Question 1

Which of the following characteristics is common to monopolistic competition and perfect competition?

Accepted Answer

A) Firms produce identical products. 
B) Entry barriers into the industry are low. 
C) Each firm faces a downward -sloping demand curve. 
D) Firms take market prices as given. 
A) Firms produce identical products. 
B) Entry barriers into the industry are low. 
C) Each firm faces a downward -sloping demand curve. 
D) Firms take market prices as given.

Question 2

An oligopolist differs from a perfect competitor in that

Accepted Answer

A) there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power. 
B) firms in an oligopoly do not produce homogeneous products while firms in perfect competition do. 
C) the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry. 
D) there are no entry barriers in perfect competition but there are entry barriers in oligopoly. 
A) there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power. 
B) firms in an oligopoly do not produce homogeneous products while firms in perfect competition do. 
C) the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry. 
D) there are no entry barriers in perfect competition but there are entry barriers in oligopoly.

Question 3

Which of the following statements about the prisoner's dilemma is false?

Accepted Answer

A) The prisoner's dilemma in a one-shot game leads to a noncooperative,equilibrium outcome. 
B) The prisoner's dilemma in repeated games could lead to cooperation especially if there is some enforcement mechanism that punishes a player who does not cooperate. 
C) Players caught in a prisoner's dilemma act in selfish ways that lead to an equilibrium that is sub-optimal. 
D) The prisoner's dilemma game can never reach a Nash equilibrium as long as players do not cooperate. 
A) The prisoner's dilemma in a one-shot game leads to a noncooperative,equilibrium outcome. 
B) The prisoner's dilemma in repeated games could lead to cooperation especially if there is some enforcement mechanism that punishes a player who does not cooperate. 
C) Players caught in a prisoner's dilemma act in selfish ways that lead to an equilibrium that is sub-optimal. 
D) The prisoner's dilemma game can never reach a Nash equilibrium as long as players do not cooperate.

Question 4

Figure 11-11  
-Refer to Figure 11-11.What is the amount of excess capacity?

Accepted Answer

A) Qh - Qf units 
B) Qj - Qf units 
C) Qj - Qh units 
D) Qh - Qg units 
A) Qh - Qf units 
B) Qj - Qf units 
C) Qj - Qh units 
D) Qh - Qg units

Question 5

A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until

Accepted Answer

A) the original firm is driven into bankruptcy. 
B) the firm's demand curve is perfectly elastic. 
C) the firm's demand curve is tangent to its average total cost curve. 
D) the firm exits the market. 
A) the original firm is driven into bankruptcy. 
B) the firm's demand curve is perfectly elastic. 
C) the firm's demand curve is tangent to its average total cost curve. 
D) the firm exits the market.

Question 6

Suppose two firms in a duopoly implicitly collude and charge a high price.How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

Accepted Answer

A) The offer to match prices is a way of deterring entry by other large firms,thereby keeping the market share of the existing firms intact. 
B) The advertisement ensures that the other firm does not cheat.If a firm cheats on the agreement and charges the lower price,the rival firm will retaliate by doing the same. 
C) The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion. 
D) The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available. 
A) The offer to match prices is a way of deterring entry by other large firms,thereby keeping the market share of the existing firms intact. 
B) The advertisement ensures that the other firm does not cheat.If a firm cheats on the agreement and charges the lower price,the rival firm will retaliate by doing the same. 
C) The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion. 
D) The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available.

Question 7

Table 11-3
   Table 11-3 shows the demand and cost schedules for a monopolistically competitive firm.
-Refer to Table 11-3.What is the amount of the firm's loss at its optimal output level?

Accepted Answer

A) $0 
B) $41 
C) $45 
D) $50 
A) $0 
B) $41 
C) $45 
D) $50

Question 8

Why do most firms in monopolistic competition typically make zero profit in the long run?

Accepted Answer

A) because firms produce differentiated products 
B) because the lack of entry barriers would compete away profits 
C) because firms do not produce at their minimum efficient scale 
D) because the total market is not large enough to accommodate so many firms 
A) because firms produce differentiated products 
B) because the lack of entry barriers would compete away profits 
C) because firms do not produce at their minimum efficient scale 
D) because the total market is not large enough to accommodate so many firms

Question 9

There is much evidence to suggest that airlines are more likely to match price cuts than price increases.Which of the following best explains this evidence?

