Question 1

If a market is contestable, then

Accepted Answer

A) long-run economic profits are minimal due to inefficiency. 
B) long-run economic profits are zero. 
C) short-run and long-run economic profits are zero. 
D) positive economic profits are maximized due to the efficient production spurred by the threat of entry. 
A) long-run economic profits are minimal due to inefficiency. 
B) long-run economic profits are zero. 
C) short-run and long-run economic profits are zero. 
D) positive economic profits are maximized due to the efficient production spurred by the threat of entry.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

A profit-maximizing, monopolistically competitive car wash washes 40 cars per day, and its total cost $200 and currently makes an economic profit of $280. In the long run, everything else equal, the

Accepted Answer

A) car wash will charge more than $12 per wash. 
B) car wash will wash more than 50 cars per day. 
C) car wash will need to hire new workers to wash more cars. 
D) car wash will wash less than 40 cars per day. 
A) car wash will charge more than $12 per wash. 
B) car wash will wash more than 50 cars per day. 
C) car wash will need to hire new workers to wash more cars. 
D) car wash will wash less than 40 cars per day.

Question 4

The theory of the kinked demand curve is used to explain

Accepted Answer

A) bizarre corporate behavior. 
B) sales maximization. 
C) the maximin criterion. 
D) sticky prices in oligopolies. 
A) bizarre corporate behavior. 
B) sales maximization. 
C) the maximin criterion. 
D) sticky prices in oligopolies.

Question 5

Oligopolist A cuts price in an attempt to enlarge his share of the market. His competitors fail to retaliate with price cuts. In this case, in Figure 13-3, oligopolist A will move from point A to which point?

Accepted Answer

A) B 
B) C 
C) D 
D) E 
A) B 
B) C 
C) D 
D) E

Question 6

Which of the following is not a requirement for the existence of monopolistic competition in a market?

Accepted Answer

A) Numerous small sellers 
B) Full information about the market among buyers and sellers 
C) Product homogeneity 
D) Freedom of entry into the market 
A) Numerous small sellers 
B) Full information about the market among buyers and sellers 
C) Product homogeneity 
D) Freedom of entry into the market

Question 7

An advertising race among oligopolists may be rational if it

Accepted Answer

A) is defense advertising. 
B) raises entry barriers. 
C) increases cost per unit of sales. 
D) encourages new entrants. 
A) is defense advertising. 
B) raises entry barriers. 
C) increases cost per unit of sales. 
D) encourages new entrants.

Question 8

Oligopolists

Accepted Answer

A) are price takers. 
B) rarely advertise. 
C) must take rivals' reactions into account. 
D) offer homogeneous products. 
A) are price takers. 
B) rarely advertise. 
C) must take rivals' reactions into account. 
D) offer homogeneous products.

Question 9

Most economic activity in the United States is carried out by monopolies.

Accepted Answer

A) True 
 B)False

Question 10

Monopolistic competition in long-run equilibrium is characterized by

Accepted Answer

A) excess capacity. 
B) higher cost per unit of output than under perfect competition. 
C) inefficiency in use of resources. 
D) All of the responses are correct. 
A) excess capacity. 
B) higher cost per unit of output than under perfect competition. 
C) inefficiency in use of resources. 
D) All of the responses are correct.

Question 11

The short-run equilibrium of the firm under monopolistic competition has excess capacity.

Accepted Answer

A) True 
 B)False

Question 12

A dominant strategy is one that is best for one player regardless of the strategy chosen by the other player.

Accepted Answer

A) True 
 B)False

Question 13

Cartels are relatively rare because

Accepted Answer

A) they are illegal in some countries, including the United States. 
B) members find it difficult to agree on key decisions. 
C) members frequently have an incentive to cheat on the cartel. 
D) All of the responses are correct. 
A) they are illegal in some countries, including the United States. 
B) members find it difficult to agree on key decisions. 
C) members frequently have an incentive to cheat on the cartel. 
D) All of the responses are correct.

Question 14

The excess capacity theorem implies that

Accepted Answer

A) consumers would be better off if some monopolistically competitive firms left their markets. 
B) consumers would be better off with more standardization of products. 
C) monopolistic competition benefits society by eliminating excess capacity in production. 
D) monopolistic competition wastes some of society's resources but the elimination of this waste does not necessarily benefit consumers. 
A) consumers would be better off if some monopolistically competitive firms left their markets. 
B) consumers would be better off with more standardization of products. 
C) monopolistic competition benefits society by eliminating excess capacity in production. 
D) monopolistic competition wastes some of society's resources but the elimination of this waste does not necessarily benefit consumers.

Question 15

The theory of the kinked demand curve is that

Accepted Answer

A) although the firm sells a differentiated product, too many competitors exist to make it worthwhile speculating on responses to the firm's behavior. 
B) freedom of entry will reduce profits to zero. 
C) a firm's competitors will follow it in a price decrease but not follow it in a price increase. 
D) firms are all seeking the position of joint profit maximization. 
A) although the firm sells a differentiated product, too many competitors exist to make it worthwhile speculating on responses to the firm's behavior. 
B) freedom of entry will reduce profits to zero. 
C) a firm's competitors will follow it in a price decrease but not follow it in a price increase. 
D) firms are all seeking the position of joint profit maximization.

Question 16

In the long run, a monopolistically competitive firm and a perfectly competitive firm both produce at minimum average cost.

Accepted Answer

A) True 
 B)False

Question 17

The entry of new firms into a monopolistically competitive industry will cause the long-run equilibrium price to rise.

Accepted Answer

A) True 
 B)False

Question 18

An oligopolist who sets the price for the industry is a price leader.

Accepted Answer

A) True 
 B)False

Question 19

An oligopolist cares very much about what other firms in her industry are doing.

Accepted Answer

A) True 
 B)False

Question 20

Cartels provide uniform management, but none of the advantages of economies of scale.

Accepted Answer

A) True 
 B)False

Exam 13: Between Competition and Monopoly

If a market is contestable, then

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

A profit-maximizing, monopolistically competitive car wash washes 40 cars per day, and its total cost $200 and currently makes an economic profit of $280. In the long run, everything else equal, the

The theory of the kinked demand curve is used to explain

Oligopolist A cuts price in an attempt to enlarge his share of the market. His competitors fail to retaliate with price cuts. In this case, in Figure 13-3, oligopolist A will move from point A to which point?

Which of the following is not a requirement for the existence of monopolistic competition in a market?

An advertising race among oligopolists may be rational if it

Oligopolists

Most economic activity in the United States is carried out by monopolies.

Monopolistic competition in long-run equilibrium is characterized by

The short-run equilibrium of the firm under monopolistic competition has excess capacity.

A dominant strategy is one that is best for one player regardless of the strategy chosen by the other player.

Cartels are relatively rare because

The excess capacity theorem implies that

The theory of the kinked demand curve is that

In the long run, a monopolistically competitive firm and a perfectly competitive firm both produce at minimum average cost.

The entry of new firms into a monopolistically competitive industry will cause the long-run equilibrium price to rise.

An oligopolist who sets the price for the industry is a price leader.

An oligopolist cares very much about what other firms in her industry are doing.

Cartels provide uniform management, but none of the advantages of economies of scale.

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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

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