Question 1

Firms in monopolistic competition compete by selling similar,but not identical,products.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following characteristics is not common to monopolistic competition and perfect competition?

Accepted Answer

A)  Firms act to maximise profit. 
B)  Entry barriers into the industry are low. 
C)  The market demand curve is downward sloping. 
D)  Firms take market prices as given. 
A)  Firms act to maximise profit. 
B)  Entry barriers into the industry are low. 
C)  The market demand curve is downward sloping. 
D)  Firms take market prices as given.

Question 3

The economic analysis of monopolistic competition shows that market forces eliminate profits in the long run.However,it is possible for a firm to continue to earn economic profits if the firm

Accepted Answer

A)  expands its marketing budget. 
B)  adopts new technologies that enable it to lower its cost of production. 
C)  expands its product offerings to appeal to a wider range of consumers. 
D)  reduces its price to expand its market. 
A)  expands its marketing budget. 
B)  adopts new technologies that enable it to lower its cost of production. 
C)  expands its product offerings to appeal to a wider range of consumers. 
D)  reduces its price to expand its market.

Question 4

If firms are protected by substantial barriers to entry,short-run profits can turn into long-run profits.

Accepted Answer

A) True 
 B)False

Question 5

When large firms in oligopoly markets cut their prices,

Accepted Answer

A)  rival firms will also cut their prices to avoid losing sales. 
B)  rival firms will not change their prices because most of their customers have signed contracts that commit them to doing business with the same firms for the life of their contracts. 
C)  we don't know for sure how rival firms will respond. 
D)  rival firms will not cut their prices because they fear that the federal government will accuse them of collusion. 
A)  rival firms will also cut their prices to avoid losing sales. 
B)  rival firms will not change their prices because most of their customers have signed contracts that commit them to doing business with the same firms for the life of their contracts. 
C)  we don't know for sure how rival firms will respond. 
D)  rival firms will not cut their prices because they fear that the federal government will accuse them of collusion.

Question 6

Collusion between two firms occurs when

Accepted Answer

A)  the firms independently pursue strategies that could hurt each other. 
B)  the firms explicitly or implicitly agree to adopt a uniform business strategy. 
C)  the firms announce that each will match its rival's market price. 
D)  the firms act altruistically to bring about the economically efficient outcome. 
A)  the firms independently pursue strategies that could hurt each other. 
B)  the firms explicitly or implicitly agree to adopt a uniform business strategy. 
C)  the firms announce that each will match its rival's market price. 
D)  the firms act altruistically to bring about the economically efficient outcome.

Question 7

Firms in an oligopoly are said to be interdependent.What does this mean?

Accepted Answer

Interdependence among firms means that t

Question 8

What is the dominant strategy in the prisoner's dilemma?

Accepted Answer

A)  Each prisoner confesses because this is the rational action to pursue. 
B)  Do nothing in the hope that the other prisoner will also do nothing. 
C)  Do not confess because the other prisoner will most likely confess. 
D)  There is no dominant strategy. 
A)  Each prisoner confesses because this is the rational action to pursue. 
B)  Do nothing in the hope that the other prisoner will also do nothing. 
C)  Do not confess because the other prisoner will most likely confess. 
D)  There is no dominant strategy.

Question 9

Table 9-7   Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 9-7 shows the profits earned per day by each country. 'Low output' corresponds to producing the OPEC-assigned quota and 'high output' corresponds to producing the maximum capacity beyond the assigned quota.
-Refer to Table 9-7.Is there a dominant strategy for Nigeria and,if so,what is it?

Accepted Answer

A)  Yes, it has a dominant strategy depending on what Saudi Arabia does. 
B)  No, there is no dominant strategy. 
C)  Yes, the dominant strategy is to produce a low output. 
D)  Yes, the dominant strategy is to produce a high output. 
A)  Yes, it has a dominant strategy depending on what Saudi Arabia does. 
B)  No, there is no dominant strategy. 
C)  Yes, the dominant strategy is to produce a low output. 
D)  Yes, the dominant strategy is to produce a high output.

Question 10

Figure 9-12  
-Refer to Figure 9-12.What is the allocatively efficient output for the firm represented in the diagram?

Accepted Answer

A)  Q1 units 
B)  Q2 units 
C)  Q3 units 
D)  Q4 units 
A)  Q1 units 
B)  Q2 units 
C)  Q3 units 
D)  Q4 units

Question 11

Economists believe that consumers would be better off if markets were perfectly competitive rather than monopolistically competitive.

Accepted Answer

A) True 
 B)False

Question 12

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 13

An oligopolistic industry is characterised by a few large firms acting independently.

Accepted Answer

A) True 
 B)False

Question 14

Table 9-8   Firm A (Alistair's) and Firm B (Baine's) are the only firms selling luggage in the upscale city 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 9-8 shows the payoff matrix for this advertising game.
-Refer to Table 9-8.If Alistair assumes that Baine would increase its advertising budget,what should it do?

