Question 1

Monopolistic competition differs from perfect competition only in the number of firms participating in the market.

Accepted Answer

A) True 
 B)False

Question 2

Monopolistically competitive markets feature heterogeneous products.

Accepted Answer

A) True 
 B)False

Question 3

If in a given market of more than one producer, there were to exist for a long interval of time a positive gap between price and average cost (P > AC), this would suggest that

Accepted Answer

A)  there are many sellers in the industry. 
B)  there exists an oligopoly or cartel in the industry. 
C)  this is a contestable market. 
D)  the firm cannot be a monopolistic competitor. 
A)  there are many sellers in the industry. 
B)  there exists an oligopoly or cartel in the industry. 
C)  this is a contestable market. 
D)  the firm cannot be a monopolistic competitor.

Question 4

A sales-maximizing firm produces the output level at which

Accepted Answer

A)  MR = P. 
B)  MR = MC. 
C)  MR = AC. 
D)  MR = 0. 
A)  MR = P. 
B)  MR = MC. 
C)  MR = AC. 
D)  MR = 0.

Question 5

A profit-maximizing, monopolistically competitive restaurant serves 60 burgers a day at a total cost of $180 and earns a total profit of $180.In the long run, everything else equal, the

Accepted Answer

A)  restaurant will charge more than $6 per burger. 
B)  restaurant's average total cost will rise and its total revenue will fall. 
C)  restaurant will sell more burgers at a lower average profit per burger. 
D)  All of the above are correct. 
A)  restaurant will charge more than $6 per burger. 
B)  restaurant's average total cost will rise and its total revenue will fall. 
C)  restaurant will sell more burgers at a lower average profit per burger. 
D)  All of the above are correct.

Question 6

Table 12-1
 $\begin{array}{lrrrr}
& \underline{ B 1 } & \underline{ B2 } & \underline{ B3 } & \underline{ B4 } \
\mathrm{~A} 1 & 100 & 50 & 25 & 10 \
\mathrm{~A} 2 & 10 & 60 & 150 & 200 \
\mathrm{~A} 3 & 50 & 75 & 200 & 250 \
\mathrm{~A} 4 & 3 \Pi & 50 & 110 & 150
\end{array}$ 
If firm A uses the maximin criterion, which strategy will it choose?
-Displayed below is the payoff matrix of firm A for four different strategies, A1, A2, A3, and A4, and the potential retaliatory responses of firm B (B1, B2, B3, B4).

Accepted Answer

A) A1 
B) A2 
C) A3 
D) A4 
A) A1 
B) A2 
C) A3 
D) A4

Question 7

The key difference between oligopoly and other market structures is the interdependence among producers.

Accepted Answer

A) True 
 B)False

Question 8

An oligopolist's effective demand curve will be kinked if the firm

Accepted Answer

A)  is acting as a price leader in the industry. 
B)  expects other firms to match price cuts but not price increases. 
C)  expects other firms to match all price changes. 
D)  fears new entry into the industry. 
A)  is acting as a price leader in the industry. 
B)  expects other firms to match price cuts but not price increases. 
C)  expects other firms to match all price changes. 
D)  fears new entry into the industry.

Question 9

The analysis of oligopolistic behavior is difficult because

Accepted Answer

A)  there are few real-world examples of oligopolies for economists to study. 
B)  oligopolists make decisions independently of each other. 
C)  firms in oligopolistic industries react to each other's behavior in many ways. 
D)  economists have paid little attention to the topic in recent years and so have not yet applied to it the techniques of modern economic theory. 
A)  there are few real-world examples of oligopolies for economists to study. 
B)  oligopolists make decisions independently of each other. 
C)  firms in oligopolistic industries react to each other's behavior in many ways. 
D)  economists have paid little attention to the topic in recent years and so have not yet applied to it the techniques of modern economic theory.

Question 10

Industries, where economies of scale dictate that only a few firms produce, will be efficient if the markets in which they sell are

Accepted Answer

A)  perfect. 
B)  contestable. 
C)  close to each other. 
D)  protected from entry. 
A)  perfect. 
B)  contestable. 
C)  close to each other. 
D)  protected from entry.

Question 11

Firms in a perfectly contestable market will earn higher profits than firms in markets that are not perfectly contestable.

