Question 1

A most-favored customer is one who:

Accepted Answer

A) buys a firm's product regularly. 
B) is an acquaintance of the owner of the firm. 
C) is given the guarantee of receiving the lowest price for a product. 
D) spends the maximum amount of money on a firm's product. 
E) has a high purchasing power. 
A) buys a firm's product regularly. 
B) is an acquaintance of the owner of the firm. 
C) is given the guarantee of receiving the lowest price for a product. 
D) spends the maximum amount of money on a firm's product. 
E) has a high purchasing power.

Question 2

Certain actions by oligopolistic firms can lead to collusion even when they formally do not agree to cooperate.

Accepted Answer

A) True 
 B)False

Question 3

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
Refer to Figure 25.3.A perfectly competitive outcome would exist at a price of _____ and an output level of _____.

Accepted Answer

A) P6;Q2 
B) P4;Q4 
C) P3;Q2 
D) P1;Q1 
E) P5;Q3 
A) P6;Q2 
B) P4;Q4 
C) P3;Q2 
D) P1;Q1 
E) P5;Q3

Question 4

When firms in an illegal market form a cartel, _____.

Accepted Answer

A) they are able to supply higher quality products 
B) it becomes more difficult for police to detect their activities 
C) they are able to increase profits by behaving as a monopolist 
D) they result in a deadweight loss 
E) they rely on goodwill to ensure the stability of the cartel 
A) they are able to supply higher quality products 
B) it becomes more difficult for police to detect their activities 
C) they are able to increase profits by behaving as a monopolist 
D) they result in a deadweight loss 
E) they rely on goodwill to ensure the stability of the cartel

Question 5

The following table shows the payoff matrix of the two firms (Firm X and Firm Y)in dollars when they advertise and when they do not advertise. Table 25.1   Refer to Table 25.1.If firm Y follows its dominant strategy and firm X does not then:

Accepted Answer

A) firm X earns $150 and firm Y earns $200. 
B) firm X earns $50 and firm Y earns $200. 
C) firm X earns $150 and firm Y earns $180. 
D) firm X earns $50 and firm Y earns $100. 
E) firm X earns $150 and firm Y earns $100. 
A) firm X earns $150 and firm Y earns $200. 
B) firm X earns $50 and firm Y earns $200. 
C) firm X earns $150 and firm Y earns $180. 
D) firm X earns $50 and firm Y earns $100. 
E) firm X earns $150 and firm Y earns $100.

Question 6

Why is each firm in a monopolistically competitive industry considered as a "mini" monopoly?

Accepted Answer

A) There is a large number of sellers in the market 
B) Each firm in monopolistic competition is a price taker 
C) The product of each firm is unique in some way or the other 
D) Each firm faces a perfectly elastic demand curve 
E) There exists a large number of close substitutes of the products 
A) There is a large number of sellers in the market 
B) Each firm in monopolistic competition is a price taker 
C) The product of each firm is unique in some way or the other 
D) Each firm faces a perfectly elastic demand curve 
E) There exists a large number of close substitutes of the products

Question 7

In a price-leadership oligopoly model, the oligopoly firms engage in price wars.

Accepted Answer

A) True 
 B)False

Question 8

When the existing firms in a monopolistically competitive industry earn above-normal profit:

Accepted Answer

A) new firms enter the market, and entry continues until firms earn normal profit. 
B) new firms have no incentive to enter the market. 
C) new firms have an incentive to enter the market but are legally barred from doing so. 
D) they increase their production and lower the price level. 
E) their cost structure automatically changes, eliminating the additional profit. 
A) new firms enter the market, and entry continues until firms earn normal profit. 
B) new firms have no incentive to enter the market. 
C) new firms have an incentive to enter the market but are legally barred from doing so. 
D) they increase their production and lower the price level. 
E) their cost structure automatically changes, eliminating the additional profit.

Question 9

Actions that allow oligopoly firms to coordinate their pricing behavior without explicit collusion are referred to as _____.

Accepted Answer

A) strategic behavior 
B) differential pricing strategies 
C) facilitating practices 
D) duopoly price discrimination mechanisms 
E) independent practices 
A) strategic behavior 
B) differential pricing strategies 
C) facilitating practices 
D) duopoly price discrimination mechanisms 
E) independent practices

Question 10

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 both firm A and firm B choose their dominant strategies then:

Accepted Answer

A) firm A makes a profit of $40 and firm B makes a profit of $45. 
B) firm A makes a profit of $50 and firm B makes a profit of $45. 
C) firm A makes a profit of $50 and firm B makes a profit of $40. 
D) firm A makes a profit of $42 and firm B makes a profit of $40. 
E) firm A makes a profit of $40 and firm B makes a profit of $20. 
A) firm A makes a profit of $40 and firm B makes a profit of $45. 
B) firm A makes a profit of $50 and firm B makes a profit of $45. 
C) firm A makes a profit of $50 and firm B makes a profit of $40. 
D) firm A makes a profit of $42 and firm B makes a profit of $40. 
E) firm A makes a profit of $40 and firm B makes a profit of $20.

Question 11

Strategic behavior occurs when a firm takes a particular strategy without considering the policies of its rivals.

Accepted Answer

A) True 
 B)False

Exam 46: Monopolistic Competition and Oligopoly

A most-favored customer is one who:

Certain actions by oligopolistic firms can lead to collusion even when they formally do not agree to cooperate.

When firms in an illegal market form a cartel, _____.

The following table shows the payoff matrix of the two firms (Firm X and Firm Y)in dollars when they advertise and when they do not advertise. Table 25.1 Refer to Table 25.1.If firm Y follows its dominant strategy and firm X does not then:

Why is each firm in a monopolistically competitive industry considered as a "mini" monopoly?

In a price-leadership oligopoly model, the oligopoly firms engage in price wars.

When the existing firms in a monopolistically competitive industry earn above-normal profit:

Actions that allow oligopoly firms to coordinate their pricing behavior without explicit collusion are referred to as _____.

Strategic behavior occurs when a firm takes a particular strategy without considering the policies of its rivals.

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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