Question 1

Unlike a perfectly competitive firm,a monopolistic competitor does not have a short-run shut-down point.

Accepted Answer

A) True 
 B)False

Question 2

You have just opened a new Italian restaurant in your hometown where there are three other Italian restaurants.Your restaurant is doing a brisk business and you attribute your success to your distinctive northern Italian cuisine using locally grown organic produce.What is likely to happen to your business in the long run?

Accepted Answer

A)  Your competitors are likely to change their menus to make their products more similar to yours. 
B)  Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero. 
C)  If your success continues, you will be likely to establish a franchise and expand your market size. 
D)  If you continue to maintain consistent quality, you will be able to earn profits indefinitely. 
A)  Your competitors are likely to change their menus to make their products more similar to yours. 
B)  Your success will invite others to open competing restaurants and ultimately your profits will be driven to zero. 
C)  If your success continues, you will be likely to establish a franchise and expand your market size. 
D)  If you continue to maintain consistent quality, you will be able to earn profits indefinitely.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Figure 9.9  
-Refer to Figure 9.9.Which of the graphs in the figure depicts a monopolistically competitive firm that is earning economic profits?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel A and Panel B 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel A and Panel B

Question 5

When an oligopoly market is in Nash equilibrium,__________.

Accepted Answer

A)  firms have colluded to set their prices. 
B)  firms will not behave as profit maximisers. 
C)  a firm will not take into account the strategies of its rivals. 
D)  a firm will choose its best pricing strategy, given the strategies that it observes other firms have taken. 
A)  firms have colluded to set their prices. 
B)  firms will not behave as profit maximisers. 
C)  a firm will not take into account the strategies of its rivals. 
D)  a firm will choose its best pricing strategy, given the strategies that it observes other firms have taken.

Question 6

What does it mean if a firm has excess capacity?

Accepted Answer

A)  That the firm expends too much of its resources on advertising its product without seeing an appreciable increase in sales 
B)  That the firm is not producing its minimum efficient scale of output 
C)  That the firm's long-run average cost of producing a given quantity exceeds its short-run cost of producing that same quantity 
D)  That the firm's quantity supplied exceeds its quantity demanded 
A)  That the firm expends too much of its resources on advertising its product without seeing an appreciable increase in sales 
B)  That the firm is not producing its minimum efficient scale of output 
C)  That the firm's long-run average cost of producing a given quantity exceeds its short-run cost of producing that same quantity 
D)  That the firm's quantity supplied exceeds its quantity demanded

Question 7

Does the fact that monopolistically competitive firms do not achieve productive efficiency or allocative efficiency mean that there is a significant loss in consumer welfare?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

No.Although monopolistically competitive

Question 8

The justification for occupational licensing laws is that they protect the public from incompetent practitioners (for example,lawyers and medical doctors),but the laws also result in ________.

Accepted Answer

A)  higher prices and restrictions on the number of people who can enter the professions affected by the laws 
B)  economies of scale 
C)  ownership of a key input 
D)  an increase in the amount of output required to achieve minimum efficient scale 
A)  higher prices and restrictions on the number of people who can enter the professions affected by the laws 
B)  economies of scale 
C)  ownership of a key input 
D)  an increase in the amount of output required to achieve minimum efficient scale

Question 9

A member of a cartel like OPEC has an incentive to ________.

Accepted Answer

A)  argue for larger production quotas for each member of the cartel 
B)  agree to a low cartel production level and then produce more than its quota 
C)  abide by its individual production quota 
D)  support equal production quotas for each member 
A)  argue for larger production quotas for each member of the cartel 
B)  agree to a low cartel production level and then produce more than its quota 
C)  abide by its individual production quota 
D)  support equal production quotas for each member

Question 10

Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally _______.

Accepted Answer

A)  prevent rival airlines from competing in that market 
B)  increase marginal revenue more than marginal cost 
C)  maximise marginal revenue 
D)  discourage rivals from matching price cuts 
A)  prevent rival airlines from competing in that market 
B)  increase marginal revenue more than marginal cost 
C)  maximise marginal revenue 
D)  discourage rivals from matching price cuts

Question 11

Which of the following describes a difference between the marginal revenue and demand curves of a perfectly competitive firm and a monopolistically competitive firm?

