Question 1

If a typical monopolistically competitive firm is incurring short-run losses,then ______.

Accepted Answer

A)  other more competitive firms will enter the market 
B)  as some firms leave, the remaining firms will experience an increase in the demand for their products 
C)  as some firms leave, the demand for the products of the remaining firms will become more elastic 
D)  the industry will eventually cease to exist 
A)  other more competitive firms will enter the market 
B)  as some firms leave, the remaining firms will experience an increase in the demand for their products 
C)  as some firms leave, the demand for the products of the remaining firms will become more elastic 
D)  the industry will eventually cease to exist

Question 2

A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

Accepted Answer

A) True 
 B)False

Question 3

An oligopolistic industry is characterised 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 standardised 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 standardised products

Question 4

The second-price auction is __________.

Accepted Answer

A)  an auction in which the bidder who submitted the highest bid is awarded the object being sold and pays a price equal to the second highest amount bid 
B)  an auction in which the bidder who submitted the second highest bid is awarded the object being sold 
C)  an auction in which the bidder who submitted the highest bid is awarded the object being sold and pays a price equal to the average of the highest and second highest amount bid 
D)  an auction in which the bidder who submitted the second highest bid is awarded the object being sold and pays a price equal to the average of the highest and second highest amount bid 
A)  an auction in which the bidder who submitted the highest bid is awarded the object being sold and pays a price equal to the second highest amount bid 
B)  an auction in which the bidder who submitted the second highest bid is awarded the object being sold 
C)  an auction in which the bidder who submitted the highest bid is awarded the object being sold and pays a price equal to the average of the highest and second highest amount bid 
D)  an auction in which the bidder who submitted the second highest bid is awarded the object being sold and pays a price equal to the average of the highest and second highest amount bid

Question 5

Table 9.2
 $$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity } \
\text { (cases) }
\end{array} & \begin{array} { c } 
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Total Revenue } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Total Cost } \
\text { (dollars) }
\end{array} \
\hline 1 & 75 & 75 & 60 \
\hline 2 & 70 & 140 & 85 \
\hline 3 & 65 & 195 & 105 \
\hline 4 & 60 & 240 & 115 \
\hline 5 & 55 & 275 & 130 \
\hline 6 & 50 & 300 & 155 \
\hline 7 & 45 & 315 & 190 \
\hline 8 & 40 & 320 & 230 \
\hline 9 & 35 & 315 & 280 \
\hline
\end{array}$$ Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 9.2 shows the firm's demand and cost schedules.
-Refer to Table 9.2.Eco Energy's profit is ______.

Accepted Answer

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

Question 6

Figure 9.15   Figure 9.15 illustrates a monopolistically competitive firm.
-Refer to Figure 9.15.It is possible to lower the average cost of production by expanding output beyond Q0 to Q1.Why wouldn't a firm expand its output to Q1?

Accepted Answer

A)  The firm wants to maximise accounting profit rather than economic profit. 
B)  The firm would suffer an economic loss at Q1 while it would break even at Q0. 
C)  The firm's marginal revenue would be negative at Q1. 
D)  Demand is not sufficient for consumers to buy Q1. 
A)  The firm wants to maximise accounting profit rather than economic profit. 
B)  The firm would suffer an economic loss at Q1 while it would break even at Q0. 
C)  The firm's marginal revenue would be negative at Q1. 
D)  Demand is not sufficient for consumers to buy Q1.

Question 7

Which of the following is a key characteristic of a monopolistically competitive market?

Accepted Answer

A)  Many small (relative to the total market) sellers acting independently. 
B)  All sellers sell a homogeneous product. 
C)  Barriers to entry are strong. 
D)  Sellers have no incentive to advertise their products. 
A)  Many small (relative to the total market) sellers acting independently. 
B)  All sellers sell a homogeneous product. 
C)  Barriers to entry are strong. 
D)  Sellers have no incentive to advertise their products.

Question 8

In contrast with perfect competition,excess capacity characterises monopolistic competition.Excess capacity is due to which of the following?

Accepted Answer

A)  Monopolistically competitive firms produce at the minimum point on their average total cost curves. 
B)  Monopolistically competitive firms face downward-sloping demand curves. In the long run, firms produce where their demand curves are tangent to their long-run average total cost curves. 
C)  Monopolistically competitive firms produce where marginal revenue is equal to marginal cost. 
D)  Monopolistically competitive markets have low barriers to entry. 
A)  Monopolistically competitive firms produce at the minimum point on their average total cost curves. 
B)  Monopolistically competitive firms face downward-sloping demand curves. In the long run, firms produce where their demand curves are tangent to their long-run average total cost curves. 
C)  Monopolistically competitive firms produce where marginal revenue is equal to marginal cost. 
D)  Monopolistically competitive markets have low barriers to entry.

