Question 1

Which of the following is likely to occur when it is known that a two-person game is to be played only once?

Accepted Answer

A) Collusion 
B) The demand curve becomes perfectly inelastic for this time period 
C) The prisoner's dilemma 
D) The pursuit of profit maximization for the entire industry 
E) An attempt to equate marginal revenue with marginal cost 
A) Collusion 
B) The demand curve becomes perfectly inelastic for this time period 
C) The prisoner's dilemma 
D) The pursuit of profit maximization for the entire industry 
E) An attempt to equate marginal revenue with marginal cost B

Question 2

An oligopoly model that describes formal collusion is the

Accepted Answer

A) kinked demand curve model 
B) cartel model 
C) cost-plus pricing model 
D) game theory model 
E) horizontal merger model 
A) kinked demand curve model 
B) cartel model 
C) cost-plus pricing model 
D) game theory model 
E) horizontal merger model B

Question 3

Exhibit 10-13   Consider Exhibit 10-13.If two firms each produced 500 units, the total cost of supplying 1, 000 units would be

Accepted Answer

A) $6 
B) $4, 000 
C) $4 
D) $3, 000 
E) $6, 000 
A) $6 
B) $4, 000 
C) $4 
D) $3, 000 
E) $6, 000 E

Question 4

In the long run, economic profit for a monopolistically competitive firm

Accepted Answer

A) is zero, due to the lack of barriers to entry 
B) is zero, due to product differentiation 
C) may be positive, due to strong barriers to entry 
D) may be positive, due to product differentiation 
E) may be positive, due to advertising and product promotion 
A) is zero, due to the lack of barriers to entry 
B) is zero, due to product differentiation 
C) may be positive, due to strong barriers to entry 
D) may be positive, due to product differentiation 
E) may be positive, due to advertising and product promotion

Question 5

The defining characteristic of oligopoly is that each firm

Accepted Answer

A) produces the same output as its rivals 
B) acts independently of its rivals 
C) is mutually interdependent 
D) is atomistic 
E) advertises how its products are different from its rivals' products 
A) produces the same output as its rivals 
B) acts independently of its rivals 
C) is mutually interdependent 
D) is atomistic 
E) advertises how its products are different from its rivals' products

Question 6

Which of the following does not hinder successful price leadership?

Accepted Answer

A) all of the following are correct 
B) potentially large economic profits due to this activity 
C) cheating by offering secret discounts 
D) product differentiation 
E) illegality of coordinated pricing 
A) all of the following are correct 
B) potentially large economic profits due to this activity 
C) cheating by offering secret discounts 
D) product differentiation 
E) illegality of coordinated pricing

Question 7

Exhibit 10-3   At the profit-maximizing output, the monopolistically competitive firm in Exhibit 10-3 is in

Accepted Answer

A) long-run equilibrium because price equals average total cost 
B) long-run equilibrium because price is less than average total cost 
C) short-run equilibrium because price is greater than average total cost 
D) short-run equilibrium because there is an economic loss 
E) short-run equilibrium because there is zero economic profit 
A) long-run equilibrium because price equals average total cost 
B) long-run equilibrium because price is less than average total cost 
C) short-run equilibrium because price is greater than average total cost 
D) short-run equilibrium because there is an economic loss 
E) short-run equilibrium because there is zero economic profit

Question 8

A monopolistic competitor's demand curve is

Accepted Answer

A) perfectly elastic 
B) less elastic than a monopolist's or oligopolist's but more elastic than a perfect competitor's 
C) as elastic as an oligopolist's 
D) more elastic than a monopolist's or oligopolist's but less elastic than a perfect competitor's 
E) perfectly inelastic 
A) perfectly elastic 
B) less elastic than a monopolist's or oligopolist's but more elastic than a perfect competitor's 
C) as elastic as an oligopolist's 
D) more elastic than a monopolist's or oligopolist's but less elastic than a perfect competitor's 
E) perfectly inelastic

Question 9

If Ford raises the price of its automobiles, the demand curve for GM automobiles

Accepted Answer

A) shifts to the left 
B) is unaffected 
C) becomes more elastic 
D) shifts to the right 
E) becomes vertical 
A) shifts to the left 
B) is unaffected 
C) becomes more elastic 
D) shifts to the right 
E) becomes vertical

Question 10

Monopolistically competitive firms use product differentiation to increase the price elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 11

In regards to monopolistic competition, some economists argue that consumers are willing to pay a higher price in order to enjoy a wider selection of goods and services.

Accepted Answer

A) True 
 B)False

Question 12

When firms differentiate their products, they

Accepted Answer

A) provide information to consumers with no additional use of productive resources 
B) always increase their profits 
C) always create real differences among products 
D) frequently create artificial or superficial differences among products, thus raising production costs 
E) usually strain the physical capacity of their plants 
A) provide information to consumers with no additional use of productive resources 
B) always increase their profits 
C) always create real differences among products 
D) frequently create artificial or superficial differences among products, thus raising production costs 
E) usually strain the physical capacity of their plants

Question 13

Oligopolists often sacrifice economies of scale as they expand product variety.