Accepted Answer

A)  The perfectly competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a monopolistically competitive firm lies above its demand curve. 
B)  The perfectly competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a monopolistically competitive firm lies below its demand curve. 
C)  The monopolistically competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a perfectly competitive firm lies below its demand curve. 
D)  The marginal revenue curve of a monopolistically competitive firm lies below its demand curve; the marginal revenue curve of a perfectly competitive firm lies above its demand curve. 
A)  The perfectly competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a monopolistically competitive firm lies above its demand curve. 
B)  The perfectly competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a monopolistically competitive firm lies below its demand curve. 
C)  The monopolistically competitive firm's marginal revenue and demand curves are the same; the marginal revenue curve of a perfectly competitive firm lies below its demand curve. 
D)  The marginal revenue curve of a monopolistically competitive firm lies below its demand curve; the marginal revenue curve of a perfectly competitive firm lies above its demand curve.

Question 12

Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive.Which of the following offers the best reason why some economists believe that monopolistically competitive markets benefit consumers despite any loss of well-being?

Accepted Answer

A)  Although consumers may pay a price greater than marginal cost for a product, the product is produced at the minimum average total cost. 
B)  Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to their tastes. 
C)  Consumers pay a price equal to the marginal cost of producing a product, even though it is not produced at the minimum average total cost. 
D)  Consumers are better off choosing from a variety of differentiated products, even though product differentiation causes barriers that restrict entry into monopolistically competitive markets. 
A)  Although consumers may pay a price greater than marginal cost for a product, the product is produced at the minimum average total cost. 
B)  Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to their tastes. 
C)  Consumers pay a price equal to the marginal cost of producing a product, even though it is not produced at the minimum average total cost. 
D)  Consumers are better off choosing from a variety of differentiated products, even though product differentiation causes barriers that restrict entry into monopolistically competitive markets.

Question 13

Explain why OPEC is caught in a prisoner's dilemma?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

If every member of OPEC cooperates and p

Question 14

Table 9.3   Firm A(Alistair's) and Firm B (Baine's) are the only firms selling luggage in the upscale town of Adelaide. Each firm must decide on whether to increase its advertising spending to compete for customers. If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 9.3 shows the payoff matrix for this advertising game.
-Refer to Table 9.3.How are the firms in this advertising game caught in a prisoner's dilemma?

Accepted Answer

A)  They are not in a prisoner's dilemma because there is one clear strategy for each. 
B)  They would be more profitable if they refrained from advertising, but each fears that if it does not advertise, it will lose customers. 
C)  Since each firm is uncertain about the other's behaviour, each will adopt a wait-and-see attitude which results in no increase in market share and no new customers. 
D)  Only the first mover is caught in a prisoner's dilemma because the second has a chance to observe and respond. 
A)  They are not in a prisoner's dilemma because there is one clear strategy for each. 
B)  They would be more profitable if they refrained from advertising, but each fears that if it does not advertise, it will lose customers. 
C)  Since each firm is uncertain about the other's behaviour, each will adopt a wait-and-see attitude which results in no increase in market share and no new customers. 
D)  Only the first mover is caught in a prisoner's dilemma because the second has a chance to observe and respond.

Question 15

What must be true for productive efficiency to hold?

Accepted Answer

A)  Price must equal the marginal cost of the last unit produced. 
B)  Price must equal marginal revenue of the last unit sold. 
C)  Average variable cost is minimised in production. 
D)  Average total cost is minimised in production. 
A)  Price must equal the marginal cost of the last unit produced. 
B)  Price must equal marginal revenue of the last unit sold. 
C)  Average variable cost is minimised in production. 
D)  Average total cost is minimised in production.

Question 16

Compared to a perfectly competitive firm,the demand curve facing a monopolistically competitive firm is ________.

