Question 1

Which of the following statements is true?

Accepted Answer

A)  The marginal revenue of a monopolistically competitive firm will be positive at high prices and negative at low prices. 
B)  Because the demand curve for a monopolistically competitive firm is downward-sloping its marginal revenue will be negative. 
C)  The marginal revenue of a monopolistically competitive firm will be always be positive. 
D)  The marginal revenue of a monopolistically competitive firm will be positive at low prices and negative at high prices.

Question 2

Table 11-1
 $\begin{array}{|c|c|c|}
\hline \text { Quantity } & \begin{array}{c}
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Revenue } \
\text { (dollars) }
\end{array} \
\hline 1 & \$ 7.50 & \$ 7.50 \
\hline 2 & 7.00 & 14.00 \
\hline 3 & 6.50 & 19.50 \
\hline 4 & 6.00 & 24.00 \
\hline 5 & 5.50 & 27.50 \
\hline 6 & 5.00 & 30.00 \
\hline
\end{array}$
-Refer to Figure 11-1.The marginal revenue from the increase in price from P₀ to P₁ equals

Accepted Answer

A) the area A. 
B) the area (B + D - 
A) . 
C) the area (A - 
D) . 
D) the area (C - 
B) .

Question 3

Which of the following is not a characteristic of long-run equilibrium in a monopolistically competitive market?

Accepted Answer

A)  Selling price equals average total cost. 
B)  Production is at minimum average total cost. 
C)  Marginal revenue equals marginal cost. 
D)  Selling price is greater than marginal cost.

Question 4

Table 11-10
  Martin and Lewis each run one of the two bingo parlors in Schenectady. Both consider offering free rides to and from the parlors. Table 11-10 shows the payoff matrix containing the expected weekly profits for each bingo parlor.
-Refer to Table 11-10.Does Lewis have a dominant strategy? If yes,what is it?

Accepted Answer

A)  Yes, Lewis's dominant strategy is to not offer free rides. 
B)  Yes, Lewis's dominant strategy is to offer free rides. 
C)  No, Lewis does not have a dominant strategy-his best outcome depends on what Martin does. 
D)  Yes, Lewis's dominant strategy is to wait and see what Martin does first.

Question 5

In both monopolistically competitive and perfectly competitive industries

Accepted Answer

A)  firms produce products for which there are no close substitutes. 
B)  there are high barriers to entry. 
C)  there are many buyers and sellers. 
D)  firms are price takers.

Question 6

Long-run equilibrium under monopolistic competition and perfect competition is similar in that

Accepted Answer

A)  firms produce at the minimum point of their average cost curves. 
B)  price equals marginal cost. 
C)  firms break even. 
D)  price equals marginal revenue.

Question 7

A set of actions that a firm takes to achieve a goal,such as maximizing profits,is called

Accepted Answer

A)  a business strategy. 
B)  a payoff matrix. 
C)  the Porter's Competitive Forces plan. 
D)  game theory.

Question 8

If a typical monopolistically competitive firm is incurring short-run losses,then

Accepted Answer

A)  other more competitive firms will enter the market. 
B)  as some firms leave, the remaining firms will experience an increase in the demand for their products. 
C)  as some firms leave, the demand for the products of the remaining firms will become more elastic. 
D)  the industry will eventually cease to exist.

Question 9

The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called

Accepted Answer

A)  Nash equilibrium. 
B)  the prisoner's dilemma. 
C)  game theory. 
D)  dominant strategy equilibrium.

Question 10

The profit-maximizing level of output and the profit-maximizing price for an oligopolist cannot be calculated when we don't know

Accepted Answer

A)  what the concentration ratio for the oligopolist's industry is. 
B)  what the minimum efficient scale in the oligopolist's industry is. 
C)  the demand curve and the marginal revenue curve of the oligopolist. 
D)  the type of barrier to entry that exists in the oligopolist's industry.

