Question 1

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 2

Consumers who purchase brand-name pharmaceuticals because they believe the brand name has some value, may be right even if a brand-name pharmaceutical and a generic product are chemically identical.

Accepted Answer

A) True 
 B)False

Question 3

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 4

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

Accepted Answer

A) True 
 B)False

Question 5

Oligopolies can arise as a result of both natural barriers and governmentally created barriers.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Compared with a perfectly competitive firm in long-run equilibrium, a monopolistically competitive firm will operate on the upward-sloping portion of the average-total-cost curve.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following theories applies to strategic behavior?

Accepted Answer

A) Field Theory 
B) Game Theory 
C) Theory of Consumers' Behavior 
D) Social Contract Theory 
E) Rational Choice Theory 
A) Field Theory 
B) Game Theory 
C) Theory of Consumers' Behavior 
D) Social Contract Theory 
E) Rational Choice Theory

Question 9

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 10

Firms develop brand names in order to make the demand for their product more elastic.

Accepted Answer

A) True 
 B)False

Question 11

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   Refer to Table 11.2.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 12

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 13

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   Refer to Table 11.1.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 14

Which of the following is an example of price competition?

Accepted Answer

A) Nike signs LeBron James to a $90 million contract for endorsements. 
B) Kellogg's puts the images of Snap, Crackle, and Pop on boxes of Cocoa Krispies, linking the cereal with Rice Krispies. 
C) McDonald's introduces new garden McSalads. 
D) Tropicana introduces the Blue Raspberry Rush juice. 
E) Apple offers a 20% discount on its new range of iPhones. 
A) Nike signs LeBron James to a $90 million contract for endorsements. 
B) Kellogg's puts the images of Snap, Crackle, and Pop on boxes of Cocoa Krispies, linking the cereal with Rice Krispies. 
C) McDonald's introduces new garden McSalads. 
D) Tropicana introduces the Blue Raspberry Rush juice. 
E) Apple offers a 20% discount on its new range of iPhones.

Question 15

A strategy that produces the best result no matter what strategy the opposing player follows is known as the dominated strategy.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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 the payoffs in Table 11.1:

Accepted Answer

A) Firm X will not advertise, no matter what, if Firm Y does not advertise. 
B) Firm X will advertise only if Firm Y does not advertise. 
C) Firm X does not have a dominant strategy, but Firm Y does. 
D) Firm Y does not have a dominant strategy, but Firm X does. 
E) Both firms would be better off if neither advertised. 
A) Firm X will not advertise, no matter what, if Firm Y does not advertise. 
B) Firm X will advertise only if Firm Y does not advertise. 
C) Firm X does not have a dominant strategy, but Firm Y does. 
D) Firm Y does not have a dominant strategy, but Firm X does. 
E) Both firms would be better off if neither advertised.

Question 18

The market structure called monopolistic competition is named using both monopoly and perfect competition.Why?

Accepted Answer

A) There are few firms in the market all producing the same product. 
B) There is just one firm whose product can be easily differentiated. 
C) There are a huge number of firms selling identical products at a constant price. 
D) There are many firms with easy entry and exit but each firm sells a unique product. 
E) Firms spend very little on advertising and promotion and thus are price takers. 
A) There are few firms in the market all producing the same product. 
B) There is just one firm whose product can be easily differentiated. 
C) There are a huge number of firms selling identical products at a constant price. 
D) There are many firms with easy entry and exit but each firm sells a unique product. 
E) Firms spend very little on advertising and promotion and thus are price takers.

Question 19

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 20

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

Accepted Answer

A) True 
 B)False

Exam 18: Monopolistic Competition and Oligopoly

Which of the following statements about collusion istrue?

Consumers who purchase brand-name pharmaceuticals because they believe the brand name has some value, may be right even if a brand-name pharmaceutical and a generic product are chemically identical.

In the long run, in a monopolistically competitive market:

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

Oligopolies can arise as a result of both natural barriers and governmentally created barriers.

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

Compared with a perfectly competitive firm in long-run equilibrium, a monopolistically competitive firm will operate on the upward-sloping portion of the average-total-cost curve.

Which of the following theories applies to strategic behavior?

Firms develop brand names in order to make the demand for their product more elastic.

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

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 Refer to Table 11.1.If firm Y follows its dominant strategy and firm X does not then:

Which of the following is an example of price competition?

A strategy that produces the best result no matter what strategy the opposing player follows is known as the dominated strategy.

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

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 the payoffs in Table 11.1:

The market structure called monopolistic competition is named using both monopoly and perfect competition.Why?

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

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

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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