Question 1

In long run equilibrium, the monopolistic competitor will most likely

Accepted Answer

A) be earning zero economic profit. 
B) be operating at the lowest point on its average total cost curve. 
C) charge a price that is equal to marginal revenue. 
D) charge a price that is equal to marginal cost. 
E) c and d 
A) be earning zero economic profit. 
B) be operating at the lowest point on its average total cost curve. 
C) charge a price that is equal to marginal revenue. 
D) charge a price that is equal to marginal cost. 
E) c and d

Question 2

A cartel is an organization of firms

Accepted Answer

A) dominated by one firm, which is usually referred to as the price leader. 
B) that attempts to increase total (or industry) demand for their product. 
C) that reduces output and increases price in an effort to increase joint profits. 
D) that deliberately attempts to disrupt the market for political reasons. 
A) dominated by one firm, which is usually referred to as the price leader. 
B) that attempts to increase total (or industry) demand for their product. 
C) that reduces output and increases price in an effort to increase joint profits. 
D) that deliberately attempts to disrupt the market for political reasons.

Question 3

Which of the following is an assumption of the theory of oligopoly?

Accepted Answer

A) There are significant barriers to entry. 
B) There are many sellers and many buyers. 
C) Firms produce and sell either homogeneous or differentiated products. 
D) a and c 
E) none of the above 
A) There are significant barriers to entry. 
B) There are many sellers and many buyers. 
C) Firms produce and sell either homogeneous or differentiated products. 
D) a and c 
E) none of the above

Question 4

Which of the following is not correct about contestable markets?

Accepted Answer

A) There is easy entry into and costless exit from the market. 
B) New firms entering the market can produce the product at the same cost as current firms. 
C) Firms exiting the market can easily dispose of their fixed assets by selling them elsewhere. 
D) Firms already in the market have technological advantages. 
E) b and c 
A) There is easy entry into and costless exit from the market. 
B) New firms entering the market can produce the product at the same cost as current firms. 
C) Firms exiting the market can easily dispose of their fixed assets by selling them elsewhere. 
D) Firms already in the market have technological advantages. 
E) b and c

Question 5

The profit-maximizing monopolistic competitor produces at the level of output where

Accepted Answer

A) price equals marginal cost and marginal revenue. 
B) marginal cost equals marginal revenue, but not price. 
C) price equals marginal revenue, but not marginal cost. 
D) price equals marginal cost, but not marginal revenue. 
A) price equals marginal cost and marginal revenue. 
B) marginal cost equals marginal revenue, but not price. 
C) price equals marginal revenue, but not marginal cost. 
D) price equals marginal cost, but not marginal revenue.

Question 6

Compare and contrast the following market structures: monopolistic competition and monopoly.

Accepted Answer

Monopolistic competitive firms face many

Question 7

Exhibit 24-3
  
-Refer to Exhibit 24-3. What level of output is productively efficient?

Accepted Answer

A) Q1 
B) Q2 
C) Q3 
D) It is not labeled on the diagram. 
E) It is not determinable without more information. 
A) Q1 
B) Q2 
C) Q3 
D) It is not labeled on the diagram. 
E) It is not determinable without more information.

Question 8

In long run equilibrium, a monopolistic competitive firm's price will most likely be

Accepted Answer

A) equal to average total cost, but higher than marginal cost. 
B) greater than both average total cost and marginal cost. 
C) less than both average total cost and marginal cost. 
D) equal to marginal cost, but higher than average total cost. 
A) equal to average total cost, but higher than marginal cost. 
B) greater than both average total cost and marginal cost. 
C) less than both average total cost and marginal cost. 
D) equal to marginal cost, but higher than average total cost.

