Question 1

For firms in an oligopoly,the main advantage of explicit collusion is that it

Accepted Answer

A) removes much of the uncertainty about rivals' reactions. 
B) makes all firms more productively efficient. 
C) leads to greater product differentiation. 
D) reduces the cost per unit of advertising. 
E) eliminates the gains from cheating. 
A) removes much of the uncertainty about rivals' reactions. 
B) makes all firms more productively efficient. 
C) leads to greater product differentiation. 
D) reduces the cost per unit of advertising. 
E) eliminates the gains from cheating. A

Question 2

The presence of significant scale economies in an industry implies that

Accepted Answer

A) a large share of the market would be required by each firm to achieve the lowest possible cost per unit. 
B) the minimum efficient scale of operation occurs at fairly low output levels. 
C) barriers to entry in the industry are non-existent. 
D) this industry is more efficient than others. 
E) the firms in the industry will behave as perfect competitors. 
A) a large share of the market would be required by each firm to achieve the lowest possible cost per unit. 
B) the minimum efficient scale of operation occurs at fairly low output levels. 
C) barriers to entry in the industry are non-existent. 
D) this industry is more efficient than others. 
E) the firms in the industry will behave as perfect competitors. A

Question 3

The payoff matrix below shows the payoffs for Firm A and Firm B,each of whom can either "cooperate" or "cheat." The numbers in parentheses are (payoff for A,payoff for B).
Firm B
Firm A   TABLE 11-2
-Refer to Table 11-2.If Firm A is indifferent between cheating or cooperating when Firm B chooses to cooperate,x must be equal to

Accepted Answer

A) 0. 
B) 10. 
C) 20. 
D) 30. 
E) 40. 
A) 0. 
B) 10. 
C) 20. 
D) 30. 
E) 40. D

Question 4

The diagram below shows selected cost and revenue curves for a firm in a monopolistically competitive industry.   FIGURE 11-1
-Refer to Figure 11-1.Assuming that this firm is producing its profit-maximizing level of output,what are the profits or losses being earned by this firm?

Accepted Answer

A) -$500 
B) -$1000 
C) $2000 
D) $1000 
E) $500 
A) -$500 
B) -$1000 
C) $2000 
D) $1000 
E) $500

Question 5

If joint profits are to be maximized in an oligopolistic industry with a homogeneous product,the firms

Accepted Answer

A) can produce whatever output they want at the agreed-upon price. 
B) need to determine the output each firm will produce. 
C) must form a cartel in order to be legal. 
D) have no individual incentive to cheat on the agreement. 
E) None of the above - differentiated products are required for joint-profit maximization in oligopoly. 
A) can produce whatever output they want at the agreed-upon price. 
B) need to determine the output each firm will produce. 
C) must form a cartel in order to be legal. 
D) have no individual incentive to cheat on the agreement. 
E) None of the above - differentiated products are required for joint-profit maximization in oligopoly.

Question 6

The diagram below shows demand and cost curves for a monopolistically competitive firm.   FIGURE 11-3
-Refer to Figure 11-3.If a decrease in industry demand led to an inward shift of each firm's demand curve,a typical firm would

Accepted Answer

A) be making profits and new firms would enter the industry in the long run. 
B) be making losses and some firms would exit the industry in the long run. 
C) exit the industry and the industry would shut down. 
D) increase costs in order to break even at PL and QL in the long run. 
E) decrease costs in order to break even at PL and QL in the long run. 
A) be making profits and new firms would enter the industry in the long run. 
B) be making losses and some firms would exit the industry in the long run. 
C) exit the industry and the industry would shut down. 
D) increase costs in order to break even at PL and QL in the long run. 
E) decrease costs in order to break even at PL and QL in the long run.

