Question 1

Which of the following statements is true?

Accepted Answer

A) Monopolistic competitive firms will earn economic profits in the long run because of their ability to control the price of the product. 
B) Monopolistic competitive firms that earn economic profits in the short run commonly will find their profits competed away in the long run. 
C) Monopolistic competitive firms will earn zero economic profits in both the short and the long run. 
D) Monopolistic competitive firms must earn economic profits in the long run, or they will shut down. 
E) Monopolistic competitive firms must earn economic profits in the short run, or they will shut down. 
A) Monopolistic competitive firms will earn economic profits in the long run because of their ability to control the price of the product. 
B) Monopolistic competitive firms that earn economic profits in the short run commonly will find their profits competed away in the long run. 
C) Monopolistic competitive firms will earn zero economic profits in both the short and the long run. 
D) Monopolistic competitive firms must earn economic profits in the long run, or they will shut down. 
E) Monopolistic competitive firms must earn economic profits in the short run, or they will shut down. B

Question 2

Exhibit 24-6
  
-Refer to Exhibit 24-6. The monopolistic competitor in the exhibit is

Accepted Answer

A) earning positive economic profits. 
B) taking losses. 
C) earning a normal profit. 
D) exhibiting productive efficiency. 
E) a and d 
A) earning positive economic profits. 
B) taking losses. 
C) earning a normal profit. 
D) exhibiting productive efficiency. 
E) a and d C

Question 3

Exhibit 24-3
  
-Refer to Exhibit 24-3. Total cost of this profit maximizing monopolistic competitor is represented by the area

Accepted Answer

A) 0P1AQ2. 
B) 0P3CQ2. 
C) P3P1AC. 
D) P4P1AD. 
A) 0P1AQ2. 
B) 0P3CQ2. 
C) P3P1AC. 
D) P4P1AD. B

Question 4

Exhibit 24-3
  
-Refer to Exhibit 24-3. Total revenue of this profit maximizing monopolistic competitor is represented by the area

Accepted Answer

A) 0P1AQ2. 
B) 0P5EQ2. 
C) P3P1AC. 
D) 0P4DQ3. 
A) 0P1AQ2. 
B) 0P5EQ2. 
C) P3P1AC. 
D) 0P4DQ3.

Question 5

In which market structure is the interdependence of firms a key characteristic?

Accepted Answer

A) perfect competition 
B) monopolistic competition 
C) oligopoly 
D) monopoly 
A) perfect competition 
B) monopolistic competition 
C) oligopoly 
D) monopoly

Question 6

The theory of contestable markets places more emphasis than orthodox market structure theories on

Accepted Answer

A) the number of sellers in an industry. 
B) the type of product produced in an industry. 
C) the issue of entry into and exit from an industry. 
D) who has access to relevant information. 
A) the number of sellers in an industry. 
B) the type of product produced in an industry. 
C) the issue of entry into and exit from an industry. 
D) who has access to relevant information.

Question 7

One of the necessary conditions for a contestable market is that new firms entering the market have a cost advantage over the existing firms.

Accepted Answer

A) True 
 B)False

Question 8

If you were to rank the four market structures in terms of lowest concentration ratio to highest concentration ratio, which of the following rankings would be correct?

Accepted Answer

A) oligopoly, monopoly, perfect competition, monopolistic competition 
B) monopoly, oligopoly, monopolistic competition, perfect competition 
C) perfect competition, monopolistic competition, oligopoly, monopoly 
D) monopolistic competition, perfect competition, oligopoly, monopoly 
E) monopolistic competition, oligopoly, perfect competition, monopoly 
A) oligopoly, monopoly, perfect competition, monopolistic competition 
B) monopoly, oligopoly, monopolistic competition, perfect competition 
C) perfect competition, monopolistic competition, oligopoly, monopoly 
D) monopolistic competition, perfect competition, oligopoly, monopoly 
E) monopolistic competition, oligopoly, perfect competition, monopoly

Question 9

Compared to a monopolistic competitor, a monopolist produces a good with __________ substitutes and so has a __________ elastic demand curve.

Accepted Answer

A) fewer; more 
B) fewer; less 
C) more; more 
D) more; less 
A) fewer; more 
B) fewer; less 
C) more; more 
D) more; less

Question 10

Exhibit 24-3
  
-Refer to Exhibit 24-3. Which of the following points represents the profit-maximizing quantity and price of a monopolistic competitor?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
E) E 
A) A 
B) B 
C) C 
D) D 
E) E

Question 11

Which of the following is an example of an oligopoly market in which the firms produce a homogeneous product?

Accepted Answer

A) aluminum 
B) soap 
C) breakfast cereals 
D) tires 
E) all of the above 
A) aluminum 
B) soap 
C) breakfast cereals 
D) tires 
E) all of the above

Question 12

Exhibit 24-10
   Suppose that the letter grade earned on a test for each student in a class depends upon how well he/she does relative to other students in the class. This exhibit shows a prisoner's dilemma setting for two representative students in the class, George and Gina.
-Refer to Exhibit 24-10. If George studies for two hours and Gina studies for four hours, George's letter grade on the test will be a ___________ and Gina's letter grade on the test will be a __________________.