Question 9

The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.

Accepted Answer

A) True 
 B)False

Question 10

What does a prisoner's dilemma illustrate?

Accepted Answer

A)  How oligopolists engage in implicit collusion under strategic situations 
B)  Why firms will not cooperate if they behave strategically 
C)  Why firms have an incentive to cheat on agreements 
D)  How cooperation in strategic situations leads to the economically efficient market outcome 
A)  How oligopolists engage in implicit collusion under strategic situations 
B)  Why firms will not cooperate if they behave strategically 
C)  Why firms have an incentive to cheat on agreements 
D)  How cooperation in strategic situations leads to the economically efficient market outcome

Question 11

The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because ______.

Accepted Answer

A)  barriers to entry are very low 
B)  there are many firms in the market 
C)  products are differentiated 
D)  entry into the market is blocked 
A)  barriers to entry are very low 
B)  there are many firms in the market 
C)  products are differentiated 
D)  entry into the market is blocked

Question 12

What is true about marginal revenue for an oligopolist?

Accepted Answer

A)  Identical to the demand for the firm's product 
B)  Difficult to determine because the firm's demand curve is typically unknown 
C)  Downward sloping beneath the firm's demand curve 
D)  Horizontal on a price-quantity diagram 
A)  Identical to the demand for the firm's product 
B)  Difficult to determine because the firm's demand curve is typically unknown 
C)  Downward sloping beneath the firm's demand curve 
D)  Horizontal on a price-quantity diagram

Question 13

Table 9.1   Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. Table 9.1 shows the payoff matrix for this advertising game.
-Refer to Table 9.1.Let's suppose the game starts with each firm adhering to its original budget so that Godrickporter earns a profit of $6000 and Star Connections earns a profit of $12 000.Is there an incentive for any one firm to increase its advertising budget?

Accepted Answer

A)  No, neither firm has an incentive to raise its advertising spending. 
B)  Yes, both firms have an incentive to raise their advertising budgets. 
C)  Yes, Star Connections has an incentive to increase its advertising budget, but Godrickporter does not. 
D)  Yes, Godrickporter has an incentive to increase its advertising budget, but Star Connections does not. 
A)  No, neither firm has an incentive to raise its advertising spending. 
B)  Yes, both firms have an incentive to raise their advertising budgets. 
C)  Yes, Star Connections has an incentive to increase its advertising budget, but Godrickporter does not. 
D)  Yes, Godrickporter has an incentive to increase its advertising budget, but Star Connections does not.

Question 14

If a monopolistically competitive firm lowers its price and,as a result,its total revenue decreases,then _________.

Accepted Answer

A)  the output effect of the price change was less than the price effect 
B)  the output effect of the price change was greater than the price effect 
C)  the firm's demand curve must have decreased 
D)  the substitution effect of the price change was greater than the income effect 
A)  the output effect of the price change was less than the price effect 
B)  the output effect of the price change was greater than the price effect 
C)  the firm's demand curve must have decreased 
D)  the substitution effect of the price change was greater than the income effect

Question 15

Figure 9.11  
-Refer to Figure 9.11.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 maximising 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 9.11  
-Refer to Figure 9.11.Suppose...

Question 16

If the demand curve for a firm is downward sloping,its marginal revenue curve _____.

Accepted Answer

A)  will lie above the demand curve 
B)  will lie below the demand curve 
C)  is the same as the demand curve 
D)  is horizontal 
A)  will lie above the demand curve 
B)  will lie below the demand curve 
C)  is the same as the demand curve 
D)  is horizontal

Question 17

What is a cartel?

Accepted Answer

A)  A temporary storage facility for automobiles 
B)  A group of firms that enter into an informal agreement to fix prices to maximise joint profits 
C)  A group of firms that enter into a formal agreement to fix prices to maximise joint profits 
D)  An example of a group of firms that collectively regulate a competitive industry 
A)  A temporary storage facility for automobiles 
B)  A group of firms that enter into an informal agreement to fix prices to maximise joint profits 
C)  A group of firms that enter into a formal agreement to fix prices to maximise joint profits 
D)  An example of a group of firms that collectively regulate a competitive industry

Question 18

It is true in both monopolistically competitive and perfectly competitive industries that _______.

