Question 1

In the long run, firms in a monopolistically competitive industry will

Accepted Answer

A)  achieve a price equal to the minimum point on the LRATC curve. 
B)  generate no deadweight loss. 
C)  achieve profits equal to a monopoly firm. 
D)  earn zero economic profit. 
A)  achieve a price equal to the minimum point on the LRATC curve. 
B)  generate no deadweight loss. 
C)  achieve profits equal to a monopoly firm. 
D)  earn zero economic profit.

Question 2

In which of these cases does game theory BEST apply?

Accepted Answer

A)  a perfect competitor deciding whether to leave a market 
B)  Ford deciding what GM's response would be to a new rebate program 
C)  a Chinese fast-food restaurant deciding whether the demand for its product will grow 
D)  an electric utility computing its marginal cost 
A)  a perfect competitor deciding whether to leave a market 
B)  Ford deciding what GM's response would be to a new rebate program 
C)  a Chinese fast-food restaurant deciding whether the demand for its product will grow 
D)  an electric utility computing its marginal cost

Question 3

The kinked demand curve model leads to a discontinuity in the MR curve, which shows that MC must change significantly before price changes occur.

Accepted Answer

A) True 
 B)False

Question 4

Why is it more difficult for an oligopoly to apply the profit-maximization rule than firms in other market structures?

Accepted Answer

A)  The oligopoly has more rival firms than exist in other market structures. 
B)  MR is higher than price for an oligopoly. 
C)  The oligopoly's demand curve depends on the decisions of rival firms in the market. 
D)  Rival firms in the market will always match price decreases, making it easy to predict the firm's demand. 
A)  The oligopoly has more rival firms than exist in other market structures. 
B)  MR is higher than price for an oligopoly. 
C)  The oligopoly's demand curve depends on the decisions of rival firms in the market. 
D)  Rival firms in the market will always match price decreases, making it easy to predict the firm's demand.

Question 5

The "dilemma" in the prisoner's dilemma is that

Accepted Answer

A)  one of the players cannot get the best outcome. 
B)  both players would be better off by cooperating, but not cooperating is a dominant strategy. 
C)  both players would be better off by not cooperating, but cooperating is a dominant strategy. 
D)  the player with first-mover advantage always gets the better outcome. 
A)  one of the players cannot get the best outcome. 
B)  both players would be better off by cooperating, but not cooperating is a dominant strategy. 
C)  both players would be better off by not cooperating, but cooperating is a dominant strategy. 
D)  the player with first-mover advantage always gets the better outcome.

Question 6

Assume that a monopolistically competitive firm faces the following situation: P = $14; output = 9,000 units; MC = $11; ATC = $10; AVC = $7; and MR = $11. Which statement is correct regarding profit maximization?

Accepted Answer

A)  The firm is maximizing profit. 
B)  The firm would earn higher profit by increasing output. 
C)  The firm would minimize its losses by shutting down in the short run. 
D)  The firm would earn higher profit by decreasing output. 
A)  The firm is maximizing profit. 
B)  The firm would earn higher profit by increasing output. 
C)  The firm would minimize its losses by shutting down in the short run. 
D)  The firm would earn higher profit by decreasing output.

Question 7

A strategy in which a firm takes the same action that another firm did in the last period is a _____ strategy.

Accepted Answer

A)  tit-for-tat 
B)  trigger 
C)  duopoly 
D)  dominant 
A)  tit-for-tat 
B)  trigger 
C)  duopoly 
D)  dominant

Question 8

Assume that a monopolistically competitive firm faces the following situation: P = $22; output = 13,000 units; MC = $16; ATC = $22; AVC = $15; and MR = $16. Which statement BEST describes the firm's situation?

Accepted Answer

A)  The firm is minimizing its losses. 
B)  The firm is earning a normal profit, indicating that the market is likely in a long-run equilibrium. 
C)  The firm would maximize its profit by increasing its output. 
D)  The firm would maximize its profit by decreasing its output. 
A)  The firm is minimizing its losses. 
B)  The firm is earning a normal profit, indicating that the market is likely in a long-run equilibrium. 
C)  The firm would maximize its profit by increasing its output. 
D)  The firm would maximize its profit by decreasing its output.