Question 11

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

Accepted Answer

A)  an earnings table. 
B)  a payoff table. 
C)  a payoff matrix. 
D)  a strategic matrix.

Question 12

Table 11-2
 $\begin{array}{|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity } \
\text { (cases) }
\end{array} & \begin{array}{c}
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Revenue } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} \
\hline 1 & \$ 75 & \$ 75 & \$ 60 \
\hline 2 & 70 & 140 & 85 \
\hline 3 & 65 & 195 & 105 \
\hline 4 & 60 & 240 & 115 \
\hline 5 & 55 & 275 & 130 \
\hline 6 & 50 & 300 & 155 \
\hline 7 & 45 & 315 & 190 \
\hline 8 & 40 & 320 & 230 \
\hline 9 & 35 & 315 & 280 \
\hline
\end{array}$ Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 11-2 shows the firm's demand and cost schedules.
-Refer to Table 11-2.What is the output (Q)that maximizes profit and what is the price (P)charged?

Accepted Answer

A)  P = $55; Q = 5 cases 
B)  P = $50; Q = 6 cases 
C)  P = $45; Q = 7 cases 
D)  P = $40; Q = 8 cases

Question 13

The breakfast cereal industry has a four-firm concentration ratio of 80 percent.Is this enough information to classify the industry as an oligopoly? Is a high concentration ratio evidence that an industry is not competitive?

Accepted Answer

The answer of The breakfast cereal industry has a four-firm...

Question 14

Figure 11-13
 
-Refer to Figure 11-13.If the diagram represents a typical firm in the market,what is likely to happen to its average cost of production in the long run?

Accepted Answer

A)  It will probably fall since the firm must be cost efficient to remain competitive. 
B)  It will probably fall since the firm will be selling less than its current amount. 
C)  It will probably rise since the firm will be producing less than its current amount. 
D)  It will probably rise since its long-run demand is likely to be higher.

Question 15

Figure 11-4
  Figure 11-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
-Refer to Figure 11-4.Should the firm represented in the diagram continue to stay in business despite its losses?

Accepted Answer

A)  No, it should shut down. 
B)  Yes, its total revenue covers its variable cost. 
C)  No, it is not able to cover its fixed cost. 
D)  Yes, it should increase its revenue by raising its price.

Question 16

Table 11-10
  Martin and Lewis each run one of the two bingo parlors in Schenectady. Both consider offering free rides to and from the parlors. Table 11-10 shows the payoff matrix containing the expected weekly profits for each bingo parlor.
-Refer to Table 11-10.Does Martin have a dominant strategy? If yes,what is it?

Accepted Answer

A)  Yes, Martin's dominant strategy is to offer free rides. 
B)  No, Martin does not a dominant strategy - his best outcome depends on what Lewis does. 
C)  Yes, Martin's dominant strategy is to not to offer free rides. 
D)  Yes, Martin's dominant strategy is to wait to see what Lewis does first.

Question 17

A monopolistically competitive firm maximizes profit where

Accepted Answer

A)  price = marginal revenue. 
B)  price > marginal cost. 
C)  marginal revenue > average revenue. 
D)  total revenue > marginal cost.

Question 18

Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally

Accepted Answer

A)  prevent rival airlines from competing in that market. 
B)  increase marginal revenue more than marginal cost. 
C)  maximize marginal revenue. 
D)  discourage rivals from matching price cuts.

Question 19

Figure 11-15
 
-Refer to Figure 11-15 to answer the following questions.
a.What is the profit-maximizing output level?
b.What is the profit-maximizing price?
c.What is the average total cost at the profit-maximizing output level?
d.What area represents the firm's profit?
e.At which output level are economies of scale exhausted?
f.Does this graph most likely represent the long run or the short run? Why?

Accepted Answer

The answer of Figure 11-15
 
-Refer to Figure 11-15 to...

Question 20

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.

Exam 11: Monopolistic Competition and Oligopoly