Question 1

The short-run equilibrium position for a firm in monopolistic competition is the point at which:

Accepted Answer

A) price equals average variable cost. 
B) marginal revenue equals rising marginal cost. 
C) price equals marginal cost. 
D) marginal revenue equals average revenue. 
E) the firm's marginal-cost curve intersects its marginal-revenue curve from above. 
A) price equals average variable cost. 
B) marginal revenue equals rising marginal cost. 
C) price equals marginal cost. 
D) marginal revenue equals average revenue. 
E) the firm's marginal-cost curve intersects its marginal-revenue curve from above.

Question 2

Which of the following is an example of cartel?

Accepted Answer

A) Advanced Micro Devices 
B) AREVA 
C) Organization of the Petroleum Exporting Countries 
D) Combat Observation Laser Teams 
E) Lloyds Banking Group 
A) Advanced Micro Devices 
B) AREVA 
C) Organization of the Petroleum Exporting Countries 
D) Combat Observation Laser Teams 
E) Lloyds Banking Group

Question 3

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 4

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 both the firms follow their dominant strategies:

Accepted Answer

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

Question 5

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 6

Which of the following is not an example of nonprice competition?

Accepted Answer

A) Kellogg's introduces Froot Loops with Lemonberry Swirls. 
B) Sterling Planet provides consumers the opportunity to purchase renewable electricity in upstate New York. 
C) Mountain Dew sells "Livewire" orange soda in the summer of 2003. 
D) Nissan lowers the interest rate charged for new automobile financing. 
E) Honda produces a hybrid version of its Civic. 
A) Kellogg's introduces Froot Loops with Lemonberry Swirls. 
B) Sterling Planet provides consumers the opportunity to purchase renewable electricity in upstate New York. 
C) Mountain Dew sells "Livewire" orange soda in the summer of 2003. 
D) Nissan lowers the interest rate charged for new automobile financing. 
E) Honda produces a hybrid version of its Civic.

Question 7

When firms use cost-plus pricing in a market,

Accepted Answer

A) each firm determines its price based on other firms' costs and prices. 
B) it may appear as though firms are colluding in price when they actually are not. 
C) prices of different firms will diverge widely. 
D) each firm will never maximize profit as they are charging the same prices irrespective of their costs. 
E) each will sell only to its most-favored customer. 
A) each firm determines its price based on other firms' costs and prices. 
B) it may appear as though firms are colluding in price when they actually are not. 
C) prices of different firms will diverge widely. 
D) each firm will never maximize profit as they are charging the same prices irrespective of their costs. 
E) each will sell only to its most-favored customer.

Question 8

The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure: 11.3   In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
The profit per unit of output for the firm in the Figure 11.3 is:

Accepted Answer

A) P5 - P3. 
B) P6 - P3. 
C) P3 - P2. 
D) P6 - P2. 
E) P4 - P2. 
A) P5 - P3. 
B) P6 - P3. 
C) P3 - P2. 
D) P6 - P2. 
E) P4 - P2.

Question 9

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 10

An oligopoly market consists of:

Accepted Answer

A) many firms which produce a standardized product. 
B) at least five firm one of which dominates the market. 
C) firms that make independent pricing and output decisions. 
D) a group of firms that dominate the market. 
E) firms which face perfectly elastic demand curves. 
A) many firms which produce a standardized product. 
B) at least five firm one of which dominates the market. 
C) firms that make independent pricing and output decisions. 
D) a group of firms that dominate the market. 
E) firms which face perfectly elastic demand curves.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

The major similarity between a monopolist and a monopolistically competitive firm is:

Accepted Answer

A) both are price takers. 
B) both face a horizontal demand curve. 
C) both are the sole producers of a particular good. 
D) both face a negatively sloped demand curve. 
E) both are affected by the decision of their rivals. 
A) both are price takers. 
B) both face a horizontal demand curve. 
C) both are the sole producers of a particular good. 
D) both face a negatively sloped demand curve. 
E) both are affected by the decision of their rivals.

Question 14

The figure below shows the revenue and cost curves of a monopolistically competitive firm. Figure: 11.2   In the figure,
D: Demand curve
MR: Marginal revenue curve
ATC1 and ATC2: Average total cost curves
MC: Marginal cost curve
In Figure 11.2, assume that the average total cost of the firm is represented by the curve ATC2.In the long run, we would expect:

Accepted Answer

A) entry of firms into the market because economic profits exist. 
B) exit of firms from the market because the existing firms suffer economic losses. 
C) that demand for each firm will increase. 
D) the market to become perfectly competitive. 
E) the market to become a monopoly. 
A) entry of firms into the market because economic profits exist. 
B) exit of firms from the market because the existing firms suffer economic losses. 
C) that demand for each firm will increase. 
D) the market to become perfectly competitive. 
E) the market to become a monopoly.

Question 15

Which of the following is true of the model of monopolistic competition?

Accepted Answer

A) Barriers to entry enable firms to enjoy positive profits in the long run. 
B) The number of firms declines over time as a result of economies of scale. 
C) The monopolistically competitive firms enjoy a greater market power than a monopolist. 
D) Firms tend to locate near each other in order to minimize total travel costs for consumers. 
E) The firms end up charging same prices for their individual products. 
A) Barriers to entry enable firms to enjoy positive profits in the long run. 
B) The number of firms declines over time as a result of economies of scale. 
C) The monopolistically competitive firms enjoy a greater market power than a monopolist. 
D) Firms tend to locate near each other in order to minimize total travel costs for consumers. 
E) The firms end up charging same prices for their individual products.

Question 16

The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure: 11.3   In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
Refer to Figure 11.3.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 17

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 18

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

Accepted Answer

A) True 
 B)False

Question 19

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
Refer to Figure 11.4.What is the profit earned by the firm at equilibrium?

Accepted Answer

A) 0AGF 
B) 0BKJ 
C) ACHG 
D) AEIG 
E) CEIH 
A) 0AGF 
B) 0BKJ 
C) ACHG 
D) AEIG 
E) CEIH

Question 20

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

Exam 18: Monopolistic Competition and Oligopoly

The short-run equilibrium position for a firm in monopolistic competition is the point at which:

Which of the following is an example of cartel?

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.

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 both the firms follow their dominant strategies:

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

Which of the following is not an example of nonprice competition?

When firms use cost-plus pricing in a market,

The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure: 11.3 In the figure, D: Demand curve MR: Marginal revenue curve MC: Marginal cost curve ATC: Average total cost curve The profit per unit of output for the firm in the Figure 11.3 is:

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.

An oligopoly market consists of:

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

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

The major similarity between a monopolist and a monopolistically competitive firm is:

Which of the following is true of the model of monopolistic competition?

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

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

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 Refer to Figure 11.4.What is the profit earned by the firm at equilibrium?

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

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

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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

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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

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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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