Question 1

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 2

In the short run, a monopolistically competitive firm:

Accepted Answer

A) can earn only a normal profit. 
B) will produce at the point where marginal revenue is greater than marginal cost, in order to maximize profits. 
C) will produce at the point at which price equals minimum ATC to maximize profits. 
D) will be able to enter another monopolistically competitive industry. 
E) will shut down temporarily if price is less than AVC. 
A) can earn only a normal profit. 
B) will produce at the point where marginal revenue is greater than marginal cost, in order to maximize profits. 
C) will produce at the point at which price equals minimum ATC to maximize profits. 
D) will be able to enter another monopolistically competitive industry. 
E) will shut down temporarily if price is less than AVC.

Question 3

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 4

The objective of creating a brand name is:

Accepted Answer

A) to reduce the price of the product. 
B) to ensure a steady supply of the good in the market. 
C) to reduce the price elasticity of demand. 
D) to reduce the cost of production of the firm. 
E) to attract rival firms into the market. 
A) to reduce the price of the product. 
B) to ensure a steady supply of the good in the market. 
C) to reduce the price elasticity of demand. 
D) to reduce the cost of production of the firm. 
E) to attract rival firms into the market.

Question 5

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 6

A Nash equilibrium occurs when:

Accepted Answer

A) a unilateral move by a participant makes him better off. 
B) one can deviate from the equilibrium and improve the outcome. 
C) no one can move from the equilibrium and improve the outcome. 
D) participants have an incentive to deviate from the equilibrium. 
E) no one is better off. 
A) a unilateral move by a participant makes him better off. 
B) one can deviate from the equilibrium and improve the outcome. 
C) no one can move from the equilibrium and improve the outcome. 
D) participants have an incentive to deviate from the equilibrium. 
E) no one is better off.

Question 7

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 8

If additional firms enter a monopolistically competitive industry, the demand facing a typical firm increases.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 11.1   According to Table 11.1, if firm X advertises and Y does not advertise:

Accepted Answer

A) Firm X earns $50 and firm Y earns $200. 
B) Firm X earns $150 and firm Y earns $200. 
C) Firm X earns $100 and firm Y earns $200. 
D) Firm X earns $50 and firm Y earns $180. 
E) Firm X earns $180 and firm Y earns $80. 
A) Firm X earns $50 and firm Y earns $200. 
B) Firm X earns $150 and firm Y earns $200. 
C) Firm X earns $100 and firm Y earns $200. 
D) Firm X earns $50 and firm Y earns $180. 
E) Firm X earns $180 and firm Y earns $80.

Question 12

The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure 11.4   MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Assume that the firm in Figure 11.4 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's demand curve slopes downward because:

Accepted Answer

A) other firms are free to enter the market. 
B) there are a large number of firms in the market. 
C) a differentiated product gives the firm some monopoly power. 
D) the firm has complete information about the market. 
E) the firm sells a standardized product. 
A) other firms are free to enter the market. 
B) there are a large number of firms in the market. 
C) a differentiated product gives the firm some monopoly power. 
D) the firm has complete information about the market. 
E) the firm sells a standardized product.

Question 14

A consumer becomes loyal to a product when:

Accepted Answer

A) the good is available at a very low price. 
B) the product is as good as its substitutes. 
C) the product comes with a gift occasionally. 
D) he/she has had a positive experience with that good. 
E) discounts are offered periodically. 
A) the good is available at a very low price. 
B) the product is as good as its substitutes. 
C) the product comes with a gift occasionally. 
D) he/she has had a positive experience with that good. 
E) discounts are offered periodically.

Question 15

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.

Question 16

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 17

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 18

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 11.2   According to Table 11.2, if firm A follows its dominant strategy but firm B does not, firm A earns a profit of:

Accepted Answer

A) $50. 
B) $40. 
C) $60. 
D) $45. 
E) $42. 
A) $50. 
B) $40. 
C) $60. 
D) $45. 
E) $42.

Question 19

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 20

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.

Exam 18: Monopolistic Competition and Oligopoly

Which of the following is true of price leadership?

In the short run, a monopolistically competitive firm:

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

The objective of creating a brand name is:

If firms are successful in product differentiation:

A Nash equilibrium occurs when:

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

If additional firms enter a monopolistically competitive industry, the demand facing a typical firm increases.

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

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

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 11.1 According to Table 11.1, if firm X advertises and Y does not advertise:

The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure 11.4 MR: Marginal revenue curve ATC: Average total cost curve MC: Marginal cost curve Assume that the firm in Figure 11.4 is monopolistically competitive.In the long run, we would expect:

A monopolistically competitive firm's demand curve slopes downward because:

A consumer becomes loyal to a product when:

A monopolistically competitive market is characterized by:

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

Oligopoly can arise from:

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

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

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

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

Monopolistic Competition and Oligopoly

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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