Accepted Answer

A) C; A 
B) C; C 
C) B; B 
D) A; C 
A) C; A 
B) C; C 
C) B; B 
D) A; C

Question 13

Which of the following is not an assumption of the theory of monopolistic competition?

Accepted Answer

A) There are high barriers to entry. 
B) There are many sellers and few buyers. 
C) Each firm in the industry produces and sells a homogeneous product. 
D) a and b 
E) all of the above 
A) There are high barriers to entry. 
B) There are many sellers and few buyers. 
C) Each firm in the industry produces and sells a homogeneous product. 
D) a and b 
E) all of the above

Question 14

List and describe the three assumptions upon which oligopoly behavior are based.

Accepted Answer

The three assumptions of oligopoly are:

Question 15

The monopolistic competitive firm faces a(n) __________ demand curve.

Accepted Answer

A) horizontal 
B) vertical 
C) downward-sloping 
D) upward-sloping 
A) horizontal 
B) vertical 
C) downward-sloping 
D) upward-sloping

Question 16

The theory of monopolistic competition assumes

Accepted Answer

A) the production of a slightly differentiated product. 
B) significant barriers to entry. 
C) many buyers and sellers. 
D) a and c 
E) all of the above 
A) the production of a slightly differentiated product. 
B) significant barriers to entry. 
C) many buyers and sellers. 
D) a and c 
E) all of the above

Question 17

Exhibit 24-3
  
-Refer to Exhibit 24-3. For this profit maximizing monopolistic competitor profit is represented by the area

Accepted Answer

A) 0P4DQ3. 
B) P5P3CE. 
C) P3P1AC. 
D) 0Q1 times P2P4. 
E) 0Q1 times P2P5. 
A) 0P4DQ3. 
B) P5P3CE. 
C) P3P1AC. 
D) 0Q1 times P2P4. 
E) 0Q1 times P2P5.

Question 18

Which of the following statements is true?

Accepted Answer

A) Concentration ratios take into account competition from substitute goods. 
B) The four-firm concentration ratio is likely to be larger than the eight-firm concentration ratio. 
C) There are assumed to be insignificant barriers to entry in the theory of oligopoly. 
D) A designer label on a pair of jeans is a way of differentiating one seller's jeans from another seller's jeans. 
E) all the above 
A) Concentration ratios take into account competition from substitute goods. 
B) The four-firm concentration ratio is likely to be larger than the eight-firm concentration ratio. 
C) There are assumed to be insignificant barriers to entry in the theory of oligopoly. 
D) A designer label on a pair of jeans is a way of differentiating one seller's jeans from another seller's jeans. 
E) all the above

Question 19

Exhibit 24-10
   Suppose that the letter grade earned on a test for each student in a class depends upon how well he/she does relative to other students in the class. This exhibit shows a prisoner's dilemma setting for two representative students in the class, George and Gina.
-Refer to Exhibit 24-10. If George and Gina are in a prisoner's dilemma setting, they are likely to end up in box ___________ in the diagram.

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 20

Which of the following is not an assumption of oligopoly?

Accepted Answer

A) There are few sellers. 
B) There are few buyers. 
C) Firms produce and sell either homogeneous or differentiated products. 
D) There are significant barriers to entry. 
E) b and c 
A) There are few sellers. 
B) There are few buyers. 
C) Firms produce and sell either homogeneous or differentiated products. 
D) There are significant barriers to entry. 
E) b and c

Exam 24: Monopolistic Competition Oligopoly and Game Theory

Which of the following statements is true?

Exhibit 24-6 -Refer to Exhibit 24-6. The monopolistic competitor in the exhibit is

Exhibit 24-3 -Refer to Exhibit 24-3. Total cost of this profit maximizing monopolistic competitor is represented by the area

Exhibit 24-3 -Refer to Exhibit 24-3. Total revenue of this profit maximizing monopolistic competitor is represented by the area

In which market structure is the interdependence of firms a key characteristic?

The theory of contestable markets places more emphasis than orthodox market structure theories on

One of the necessary conditions for a contestable market is that new firms entering the market have a cost advantage over the existing firms.

If you were to rank the four market structures in terms of lowest concentration ratio to highest concentration ratio, which of the following rankings would be correct?

Compared to a monopolistic competitor, a monopolist produces a good with __________ substitutes and so has a __________ elastic demand curve.

Exhibit 24-3 -Refer to Exhibit 24-3. Which of the following points represents the profit-maximizing quantity and price of a monopolistic competitor?

Which of the following is an example of an oligopoly market in which the firms produce a homogeneous product?

Which of the following is not an assumption of the theory of monopolistic competition?

List and describe the three assumptions upon which oligopoly behavior are based.

The monopolistic competitive firm faces a(n) __________ demand curve.

The theory of monopolistic competition assumes

Exhibit 24-3 -Refer to Exhibit 24-3. For this profit maximizing monopolistic competitor profit is represented by the area

Which of the following statements is true?

Which of the following is not an assumption of oligopoly?

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Compared to a monopolistic competitor, a monopolist produces a good with substitutes and so has a elastic demand curve.