Accepted Answer

A) True 
 B)False

Question 14

Exhibit 10-15
   Exhibit 10-15 depicts the payoff matrix facing Eagle Tobacco and Dan'l Boone Tobacco with respect to their decisions to advertise or not.Eagle Tobacco's dominant strategy is not to advertise.

Accepted Answer

A) True 
 B)False

Question 15

The demand curve facing a firm will be more elastic,

Accepted Answer

A) the fewer the number of competing firms 
B) the more differentiated the product 
C) the more substitutes there are for its product 
D) the greater the firm's ability to control price 
E) the larger the profit the firm can make 
A) the fewer the number of competing firms 
B) the more differentiated the product 
C) the more substitutes there are for its product 
D) the greater the firm's ability to control price 
E) the larger the profit the firm can make

Question 16

Exhibit 10-9   In order to maximize profit or minimize loss, the firm in Exhibit 10-9 should

Accepted Answer

A) produce 100 units of output and charge $15 
B) produce 100 units of output and charge $8 
C) produce more than 100 units of output and charge less than $8 
D) produce slightly less than 100 units of output and charge more than $8 
E) shut down 
A) produce 100 units of output and charge $15 
B) produce 100 units of output and charge $8 
C) produce more than 100 units of output and charge less than $8 
D) produce slightly less than 100 units of output and charge more than $8 
E) shut down

Question 17

Under which of the following market conditions is it most difficult to maintain a cartel agreement?

Accepted Answer

A) There are many firms in the industry and these firms have similar costs. 
B) There are many firms in the industry and these firms have different costs. 
C) There are few firms in the industry and these firms have similar costs. 
D) There are few firms in the industry and these firms have different costs. 
E) There are many firms in the industry and these firms produce homogeneous products. 
A) There are many firms in the industry and these firms have similar costs. 
B) There are many firms in the industry and these firms have different costs. 
C) There are few firms in the industry and these firms have similar costs. 
D) There are few firms in the industry and these firms have different costs. 
E) There are many firms in the industry and these firms produce homogeneous products.

Question 18

Exhibit 10-10   In Exhibit 10-10, what is the maximum profit this monopolistic competitor can earn in the long run?

Accepted Answer

A) $40 
B) $4 
C) $48 
D) $8 
E) $0 
A) $40 
B) $4 
C) $48 
D) $8 
E) $0

Question 19

Exhibit 10-16   In Exhibit 10-16, the monopolistic competitor will

Accepted Answer

A) lose $10 
B) lose $15 
C) break even 
D) earn $25 profit 
E) earn $30 profit 
A) lose $10 
B) lose $15 
C) break even 
D) earn $25 profit 
E) earn $30 profit

Question 20

Monopolistic competition is best described as

Accepted Answer

A) many firms with some control over price, and some product differentiation 
B) many firms with no control over price, producing identical products 
C) a few firms with some control over price, producing highly differentiated products 
D) a few firms with no control over price, producing similar products 
E) a single firm producing all of the output for the industry, with strong control over price 
A) many firms with some control over price, and some product differentiation 
B) many firms with no control over price, producing identical products 
C) a few firms with some control over price, producing highly differentiated products 
D) a few firms with no control over price, producing similar products 
E) a single firm producing all of the output for the industry, with strong control over price

Exam 10: Monopolistic Competition and Oligopoly

Which of the following is likely to occur when it is known that a two-person game is to be played only once?

An oligopoly model that describes formal collusion is the

Exhibit 10-13 Consider Exhibit 10-13.If two firms each produced 500 units, the total cost of supplying 1, 000 units would be

In the long run, economic profit for a monopolistically competitive firm

The defining characteristic of oligopoly is that each firm

Which of the following does not hinder successful price leadership?

Exhibit 10-3 At the profit-maximizing output, the monopolistically competitive firm in Exhibit 10-3 is in

A monopolistic competitor's demand curve is

If Ford raises the price of its automobiles, the demand curve for GM automobiles

Monopolistically competitive firms use product differentiation to increase the price elasticity of demand.

In regards to monopolistic competition, some economists argue that consumers are willing to pay a higher price in order to enjoy a wider selection of goods and services.

When firms differentiate their products, they

Oligopolists often sacrifice economies of scale as they expand product variety.

Exhibit 10-15 Exhibit 10-15 depicts the payoff matrix facing Eagle Tobacco and Dan'l Boone Tobacco with respect to their decisions to advertise or not.Eagle Tobacco's dominant strategy is not to advertise.

The demand curve facing a firm will be more elastic,

Exhibit 10-9 In order to maximize profit or minimize loss, the firm in Exhibit 10-9 should

Under which of the following market conditions is it most difficult to maintain a cartel agreement?

Exhibit 10-10 In Exhibit 10-10, what is the maximum profit this monopolistic competitor can earn in the long run?

Exhibit 10-16 In Exhibit 10-16, the monopolistic competitor will

Monopolistic competition is best described as

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

A--Perfect Competition

B--Perfect Competition

A--Monopoly

B--Monopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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