Question 9

The theory of contestable markets concludes that

Accepted Answer

A) a small number of firms in an industry is strong evidence that they will perform in a noncompetitive way. 
B) even if the number of sellers in an industry is small, profits can be zero in the industry. 
C) inefficient producers can survive in a contestable market. 
D) a firm in a contestable market will sell at a price above marginal cost. 
E) all of the above 
A) a small number of firms in an industry is strong evidence that they will perform in a noncompetitive way. 
B) even if the number of sellers in an industry is small, profits can be zero in the industry. 
C) inefficient producers can survive in a contestable market. 
D) a firm in a contestable market will sell at a price above marginal cost. 
E) all of the above

Question 10

Excess capacity results from a

Accepted Answer

A) downward-sloping demand curve and a U-shaped ATC curve. 
B) downward-sloping demand curve and no fixed costs. 
C) horizontal demand curve and an upward-sloping marginal cost curve. 
D) perfectly inelastic demand curve and a downward-sloping ATC curve. 
E) none of the above 
A) downward-sloping demand curve and a U-shaped ATC curve. 
B) downward-sloping demand curve and no fixed costs. 
C) horizontal demand curve and an upward-sloping marginal cost curve. 
D) perfectly inelastic demand curve and a downward-sloping ATC curve. 
E) none of the above

Question 11

In the long run, new firms will enter a monopolistic competitive industry until

Accepted Answer

A) minimum average total cost is achieved. 
B) all firms are incurring losses. 
C) economic profits in the industry are zero. 
D) a and b 
A) minimum average total cost is achieved. 
B) all firms are incurring losses. 
C) economic profits in the industry are zero. 
D) a and b

Question 12

The monopolistic competitive firm faces a __________ demand curve and therefore is a price __________.

Accepted Answer

A) downward-sloping; searcher 
B) horizontal; taker 
C) downward-sloping; taker 
D) horizontal; searcher 
A) downward-sloping; searcher 
B) horizontal; taker 
C) downward-sloping; taker 
D) horizontal; searcher

Question 13

If the four-firm concentration ratio is 0.55, and the top four firms account for $25 million in sales, it follows that total industry sales equal

Accepted Answer

A) $28.57 million. 
B) $12.00 million. 
C) $35.00 million. 
D) $55.56 million. 
E) $45.45 million. 
A) $28.57 million. 
B) $12.00 million. 
C) $35.00 million. 
D) $55.56 million. 
E) $45.45 million.

Question 14

The demand curve facing a firm in monopolistic competition is downward sloping, because the firm

Accepted Answer

A) sells a differentiated product. 
B) is the entire industry by itself. 
C) is small relative to the market. 
D) b and c 
E) none of the above 
A) sells a differentiated product. 
B) is the entire industry by itself. 
C) is small relative to the market. 
D) b and c 
E) none of the above

Question 15

One of the main criticisms of the theory of contestable markets is that the assumption of extremely free entry into (and costless exit from) the industry is unlikely to hold in the real world.

Accepted Answer

A) True 
 B)False

Question 16

In the real-world, which of these industries is most clearly an oligopoly?

Accepted Answer

A) wheat 
B) electricity generation 
C) cereal breakfast foods 
D) restaurants 
A) wheat 
B) electricity generation 
C) cereal breakfast foods 
D) restaurants

Question 17

If a perfectly competitive firm and a monopolistic competitive firm face the same demand and cost curves, then

Accepted Answer

A) the perfectly competitive firm will attain resource-allocative efficiency, but the monopolistic competitive firm will not. 
B) the perfectly competitive firm will attain resource-allocative efficiency, but the monopolistic competitive firm may or may not, depending upon the demand for its product. 
C) the perfectly competitive firm will not attain resource-allocative efficiency, but the monopolistic competitive firm will. 
D) both the perfectly competitive firm and the monopolistic competitive firm will attain resource-allocative efficiency. 
E) neither the perfectly competitive firm nor the monopolistic competitive firm will attain resource-allocative efficiency. 
A) the perfectly competitive firm will attain resource-allocative efficiency, but the monopolistic competitive firm will not. 
B) the perfectly competitive firm will attain resource-allocative efficiency, but the monopolistic competitive firm may or may not, depending upon the demand for its product. 
C) the perfectly competitive firm will not attain resource-allocative efficiency, but the monopolistic competitive firm will. 
D) both the perfectly competitive firm and the monopolistic competitive firm will attain resource-allocative efficiency. 
E) neither the perfectly competitive firm nor the monopolistic competitive firm will attain resource-allocative efficiency.

