Question 1

In both monopolistically competitive and perfectly competitive industries,

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 2

Which of the following describes the relative positions of the demand curve and the average total cost (ATC)curve of a monopolistically competitive firm that earns a profit in the short run?

Accepted Answer

A)  In the short run, the firm's demand curve will lie above its ATC curve. The demand curve will be tangent to the ATC curve in the long run. 
B)  In the short run, the firm's demand curve will lie below its ATC curve. The demand curve will be tangent to the ATC curve in the long run. 
C)  In the short run, the firm's demand curve will cross its ATC curve at the ATC curve's lowest point. The demand curve will be above the ATC curve in the long run. 
D)  In the short run, the firm's ATC curve will cross the demand curve at the profit-maximising level of output. The demand curve will be tangent to the ATC curve in the long run. 
A)  In the short run, the firm's demand curve will lie above its ATC curve. The demand curve will be tangent to the ATC curve in the long run. 
B)  In the short run, the firm's demand curve will lie below its ATC curve. The demand curve will be tangent to the ATC curve in the long run. 
C)  In the short run, the firm's demand curve will cross its ATC curve at the ATC curve's lowest point. The demand curve will be above the ATC curve in the long run. 
D)  In the short run, the firm's ATC curve will cross the demand curve at the profit-maximising level of output. The demand curve will be tangent to the ATC curve in the long run.

Question 3

In theory,in the long run,monopolistically competitive firms earn zero profits.However,in reality there are some ways by which a firm can avoid losing profits.Which of the following is one such way?

Accepted Answer

A)  Gradually increase the mark-up on the goods produced. 
B)  Lower the price of its products to expand its market share. 
C)  Identify new markets and develop products precisely for those markets. 
D)  Find a market niche and keep it as narrow as possible so as to prevent other producers from entering this market segment 
A)  Gradually increase the mark-up on the goods produced. 
B)  Lower the price of its products to expand its market share. 
C)  Identify new markets and develop products precisely for those markets. 
D)  Find a market niche and keep it as narrow as possible so as to prevent other producers from entering this market segment

Question 4

Both monopolistically competitive firms and perfectly competitive firms maximise profits

Accepted Answer

A)  by producing where price equals average total cost. 
B)  by producing where marginal revenue equals average revenue. 
C)  by producing where marginal revenue is equal to marginal cost. 
D)  by producing where price equals average variable cost. 
A)  by producing where price equals average total cost. 
B)  by producing where marginal revenue equals average revenue. 
C)  by producing where marginal revenue is equal to marginal cost. 
D)  by producing where price equals average variable cost.

Question 5

In game theory,the three key characteristics of a game are

Accepted Answer

A)  rules, strategies and payoffs. 
B)  rules, regulations and payoffs. 
C)  winners, losers and rules. 
D)  risks, rewards and penalties. 
A)  rules, strategies and payoffs. 
B)  rules, regulations and payoffs. 
C)  winners, losers and rules. 
D)  risks, rewards and penalties.

Question 6

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.Which of the following statements is true?

Accepted Answer

A)  The Nash equilibrium is a non-cooperative, dominant strategy equilibrium. 
B)  The Nash equilibrium is a cooperative equilibrium. 
C)  The Nash equilibrium is a collusive equilibrium. 
D)  There is no Nash equilibrium in this game because each party pursues its dominant strategy. 
A)  The Nash equilibrium is a non-cooperative, dominant strategy equilibrium. 
B)  The Nash equilibrium is a cooperative equilibrium. 
C)  The Nash equilibrium is a collusive equilibrium. 
D)  There is no Nash equilibrium in this game because each party pursues its dominant strategy.

Question 7

If a monopolistically competitive firm breaks even,the firm is earning as much in this industry as it could in any other comparable industry.

Accepted Answer

A) True 
 B)False

Question 8

Figure 9-14  
-Refer to Figure 9-14.What is the output price?

Accepted Answer

A)  P4 
B)  P3 
C)  P2 
D)  P1 
A)  P4 
B)  P3 
C)  P2 
D)  P1

Question 9

Table 9-6   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 whether to increase its advertising spending to compete for customers. Table 9-6 shows the payoff matrix for this advertising game.
-Refer to Table 9-6.Is there a dominant strategy for Star Connections and,if so,what is it?