Accepted Answer

A)  Alistair should keep its own budget the same and allow Baine to incur the higher cost. 
B)  Alistair should also increase its advertising spending. 
C)  Alistair should reduce its advertising spending. 
D)  Being a duopolist, Alistair is not affected by Baine's choices because it has a secure 50 per cent market share. 
A)  Alistair should keep its own budget the same and allow Baine to incur the higher cost. 
B)  Alistair should also increase its advertising spending. 
C)  Alistair should reduce its advertising spending. 
D)  Being a duopolist, Alistair is not affected by Baine's choices because it has a secure 50 per cent market share.

Question 15

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 16

Which of the following would not occur as a result of a monopolistically competitive firm suffering a short-run economic loss?

Accepted Answer

A)  The firm could exit the industry in the long run. 
B)  If the firm does not exit the industry in the long run, its demand curve will shift to the left. 
C)  If the firm does not exit the industry in the long run, its demand curve will shift to the right. 
D)  If the firm remains in the industry in the long run, it will break even. 
A)  The firm could exit the industry in the long run. 
B)  If the firm does not exit the industry in the long run, its demand curve will shift to the left. 
C)  If the firm does not exit the industry in the long run, its demand curve will shift to the right. 
D)  If the firm remains in the industry in the long run, it will break even.

Question 17

A major difference between monopolistic competition and perfect competition is

Accepted Answer

A)  the number of sellers in the market. 
B)  the degree by which the market demand curve slopes downwards. 
C)  that products are not standardised in monopolistic competition, unlike in perfect competition. 
D)  the barriers to entry in the two markets. 
A)  the number of sellers in the market. 
B)  the degree by which the market demand curve slopes downwards. 
C)  that products are not standardised in monopolistic competition, unlike in perfect competition. 
D)  the barriers to entry in the two markets.

Question 18

Explain how collusion makes firms better off.Given the incentives to collude,briefly explain why every industry does not become a cartel.

Accepted Answer

Collusion makes firms better off because

Question 19

A patent is a government-imposed entry barrier because

Accepted Answer

A)  it allows a firm to achieve economies of scale. 
B)  it is a key input owned by the firm that is granted the patent. 
C)  it limits the quantity of a good that can be imported into a country. 
D)  it gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented. 
A)  it allows a firm to achieve economies of scale. 
B)  it is a key input owned by the firm that is granted the patent. 
C)  it limits the quantity of a good that can be imported into a country. 
D)  it gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.

Question 20

A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until

Accepted Answer

A)  the original firm is driven into bankruptcy. 
B)  the firm's demand curve is perfectly elastic. 
C)  the firm's demand curve is tangent to its average total cost curve. 
D)  the firm exits the market. 
A)  the original firm is driven into bankruptcy. 
B)  the firm's demand curve is perfectly elastic. 
C)  the firm's demand curve is tangent to its average total cost curve. 
D)  the firm exits the market.

Firms in monopolistic competition compete by selling similar,but not identical,products.

Which of the following characteristics is not common to monopolistic competition and perfect competition?

The economic analysis of monopolistic competition shows that market forces eliminate profits in the long run.However,it is possible for a firm to continue to earn economic profits if the firm

If firms are protected by substantial barriers to entry,short-run profits can turn into long-run profits.

When large firms in oligopoly markets cut their prices,

Collusion between two firms occurs when

Firms in an oligopoly are said to be interdependent.What does this mean?

What is the dominant strategy in the prisoner's dilemma?

Figure 9-12 -Refer to Figure 9-12.What is the allocatively efficient output for the firm represented in the diagram?

Economists believe that consumers would be better off if markets were perfectly competitive rather than monopolistically competitive.

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?

An oligopolistic industry is characterised by a few large firms acting independently.

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

Which of the following would not occur as a result of a monopolistically competitive firm suffering a short-run economic loss?

A major difference between monopolistic competition and perfect competition is

Explain how collusion makes firms better off.Given the incentives to collude,briefly explain why every industry does not become a cartel.

A patent is a government-imposed entry barrier because

A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until

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 Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

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 9: Firms in Perfectly Competitive Markets

Firms in monopolistic competition compete by selling similar,but not identical,products.

Which of the following characteristics is not common to monopolistic competition and perfect competition?

The economic analysis of monopolistic competition shows that market forces eliminate profits in the long run.However,it is possible for a firm to continue to earn economic profits if the firm

If firms are protected by substantial barriers to entry,short-run profits can turn into long-run profits.

When large firms in oligopoly markets cut their prices,

Collusion between two firms occurs when

Firms in an oligopoly are said to be interdependent.What does this mean?

What is the dominant strategy in the prisoner's dilemma?

Figure 9-12 -Refer to Figure 9-12.What is the allocatively efficient output for the firm represented in the diagram?

Economists believe that consumers would be better off if markets were perfectly competitive rather than monopolistically competitive.

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?

An oligopolistic industry is characterised by a few large firms acting independently.

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

Which of the following would not occur as a result of a monopolistically competitive firm suffering a short-run economic loss?

A major difference between monopolistic competition and perfect competition is

Explain how collusion makes firms better off.Given the incentives to collude,briefly explain why every industry does not become a cartel.

A patent is a government-imposed entry barrier because

A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until

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 Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

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