Accepted Answer

A) The law of demand which states that an increase in price leads to a decrease in quantity demanded. 
B) No one airline wants to be the first to renege on a tacit collusive agreement in which all airlines implicitly agree to match price cuts but not price increases. 
C) An airline fears that if it does not match a price cut,its sales may fall considerably but if it does not match a price increase,it will be able to attract customers away from its rivals. 
D) Airlines have different costs of production and therefore it is more difficult to agree on a price increase than on a price decrease. 
A) The law of demand which states that an increase in price leads to a decrease in quantity demanded. 
B) No one airline wants to be the first to renege on a tacit collusive agreement in which all airlines implicitly agree to match price cuts but not price increases. 
C) An airline fears that if it does not match a price cut,its sales may fall considerably but if it does not match a price increase,it will be able to attract customers away from its rivals. 
D) Airlines have different costs of production and therefore it is more difficult to agree on a price increase than on a price decrease.

Question 10

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a gain in revenue due to the

Accepted Answer

A) substitution effect. 
B) income effect. 
C) price effect. 
D) output effect. 
A) substitution effect. 
B) income effect. 
C) price effect. 
D) output effect.

Question 11

Economies of scale can lead to an oligopolistic market structure because

Accepted Answer

A) if larger firms have lower costs,new small entrants will not be able to produce at the low costs achieved by the big established firms. 
B) if economies of scale are insignificant,only a few firms are able to produce at the low costs achieved by the big established firms. 
C) a few firms can force rivals to produce at low levels of output. 
D) a few firms can use high profits to keep out new entrants. 
A) if larger firms have lower costs,new small entrants will not be able to produce at the low costs achieved by the big established firms. 
B) if economies of scale are insignificant,only a few firms are able to produce at the low costs achieved by the big established firms. 
C) a few firms can force rivals to produce at low levels of output. 
D) a few firms can use high profits to keep out new entrants.

Question 12

A reason why there is more competition among restaurants than among large discount department stores is that restaurants

Accepted Answer

A) have to cater to a variety of consumer tastes while department stores do not. 
B) unlike department stores,have to abide by government sanitation rules. 
C) unlike department stores,do not have significant economies of scale. 
D) have more elastic demand for their product compared to department stores. 
A) have to cater to a variety of consumer tastes while department stores do not. 
B) unlike department stores,have to abide by government sanitation rules. 
C) unlike department stores,do not have significant economies of scale. 
D) have more elastic demand for their product compared to department stores.

Question 13

Table 11-7  
-Refer to Table 11-7.Suppose the payoff matrix in the above figure represents the payoffs to Saudi Arabia and Yemen for the production of oil.Saudi Arabia and Yemen must decide how much oil to produce.Since the demand for oil is inelastic,relatively low production rates drive up prices and profits.Saudi Arabia,the world's largest and lowest cost producer,is able to influence market price;it has an incentive to keep output low.Yemen,on the other hand,is a relatively high cost producer with much smaller reserves.Assume Saudi Arabia now decides to try to further influence the oil market by offering to pay Yemen $25 million to produce a low output.
a.Create a new payoff matrix that reflects Saudi Arabia's willingness to pay Yemen $25 million to produce a low output.
b.What is the dominant strategy for each country in this new game?
c.What is the new Nash equilibrium?

Accepted Answer

a.See payoff matrix below.
b.T

Question 14

For productive efficiency to hold,

Accepted Answer

A) price must equal the marginal cost of the last unit produced. 
B) price must equal marginal revenue of the last unit sold. 
C) average variable cost is minimized in production. 
D) average total cost is minimized in production. 
A) price must equal the marginal cost of the last unit produced. 
B) price must equal marginal revenue of the last unit sold. 
C) average variable cost is minimized in production. 
D) average total cost is minimized in production.

Question 15

In an oligopoly market

Accepted Answer

A) the pricing decisions of all other firms have no effect on an individual firm. 
B) individual firms pay no attention to the behavior of other firms. 
C) advertising of one firm has no effect on all other firms. 
D) one firm's pricing decision affects all the other firms. 
A) the pricing decisions of all other firms have no effect on an individual firm. 
B) individual firms pay no attention to the behavior of other firms. 
C) advertising of one firm has no effect on all other firms. 
D) one firm's pricing decision affects all the other firms.

Question 16

Suppose Jason owns a small pastry shop.Jason wants to maximize his profit,and thinking back to the college microeconomics class he took in college,he decides he needs to produce a quantity of pastries which will minimize his average total cost.Will Jason's strategy necessarily maximize profits for his pastry shop?

Accepted Answer

A) Yes;Since jason's pastry shop is in a perfectly competitive market,the only way to maximize profit is to produce the quantity where average total cost is minimized. 
B) Not necessarily;This strategy will only maximize Jason's profit in the long run,but not in the short run. 
C) No;In order to maximize profit,Jason would never want to produce the quantity where average total cost is minimized. 
D) Not necessarily;Depending on demand,Jason may maximize profit by producing a quantity other than that where average total cost is at a minimum. 
A) Yes;Since jason's pastry shop is in a perfectly competitive market,the only way to maximize profit is to produce the quantity where average total cost is minimized. 
B) Not necessarily;This strategy will only maximize Jason's profit in the long run,but not in the short run. 
C) No;In order to maximize profit,Jason would never want to produce the quantity where average total cost is minimized. 
D) Not necessarily;Depending on demand,Jason may maximize profit by producing a quantity other than that where average total cost is at a minimum.

