Question 1

In the prisoner's dilemma, each prisoner would be best off if

Accepted Answer

A) both confess. 
B) one confesses but the other does not. 
C) one confesses, regardless of what the other does. 
D) neither confesses. 
A) both confess. 
B) one confesses but the other does not. 
C) one confesses, regardless of what the other does. 
D) neither confesses.

Question 2

The cigarette industry is a good example of the oligopoly market structure.

Accepted Answer

A) True 
 B)False

Question 3

If the top four firms account for $85 billion in sales and total industry sales are $250 billion, it follows that the four-firm concentration ratio is

Accepted Answer

A) 0.34. 
B) 0.66. 
C) 1.34. 
D) 1.66. 
A) 0.34. 
B) 0.66. 
C) 1.34. 
D) 1.66.

Question 4

A monopolistic competitor faces a __________ demand curve and its price is __________ marginal revenue.

Accepted Answer

A) horizontal; equal to 
B) downward-sloping; equal to 
C) horizontal; greater than 
D) downward-sloping; greater than 
A) horizontal; equal to 
B) downward-sloping; equal to 
C) horizontal; greater than 
D) downward-sloping; greater than

Question 5

If the firms of an industry form a cartel, their goal is to

Accepted Answer

A) collectively increase output and thereby earn higher profits. 
B) cut back on output and raise the price of their product to earn higher profits. 
C) maintain a constant level of output, but increase price to earn higher profits. 
D) maintain a constant price level, but increase output to earn higher profits. 
A) collectively increase output and thereby earn higher profits. 
B) cut back on output and raise the price of their product to earn higher profits. 
C) maintain a constant level of output, but increase price to earn higher profits. 
D) maintain a constant price level, but increase output to earn higher profits.

Question 6

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 7

Which of the following statements is false ?

Accepted Answer

A) On occasion, governments have helped to create and maintain cartels. 
B) Once a cartel agreement has been made, cartel members have an incentive to cheat on the agreement. 
C) A single cartel member may be better off with a cartel agreement that all members abide by (including itself)than with no cartel agreement at all. 
D) Cartels are easy to form and to maintain. 
A) On occasion, governments have helped to create and maintain cartels. 
B) Once a cartel agreement has been made, cartel members have an incentive to cheat on the agreement. 
C) A single cartel member may be better off with a cartel agreement that all members abide by (including itself)than with no cartel agreement at all. 
D) Cartels are easy to form and to maintain.

Question 8

Concentration ratios are not perfect guides to industry concentration, because they

Accepted Answer

A) do not take into account foreign competition and competition from substitute goods. 
B) take into account foreign competition and competition from substitute goods. 
C) do not take into account advertising expenditures. 
D) do not take into account tax payments. 
A) do not take into account foreign competition and competition from substitute goods. 
B) take into account foreign competition and competition from substitute goods. 
C) do not take into account advertising expenditures. 
D) do not take into account tax payments.

Question 9

The concentration ratio provides a measure of the extent to which an industry

Accepted Answer

A) produces a useful product. 
B) is dominated by a small number of firms. 
C) is earning economic profits. 
D) is earning accounting profits. 
A) produces a useful product. 
B) is dominated by a small number of firms. 
C) is earning economic profits. 
D) is earning accounting profits.

Question 10

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 11

Cartels often dissolve because

Accepted Answer

A) their members often set a time limit as to how long the cartel should exist. 
B) their members often cheat on the cartel agreements because they have incentive to. 
C) their members often find that they do not earn as high profits from the cartel as they had hoped to. 
D) firms in a cartel face different costs than firms outside a cartel. 
A) their members often set a time limit as to how long the cartel should exist. 
B) their members often cheat on the cartel agreements because they have incentive to. 
C) their members often find that they do not earn as high profits from the cartel as they had hoped to. 
D) firms in a cartel face different costs than firms outside a cartel.

Question 12

List and describe the three defining assumptions of the theory of monopolistic competition.

Accepted Answer

The three assumptions upon which the the

Question 13

One of the ways in which monopolistic competitors differ from perfect competitors is that

Accepted Answer

A) perfect competitors produce the quantity of output at which marginal revenue equals marginal cost and monopolistic competitors do not. 
B) perfect competitors produce a homogeneous product and monopolistic competitors do not. 
C) there is easy entry and exit for a perfect competitor, but not for a monopolistic competitor. 
D) there are high barriers to entry and exit for a perfect competitor, but not for a monopolistic competitor. 
A) perfect competitors produce the quantity of output at which marginal revenue equals marginal cost and monopolistic competitors do not. 
B) perfect competitors produce a homogeneous product and monopolistic competitors do not. 
C) there is easy entry and exit for a perfect competitor, but not for a monopolistic competitor. 
D) there are high barriers to entry and exit for a perfect competitor, but not for a monopolistic competitor.

