Question 1

A cartel is an organization of firms in which there is a dominant firm which dictates price and output decisions to the other member firms.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements about the monopolistically competitive market in the long run is true?

Accepted Answer

A) The resources are efficiently utilized. 
B) Consumers have a greater variety of products to choose from than under perfectly competitive market conditions. 
C) The marginal-revenue curve coincides with the demand curve facing the firm. 
D) The firms produce the output level that is less than the output corresponding to the minimum of average total cost. 
E) The firms operate in the upward-sloping portion of the long run average cost curve. 
A) The resources are efficiently utilized. 
B) Consumers have a greater variety of products to choose from than under perfectly competitive market conditions. 
C) The marginal-revenue curve coincides with the demand curve facing the firm. 
D) The firms produce the output level that is less than the output corresponding to the minimum of average total cost. 
E) The firms operate in the upward-sloping portion of the long run average cost curve.

Question 3

Compared with generic products, a brand name:

Accepted Answer

A) reduces the price elasticity of demand and gives the firm more market power. 
B) increases the price elasticity of demand and gives the firm more market power. 
C) increases the price elasticity of demand and gives the firm less market power. 
D) reduces the price elasticity of demand and gives the firm less market power. 
E) has no effect on price elasticity of demand or market power. 
A) reduces the price elasticity of demand and gives the firm more market power. 
B) increases the price elasticity of demand and gives the firm more market power. 
C) increases the price elasticity of demand and gives the firm less market power. 
D) reduces the price elasticity of demand and gives the firm less market power. 
E) has no effect on price elasticity of demand or market power.

Question 4

An efficient way to move toward the Nash equilibrium is called a(n):

Accepted Answer

A) an agreement. 
B) a convention. 
C) a principle. 
D) a resolution. 
E) a convergence. 
A) an agreement. 
B) a convention. 
C) a principle. 
D) a resolution. 
E) a convergence.

Question 5

Which of the following is true of price leadership?

Accepted Answer

A) Price leadership requires that firms collude. 
B) Price leadership will not exist when there is a dominant firm. 
C) Price leadership may come into being as firms recognize the benefits of not engaging in competitive pricing. 
D) Price leadership is most likely to arise when no firm has a history of making accurate evaluations of market conditions. 
E) Price leadership is never used in the real world. 
A) Price leadership requires that firms collude. 
B) Price leadership will not exist when there is a dominant firm. 
C) Price leadership may come into being as firms recognize the benefits of not engaging in competitive pricing. 
D) Price leadership is most likely to arise when no firm has a history of making accurate evaluations of market conditions. 
E) Price leadership is never used in the real world.

Question 6

By forming a cartel the member firms can actually raise their profits.

Accepted Answer

A) True 
 B)False

Question 7

Monopolistic competition is similar to perfect competition in that:

Accepted Answer

A) there are only a few firms in the market. 
B) entry into and exit from the market is easy. 
C) there are significant barriers to entry in the market. 
D) each firm sells a homogeneous product. 
E) each firm differentiates its product through advertising. 
A) there are only a few firms in the market. 
B) entry into and exit from the market is easy. 
C) there are significant barriers to entry in the market. 
D) each firm sells a homogeneous product. 
E) each firm differentiates its product through advertising.

Question 8

Often the best way for a firm to convey information to consumers about the quality of a product is to spend money on creating well-known brand names and the provision of guarantees.

Accepted Answer

A) True 
 B)False

Question 9

According to Figure 25.1, the profit-maximizing firm is making an average:

Accepted Answer

A) profit on each unit produced equal to the distance BG. 
B) loss on each unit produced equal to the distance BG. 
C) profit on each unit produced equal to the distance CE. 
D) loss on each unit produced equal to the distance DG. 
E) loss on each unit produced equal to the distance AC. 
A) profit on each unit produced equal to the distance BG. 
B) loss on each unit produced equal to the distance BG. 
C) profit on each unit produced equal to the distance CE. 
D) loss on each unit produced equal to the distance DG. 
E) loss on each unit produced equal to the distance AC.

Question 10

A monopolistically competitive firm maximizes profit at the point at which price is equal to marginal cost.

Accepted Answer

A) True 
 B)False

Question 11

Product differentiation:

Accepted Answer

A) is carried out by perfectly competitive and monopolistically competitive firms. 
B) is succesful if a firm faces a relatively inelastic demand curve. 
C) does not allow the firm to raise its price without losing all of its customers. 
D) cannot be accomplished through advertising or trivial product changes. 
E) if carried out successfully enables the firms to enjoy market power. 
A) is carried out by perfectly competitive and monopolistically competitive firms. 
B) is succesful if a firm faces a relatively inelastic demand curve. 
C) does not allow the firm to raise its price without losing all of its customers. 
D) cannot be accomplished through advertising or trivial product changes. 
E) if carried out successfully enables the firms to enjoy market power.

