Question 1

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

Question 2

Which of the following is one of the assumptions upon which the theory of monopolistic competition is built?

Accepted Answer

A) There are many sellers. 
B) There are few buyers. 
C) It is difficult to enter the industry. 
D) Each firm in the industry produces a homogeneous product. 
A) There are many sellers. 
B) There are few buyers. 
C) It is difficult to enter the industry. 
D) Each firm in the industry produces a homogeneous product.

Question 3

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

Accepted Answer

A) Entry into the market is easy. 
B) Exit from an industry is costless. 
C) All firms in the industry have different costs of production. 
D) A new firm entering the market can produce the product at the same cost that current firms produce it. 
A) Entry into the market is easy. 
B) Exit from an industry is costless. 
C) All firms in the industry have different costs of production. 
D) A new firm entering the market can produce the product at the same cost that current firms produce it.

Question 4

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. 
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.

Question 5

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. 
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.

Question 6

Which of the following statements is true?

Accepted Answer

A) Monopolistic competitive firms do not experience the law of diminishing marginal returns when they produce output. 
B) Monopolistic competitive firms face a downward-sloping demand curve and a horizontal marginal cost curve. 
C) There are many buyers and few sellers in the theory of monopolistic competition. 
D) Monopolistic competitors are said to underutilize their present plant size. 
A) Monopolistic competitive firms do not experience the law of diminishing marginal returns when they produce output. 
B) Monopolistic competitive firms face a downward-sloping demand curve and a horizontal marginal cost curve. 
C) There are many buyers and few sellers in the theory of monopolistic competition. 
D) Monopolistic competitors are said to underutilize their present plant size.

Question 7

A firm in a monopolistic competitive market will produce a level of output at which

Accepted Answer

A) P 
B) P = MR. 
C) P > MR. 
D) P = MC. 
A) P 
B) P = MR. 
C) P > MR. 
D) P = MC.

Question 8

Exhibit 24-8   Refer to Exhibit 24-8. The maximum profits earned by a monopolistic competitive firm will be

Accepted Answer

A) $0. 
B) $300. 
C) $350. 
D) $80. 
A) $0. 
B) $300. 
C) $350. 
D) $80.

Question 9

The theory of oligopoly assumes

Accepted Answer

A) a few sellers and many buyers. 
B) a few buyers and many sellers. 
C) low barriers to entry. 
D) many buyers and sellers. 
A) a few sellers and many buyers. 
B) a few buyers and many sellers. 
C) low barriers to entry. 
D) many buyers and sellers.

Question 10

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 11

Exhibit 24-8   Refer to Exhibit 24-8. The marginal cost of the last unit produced at the profit-maximizing output level equals

Accepted Answer

A) $90. 
B) $40. 
C) $120. 
D) $50. 
A) $90. 
B) $40. 
C) $120. 
D) $50.

Question 12

In an oligopoly market, unlike in other market structures, firms

Accepted Answer

A) can act interdependently. 
B) always produce a differentiated product. 
C) use advertising. 
D) face low barriers to entry and exit. 
A) can act interdependently. 
B) always produce a differentiated product. 
C) use advertising. 
D) face low barriers to entry and exit.

Question 13

In a monopolistic competitive industry,

Accepted Answer

A) each firm in the industry produces a slightly differentiated product. 
B) there are significant barriers to entry. 
C) there are significant barriers to exit. 
D) there are few sellers. 
A) each firm in the industry produces a slightly differentiated product. 
B) there are significant barriers to entry. 
C) there are significant barriers to exit. 
D) there are few sellers.

Question 14

Which of the following is an example of a monopolistic competitor?

Accepted Answer

A) General Motors 
B) a wheat farmer in Iowa 
C) a long-distance telephone company 
D) a family-owned Italian restaurant 
A) General Motors 
B) a wheat farmer in Iowa 
C) a long-distance telephone company 
D) a family-owned Italian restaurant

Question 15

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

Accepted Answer

A) exceed ATC, but equal MC. 
B) exceed both MC and ATC. 
C) be less than both MC and ATC. 
D) exceed MC, but equal ATC. 
A) exceed ATC, but equal MC. 
B) exceed both MC and ATC. 
C) be less than both MC and ATC. 
D) exceed MC, but equal ATC.

