Question 1

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

A)  P = ATC and MR = MC. 
B)  P = ATC and P = MC. 
C)  P > ATC and P > MR. 
D)  P > MR and MC = ATC.

Question 2

Figure 9.9 
-Refer to Figure 9.9.The graph in the figure that depicts a monopolistically competitive firm that is minimising its losses is _______.

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel A and Panel C

Question 3

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

Accepted Answer

A) True 
 B)False

Question 4

Suppose that if a local McDonald's restaurant reduces the price of a Big Mac from $4.00 to $3.25,the number of Big Macs it sells per day will increase from 4 to 5.Explain the output effect and the price effect resulting from this change.Using a graph,illustrate both the loss in revenue from selling each of the first 4 Big Macs for $0.75 less and the additional revenue from selling 1 more Big Mac.What is the total change in revenue received which results from this price decrease?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

The answer of Suppose that if a local McDonald's restaurant...

Question 5

A dominant strategy _______.

Accepted Answer

A)  is one that is the best for a firm, no matter what strategies other firms use 
B)  is one that a firm is forced into following by government policy 
C)  involves colluding with rivals to maximise joint profits 
D)  involves deciding what to do after all rivals have chosen their own strategies

Question 6

Prisoner's dilemma games imply that cooperative behaviour between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real world results?

Accepted Answer

A)  Prisoner's dilemma games do not permit people or firms to renege on agreements, which often occurs in real word situations. 
B)  The prisoner's dilemma does not apply to most business situations that are repeated over and over. 
C)  Prisoner's dilemma games predict the behaviour of people and firms that engage in illegal activity; most people and firms do not resort to illegal activity. 
D)  Most real world situations involve more than two people or firms; the prisoner's dilemma is only applicable to situations that involve two parties.

Question 7

Productive efficiency does not hold for a profit-maximising,monopolistically competitive firm in the long-run equilibrium because the firm operates along the diseconomies-of-scale region of its average total cost curve.

Accepted Answer

A) True 
 B)False

Question 8

Table 9.4
 $\begin{array}{|c|c|c|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity } \
\text { Sold }
\end{array} & \begin{array}{c}
\text { Price } \
\text { (dollars )}
\end{array} & \begin{array}{c}
\text { Total } \
\text { Revenue } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Revenue }
\end{array} & \begin{array}{c}
\text {Total}\
\text { Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { Cost }
\end{array} & \begin{array}{c}
\text { Profit } \
\text { (dollars) }
\end{array} \
\hline 0 & 10 & 0 & \cdots & 2 & \cdots & -2 \
\hline 1 & 9 & 9 & & 8 & & \
\hline 2 & 8 & 16 & & 13 & & \
\hline 3 & 7 & 21 & & 17 & & \
\hline 4 & 6 & 24 & & 20 & & \
\hline 5 & 5 & 25 & & 22 & & \
\hline 6 & 4 & 24 & & 26 & & \
\hline
\end{array}$
 Table 9.4 lists estimated revenues and costs (per week) for plastic vials (100 vials per box) for the Victoria Biological Supplies Company. Victoria sells plastic vials to university and private research laboratories.
-Refer to Table 9.4.Victoria's profit-maximising output is where ______.

Accepted Answer

A)  total profit equals $3 
B)  marginal revenue and marginal cost both equal $4 
C)  marginal revenue and marginal cost both equal $3 
D)  marginal cost is at its minimum value

Question 9

In the long-run equilibrium,a monopolistically competitive firm earning normal profit produces the allocatively efficient output level.

Accepted Answer

A) True 
 B)False

Question 10

A monopolistically competitive firm maximises profit in the short run by producing where _____.

Accepted Answer

A)  price is less than marginal cost 
B)  price is less than marginal revenue 
C)  price is less than average revenue 
D)  price is greater than marginal cost

Question 11

What do the entry and exit of firms in monopolistically competitive market guarantee?

