Question 1

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

Accepted Answer

Both market structures share the followi

Question 2

Cartels are easy to form and to maintain.

Accepted Answer

A) True 
 B)False

Question 3

In long-run equilibrium, a monopolistic competitive firm will most likely produce a level of output for which price equals average total cost.

Accepted Answer

A) True 
 B)False

Question 4

The prisoner's dilemma can be used to help analyze such diverse topics as the arms race and the need for speed limit laws.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not a condition of a contestable market?

Accepted Answer

A) There is easy entry into the market. 
B) There is costless exit from the market. 
C) New firms entering the market can produce the product at lower cost than current firms. 
D) Firms exiting the market can easily dispose of their fixed assets by selling them elsewhere. 
A) There is easy entry into the market. 
B) There is costless exit from the market. 
C) New firms entering the market can produce the product at lower cost than current firms. 
D) Firms exiting the market can easily dispose of their fixed assets by selling them elsewhere.

Question 6

Some economists contend that a monopolistic competitor tends to produce too __________ output, charges a price that is too __________ and __________ its present plant size.

Accepted Answer

A) little; low; underutilizes 
B) little; high; underutilizes 
C) much; low; overutilizes 
D) much; high; overutilizes 
E) much; low; underutilizes 
A) little; low; underutilizes 
B) little; high; underutilizes 
C) much; low; overutilizes 
D) much; high; overutilizes 
E) much; low; underutilizes

Question 7

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.

Question 8

How does contestable markets theory challenge orthodox market structure theory?

Accepted Answer

A) Contestable markets theory argues that firms do not maximize sales; orthodox market structure theory argues that they do. 
B) Orthodox market structure theory places much greater weight than contestable markets theory on the number of firms in an industry as a major factor in determining a firm's behavior. 
C) Contestable markets theory emphasizes product differentiation; orthodox market structure theory does not. 
D) Contestable markets theory emphasizes nonprice competition; orthodox market structure theory does not. 
A) Contestable markets theory argues that firms do not maximize sales; orthodox market structure theory argues that they do. 
B) Orthodox market structure theory places much greater weight than contestable markets theory on the number of firms in an industry as a major factor in determining a firm's behavior. 
C) Contestable markets theory emphasizes product differentiation; orthodox market structure theory does not. 
D) Contestable markets theory emphasizes nonprice competition; orthodox market structure theory does not.

Question 9

Exhibit 24-8   Refer to Exhibit 24-8. Average total cost at the profit-maximizing level of output equals

Accepted Answer

A) $120. 
B) $140. 
C) $70. 
D) $50. 
E) There is not enough information given to answer this question. 
A) $120. 
B) $140. 
C) $70. 
D) $50. 
E) There is not enough information given to answer this question.

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. 
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.

Question 11

According to the contestable markets theory,

Accepted Answer

A) even if an industry is comprised of a small number of firms, this is not sufficient evidence that the firms perform in a noncompetitive way. 
B) profits cannot be zero in an industry if the number of sellers in the industry is small. 
C) if a market is contestable, inefficient producers are more likely to survive than if the market is not contestable. 
D) profits cannot be zero in an industry if the number of sellers in the industry is large. 
A) even if an industry is comprised of a small number of firms, this is not sufficient evidence that the firms perform in a noncompetitive way. 
B) profits cannot be zero in an industry if the number of sellers in the industry is small. 
C) if a market is contestable, inefficient producers are more likely to survive than if the market is not contestable. 
D) profits cannot be zero in an industry if the number of sellers in the industry is large.

Question 12

In recent years, industries with high four- and eight-firm concentration ratios include cars, cereal breakfast foods, and farm machinery.