Question 17

Economists agree that a monopolistically competitive market structure

Accepted Answer

A) lowers consumer utility because consumers pay a price higher than the marginal cost of production. 
B) is detrimental to society because it leads to a waste of scarce resources. 
C) benefits consumers because firms produce products that appeal to a wide range of consumer tastes. 
D) can eliminate any excess capacity if all firms in the industry devote more funds to differentiating their products. 
A) lowers consumer utility because consumers pay a price higher than the marginal cost of production. 
B) is detrimental to society because it leads to a waste of scarce resources. 
C) benefits consumers because firms produce products that appeal to a wide range of consumer tastes. 
D) can eliminate any excess capacity if all firms in the industry devote more funds to differentiating their products.

Question 18

Figure 11-13  
-Refer to Figure 11-13 to answer the following questions.
a.What is the productively efficient output?
b.What is the allocatively efficient output?
c.What is the amount of excess capacity?
d.Suppose the firm is currently producing 14 units.What happens if it increases output to 17 units?

Accepted Answer

a.The productively efficient output is 2

Question 19

One way by which firms differentiate their products is to find a market niche.

Accepted Answer

A) True 
 B)False

Question 20

Table 11-5   Table 11-5 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3.At the start of the game each firm charges a low price and each earns a profit of $7,000.
-Refer to Table 11-5.Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not,why and what is the Nash equilibrium?

Accepted Answer

A) No,it is not a Nash equilibrium because each firm can do better by charging the high price.The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000. 
B) No,the current situation is not a Nash equilibrium;it is a dominant strategy equilibrium.There is no Nash equilibrium in this game. 
C) No,the current situation is not a Nash equilibrium.The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price. 
D) Yes,the current situation is a Nash equilibrium. 
A) No,it is not a Nash equilibrium because each firm can do better by charging the high price.The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000. 
B) No,the current situation is not a Nash equilibrium;it is a dominant strategy equilibrium.There is no Nash equilibrium in this game. 
C) No,the current situation is not a Nash equilibrium.The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price. 
D) Yes,the current situation is a Nash equilibrium.

Which of the following characteristics is common to monopolistic competition and perfect competition?

An oligopolist differs from a perfect competitor in that

Which of the following statements about the prisoner's dilemma is false?

Figure 11-11 -Refer to Figure 11-11.What is the amount of excess capacity?

A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until

Suppose two firms in a duopoly implicitly collude and charge a high price.How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

Table 11-3 Table 11-3 shows the demand and cost schedules for a monopolistically competitive firm. -Refer to Table 11-3.What is the amount of the firm's loss at its optimal output level?

Why do most firms in monopolistic competition typically make zero profit in the long run?

There is much evidence to suggest that airlines are more likely to match price cuts than price increases.Which of the following best explains this evidence?

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a gain in revenue due to the

Economies of scale can lead to an oligopolistic market structure because

A reason why there is more competition among restaurants than among large discount department stores is that restaurants

For productive efficiency to hold,

In an oligopoly market

Economists agree that a monopolistically competitive market structure

One way by which firms differentiate their products is to find a market niche.

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage,international Trade,and Exchange Rates

Filters

Exam 11: Monopolistic Competition and Oligopoly

Which of the following characteristics is common to monopolistic competition and perfect competition?

An oligopolist differs from a perfect competitor in that

Which of the following statements about the prisoner's dilemma is false?

Figure 11-11 -Refer to Figure 11-11.What is the amount of excess capacity?

A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until

Suppose two firms in a duopoly implicitly collude and charge a high price.How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

Table 11-3 Table 11-3 shows the demand and cost schedules for a monopolistically competitive firm. -Refer to Table 11-3.What is the amount of the firm's loss at its optimal output level?

Why do most firms in monopolistic competition typically make zero profit in the long run?

There is much evidence to suggest that airlines are more likely to match price cuts than price increases.Which of the following best explains this evidence?

When a monopolistically competitive firm cuts its price to increase its sales,it experiences a gain in revenue due to the

Economies of scale can lead to an oligopolistic market structure because

A reason why there is more competition among restaurants than among large discount department stores is that restaurants

For productive efficiency to hold,

In an oligopoly market

Economists agree that a monopolistically competitive market structure

One way by which firms differentiate their products is to find a market niche.

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage,international Trade,and Exchange Rates

Filters