Accepted Answer

A)  more elastic because there are many close substitutes for the product of a monopolistically competitive firm 
B)  less elastic because monopolistically competitive firms produce similar, but not identical, products 
C)  just as elastic because there are many sellers in both markets 
D)  more elastic because in the long run, the demand curve is tangent to the firm's average total cost curve 
A)  more elastic because there are many close substitutes for the product of a monopolistically competitive firm 
B)  less elastic because monopolistically competitive firms produce similar, but not identical, products 
C)  just as elastic because there are many sellers in both markets 
D)  more elastic because in the long run, the demand curve is tangent to the firm's average total cost curve

Question 17

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 behaviour under these very different firm behaviours. 
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 behaviour under these very different firm behaviours.

Question 18

Monopolistically competitive firms face a perfectly elastic demand curve.

Accepted Answer

A) True 
 B)False

Question 19

A monopolistically competitive firm that is earning profits will,in the long run,experience all of the following except ________.

Accepted Answer

A)  new rivals entering the market 
B)  a decrease in demand for its product 
C)  demand for the firm's product becomes more elastic 
D)  a decrease in the number of rival products 
A)  new rivals entering the market 
B)  a decrease in demand for its product 
C)  demand for the firm's product becomes more elastic 
D)  a decrease in the number of rival products

Question 20

All games share three characteristics.Two of these characteristics are rule and strategies.What is the third characteristic called?

Accepted Answer

A)  Competition 
B)  Collusion 
C)  Results 
D)  Payoffs 
A)  Competition 
B)  Collusion 
C)  Results 
D)  Payoffs

Unlike a perfectly competitive firm,a monopolistic competitor does not have a short-run shut-down point.

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

Figure 9.9 -Refer to Figure 9.9.Which of the graphs in the figure depicts a monopolistically competitive firm that is earning economic profits?

When an oligopoly market is in Nash equilibrium,__________.

What does it mean if a firm has excess capacity?

The justification for occupational licensing laws is that they protect the public from incompetent practitioners (for example,lawyers and medical doctors),but the laws also result in ________.

A member of a cartel like OPEC has an incentive to ________.

Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally _______.

Which of the following describes a difference between the marginal revenue and demand curves of a perfectly competitive firm and a monopolistically competitive firm?

Explain why OPEC is caught in a prisoner's dilemma? __________________________________________________________________________________________________________________________________________________________________________________________

What must be true for productive efficiency to hold?

Compared to a perfectly competitive firm,the demand curve facing a monopolistically competitive firm is ________.

Monopolistically competitive firms face a perfectly elastic demand curve.

A monopolistically competitive firm that is earning profits will,in the long run,experience all of the following except ________.

All games share three characteristics.Two of these characteristics are rule and strategies.What is the third characteristic called?

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

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Exam 9: Monopolistic Competition and Oligopoly

Unlike a perfectly competitive firm,a monopolistic competitor does not have a short-run shut-down point.

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

Figure 9.9 -Refer to Figure 9.9.Which of the graphs in the figure depicts a monopolistically competitive firm that is earning economic profits?

When an oligopoly market is in Nash equilibrium,__________.

What does it mean if a firm has excess capacity?

The justification for occupational licensing laws is that they protect the public from incompetent practitioners (for example,lawyers and medical doctors),but the laws also result in ________.

A member of a cartel like OPEC has an incentive to ________.

Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally _______.

Which of the following describes a difference between the marginal revenue and demand curves of a perfectly competitive firm and a monopolistically competitive firm?

Explain why OPEC is caught in a prisoner's dilemma? __________________________________________________________________________________________________________________________________________________________________________________________

What must be true for productive efficiency to hold?

Compared to a perfectly competitive firm,the demand curve facing a monopolistically competitive firm is ________.

Monopolistically competitive firms face a perfectly elastic demand curve.

A monopolistically competitive firm that is earning profits will,in the long run,experience all of the following except ________.

All games share three characteristics.Two of these characteristics are rule and strategies.What is the third characteristic called?

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