Question 1

If a monopolistically competitive industry is in long-run equilibrium and suddenly the cost of resources increases, then:

Accepted Answer

A) the demand and average-revenue curves will shift to the right. 
B) the demand and average-revenue curves will shift to the left. 
C) some firms will eventually leave the industry. 
D) new firms will eventually enter the industry. 
E) the cost structure of the firm will shift down. 
A) the demand and average-revenue curves will shift to the right. 
B) the demand and average-revenue curves will shift to the left. 
C) some firms will eventually leave the industry. 
D) new firms will eventually enter the industry. 
E) the cost structure of the firm will shift down.

Question 2

The short-run equilibrium position for a firm in monopolistic competition is the point at which the firm's marginal-cost curve intersects its marginal-revenue curve from above.

Accepted Answer

A) True 
 B)False

Question 3

The monopolistically competitive firm will charge a price which is more than that charged by a perfectly competitive firm.

Accepted Answer

A) True 
 B)False

Question 4

Consumer loyalty tends to be very low in markets such as cola drinks and tobacco products.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements about collusion istrue?

Accepted Answer

A) Collusion is legal in the United States. 
B) Its overriding goal is to enhance competition and thereby increase profits. 
C) The greater the number of firms, the less difficult it is to maintain. 
D) Collusion never results in benefits for the participants. 
E) Collusion may help to increase the profits of the participating firms. 
A) Collusion is legal in the United States. 
B) Its overriding goal is to enhance competition and thereby increase profits. 
C) The greater the number of firms, the less difficult it is to maintain. 
D) Collusion never results in benefits for the participants. 
E) Collusion may help to increase the profits of the participating firms.

Question 6

Which of the following is true of a successful cartel?

Accepted Answer

A) A successful cartel offers consumers the lowest possible price for a product. 
B) A successful cartel minimizes profits for its members. 
C) A successful cartel behaves as a monopolist in the market. 
D) A successful cartel produces a quantity greater than that produced in a competitive market. 
E) A successful cartel is always stable. 
A) A successful cartel offers consumers the lowest possible price for a product. 
B) A successful cartel minimizes profits for its members. 
C) A successful cartel behaves as a monopolist in the market. 
D) A successful cartel produces a quantity greater than that produced in a competitive market. 
E) A successful cartel is always stable.

Question 7

Oligopoly can arise from:

Accepted Answer

A) diseconomies of scale in production. 
B) limited demand for a product in the market. 
C) government regulations. 
D) easy availability of the crucial inputs. 
E) reduction of trade barriers. 
A) diseconomies of scale in production. 
B) limited demand for a product in the market. 
C) government regulations. 
D) easy availability of the crucial inputs. 
E) reduction of trade barriers.

Question 8

Which of the following statements about a monopolistically competitive firm in the short run is true?

Accepted Answer

A) Profits will be maximized at the point at which price equals marginal cost and hence there is no deadweight loss. 
B) The firm may be able to earn a super normal profit in the short run and the long run. 
C) Entry into the market is difficult. 
D) Advertising may enable a firm to charge a higher price than that charged by rival firms. 
E) It faces a perfectly elastic demand curve 
A) Profits will be maximized at the point at which price equals marginal cost and hence there is no deadweight loss. 
B) The firm may be able to earn a super normal profit in the short run and the long run. 
C) Entry into the market is difficult. 
D) Advertising may enable a firm to charge a higher price than that charged by rival firms. 
E) It faces a perfectly elastic demand curve

Question 9

In long-run equilibrium, the monopolistically competitive firm:

Accepted Answer

A) will break even. 
B) will cease to advertise. 
C) will earn a positive economic profit. 
D) will face a perfectly elastic demand curve. 
E) will no longer need to engage in non-price competition. 
A) will break even. 
B) will cease to advertise. 
C) will earn a positive economic profit. 
D) will face a perfectly elastic demand curve. 
E) will no longer need to engage in non-price competition.

Question 10

In long-run equilibrium, each monopolistically competitive firm can earn positive economic profits due to economies of scale.

Accepted Answer

A) True 
 B)False

Question 11

The oligopoly market structure model is characterized by:

Accepted Answer

A) many firms in the industry producing differentiated products. 
B) many firms in the industry producing identical products. 
C) few firms in an industry with natural barriers to entry. 
D) a single firm in an industry with barriers to entry. 
E) many firms in an industry with barriers to entry. 
A) many firms in the industry producing differentiated products. 
B) many firms in the industry producing identical products. 
C) few firms in an industry with natural barriers to entry. 
D) a single firm in an industry with barriers to entry. 
E) many firms in an industry with barriers to entry.

Question 12

The Gulf Cartel and Sinaloa Cartel are the two major cartels in illegal drug trade in Mexico.Although, each of these cartels are better off sharing the market, they have an incentive to try to take the entire market.In which of the following ways is cheating among these cartel members dealt with in this region?