Question 16

The key behavioral assumption of the cartel theory is that oligopolists in an industry

Accepted Answer

A) try to maximize sales instead of profits. 
B) act as if they are perfect competitors. 
C) act in a manner consistent with there being only one firm in the industry. 
D) try to create a demand for their products by way of advertising. 
A) try to maximize sales instead of profits. 
B) act as if they are perfect competitors. 
C) act in a manner consistent with there being only one firm in the industry. 
D) try to create a demand for their products by way of advertising.

Question 17

The assumption that precludes economic profits in monopolistic competition in the long run is that

Accepted Answer

A) there are many buyers and sellers. 
B) the firms produce a homogeneous product. 
C) there is easy entry and exit in this market structure. 
D) buyers and sellers have all relevant information. 
A) there are many buyers and sellers. 
B) the firms produce a homogeneous product. 
C) there is easy entry and exit in this market structure. 
D) buyers and sellers have all relevant information.

Question 18

Exhibit 24-7   Refer to Exhibit 24-7. A monopolistic competitive firm that seeks to maximize profits will sell __________ units and charge a price of __________ .

Accepted Answer

A) 10; $10 
B) 25; $7 
C) 15; $9 
D) 30; $6 
E) 35; $5 
A) 10; $10 
B) 25; $7 
C) 15; $9 
D) 30; $6 
E) 35; $5

Question 19

Total industry sales are $130 million. The top four firms (A, B, C, and D)account for sales of $38 million, $21 million, $13 million and $8 million, respectively. What is the approximate four-firm concentration ratio?

Accepted Answer

A) 0.80 
B) 0.62 
C) 0.38 
D) 0.40 
A) 0.80 
B) 0.62 
C) 0.38 
D) 0.40

Question 20

Interdependence implies that each firm in an industry

Accepted Answer

A) is independent of one another and are essentially price takers. 
B) is aware that its actions influence the others and that the actions of the other firms affect it. 
C) is so large and powerful that they do not need to consider how their actions will affect their rivals. 
D) must depend on the other firms to maintain consumers' interest in their "mutual" product. 
A) is independent of one another and are essentially price takers. 
B) is aware that its actions influence the others and that the actions of the other firms affect it. 
C) is so large and powerful that they do not need to consider how their actions will affect their rivals. 
D) must depend on the other firms to maintain consumers' interest in their "mutual" product.

Exam 11: Monopolistic Competition, Oligopoly, and Game Theory

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

Which of the following is one of the assumptions upon which the theory of monopolistic competition is built?

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

In long run equilibrium, the monopolistic competitor will most likely

Which of the following statements is true?

Which of the following statements is true?

A firm in a monopolistic competitive market will produce a level of output at which

Exhibit 24-8 Refer to Exhibit 24-8. The maximum profits earned by a monopolistic competitive firm will be

The theory of oligopoly assumes

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

Exhibit 24-8 Refer to Exhibit 24-8. The marginal cost of the last unit produced at the profit-maximizing output level equals

In an oligopoly market, unlike in other market structures, firms

In a monopolistic competitive industry,

Which of the following is an example of a monopolistic competitor?

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

The key behavioral assumption of the cartel theory is that oligopolists in an industry

The assumption that precludes economic profits in monopolistic competition in the long run is that

Exhibit 24-7 Refer to Exhibit 24-7. A monopolistic competitive firm that seeks to maximize profits will sell __________ units and charge a price of __________ .

Total industry sales are $130 million. The top four firms (A, B, C, and D)account for sales of $38 million, $21 million, $13 million and $8 million, respectively. What is the approximate four-firm concentration ratio?

Interdependence implies that each firm in an industry

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

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Exhibit 24-7 Refer to Exhibit 24-7. A monopolistic competitive firm that seeks to maximize profits will sell units and charge a price of .