Accepted Answer

A) True 
 B)False

Question 13

The profit-maximizing monopolistic competitor produces where price

Accepted Answer

A) equals marginal cost and marginal revenue. 
B) is less than marginal cost and marginal revenue. 
C) is greater than both marginal cost and marginal revenue. 
D) equals marginal cost and is less than marginal revenue. 
E) equals marginal cost and is greater than marginal revenue. 
A) equals marginal cost and marginal revenue. 
B) is less than marginal cost and marginal revenue. 
C) is greater than both marginal cost and marginal revenue. 
D) equals marginal cost and is less than marginal revenue. 
E) equals marginal cost and is greater than marginal revenue.

Question 14

A monopolistic competitive firm maximizes profits by producing at the point where

Accepted Answer

A) total revenue is at a maximum. 
B) marginal revenue equals average cost. 
C) marginal revenue equals marginal cost. 
D) price equals marginal revenue. 
A) total revenue is at a maximum. 
B) marginal revenue equals average cost. 
C) marginal revenue equals marginal cost. 
D) price equals marginal revenue.

Question 15

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 
A) aluminum 
B) soap 
C) breakfast cereals 
D) tires

Question 16

It has been argued that because the monopolistic competitive firm faces a downward-sloping demand curve, in long run equilibrium it

Accepted Answer

A) overutilizes its plant size. 
B) has excess capacity. 
C) produces an output greater than the one that would minimize its costs of production. 
D) always earns an economic profit. 
A) overutilizes its plant size. 
B) has excess capacity. 
C) produces an output greater than the one that would minimize its costs of production. 
D) always earns an economic profit.

Question 17

In the prisoner's dilemma, each prisoner would be better off if neither one confesses.

Accepted Answer

A) True 
 B)False

Question 18

The monopolistic competitor is a price

Accepted Answer

A) taker, because of the many buyers and sellers in the market. 
B) searcher, because of product differentiation. 
C) taker, because of identical products. 
D) searcher, because of the few buyers and sellers in the market. 
E) searcher, because of the few buyers and sellers in the market and product differentiation. 
A) taker, because of the many buyers and sellers in the market. 
B) searcher, because of product differentiation. 
C) taker, because of identical products. 
D) searcher, because of the few buyers and sellers in the market. 
E) searcher, because of the few buyers and sellers in the market and product differentiation.

Question 19

A monopolistic competitive firm is a price taker, while an oligopolist is a price searcher.

Accepted Answer

A) True 
 B)False

Question 20

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 buyers. 
C) Each firm in the industry produces and sells a differentiated product. 
D) The firm is a price searcher. 
A) There are high barriers to entry. 
B) There are many sellers and buyers. 
C) Each firm in the industry produces and sells a differentiated product. 
D) The firm is a price searcher.

Exam 11: Monopolistic Competition, Oligopoly, and Game Theory

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

Cartels are easy to form and to maintain.

In long-run equilibrium, a monopolistic competitive firm will most likely produce a level of output for which price equals average total cost.

The prisoner's dilemma can be used to help analyze such diverse topics as the arms race and the need for speed limit laws.

Which of the following is not a condition of a contestable market?

Some economists contend that a monopolistic competitor tends to produce too __________ output, charges a price that is too __________ and __________ its present plant size.

Which of the following statements is true?

How does contestable markets theory challenge orthodox market structure theory?

Exhibit 24-8 Refer to Exhibit 24-8. Average total cost at the profit-maximizing level of output equals

Excess capacity results from a

According to the contestable markets theory,

In recent years, industries with high four- and eight-firm concentration ratios include cars, cereal breakfast foods, and farm machinery.

The profit-maximizing monopolistic competitor produces where price

A monopolistic competitive firm maximizes profits by producing at the point where

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

It has been argued that because the monopolistic competitive firm faces a downward-sloping demand curve, in long run equilibrium it

In the prisoner's dilemma, each prisoner would be better off if neither one confesses.

The monopolistic competitor is a price

A monopolistic competitive firm is a price taker, while an oligopolist is a price searcher.

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

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

Filters

Some economists contend that a monopolistic competitor tends to produce too output, charges a price that is too and __ its present plant size.