the aluminium industry each producing identical aluminium sheets.Given that these three firms own all the known sources of aluminium,the _____ model of the market is most applicable to the aluminium industry.

Accepted Answer

A) oligopoly 
B) monopoly 
C) dominant firm model 
D) monopolistic competition 
A) oligopoly 
B) monopoly 
C) dominant firm model 
D) monopolistic competition

Question 19

In an industry with a small number of equal-sized firms where none of the firms have superior knowledge,the _____ is most likely to apply.

Accepted Answer

A) Cournot model of oligopoly 
B) perfectly competitive model 
C) dominant firm model of oligopoly 
D) Stackelberg model of oligopoly 
A) Cournot model of oligopoly 
B) perfectly competitive model 
C) dominant firm model of oligopoly 
D) Stackelberg model of oligopoly

Question 20

In the dominant firm model of oligopoly,the rival firms will:

Accepted Answer

A) equate marginal cost with marginal revenue. 
B) produce at the point where marginal cost is equal to residual demand. 
C) produce on the inelastic portion of the demand curve. 
D) equate marginal cost with the dominant firm's price. 
A) equate marginal cost with marginal revenue. 
B) produce at the point where marginal cost is equal to residual demand. 
C) produce on the inelastic portion of the demand curve. 
D) equate marginal cost with the dominant firm's price.

When a monopolistically competitive firm is maximizing its profit:

In the dominant firm model,if the elasticity of market demand is 0.75,the dominant firm's market share is 0.25,and the elasticity of supply of the competitive fringe is 2,then the dominant firm's elasticity of demand is _____.

In the dominant firm model,if the dominant firm's market share is 3/7,its elasticity of demand is 10 and the elasticity of supply of the competitive fringe firms is 4,then the elasticity of market demand must be _____.

The Stackelberg model is different from the Cournot model because:

Which of the following is true of monopolistically competitive markets?

Figure 13-1 shows the Stackelberg model of a duopoly.Both firms face constant marginal costs equal to OJ and the market demand curve is AD.The Stackelberg firm produces an output of OF and OF is equal to FL. -Refer to Figure 13-1.The output of the follower firm is represented by the distance _____.

Assume that there are only two full-service airline firms in a country.The service provided to the consumers by each of them is marginally different.Given that the full-service airline industry has high entry costs,the _____ model of the market is most applicable to this industry.

Unlike a perfectly competitive firm,a monopolistically competitive firm:

Figure 13-1 shows the Stackelberg model of a duopoly.Both firms face constant marginal costs equal to OJ and the market demand curve is AD.The Stackelberg firm produces an output of OF and OF is equal to FL. -Refer to Figure 13-1.The Stackelberg firm's residual demand curve is given by:

Assume that a group of countries that produce 50 percent of the world's coffee decide to limit their coffee production and exports to increase their income from the sale of coffee.Which of the following are necessary for this cartel to operate successfully?

Assume that Ikea and Pottery Barn are two new firms that are planning to enter the furniture market.They face the inverse market demand curve P = 60 - Q.Given that both firms have zero marginal costs,show that Ikea's profit is lower in the Cournot model than in the Stackelberg model.

Prior to the collapse of the Soviet Union,a cartel on the supply of caviar was successful.Which of the following is the best explanation for this success?

From the shape of the monopolistically competitive firm's demand curve,you can imply that:

In _____,one firm uses its knowledge of the other firms' reaction functions to enhance its own profits.

Which of the following conditions holds for a monopolistically competitive firm that is in equilibrium in the long run?

The demand curve facing a monopolistically competitive firm is downward-sloping because:

Suppose a cartel is formed by the tomato farmers.Which of the following would increase the ability of this cartel to set output and prices in the domestic market?

Assume that there are only three sellers in the aluminium industry each producing identical aluminium sheets.Given that these three firms own all the known sources of aluminium,the _____ model of the market is most applicable to the aluminium industry.

In an industry with a small number of equal-sized firms where none of the firms have superior knowledge,the _____ is most likely to apply.

In the dominant firm model of oligopoly,the rival firms will:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

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Exam 13: Monopolistic Competition and Oligopoly

When a monopolistically competitive firm is maximizing its profit:

In the dominant firm model,if the elasticity of market demand is 0.75,the dominant firm's market share is 0.25,and the elasticity of supply of the competitive fringe is 2,then the dominant firm's elasticity of demand is _____.

In the dominant firm model,if the dominant firm's market share is 3/7,its elasticity of demand is 10 and the elasticity of supply of the competitive fringe firms is 4,then the elasticity of market demand must be _____.

The Stackelberg model is different from the Cournot model because:

Which of the following is true of monopolistically competitive markets?

Figure 13-1 shows the Stackelberg model of a duopoly.Both firms face constant marginal costs equal to OJ and the market demand curve is AD.The Stackelberg firm produces an output of OF and OF is equal to FL. -Refer to Figure 13-1.The output of the follower firm is represented by the distance _____.

Assume that there are only two full-service airline firms in a country.The service provided to the consumers by each of them is marginally different.Given that the full-service airline industry has high entry costs,the _____ model of the market is most applicable to this industry.

Unlike a perfectly competitive firm,a monopolistically competitive firm:

Figure 13-1 shows the Stackelberg model of a duopoly.Both firms face constant marginal costs equal to OJ and the market demand curve is AD.The Stackelberg firm produces an output of OF and OF is equal to FL. -Refer to Figure 13-1.The Stackelberg firm's residual demand curve is given by:

Assume that a group of countries that produce 50 percent of the world's coffee decide to limit their coffee production and exports to increase their income from the sale of coffee.Which of the following are necessary for this cartel to operate successfully?

Assume that Ikea and Pottery Barn are two new firms that are planning to enter the furniture market.They face the inverse market demand curve P = 60 - Q.Given that both firms have zero marginal costs,show that Ikea's profit is lower in the Cournot model than in the Stackelberg model.

Prior to the collapse of the Soviet Union,a cartel on the supply of caviar was successful.Which of the following is the best explanation for this success?

From the shape of the monopolistically competitive firm's demand curve,you can imply that:

In _____,one firm uses its knowledge of the other firms' reaction functions to enhance its own profits.

Which of the following conditions holds for a monopolistically competitive firm that is in equilibrium in the long run?

The demand curve facing a monopolistically competitive firm is downward-sloping because:

Suppose a cartel is formed by the tomato farmers.Which of the following would increase the ability of this cartel to set output and prices in the domestic market?

Assume that there are only three sellers in the aluminium industry each producing identical aluminium sheets.Given that these three firms own all the known sources of aluminium,the _____ model of the market is most applicable to the aluminium industry.

In an industry with a small number of equal-sized firms where none of the firms have superior knowledge,the _____ is most likely to apply.

In the dominant firm model of oligopoly,the rival firms will:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters