Question 1

When firms use cost-plus pricing in a market,

Accepted Answer

A) each firm determines its price based on other firms' costs and prices. 
B) it may appear as though firms are colluding in price when they actually are not. 
C) prices of different firms will diverge widely. 
D) each firm will never maximize profit as they are charging the same prices irrespective of their costs. 
E) each will sell only to its most-favored customer. 
A) each firm determines its price based on other firms' costs and prices. 
B) it may appear as though firms are colluding in price when they actually are not. 
C) prices of different firms will diverge widely. 
D) each firm will never maximize profit as they are charging the same prices irrespective of their costs. 
E) each will sell only to its most-favored customer. B

Question 2

Consumers who are loyal to a brand will purchase products under that brand name even if their prices are above other competing brands.

Accepted Answer

A) True 
 B)False  True

Question 3

Which of the following is true of the model of monopolistic competition?

Accepted Answer

A) Barriers to entry enable firms to enjoy positive profits in the long run. 
B) The number of firms declines over time as a result of economies of scale. 
C) The monopolistically competitive firms enjoy a greater market power than a monopolist. 
D) Firms tend to locate near each other in order to minimize total travel costs for consumers. 
E) The firms end up charging same prices for their individual products. 
A) Barriers to entry enable firms to enjoy positive profits in the long run. 
B) The number of firms declines over time as a result of economies of scale. 
C) The monopolistically competitive firms enjoy a greater market power than a monopolist. 
D) Firms tend to locate near each other in order to minimize total travel costs for consumers. 
E) The firms end up charging same prices for their individual products. D

Question 4

Martin is in the market for a new television set.He is deciding between two sets: one is rather expensive but offers a guarantee;the other has a lower price but offers no guarantee.Martin's decision to buy the more expensive set would indicate that:

Accepted Answer

A) Martin does not know a good deal when he sees it. 
B) Martin interpreted the guarantee as a signal of the quality. 
C) Martin should have shopped around a bit more for a better deal. 
D) Martin is not maximizing his utility. 
E) Martin has a high income. 
A) Martin does not know a good deal when he sees it. 
B) Martin interpreted the guarantee as a signal of the quality. 
C) Martin should have shopped around a bit more for a better deal. 
D) Martin is not maximizing his utility. 
E) Martin has a high income.

Question 5

A monopolistically competitive market is marked by the barriers to entry of new firms in the long run.

Accepted Answer

A) True 
 B)False

Question 6

Perfect competition is the only market structure in which firms are economically efficient in the long run.

Accepted Answer

A) True 
 B)False

Question 7

The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure 25.4   MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Refer to Figure 25.4.What is the profit earned by the firm at equilibrium?

Accepted Answer

A) 0AGF 
B) 0BKJ 
C) ACHG 
D) AEIG 
E) CEIH 
A) 0AGF 
B) 0BKJ 
C) ACHG 
D) AEIG 
E) CEIH

Question 8

Both monopolistically and perfectly competitive firms earn only normal profits in the long run.

Accepted Answer

A) True 
 B)False

Question 9

In which market structure model(s)is product differentiation a significant feature?

Accepted Answer

A) Perfect competition 
B) Monopolistic competition 
C) Monopoly 
D) Oligopoly 
E) Both perfect competition and monopolistic competition 
A) Perfect competition 
B) Monopolistic competition 
C) Monopoly 
D) Oligopoly 
E) Both perfect competition and monopolistic competition

Question 10

If economic losses exist in a monopolistically competitive market,

Accepted Answer

A) new products will be introduced. 
B) new firms will enter the market because they see potential for profit in the future. 
C) firms will exit the market and the existing firms' demand curves will shift inward. 
D) the average total cost curve must lie below the demand curve. 
E) firms will exit the market and existing firms' demand curves will shift outward. 
A) new products will be introduced. 
B) new firms will enter the market because they see potential for profit in the future. 
C) firms will exit the market and the existing firms' demand curves will shift inward. 
D) the average total cost curve must lie below the demand curve. 
E) firms will exit the market and existing firms' demand curves will shift outward.

Question 11

Wal-Mart created a competitive advantage with its inventory system to reduce the ratio of cost of goods sold to sales expecting:

Accepted Answer

A) to enjoy huge economic profits forever. 
B) its rivals will never imitate their strategy and it will continue to enjoy positive economic profits. 
C) its rivals will immediately do the same thing and it will end earning zero profits. 
D) to enjoy economic profits for a few years before its rivals caught up. 
E) it will at least be able to cover its fixed costs. 
A) to enjoy huge economic profits forever. 
B) its rivals will never imitate their strategy and it will continue to enjoy positive economic profits. 
C) its rivals will immediately do the same thing and it will end earning zero profits. 
D) to enjoy economic profits for a few years before its rivals caught up. 
E) it will at least be able to cover its fixed costs.

Question 12

The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure 25.4   MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Assume that the firm in Figure 25.4 is monopolistically competitive.In the long run, we would expect:

Accepted Answer

A) the price of the firm's output to increase. 
B) entry of new firms because economic profits are positive. 
C) exit of few existing firms because economic profits are negative. 
D) the firm's demand curve to shift outward. 
E) the firm's demand curve to becomes less elastic. 
A) the price of the firm's output to increase. 
B) entry of new firms because economic profits are positive. 
C) exit of few existing firms because economic profits are negative. 
D) the firm's demand curve to shift outward. 
E) the firm's demand curve to becomes less elastic.

Question 13

A monopolistically competitive firm faces a relatively less elastic demand curve than a monopolist.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is an example of cartel?

Accepted Answer

A) Advanced Micro Devices 
B) AREVA 
C) Organization of the Petroleum Exporting Countries 
D) Combat Observation Laser Teams 
E) Lloyds Banking Group 
A) Advanced Micro Devices 
B) AREVA 
C) Organization of the Petroleum Exporting Countries 
D) Combat Observation Laser Teams 
E) Lloyds Banking Group

Question 15

Collusion of firms is legal in the United States.

Accepted Answer

A) True 
 B)False

Question 16

In the context of market structure, the characteristic that best describes a monopolistically competitive market is that:

Accepted Answer

A) there are few firms in the market. 
B) the products produced cannot be easily differentiated. 
C) entry and exit are both difficult. 
D) firms spend a great deal on advertising and promotion. 
E) firms spend very little on advertising and promotion. 
A) there are few firms in the market. 
B) the products produced cannot be easily differentiated. 
C) entry and exit are both difficult. 
D) firms spend a great deal on advertising and promotion. 
E) firms spend very little on advertising and promotion.

Question 17

Consumers are willing to pay a higher price for a product with a brand name as opposed to a generic product because:

Accepted Answer

A) a brand name provides a signal about a product's quality and reliability. 
B) they are willing to pay more for the privilege of watching the firm's commercials. 
C) a product with a brand name is always of higher quality. 
D) consumers maximize utility by purchasing the most expensive products. 
E) consumers are irrational. 
A) a brand name provides a signal about a product's quality and reliability. 
B) they are willing to pay more for the privilege of watching the firm's commercials. 
C) a product with a brand name is always of higher quality. 
D) consumers maximize utility by purchasing the most expensive products. 
E) consumers are irrational.

Question 18

Firms in monopolistically competitive markets spend significant sums on product differentiation because:

Accepted Answer

A) it enables them to earn positive profits in the short run. 
B) it increases the elasticity of demand for a firm's product. 
C) it reduces the number of competitors. 
D) it causes the firm's supply curve to become horizontal so the firm can expand output indefinitely. 
E) it causes the firm's demand curve to become horizontal so that it can charge a fixed price for its product. 
A) it enables them to earn positive profits in the short run. 
B) it increases the elasticity of demand for a firm's product. 
C) it reduces the number of competitors. 
D) it causes the firm's supply curve to become horizontal so the firm can expand output indefinitely. 
E) it causes the firm's demand curve to become horizontal so that it can charge a fixed price for its product.

Question 19

The figure below shows the revenue and cost curves of a monopolistically competitive firm. Figure 25.2   In the figure,
D: Demand curve
MR: Marginal revenue curve
ATC1 and ATC2: Average total cost curves
MC: Marginal cost curve
In Figure 25.2, assume that the average total cost of the firm is represented by the curve ATC2.In the long run, we would expect:

Accepted Answer

A) entry of firms into the market because economic profits exist. 
B) exit of firms from the market because the existing firms suffer economic losses. 
C) that demand for each firm will increase. 
D) the market to become perfectly competitive. 
E) the market to become a monopoly. 
A) entry of firms into the market because economic profits exist. 
B) exit of firms from the market because the existing firms suffer economic losses. 
C) that demand for each firm will increase. 
D) the market to become perfectly competitive. 
E) the market to become a monopoly.

Question 20

Strategic interdependence occurs in:

Accepted Answer

A) perfect competition. 
B) monopoly. 
C) monopolistic competition. 
D) oligopoly. 
E) local monopoly. 
A) perfect competition. 
B) monopoly. 
C) monopolistic competition. 
D) oligopoly. 
E) local monopoly.

Exam 46: Monopolistic Competition and Oligopoly

When firms use cost-plus pricing in a market,

Consumers who are loyal to a brand will purchase products under that brand name even if their prices are above other competing brands.

Which of the following is true of the model of monopolistic competition?

Martin is in the market for a new television set.He is deciding between two sets: one is rather expensive but offers a guarantee;the other has a lower price but offers no guarantee.Martin's decision to buy the more expensive set would indicate that:

A monopolistically competitive market is marked by the barriers to entry of new firms in the long run.

Perfect competition is the only market structure in which firms are economically efficient in the long run.

The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure 25.4 MR: Marginal revenue curve ATC: Average total cost curve MC: Marginal cost curve Refer to Figure 25.4.What is the profit earned by the firm at equilibrium?

Both monopolistically and perfectly competitive firms earn only normal profits in the long run.

In which market structure model(s)is product differentiation a significant feature?

If economic losses exist in a monopolistically competitive market,

Wal-Mart created a competitive advantage with its inventory system to reduce the ratio of cost of goods sold to sales expecting:

The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure 25.4 MR: Marginal revenue curve ATC: Average total cost curve MC: Marginal cost curve Assume that the firm in Figure 25.4 is monopolistically competitive.In the long run, we would expect:

A monopolistically competitive firm faces a relatively less elastic demand curve than a monopolist.

Which of the following is an example of cartel?

Collusion of firms is legal in the United States.

In the context of market structure, the characteristic that best describes a monopolistically competitive market is that:

Consumers are willing to pay a higher price for a product with a brand name as opposed to a generic product because:

Firms in monopolistically competitive markets spend significant sums on product differentiation because:

Strategic interdependence occurs in:

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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