Accepted Answer

A)  That marginal revenue equals marginal cost, and average total cost is minimised 
B)  That firms can earn economic profits in the long run 
C)  That price equals average total cost in the long run 
D)  That firms can earn economic profits in the short run

Question 12

Table 9.2
 $$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity } \
\text { (cases) }
\end{array} & \begin{array} { c } 
\text { Price } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Total Revenue } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Total Cost } \
\text { (dollars) }
\end{array} \
\hline 1 & 75 & 75 & 60 \
\hline 2 & 70 & 140 & 85 \
\hline 3 & 65 & 195 & 105 \
\hline 4 & 60 & 240 & 115 \
\hline 5 & 55 & 275 & 130 \
\hline 6 & 50 & 300 & 155 \
\hline 7 & 45 & 315 & 190 \
\hline 8 & 40 & 320 & 230 \
\hline 9 & 35 & 315 & 280 \
\hline
\end{array}$$ Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 9.2 shows the firm's demand and cost schedules.
-Refer to Table 9.2.What is likely to happen to the product's price in the long run?

Accepted Answer

A)  It will fall. 
B)  It will increase. 
C)  It will remain constant. 
D)  This cannot be determined without information on its long-run demand curve.

Question 13

A monopolistically competitive firm chooses _______.

Accepted Answer

A)  both the quantity of output to produce and the price at which it will sell its output 
B)  the price of the product it sells, but market forces determine the quantity it will be able to sell 
C)  the quantity of output to produce, but the price of the product it sells is determined collectively by all firms in the industry 
D)  the price of the product it sells, but the quantity of output to produce is agreed upon by all firms in the industry

Question 14

A game in which pursuing dominant strategies results in noncooperation that leaves all parties worse off is a ________.

Accepted Answer

A)  prisoner's dilemma 
B)  cooperative equilibrium 
C)  first-price auction 
D)  zero-sum game

Question 15

In the long-run equilibrium,both the perfectly competitive firm and the monopolistically competitive firm produce the output at which MR = MC and charge a price equal to the average total cost of production.

Accepted Answer

A) True 
 B)False

Question 16

Which is true about the demand curve of a monopolistically competitive firm?

Accepted Answer

A)  Is horizontal because the firm must cut its price to sell more 
B)  Is perfectly elastic 
C)  Is downward sloping because it sells an identical product 
D)  Is downward sloping because it must cut its price to sell more

Question 17

When does collusion between two firms occur?

Accepted Answer

A)  The firms independently pursue strategies that could hurt each other. 
B)  The firms explicitly or implicitly agree to adopt a uniform business strategy. 
C)  The firms announce that each will match its rival's market price. 
D)  The firms act altruistically to bring about the economically efficient outcome.

Question 18

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

Question 19

A prisoner's dilemma is _______.

Accepted Answer

A)  a game that involves no dominant strategies 
B)  a game in which prisoners are stumped because they cannot communicate with each other 
C)  a game in which players act in rational, self-interested ways that leave everyone worse off 
D)  a game in which players collude to outfox authorities

Question 20

Which of the following is true in the typical firm if economies of scale are relatively important in an industry?

Accepted Answer

A)  Marginal cost curve will decline continuously until it reaches minimum efficient scale. 
B)  Long-run average cost curve will begin rising before it reaches minimum efficient scale. 
C)  Long-run average cost curve will reach a minimum at a level of output that leaves room for a large number of firms to enter the industry. 
D)  Long-run average cost curve will reach a minimum at a level of output that is a relatively large fraction of total industry sales.

Exam 9: Monopolistic Competition and Oligopoly

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?

Figure 9.9 -Refer to Figure 9.9.The graph in the figure that depicts a monopolistically competitive firm that is minimising its losses is _______.

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

A dominant strategy _______.

Prisoner's dilemma games imply that cooperative behaviour between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real world results?

Productive efficiency does not hold for a profit-maximising,monopolistically competitive firm in the long-run equilibrium because the firm operates along the diseconomies-of-scale region of its average total cost curve.

In the long-run equilibrium,a monopolistically competitive firm earning normal profit produces the allocatively efficient output level.

A monopolistically competitive firm maximises profit in the short run by producing where _____.

What do the entry and exit of firms in monopolistically competitive market guarantee?

A monopolistically competitive firm chooses _______.

A game in which pursuing dominant strategies results in noncooperation that leaves all parties worse off is a ________.

In the long-run equilibrium,both the perfectly competitive firm and the monopolistically competitive firm produce the output at which MR = MC and charge a price equal to the average total cost of production.

Which is true about the demand curve of a monopolistically competitive firm?

When does collusion between two firms occur?

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

A prisoner's dilemma is _______.

Which of the following is true in the typical firm if economies of scale are relatively important in an industry?