Accepted Answer

A) Through government taxation policy 
B) Through legally enforceable contracts 
C) Through restrictions on the supply of inputs used by the firms 
D) Through output quota and price ceiling 
E) Through violence and drug wars 
A) Through government taxation policy 
B) Through legally enforceable contracts 
C) Through restrictions on the supply of inputs used by the firms 
D) Through output quota and price ceiling 
E) Through violence and drug wars

Question 13

Celebrity endorsements are often used by monopolistically competitive firms to boost the reputation of the product that is being endorsed.

Accepted Answer

A) True 
 B)False

Question 14

In order to survive, cartels must be able to enforce contracts.However, when a cartel is trading in an illegal commodity:

Accepted Answer

A) it can use the judicial system to enforce contracts. 
B) it relies on altruism of members to enforce contracts. 
C) it is inherently stable because the market is underground. 
D) violence becomes a means of contract enforcement. 
E) authorities are effective in preventing the trade. 
A) it can use the judicial system to enforce contracts. 
B) it relies on altruism of members to enforce contracts. 
C) it is inherently stable because the market is underground. 
D) violence becomes a means of contract enforcement. 
E) authorities are effective in preventing the trade.

Question 15

A cartel attempts to increase profits in the industry by limiting the production of each member firm.

Accepted Answer

A) True 
 B)False

Question 16

If all the firms in a monopolistically competitive market are incurring losses, then eventually:

Accepted Answer

A) the aggregate demand for the products will increase. 
B) the aggregate supply of the products will increase. 
C) the price of the products in general will decline. 
D) the cost of production will increase. 
E) the firms will exit until the existing ones just break even. 
A) the aggregate demand for the products will increase. 
B) the aggregate supply of the products will increase. 
C) the price of the products in general will decline. 
D) the cost of production will increase. 
E) the firms will exit until the existing ones just break even.

Question 17

The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure 25.3   In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
The monopolistically competitive firm in Figure 25.3 will maximize profits (or minimize losses)by producing _____ and charging _____.

Accepted Answer

A) Q2;P6 
B) Q1;P1 
C) Q2;P2 
D) Q3;P3 
E) Q4;P5 
A) Q2;P6 
B) Q1;P1 
C) Q2;P2 
D) Q3;P3 
E) Q4;P5

Question 18

If firms are successful in product differentiation:

Accepted Answer

A) their demand will become relatively elastic. 
B) consumers will believe that the firms are producing more or less identical goods. 
C) they can raise their prices without losing all of their customers to rivals. 
D) they tend to face a horizontal demand curve. 
E) they gradually emerge as price takers. 
A) their demand will become relatively elastic. 
B) consumers will believe that the firms are producing more or less identical goods. 
C) they can raise their prices without losing all of their customers to rivals. 
D) they tend to face a horizontal demand curve. 
E) they gradually emerge as price takers.

Question 19

The firms in an oligopoly market structure agree to collude because:

Accepted Answer

A) acting jointly helps them to earn more profits. 
B) each firm wants to know the strategy of its rivals. 
C) each firm wants to charge a lower price for its product than its rivals. 
D) the firms want to maintain a healthy relationship with each other. 
E) it helps them to enjoy economies of scale. 
A) acting jointly helps them to earn more profits. 
B) each firm wants to know the strategy of its rivals. 
C) each firm wants to charge a lower price for its product than its rivals. 
D) the firms want to maintain a healthy relationship with each other. 
E) it helps them to enjoy economies of scale.

Question 20

In a monopolistically competitive industry, firms which enter the market in the long run produce a close substitute and not a standardized product.

Accepted Answer

A) True 
 B)False

Exam 46: Monopolistic Competition and Oligopoly

If a monopolistically competitive industry is in long-run equilibrium and suddenly the cost of resources increases, then:

The short-run equilibrium position for a firm in monopolistic competition is the point at which the firm's marginal-cost curve intersects its marginal-revenue curve from above.

The monopolistically competitive firm will charge a price which is more than that charged by a perfectly competitive firm.

Consumer loyalty tends to be very low in markets such as cola drinks and tobacco products.

Which of the following statements about collusion istrue?

Which of the following is true of a successful cartel?

Oligopoly can arise from:

Which of the following statements about a monopolistically competitive firm in the short run is true?

In long-run equilibrium, the monopolistically competitive firm:

In long-run equilibrium, each monopolistically competitive firm can earn positive economic profits due to economies of scale.

The oligopoly market structure model is characterized by:

Celebrity endorsements are often used by monopolistically competitive firms to boost the reputation of the product that is being endorsed.

In order to survive, cartels must be able to enforce contracts.However, when a cartel is trading in an illegal commodity:

A cartel attempts to increase profits in the industry by limiting the production of each member firm.

If all the firms in a monopolistically competitive market are incurring losses, then eventually:

If firms are successful in product differentiation:

The firms in an oligopoly market structure agree to collude because:

In a monopolistically competitive industry, firms which enter the market in the long run produce a close substitute and not a standardized product.

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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