Question 9

A monopolistically competitive firm faces the demand and cost data shown in the following table. Graph the demand, marginal revenue, marginal cost, and average total cost curves. What are the firm's short-run profit-maximizing price, output, and total profit?
 $\begin{array}{ccc}
Q & P & T C \
0 & \$ 8 & \$ 2 \
1 & 7 & 3 \
2 & 6 & 5 \
3 & 5 & 8 \
4 & 4 & 12 \
5 & 3 & 18
\end{array}$

Accepted Answer

The table below shows the calculated mar

Question 10

(Figure: Long-Run Monopolistic Competition) Based on the graph, this monopolistically competitive firm will earn _____ profit in the long run.

Accepted Answer

A)  higher-than-normal economic 
B)  less-than-normal 
C)  abnormal profits 
D)  zero economic 
A)  higher-than-normal economic 
B)  less-than-normal 
C)  abnormal profits 
D)  zero economic

Question 11

In this game table, the Nash equilibrium is

Accepted Answer

A)  Fancy, Fancy = (3, 6) 
B)  Casual, Fancy = (4, 8) 
C)  Fancy, Casual = (7, 2) 
D)  Casual, Casual = (9, 7) 
A)  Fancy, Fancy = (3, 6) 
B)  Casual, Fancy = (4, 8) 
C)  Fancy, Casual = (7, 2) 
D)  Casual, Casual = (9, 7)

Question 12

Which characteristic of a monopolistically competitive firm is also a characteristic of a perfectly competitive firm?

Accepted Answer

A)  easy entry into and exit from the market 
B)  ability to set prices as a result of some market power 
C)  downward-sloping demand and marginal revenue curves 
D)  product differentiation 
A)  easy entry into and exit from the market 
B)  ability to set prices as a result of some market power 
C)  downward-sloping demand and marginal revenue curves 
D)  product differentiation

Question 13

Which statement is an example of mutual interdependence?

Accepted Answer

A)  Coca-Cola introduces a new tea and monitors how Pepsi will react. 
B)  Ford lowers the price of its cars and assumes other automakers will not change their prices. 
C)  Budweiser ignores the introduction of the new Vortex beer bottle by Miller. 
D)  Airbus increases its advertising budget and assumes this will have no impact on what its rival, Boeing, does. 
A)  Coca-Cola introduces a new tea and monitors how Pepsi will react. 
B)  Ford lowers the price of its cars and assumes other automakers will not change their prices. 
C)  Budweiser ignores the introduction of the new Vortex beer bottle by Miller. 
D)  Airbus increases its advertising budget and assumes this will have no impact on what its rival, Boeing, does.

Question 14

In this game table, is the Nash equilibrium a prisoner's dilemma?

Accepted Answer

A)  Yes, it is because the combined payoff for the two firms is lower than another outcome. 
B)  Yes, it is because at least one of the firms ends up with the lowest possible payoff. 
C)  No, it is not because at least one firm has achieved its highest possible payoff. 
D)  No, it is not because both firms played their dominant strategies. 
A)  Yes, it is because the combined payoff for the two firms is lower than another outcome. 
B)  Yes, it is because at least one of the firms ends up with the lowest possible payoff. 
C)  No, it is not because at least one firm has achieved its highest possible payoff. 
D)  No, it is not because both firms played their dominant strategies.

Question 15

The trembling hand trigger game allows an opponent to get away with at least one mistake.

Accepted Answer

A) True 
 B)False

Question 16

(Table) Referring to the payoff matrix for Natasha and Marla (which shows Natasha's profits in plain text and Marla's profits in italic), who has a dominant strategy?
$\begin{array}{c}
 \quad  \quad  \quad  \quad  \quad  \quad  \quad \text { Marla's Manicures } \
\begin{array}{|l|l|ll|ll|}
\hline & & {\text { High Price }} & &{\text { Price }} \
\hline \text { Natasha's Nail Salon } & \text { High Price } & \$ 4,000 & \$ 4,500 & \$ 700 & \$ 3,500 \
\hline  &\text { Low Price } & \$ 2,800 & \$ 500 & \$ 3,000 & \$ 3,700 \
\hline
\end{array}\end{array}$

Accepted Answer

A)  both Natasha and Marla 
B)  neither Natasha nor Marla 
C)  Natasha, but not Marla 
D)  Marla, but not Natasha 
A)  both Natasha and Marla 
B)  neither Natasha nor Marla 
C)  Natasha, but not Marla 
D)  Marla, but not Natasha

Question 17

If an oligopolistic firm believes that its competitors would match a price decrease, but not match a price increase, its demand curve is

Accepted Answer

A)  linear, but more elastic at higher prices. 
B)  linear, but less elastic at lower prices. 
C)  kinked, being steeper above the current price. 
D)  kinked, being steeper below the current price. 
A)  linear, but more elastic at higher prices. 
B)  linear, but less elastic at lower prices. 
C)  kinked, being steeper above the current price. 
D)  kinked, being steeper below the current price.

