Question 1

Exhibit 10-3 A monopolistic competitive firm in the long run 
-As represented in Exhibit 10-3, the maximum long-run economic profit earned by this monopolistic competitive firm is:

Accepted Answer

A)  zero. 
B)  $10 per week. 
C)  $4,000 per week. 
D)  $40,000 per week.

Question 2

Which of the following is always a characteristic of the oligopoly market structure?

Accepted Answer

A)  Many sellers, each small in size relative to the overall market. 
B)  Few sellers. 
C)  All sellers produce identical products. 
D)  Easy, low-cost entry and exit.

Question 3

Suppose an oil cartel has an agreement to restrict members' production in order to maintain a price of $30 per barrel. A single cartel member may want to cheat and exceed its quota so that it can:

Accepted Answer

A)  reduce its costs. 
B)  charge higher prices. 
C)  make demand more inelastic. 
D)  earn a bigger profit.

Question 4

Easy entry and exit cause oligopoly profits to be zero in the long run.

Accepted Answer

A) True 
 B)False

Question 5

A market situation where a small number of sellers dominate the entire industry is called:

Accepted Answer

A)  monopolistic competition. 
B)  monopsony. 
C)  monopoly. 
D)  oligopoly.

Question 6

Which of the following is evidence of an ineffective cartel?

Accepted Answer

A)  Output changes are dictated by changes in demand. 
B)  Price changes are dictated by changes in demand. 
C)  Members do not agree on output quotas. 
D)  All of these.

Question 7

If a firm reacts to other firms' market decisions by anticipating how the other will then react, this is:

Accepted Answer

A)  not profit-maximizing behavior 
B)  a monopolistic competitive market 
C)  a market with a low concentration ratio 
D)  mutual interdependence 
E)  collusion by definition

Question 8

Suppose Ford, GM, and Dodge make the majority of pick-up trucks sold in the United States If they all sell for approximately the same price, and Ford offers a $2,000 rebate on new truck sales, what can Ford expect to see?

Accepted Answer

A)  an unprecedented increase in truck sales 
B)  an immediate response by GM and Dodge 
C)  a visit from the antitrust authorities of the government 
D)  a revolution from Ford stockholders 
E)  announcements by GM and Dodge that plans are underway to produce a much cheaper pick-up truck in six years

Question 9

Exhibit 10-1 A monopolistic competitive firm 
-As represented in Exhibit 10-1, the maximum long-run economic profit earned by this monopolistic competitive firm is:

Accepted Answer

A)  zero. 
B)  $200 per day. 
C)  $1,000 per day. 
D)  $20,000 per day.

Question 10

A major characteristic of the theory of oligopoly is that:

Accepted Answer

A)  there are no real-world examples. 
B)  the reactions of each firm depends on how the firm believes rivals will react. 
C)  in reality few oligopolies survive more than 10 years. 
D)  none of these.

Question 11

Which of the following is the best example of a monopolistically competitive market?

Accepted Answer

A)  Wheat. 
B)  Automobiles. 
C)  Diamonds. 
D)  Retail sales.

Question 12

Exhibit 10-3 A monopolistic competitive firm in the long run 
-As presented in Exhibit 10-3, the long-run profit-maximizing output for the monopolistic competitive firm is:

Accepted Answer

A)  zero units per week. 
B)  200 units per week. 
C)  400 units per week. 
D)  600 units per week. 
E)  800 units per week.

Question 13

The two tendencies of a firm in a cartel are the incentive to:

Accepted Answer

A)  cheat to maximize joint profits and the incentive to raise prices. 
B)  cheat and avoid collusion and the incentive to raise price to maximize the firm's share of profits. 
C)  increase output in order to minimize per-unit cost and the incentive to reduce price in order to maximize joint profit. 
D)  cooperate to maximize joint profits and to cheat on the agreement in order to increase the firm's share of the profit.

Question 14

In the short run both the monopolistically competitive firm and the perfectly competitive firm will charge a price equal to marginal cost.

Accepted Answer

A) True 
 B)False

Question 15

Exhibit 10-1 A monopolistic competitive firm 
-If all firms in the industry are the same as the monopolistic competitive firm shown in this Exhibit 10-1, firms in the long run will:

Accepted Answer

A)  leave the industry. 
B)  earn positive economic profits. 
C)  experience less competition because firms will exit the industry. 
D)  experience competition from new firms that enter the industry.

Question 16

Compare and contrast the four market models in terms of the profit-maximizing output level for each, the shut-down rule for each, the probability of long-run economic profits being earned, and their social desirability.

Accepted Answer

The answer of Compare and contrast the four market models...

Question 17

In the long run, both monopolistic competition and perfect competition result in:

Accepted Answer

A)  a wide variety of brand-name choices for consumers. 
B)  an efficient allocation of resources. 
C)  zero economic profit for firms. 
D)  excess capacity.

Question 18

Defenders of advertising argue that it:

Accepted Answer

A)  informs buyers and broadens the market for goods. 
B)  enhances economic efficiency by lowering prices. 
C)  enables small firms to compete more effectively with large ones. 
D)  all of these.

Question 19

An oligopoly is a market structure in which:

Accepted Answer

A)  one firm has 100 percent of a market. 
B)  there are many small firms. 
C)  there are many firms with no control over price. 
D)  there are few firms selling either a homogeneous or differentiated product.

Question 20

Product differentiation:

Accepted Answer

A)  refers to the attempt of firms to make their products look like those of the other firms in the industry. 
B)  refers to the attempt of firms to make real or apparent differences in essentially substitutable products look different in the minds of the consumers. 
C)  refers to the advantage big firms have in research and development. 
D)  is a common characteristic of a perfectly competitive market structure. 
E)  is only employed in a monopoly market structure.

Exam 10: Monopolistic Competition and Oligopoly

Exhibit 10-3 A monopolistic competitive firm in the long run -As represented in Exhibit 10-3, the maximum long-run economic profit earned by this monopolistic competitive firm is: