Question 1

Defection is less likely in a repeated game than in a one-time game.

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following is not a characteristic of monopolistic competition?

Accepted Answer

A) Firms reacting to others' actions 
B) Differentiated products 
C) Many firms 
D) Free entry and exit 
E) Firms facing downward-sloping demand curves 
A) Firms reacting to others' actions 
B) Differentiated products 
C) Many firms 
D) Free entry and exit 
E) Firms facing downward-sloping demand curves A

Question 3

How can the member countries of OPEC, an international oil cartel, ensure that it earns the largest possible profit? Why is this outcome not likely to be reached? If this outcome is not reached, then how will the deadweight loss in the market be affected?

Accepted Answer

The cartel will maximize its profits if its members collectively agree to produce the monopoly level of oil supply. The agreed-upon level of oil supply for the cartel, however, does not mean that each member will earn the highest possible profits. The firms will have to agree on how much oil each member will supply. This requires that some members agree to accept a lower level of supply, and so they have an incentive to cheat. In the end, there will be competition in the market by the members and the deadweight loss will be smaller than it would be in the monopoly case.

Question 4

In the prisoner's dilemma, the cooperative outcome is the one in which

Accepted Answer

A) both prisoners remain silent with regard to the crime. 
B) both prisoners confess to the crime. 
C) one prisoner confesses while the other remains silent. 
D) both prisoners confess on the condition that they will be set free. 
E) neither criminal is caught in the first place. 
A) both prisoners remain silent with regard to the crime. 
B) both prisoners confess to the crime. 
C) one prisoner confesses while the other remains silent. 
D) both prisoners confess on the condition that they will be set free. 
E) neither criminal is caught in the first place.

Question 5

Oligopolists

Accepted Answer

A) produce unrelated products. 
B) make decisions based on others' actions. 
C) have no reason to cooperate with each other. 
D) cannot affect each other 
E) produce homogeneous products. 
A) produce unrelated products. 
B) make decisions based on others' actions. 
C) have no reason to cooperate with each other. 
D) cannot affect each other 
E) produce homogeneous products.

Question 6

Game theory is often used to explain decision-making in

Accepted Answer

A) monopolistic competition. 
B) oligopoly. 
C) all the market structures except competition. 
D) competition. 
E) monopoly. 
A) monopolistic competition. 
B) oligopoly. 
C) all the market structures except competition. 
D) competition. 
E) monopoly.

Question 7

There are three gas stations at the corner of your street. You always drive to one particular station to purchase your gas but never buy gas from the other two. In what market structure are the gas stations operating in this location? Why?

Accepted Answer

The market of the three gas stations is

Question 8

If additional firms enter a monopolistically competitive industry, the demand facing a typical firm increases.

Accepted Answer

A) True 
 B)False

Question 9

Exhibit 11-3  
-Refer to Exhibit 11-3. Calculate the economic profit earned by the monopolistically competitive firm in long-run equilibrium and tell what the firm's output will be.

Accepted Answer

$0; unknown Q
Economic profit

Question 10

If a game is repeated over and over again, firms have a greater incentive to cooperate because

Accepted Answer

A) there is nothing to gain from not cooperating each time the game is played. 
B) each makes its highest possible profit every time the game is played. 
C) reputations can be made and there is much to gain in the long run. 
D) neither has anything to gain from not cooperating. 
E) they have too much information about the rival firm. 
A) there is nothing to gain from not cooperating each time the game is played. 
B) each makes its highest possible profit every time the game is played. 
C) reputations can be made and there is much to gain in the long run. 
D) neither has anything to gain from not cooperating. 
E) they have too much information about the rival firm.

Question 11

In the long run, a monopolistically competitive firm makes zero economic profits.

Accepted Answer

A) True 
 B)False

Question 12

The prisoner's dilemma shows that

Accepted Answer

A) individual irrational behavior turns out to be rational group behavior. 
B) individual rational behavior always leads to the best outcome for the group. 
C) individual rational behavior can lead to an inefficient outcome for the group. 
D) individual irrational behavior always leads to the best outcome for the group. 
E) the outcome for the group is not affected by individual behavior. 
A) individual irrational behavior turns out to be rational group behavior. 
B) individual rational behavior always leads to the best outcome for the group. 
C) individual rational behavior can lead to an inefficient outcome for the group. 
D) individual irrational behavior always leads to the best outcome for the group. 
E) the outcome for the group is not affected by individual behavior.

Question 13

A producer will want to differentiate his or her product somewhat from other producers' similar products because

Accepted Answer

A) no producer has production facilities exactly like those of other producers. 
B) of government trademark protections. 
C) different consumers have different wants and needs, and the producer may be able to fill a niche. 
D) doing so guarantees that someone will buy it. 
E) one must be careful not to flatter the competition by copying their product. 
A) no producer has production facilities exactly like those of other producers. 
B) of government trademark protections. 
C) different consumers have different wants and needs, and the producer may be able to fill a niche. 
D) doing so guarantees that someone will buy it. 
E) one must be careful not to flatter the competition by copying their product.

Question 14

Oligopoly is a market in which a few sellers offer similar or identical products.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements about monopolistic competition in the short run is false?

Accepted Answer

A) The firm always earns an economic profit. 
B) The firm maximizes profits. 
C) Price is greater than marginal cost. 
D) Demand is downward-sloping. 
E) Price is greater than marginal revenue. 
A) The firm always earns an economic profit. 
B) The firm maximizes profits. 
C) Price is greater than marginal cost. 
D) Demand is downward-sloping. 
E) Price is greater than marginal revenue.

Question 16

For a monopolistically competitive firm, in both the short run and the long run price is

Accepted Answer

A) below marginal cost. 
B) equal to marginal cost. 
C) greater than marginal cost. 
D) below marginal revenue. 
E) equal to marginal revenue. 
A) below marginal cost. 
B) equal to marginal cost. 
C) greater than marginal cost. 
D) below marginal revenue. 
E) equal to marginal revenue.

Question 17

Which of the following phenomena is not explained by the existence of product differentiation?

Accepted Answer

A) The need for consumer information services 
B) Intraindustry trade 
C) Price discrimination 
D) Advertising 
E) Brand loyalty 
A) The need for consumer information services 
B) Intraindustry trade 
C) Price discrimination 
D) Advertising 
E) Brand loyalty

Question 18

In the short run, a monopolistically competitive firm

Accepted Answer

A) will go out of business if it is incurring an economic loss. 
B) always earns a positive economic profit. 
C) may earn a positive, negative, or zero economic profit. 
D) never incurs an economic loss. 
E) will maximize profit by producing output such that price equals rising marginal cost. 
A) will go out of business if it is incurring an economic loss. 
B) always earns a positive economic profit. 
C) may earn a positive, negative, or zero economic profit. 
D) never incurs an economic loss. 
E) will maximize profit by producing output such that price equals rising marginal cost.

Question 19

A market in which only two competing firms participate is called

Accepted Answer

A) a bilateral monopoly. 
B) a duopoly. 
C) limited monopolistic competition. 
D) a monopoly. 
E) a bilateral oligopoly. 
A) a bilateral monopoly. 
B) a duopoly. 
C) limited monopolistic competition. 
D) a monopoly. 
E) a bilateral oligopoly.

Question 20

Firms can differentiate a product by making it easier for consumers to find substitutable products.

Accepted Answer

A) True 
 B)False

Exam 11: Product Differentiation, Monopolistic Competition, and Oligopoly

Defection is less likely in a repeated game than in a one-time game.

Which of the following is not a characteristic of monopolistic competition?

How can the member countries of OPEC, an international oil cartel, ensure that it earns the largest possible profit? Why is this outcome not likely to be reached? If this outcome is not reached, then how will the deadweight loss in the market be affected?

In the prisoner's dilemma, the cooperative outcome is the one in which

Oligopolists

Game theory is often used to explain decision-making in

There are three gas stations at the corner of your street. You always drive to one particular station to purchase your gas but never buy gas from the other two. In what market structure are the gas stations operating in this location? Why?

If additional firms enter a monopolistically competitive industry, the demand facing a typical firm increases.

Exhibit 11-3 -Refer to Exhibit 11-3. Calculate the economic profit earned by the monopolistically competitive firm in long-run equilibrium and tell what the firm's output will be.

If a game is repeated over and over again, firms have a greater incentive to cooperate because

In the long run, a monopolistically competitive firm makes zero economic profits.

The prisoner's dilemma shows that

A producer will want to differentiate his or her product somewhat from other producers' similar products because

Oligopoly is a market in which a few sellers offer similar or identical products.

Which of the following statements about monopolistic competition in the short run is false?

For a monopolistically competitive firm, in both the short run and the long run price is

Which of the following phenomena is not explained by the existence of product differentiation?

In the short run, a monopolistically competitive firm

A market in which only two competing firms participate is called

Firms can differentiate a product by making it easier for consumers to find substitutable products.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

Filters