Question 14

One of the ways in which some monopolistic competitors try to become more like monopolists is through the use of designer labels.

Accepted Answer

A) True 
 B)False

Question 15

Unlike a monopoly, a monopolistic competitive firm in long run equilibrium is likely to produce a level of output at which

Accepted Answer

A) MR = MC. 
B) P > MC. 
C) P = ATC. 
D) resource-allocative efficiency is achieved. 
A) MR = MC. 
B) P > MC. 
C) P = ATC. 
D) resource-allocative efficiency is achieved.

Question 16

The profit-maximizing monopolistic competitive firm produces the level of output at which

Accepted Answer

A) price equals marginal cost. 
B) marginal revenue equals marginal cost. 
C) there is resource allocative efficiency. 
D) average total cost is at a minimum. 
A) price equals marginal cost. 
B) marginal revenue equals marginal cost. 
C) there is resource allocative efficiency. 
D) average total cost is at a minimum.

Question 17

A significant difference between perfect competition and monopolistic competition is that

Accepted Answer

A) a perfectly competitive firm is a price searcher, while a monopolistic competitive firm is a price taker. 
B) a perfectly competitive firm faces a downward-sloping demand curve, while a monopolistic competitive firm faces a perfectly elastic demand curve. 
C) a perfectly competitive firm sells a homogeneous product, while a monopolistic competitive firm sells a differentiated product. 
D) a perfectly competitive firm sets price above marginal cost, while a monopolistic competitive firm sets price equal to marginal cost. 
A) a perfectly competitive firm is a price searcher, while a monopolistic competitive firm is a price taker. 
B) a perfectly competitive firm faces a downward-sloping demand curve, while a monopolistic competitive firm faces a perfectly elastic demand curve. 
C) a perfectly competitive firm sells a homogeneous product, while a monopolistic competitive firm sells a differentiated product. 
D) a perfectly competitive firm sets price above marginal cost, while a monopolistic competitive firm sets price equal to marginal cost.

Question 18

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. 
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.

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 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 20

The relationship between a monopolistic competitive firm's marginal revenue curve and its demand curve is that the

Accepted Answer

A) two curves coincide and are horizontal at the market price. 
B) marginal revenue curve lies above the demand curve and the demand curve is horizontal at the market price. 
C) marginal revenue curve lies below the demand curve and both are downward sloping. 
D) two curves coincide and are downward sloping to the right. 
E) marginal revenue curve lies above the demand curve and both are downward sloping. 
A) two curves coincide and are horizontal at the market price. 
B) marginal revenue curve lies above the demand curve and the demand curve is horizontal at the market price. 
C) marginal revenue curve lies below the demand curve and both are downward sloping. 
D) two curves coincide and are downward sloping to the right. 
E) marginal revenue curve lies above the demand curve and both are downward sloping.

Exam 11: Monopolistic Competition, Oligopoly, and Game Theory

In the prisoner's dilemma, each prisoner would be best off if

The cigarette industry is a good example of the oligopoly market structure.

If the top four firms account for $85 billion in sales and total industry sales are $250 billion, it follows that the four-firm concentration ratio is

A monopolistic competitor faces a __________ demand curve and its price is __________ marginal revenue.

If the firms of an industry form a cartel, their goal is to

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 false ?

Concentration ratios are not perfect guides to industry concentration, because they

The concentration ratio provides a measure of the extent to which an industry

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

Cartels often dissolve because

List and describe the three defining assumptions of the theory of monopolistic competition.

One of the ways in which monopolistic competitors differ from perfect competitors is that

One of the ways in which some monopolistic competitors try to become more like monopolists is through the use of designer labels.

Unlike a monopoly, a monopolistic competitive firm in long run equilibrium is likely to produce a level of output at which

The profit-maximizing monopolistic competitive firm produces the level of output at which

A significant difference between perfect competition and monopolistic competition is that

Which of the following is not correct about contestable markets?

The relationship between a monopolistic competitive firm's marginal revenue curve and its demand curve is that the

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages, Union, and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

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A monopolistic competitor faces a demand curve and its price is marginal revenue.