Accepted Answer

A)  No, its outcome depends on what Godrickporter does. 
B)  Yes, Star Connections should increase its advertising spending. 
C)  Yes, Star Connections should reduce its advertising spending. 
D)  Yes, Star Connections' dominant strategy is to collude with Godrickporter. 
A)  No, its outcome depends on what Godrickporter does. 
B)  Yes, Star Connections should increase its advertising spending. 
C)  Yes, Star Connections should reduce its advertising spending. 
D)  Yes, Star Connections' dominant strategy is to collude with Godrickporter.

Question 10

There is much evidence to suggest that airlines are more likely to match price cuts than price increases.Which of the following best explains this evidence?

Accepted Answer

A)  The law of demand, which states that an increase in price leads to a decrease in quantity demanded. 
B)  No one airline wants to be the first to renege on a tacit collusive agreement in which all airlines implicitly agree to match price cuts but not price increases. 
C)  An airline fears that if it does not match a price cut, its sales may fall considerably, but if it does not match a price increase, it will be able to attract customers away from its rivals. 
D)  Airlines have different costs of production, and therefore it is more difficult to agree on a price increase than on a price decrease. 
A)  The law of demand, which states that an increase in price leads to a decrease in quantity demanded. 
B)  No one airline wants to be the first to renege on a tacit collusive agreement in which all airlines implicitly agree to match price cuts but not price increases. 
C)  An airline fears that if it does not match a price cut, its sales may fall considerably, but if it does not match a price increase, it will be able to attract customers away from its rivals. 
D)  Airlines have different costs of production, and therefore it is more difficult to agree on a price increase than on a price decrease.

Question 11

A dominant strategy

Accepted Answer

A)  is one that is the best for a firm, no matter what strategies other firms use. 
B)  is one that a firm is forced into following by government policy. 
C)  involves colluding with rivals to maximise joint profits. 
D)  involves deciding what to do after all rivals have chosen their own strategies. 
A)  is one that is the best for a firm, no matter what strategies other firms use. 
B)  is one that a firm is forced into following by government policy. 
C)  involves colluding with rivals to maximise joint profits. 
D)  involves deciding what to do after all rivals have chosen their own strategies.

Question 12

Table 9-2
   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.What is likely to happen to the product's price in the long run?

Accepted Answer

A)  It will fall. 
B)  It will increase. 
C)  It will remain constant. 
D)  This cannot be determined without information on its long-run demand curve. 
A)  It will fall. 
B)  It will increase. 
C)  It will remain constant. 
D)  This cannot be determined without information on its long-run demand curve.

Question 13

Table 9-5
   Table 9-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags.
-Refer to Table 9-5.At the profit-maximising or loss-minimising output level

Accepted Answer

A)  the firm makes a profit of $12. 
B)  the firm incurs a loss equal to its fixed cost. 
C)  the firm makes a profit of $16. 
D)  the firm incurs a loss of $14. 
A)  the firm makes a profit of $12. 
B)  the firm incurs a loss equal to its fixed cost. 
C)  the firm makes a profit of $16. 
D)  the firm incurs a loss of $14.

Question 14

The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium.

Accepted Answer

A) True 
 B)False

Question 15

What is a second-price auction?

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 16

The profit-maximising rule for a monopolistically competitive firm is to select the quantity at which

Accepted Answer

A)  marginal revenue equals marginal cost. 
B)  average revenue exceeds marginal cost by the greatest amount. 
C)  price equals marginal cost. 
D)  average revenue equals average total cost. 
A)  marginal revenue equals marginal cost. 
B)  average revenue exceeds marginal cost by the greatest amount. 
C)  price equals marginal cost. 
D)  average revenue equals average total cost.

Question 17

Table 9-6   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 whether to increase its advertising spending to compete for customers. Table 9-6 shows the payoff matrix for this advertising game.
-Refer to Table 9-6.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 increase its advertising spending. 
B)  Yes, both firms have an incentive to increase 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 increase its advertising spending. 
B)  Yes, both firms have an incentive to increase 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 18

Figure 9-4   Figure 9-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 9-4.Should the firm represented in the diagram continue to stay in business despite its losses?