Accepted Answer

A) True 
 B)False

Question 12

The demand curve facing a monopolistically competitive firm is generally

Accepted Answer

A)  steeper than the demand curve that would face a perfectly competitive firm in the same industry. 
B)  less elastic than the demand curve that would face a monopoly in the same industry. 
C)  steeper and more elastic than the demand curve that would face a perfectly competitive firm in the same industry. 
D)  flatter than the demand curve that would face a monopoly in the same industry. 
A)  steeper than the demand curve that would face a perfectly competitive firm in the same industry. 
B)  less elastic than the demand curve that would face a monopoly in the same industry. 
C)  steeper and more elastic than the demand curve that would face a perfectly competitive firm in the same industry. 
D)  flatter than the demand curve that would face a monopoly in the same industry.

Question 13

Monopolistic competition is a market structure characterized by many small firms selling a homogeneous product.

Accepted Answer

A) True 
 B)False

Question 14

The apparent stickiness of the price of goods sold by oligopolists can be explained by the

Accepted Answer

A)  contestable markets model. 
B)  sales maximization model. 
C)  kinked demand curve model. 
D)  entry deterrence model. 
A)  contestable markets model. 
B)  sales maximization model. 
C)  kinked demand curve model. 
D)  entry deterrence model.

Question 15

Firms in a perfectly contestable market will be forced to operate as efficiently as possible and to charge prices as low as long-run financial survival permits.Why?

Accepted Answer

The freedom of entry eliminates any exce

Question 16

In the long run, a monopolistically competitive firm earns small economic profits.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following conditions distinguishes the monopolistic competitor from the monopolist?

Accepted Answer

A)  profit-maximizing rule 
B)  downward slope of demand curve 
C)  entry of rivals 
D)  short-run economic profits 
A)  profit-maximizing rule 
B)  downward slope of demand curve 
C)  entry of rivals 
D)  short-run economic profits

Question 18

Given the characteristics:
(1) many buyers and sellers, (2) free entry and exit, (3) perfect information, and (4) heterogeneity of products, monopolistic competition and perfect competition share

Accepted Answer

A)  (1) and (4). 
B)  (1), (2), and (3). 
C)  (2) and (4). 
D)  (2), (3), and (4). 
A)  (1) and (4). 
B)  (1), (2), and (3). 
C)  (2) and (4). 
D)  (2), (3), and (4).

Question 19

Game theory may be used to solve problems of interdependent decision making by large firms.

Accepted Answer

A) True 
 B)False

Question 20

A situation in which both players can adopt moves such that each player's move is its most profitable response to the move of the other is the

Accepted Answer

A)  prisoner's dilemma. 
B)  Nash equilibrium. 
C)  maximin criterion. 
D)  tacit collusion. 
A)  prisoner's dilemma. 
B)  Nash equilibrium. 
C)  maximin criterion. 
D)  tacit collusion.

Exam 12: Between Competition and Monopoly

Monopolistic competition differs from perfect competition only in the number of firms participating in the market.

Monopolistically competitive markets feature heterogeneous products.

If in a given market of more than one producer, there were to exist for a long interval of time a positive gap between price and average cost (P > AC), this would suggest that

A sales-maximizing firm produces the output level at which

A profit-maximizing, monopolistically competitive restaurant serves 60 burgers a day at a total cost of $180 and earns a total profit of $180.In the long run, everything else equal, the

The key difference between oligopoly and other market structures is the interdependence among producers.

An oligopolist's effective demand curve will be kinked if the firm

The analysis of oligopolistic behavior is difficult because

Industries, where economies of scale dictate that only a few firms produce, will be efficient if the markets in which they sell are

Firms in a perfectly contestable market will earn higher profits than firms in markets that are not perfectly contestable.

The demand curve facing a monopolistically competitive firm is generally

Monopolistic competition is a market structure characterized by many small firms selling a homogeneous product.

The apparent stickiness of the price of goods sold by oligopolists can be explained by the

Firms in a perfectly contestable market will be forced to operate as efficiently as possible and to charge prices as low as long-run financial survival permits.Why?

In the long run, a monopolistically competitive firm earns small economic profits.

Which of the following conditions distinguishes the monopolistic competitor from the monopolist?

Given the characteristics: (1) many buyers and sellers, (2) free entry and exit, (3) perfect information, and (4) heterogeneity of products, monopolistic competition and perfect competition share

Game theory may be used to solve problems of interdependent decision making by large firms.

A situation in which both players can adopt moves such that each player's move is its most profitable response to the move of the other is the

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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