Question 18

A monopolistic competitor has a demand curve that is ___________ elastic than a perfectly competitive firm's demand curve and ______________ a monopolistic firm's demand curve.

Accepted Answer

A) less; more elastic than 
B) less; less elastic than 
C) more; more elastic than 
D) less: equally as elastic as 
A) less; more elastic than 
B) less; less elastic than 
C) more; more elastic than 
D) less: equally as elastic as

Question 19

Which of the following is not a necessary condition for the contestable market theory?

Accepted Answer

A) There are no barriers to entry. 
B) Exit from an industry is costless. 
C) All firms in an industry have the same costs of production. 
D) All of the above are necessary conditions. 
A) There are no barriers to entry. 
B) Exit from an industry is costless. 
C) All firms in an industry have the same costs of production. 
D) All of the above are necessary conditions.

Question 20

If a perfectly competitive firm and a monopolistic competitor in long run equilibrium face the same demand and cost curves, then the competitive firm will produce a

Accepted Answer

A) greater output and charge a lower price than the monopolistic competitor. 
B) greater output, but charge the same price as the monopolistic competitor. 
C) greater output and charge a higher price than the monopolistic competitor. 
D) smaller output and charge a lower price than the monopolistic competitor. 
E) smaller output and charge a higher price than the monopolistic competitor. 
A) greater output and charge a lower price than the monopolistic competitor. 
B) greater output, but charge the same price as the monopolistic competitor. 
C) greater output and charge a higher price than the monopolistic competitor. 
D) smaller output and charge a lower price than the monopolistic competitor. 
E) smaller output and charge a higher price than the monopolistic competitor.

Exam 24: Monopolistic Competition Oligopoly and Game Theory

In long run equilibrium, the monopolistic competitor will most likely

A cartel is an organization of firms

Which of the following is an assumption of the theory of oligopoly?

Which of the following is not correct about contestable markets?

The profit-maximizing monopolistic competitor produces at the level of output where

Compare and contrast the following market structures: monopolistic competition and monopoly.

Exhibit 24-3 -Refer to Exhibit 24-3. What level of output is productively efficient?

In long run equilibrium, a monopolistic competitive firm's price will most likely be

The theory of contestable markets concludes that

Excess capacity results from a

In the long run, new firms will enter a monopolistic competitive industry until

The monopolistic competitive firm faces a __________ demand curve and therefore is a price __________.

If the four-firm concentration ratio is 0.55, and the top four firms account for $25 million in sales, it follows that total industry sales equal

The demand curve facing a firm in monopolistic competition is downward sloping, because the firm

One of the main criticisms of the theory of contestable markets is that the assumption of extremely free entry into (and costless exit from) the industry is unlikely to hold in the real world.

In the real-world, which of these industries is most clearly an oligopoly?

If a perfectly competitive firm and a monopolistic competitive firm face the same demand and cost curves, then

A monopolistic competitor has a demand curve that is ___________ elastic than a perfectly competitive firm's demand curve and ______________ a monopolistic firm's demand curve.

Which of the following is not a necessary condition for the contestable market theory?

If a perfectly competitive firm and a monopolistic competitor in long run equilibrium face the same demand and cost curves, then the competitive firm will produce a

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The monopolistic competitive firm faces a demand curve and therefore is a price .

A monopolistic competitor has a demand curve that is _ elastic than a perfectly competitive firm's demand curve and ____ a monopolistic firm's demand curve.