Question 12

In the long run, in a monopolistically competitive market:

Accepted Answer

A) marginal revenue is greater than average revenue. 
B) price equals marginal cost. 
C) price equals minimum average total cost. 
D) the firms earn positive economic profits. 
E) resources are inefficiently allocated . 
A) marginal revenue is greater than average revenue. 
B) price equals marginal cost. 
C) price equals minimum average total cost. 
D) the firms earn positive economic profits. 
E) resources are inefficiently allocated .

Question 13

The table below shows the payoff (profit)matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms). Table 25.2   Refer to Table 25.2.If firm B follows its dominant strategy but firm A does not, firm B will earn a profit of:

Accepted Answer

A) $45. 
B) $40. 
C) $20. 
D) $60. 
E) $50 
A) $45. 
B) $40. 
C) $20. 
D) $60. 
E) $50

Question 14

In an oligopoly market, firms do not produce identical product.

Accepted Answer

A) True 
 B)False

Question 15

One reason that monopolistically competitive firms often use celebrity endorsements is that:

Accepted Answer

A) the firm owners like to be around celebrities so they can feel important. 
B) they can link their product's reputation with the celebrity's reputation. 
C) celebrity endorsements are so inexpensive. 
D) firms like to spend money on famous people. 
E) the firms like to spend a lot on advertisements. 
A) the firm owners like to be around celebrities so they can feel important. 
B) they can link their product's reputation with the celebrity's reputation. 
C) celebrity endorsements are so inexpensive. 
D) firms like to spend money on famous people. 
E) the firms like to spend a lot on advertisements.

Question 16

A deadweight loss arises in a perfectly competitive market as each firm is a price taker.

Accepted Answer

A) True 
 B)False

Question 17

In contrast to perfect competition, in a monopolistically competitive industry:

Accepted Answer

A) new firms entering the market produce a good that is identical to the existing ones. 
B) new firms entering the market produce a completely different product. 
C) there are legal restrictions on the entry of new firms. 
D) new firms entering the market produce a close substitute, not an identical or standardized product. 
E) new firms are allowed to enter the industry but there are legal restrictions on their exit. 
A) new firms entering the market produce a good that is identical to the existing ones. 
B) new firms entering the market produce a completely different product. 
C) there are legal restrictions on the entry of new firms. 
D) new firms entering the market produce a close substitute, not an identical or standardized product. 
E) new firms are allowed to enter the industry but there are legal restrictions on their exit.

Question 18

Suppose a monopolistically competitive firm is producing at the profit-maximizing output level and receiving a price that is sufficient to cover only its average variable cost.If the price falls further the firm should suspend its operations.

Accepted Answer

A) True 
 B)False

Question 19

As a firm in a monopolistically competitive market successfully differentiates its products and earns a positive economic profit, it is soon imitated by its rivals and profit of the firm falls to zero.

Accepted Answer

A) True 
 B)False

Question 20

A monopolistically competitive market is characterized by:

Accepted Answer

A) one firm selling a homogeneous product. 
B) many firms selling identical products. 
C) many firms selling similar but differentiated products. 
D) few firms selling identical products. 
E) few firms selling similar but differentiated products. 
A) one firm selling a homogeneous product. 
B) many firms selling identical products. 
C) many firms selling similar but differentiated products. 
D) few firms selling identical products. 
E) few firms selling similar but differentiated products.

Exam 46: Monopolistic Competition and Oligopoly

A cartel is an organization of firms in which there is a dominant firm which dictates price and output decisions to the other member firms.

Which of the following statements about the monopolistically competitive market in the long run is true?

Compared with generic products, a brand name:

An efficient way to move toward the Nash equilibrium is called a(n):

Which of the following is true of price leadership?

By forming a cartel the member firms can actually raise their profits.

Monopolistic competition is similar to perfect competition in that:

Often the best way for a firm to convey information to consumers about the quality of a product is to spend money on creating well-known brand names and the provision of guarantees.

According to Figure 25.1, the profit-maximizing firm is making an average:

A monopolistically competitive firm maximizes profit at the point at which price is equal to marginal cost.

Product differentiation:

In the long run, in a monopolistically competitive market:

In an oligopoly market, firms do not produce identical product.

One reason that monopolistically competitive firms often use celebrity endorsements is that:

A deadweight loss arises in a perfectly competitive market as each firm is a price taker.

In contrast to perfect competition, in a monopolistically competitive industry:

Suppose a monopolistically competitive firm is producing at the profit-maximizing output level and receiving a price that is sufficient to cover only its average variable cost.If the price falls further the firm should suspend its operations.

As a firm in a monopolistically competitive market successfully differentiates its products and earns a positive economic profit, it is soon imitated by its rivals and profit of the firm falls to zero.

A monopolistically competitive market is characterized by:

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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