Accepted Answer

A)  firms produce products for which there are no close substitutes 
B)  there are high barriers to entry 
C)  there are many buyers and sellers 
D)  firms are price takers 
A)  firms produce products for which there are no close substitutes 
B)  there are high barriers to entry 
C)  there are many buyers and sellers 
D)  firms are price takers

Question 19

You are planning to open a new Italian restaurant in your hometown where there are three other Italian restaurants.You plan to distinguish your restaurant from your competitors by offering northern Italian cuisine and using locally grown organic produce.What is likely to happen in the restaurant market in your hometown after you open?

Accepted Answer

A)  Your competitors are likely to change their menus to make their products more similar to yours. 
B)  The demand curve facing each restaurant owner shifts to the right. 
C)  The demand curve facing each restaurant owner becomes more elastic. 
D)  While the demand curves facing your competitors becomes more elastic, your demand curve will be inelastic. 
A)  Your competitors are likely to change their menus to make their products more similar to yours. 
B)  The demand curve facing each restaurant owner shifts to the right. 
C)  The demand curve facing each restaurant owner becomes more elastic. 
D)  While the demand curves facing your competitors becomes more elastic, your demand curve will be inelastic.

Question 20

Why does a prisoner's dilemma lead to a non-cooperative equilibrium?

Accepted Answer

A)  Because each player had agreed before the game started to minimise the harm that he can inflict on the other players 
B)  Because each player is uncertain how other players will play the game 
C)  Because players must choose from a limited number of non-dominant strategies 
D)  Because each rational player has a dominant strategy to play a certain way regardless of what other players do 
A)  Because each player had agreed before the game started to minimise the harm that he can inflict on the other players 
B)  Because each player is uncertain how other players will play the game 
C)  Because players must choose from a limited number of non-dominant strategies 
D)  Because each rational player has a dominant strategy to play a certain way regardless of what other players do

If a typical monopolistically competitive firm is incurring short-run losses,then ______.

A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

An oligopolistic industry is characterised by all of the following except _______.

The second-price auction is __________.

Figure 9.15 Figure 9.15 illustrates a monopolistically competitive firm. -Refer to Figure 9.15.It is possible to lower the average cost of production by expanding output beyond Q₀ to Q₁.Why wouldn't a firm expand its output to Q₁?

Which of the following is a key characteristic of a monopolistically competitive market?

In contrast with perfect competition,excess capacity characterises monopolistic competition.Excess capacity is due to which of the following?

The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.

What does a prisoner's dilemma illustrate?

The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because ______.

What is true about marginal revenue for an oligopolist?

If a monopolistically competitive firm lowers its price and,as a result,its total revenue decreases,then _________.

If the demand curve for a firm is downward sloping,its marginal revenue curve _____.

What is a cartel?

It is true in both monopolistically competitive and perfectly competitive industries that _______.

Why does a prisoner's dilemma lead to a non-cooperative equilibrium?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

Filters

Exam 9: Monopolistic Competition and Oligopoly

If a typical monopolistically competitive firm is incurring short-run losses,then ______.

A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

An oligopolistic industry is characterised by all of the following except _______.

The second-price auction is __________.

Figure 9.15 Figure 9.15 illustrates a monopolistically competitive firm. -Refer to Figure 9.15.It is possible to lower the average cost of production by expanding output beyond Q0 to Q1.Why wouldn't a firm expand its output to Q1?

Which of the following is a key characteristic of a monopolistically competitive market?

In contrast with perfect competition,excess capacity characterises monopolistic competition.Excess capacity is due to which of the following?

The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.

What does a prisoner's dilemma illustrate?

The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because ______.

What is true about marginal revenue for an oligopolist?

If a monopolistically competitive firm lowers its price and,as a result,its total revenue decreases,then _________.

If the demand curve for a firm is downward sloping,its marginal revenue curve _____.

What is a cartel?

It is true in both monopolistically competitive and perfectly competitive industries that _______.

Why does a prisoner's dilemma lead to a non-cooperative equilibrium?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

Filters

Figure 9.15 Figure 9.15 illustrates a monopolistically competitive firm. -Refer to Figure 9.15.It is possible to lower the average cost of production by expanding output beyond Q₀ to Q₁.Why wouldn't a firm expand its output to Q₁?