Accepted Answer

A)  No, it should shut down. 
B)  Yes, its total revenue covers its variable cost. 
C)  No, it is not able to cover its fixed cost. 
D)  Yes, it should increase its revenue by raising its price. 
A)  No, it should shut down. 
B)  Yes, its total revenue covers its variable cost. 
C)  No, it is not able to cover its fixed cost. 
D)  Yes, it should increase its revenue by raising its price.

Question 19

Figure 9-15   Figure 9-15 illustrates a monopolistically competitive firm.
-Refer to Figure 9-15.Which of the following statements describes the firm depicted in the diagram?

Accepted Answer

A)  The firm is making no economic profit and will exit the industry. 
B)  The firm is suffering an economic loss by producing at Q0 but will break even if it increases its output to Q1. 
C)  The firm achieves productive efficiency by producing at Q0. 
D)  The firm is in long-run equilibrium and is breaking even. 
A)  The firm is making no economic profit and will exit the industry. 
B)  The firm is suffering an economic loss by producing at Q0 but will break even if it increases its output to Q1. 
C)  The firm achieves productive efficiency by producing at Q0. 
D)  The firm is in long-run equilibrium and is breaking even.

Question 20

A cartel is

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.

In both monopolistically competitive and perfectly competitive industries,

Which of the following describes the relative positions of the demand curve and the average total cost (ATC)curve of a monopolistically competitive firm that earns a profit in the short run?

In theory,in the long run,monopolistically competitive firms earn zero profits.However,in reality there are some ways by which a firm can avoid losing profits.Which of the following is one such way?

Both monopolistically competitive firms and perfectly competitive firms maximise profits

In game theory,the three key characteristics of a game are

If a monopolistically competitive firm breaks even,the firm is earning as much in this industry as it could in any other comparable industry.

Figure 9-14 -Refer to Figure 9-14.What is the output price?

There is much evidence to suggest that airlines are more likely to match price cuts than price increases.Which of the following best explains this evidence?

A dominant strategy

Table 9-2 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.What is likely to happen to the product's price in the long run?

Table 9-5 Table 9-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags. -Refer to Table 9-5.At the profit-maximising or loss-minimising output level

The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium.

What is a second-price auction?

The profit-maximising rule for a monopolistically competitive firm is to select the quantity at which

Figure 9-4 Figure 9-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 9-4.Should the firm represented in the diagram continue to stay in business despite its losses?

Figure 9-15 Figure 9-15 illustrates a monopolistically competitive firm. -Refer to Figure 9-15.Which of the following statements describes the firm depicted in the diagram?

A cartel is

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

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Exam 9: Firms in Perfectly Competitive Markets

In both monopolistically competitive and perfectly competitive industries,

Which of the following describes the relative positions of the demand curve and the average total cost (ATC)curve of a monopolistically competitive firm that earns a profit in the short run?

In theory,in the long run,monopolistically competitive firms earn zero profits.However,in reality there are some ways by which a firm can avoid losing profits.Which of the following is one such way?

Both monopolistically competitive firms and perfectly competitive firms maximise profits

In game theory,the three key characteristics of a game are

If a monopolistically competitive firm breaks even,the firm is earning as much in this industry as it could in any other comparable industry.

Figure 9-14 -Refer to Figure 9-14.What is the output price?

There is much evidence to suggest that airlines are more likely to match price cuts than price increases.Which of the following best explains this evidence?

A dominant strategy

Table 9-2 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.What is likely to happen to the product's price in the long run?

Table 9-5 Table 9-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags. -Refer to Table 9-5.At the profit-maximising or loss-minimising output level

The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium.

What is a second-price auction?

The profit-maximising rule for a monopolistically competitive firm is to select the quantity at which

Figure 9-4 Figure 9-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 9-4.Should the firm represented in the diagram continue to stay in business despite its losses?

Figure 9-15 Figure 9-15 illustrates a monopolistically competitive firm. -Refer to Figure 9-15.Which of the following statements describes the firm depicted in the diagram?

A cartel is

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