Question 18

The kinked demand curve model assumes that competitors will match a price decrease but not a price increase.

Accepted Answer

A) True 
 B)False

Question 19

The kinked demand curve explains pricing strategy in oligopolistic markets.

Accepted Answer

A) True 
 B)False

Question 20

Describe cartels and the reasons for their instability.

Accepted Answer

In the cartel model of oligopolistic beh

In the long run, firms in a monopolistically competitive industry will

In which of these cases does game theory BEST apply?

The kinked demand curve model leads to a discontinuity in the MR curve, which shows that MC must change significantly before price changes occur.

Why is it more difficult for an oligopoly to apply the profit-maximization rule than firms in other market structures?

The "dilemma" in the prisoner's dilemma is that

Assume that a monopolistically competitive firm faces the following situation: P = $14; output = 9,000 units; MC = $11; ATC = $10; AVC = $7; and MR = $11. Which statement is correct regarding profit maximization?

A strategy in which a firm takes the same action that another firm did in the last period is a _____ strategy.

Assume that a monopolistically competitive firm faces the following situation: P = $22; output = 13,000 units; MC = $16; ATC = $22; AVC = $15; and MR = $16. Which statement BEST describes the firm's situation?

(Figure: Long-Run Monopolistic Competition) Based on the graph, this monopolistically competitive firm will earn _____ profit in the long run.

In this game table, the Nash equilibrium is

Which characteristic of a monopolistically competitive firm is also a characteristic of a perfectly competitive firm?

Which statement is an example of mutual interdependence?

In this game table, is the Nash equilibrium a prisoner's dilemma?

The trembling hand trigger game allows an opponent to get away with at least one mistake.

If an oligopolistic firm believes that its competitors would match a price decrease, but not match a price increase, its demand curve is

The kinked demand curve model assumes that competitors will match a price decrease but not a price increase.

The kinked demand curve explains pricing strategy in oligopolistic markets.

Describe cartels and the reasons for their instability.

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Exam 10: Monopolistic Competition, Oligopoly, and Game Theory

In the long run, firms in a monopolistically competitive industry will

In which of these cases does game theory BEST apply?

The kinked demand curve model leads to a discontinuity in the MR curve, which shows that MC must change significantly before price changes occur.

Why is it more difficult for an oligopoly to apply the profit-maximization rule than firms in other market structures?

The "dilemma" in the prisoner's dilemma is that

Assume that a monopolistically competitive firm faces the following situation: P = $14; output = 9,000 units; MC = $11; ATC = $10; AVC = $7; and MR = $11. Which statement is correct regarding profit maximization?

A strategy in which a firm takes the same action that another firm did in the last period is a _____ strategy.

Assume that a monopolistically competitive firm faces the following situation: P = $22; output = 13,000 units; MC = $16; ATC = $22; AVC = $15; and MR = $16. Which statement BEST describes the firm's situation?

(Figure: Long-Run Monopolistic Competition) Based on the graph, this monopolistically competitive firm will earn _____ profit in the long run.

In this game table, the Nash equilibrium is

Which characteristic of a monopolistically competitive firm is also a characteristic of a perfectly competitive firm?

Which statement is an example of mutual interdependence?

In this game table, is the Nash equilibrium a prisoner's dilemma?

The trembling hand trigger game allows an opponent to get away with at least one mistake.

If an oligopolistic firm believes that its competitors would match a price decrease, but not match a price increase, its demand curve is

The kinked demand curve model assumes that competitors will match a price decrease but not a price increase.

The kinked demand curve explains pricing strategy in oligopolistic markets.

Describe cartels and the reasons for their instability.

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Elasticity

Consumer Choice and Demand

Production and Costs

Perfect Competition

Monopoly

The Labor Market

Land, Capital Markets, and Innovation

Externalities and Public Goods

Network Goods

Poverty and Income Distribution

International Trade

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