Question 7

When a monopolistically competitive industry is in long-run equilibrium,the excess capacity in an individual firm is indicated by the difference between

Accepted Answer

A) price and marginal cost. 
B) the output at which ATC is at a minimum and the output at which price equals marginal cost. 
C) zero and the output at which the demand curve is tangent to the ATC curve. 
D) price and average cost. 
E) the output at which ATC is at a minimum and the output at which marginal revenue is equal to marginal cost. 
A) price and marginal cost. 
B) the output at which ATC is at a minimum and the output at which price equals marginal cost. 
C) zero and the output at which the demand curve is tangent to the ATC curve. 
D) price and average cost. 
E) the output at which ATC is at a minimum and the output at which marginal revenue is equal to marginal cost.

Question 8

Suppose there are many independent dry cleaners in your city,each of which provides essentially the same service.However,one offers local delivery,another offers free coffee in the shop,while another offers one-hour dry cleaning.Which of the following statements explains what is happening in this market?

Accepted Answer

A) These firms are perfectly competitive and are attempting to increase sales and maximize their profits. 
B) These firms are oligopolistic and are engaging in strategic behaviour. 
C) These firms are perfectly competitive and are engaging in non-price competition. 
D) These firms are monopolistically competitive and are attempting to differentiate their product. 
E) These firms are perfectly competitive and are engaging in strategic behaviour. 
A) These firms are perfectly competitive and are attempting to increase sales and maximize their profits. 
B) These firms are oligopolistic and are engaging in strategic behaviour. 
C) These firms are perfectly competitive and are engaging in non-price competition. 
D) These firms are monopolistically competitive and are attempting to differentiate their product. 
E) These firms are perfectly competitive and are engaging in strategic behaviour.

Question 9

Which of the following industries in Canada can best be thought of as oligopolies?
1)breweries
2)women's clothing retailers
3)automobile manufacturers

Accepted Answer

A) 1 only 
B) 2 only 
C) 3 only 
D) 1 and 3 only 
E) 1,2,and 3 
A) 1 only 
B) 2 only 
C) 3 only 
D) 1 and 3 only 
E) 1,2,and 3

Question 10

"Brand proliferation" is an example of

Accepted Answer

A) an economy of scale. 
B) a firm-created barrier to entry. 
C) an absolute cost advantage. 
D) collusive behaviour. 
E) predatory pricing. 
A) an economy of scale. 
B) a firm-created barrier to entry. 
C) an absolute cost advantage. 
D) collusive behaviour. 
E) predatory pricing.

Question 11

The diagram below shows selected cost and revenue curves for a firm in a monopolistically competitive industry.   FIGURE 11-1
-Refer to Figure 11-1.Which of the following statements best describes the long-run equilibrium for this firm?

Accepted Answer

A) New firms will enter,causing this firm's demand curve to shift to the left until its profits are eliminated. 
B) The firm will continue to earn its existing level of profits. 
C) The firm will continue to earn its existing level of profits because it can prevent the entry of new firms to the market. 
D) Firms with similar cost structures will exit the industry until profits are zero. 
E) The AC curve will shift down in the long run and profits for this particular firm will increase. 
A) New firms will enter,causing this firm's demand curve to shift to the left until its profits are eliminated. 
B) The firm will continue to earn its existing level of profits. 
C) The firm will continue to earn its existing level of profits because it can prevent the entry of new firms to the market. 
D) Firms with similar cost structures will exit the industry until profits are zero. 
E) The AC curve will shift down in the long run and profits for this particular firm will increase.

Question 12

FIGURE 11-2
-Refer to Figure 11-2.In diagram B,the firm's short-run supply curve is

Accepted Answer

A) ATC above AVC. 
B) MC above AVC. 
C) MC above ATC. 
D) AR. 
E) MC. 
A) ATC above AVC. 
B) MC above AVC. 
C) MC above ATC. 
D) AR. 
E) MC.

Question 13

The main difference between perfect competition and monopolistic competition is

Accepted Answer

A) there are more firms in perfect competition. 
B) perfect competition has freedom of entry and exit. 
C) monopolistic competition has product differentiation. 
D) firms earn profits in the long run in monopolistic competition. 
E) monopolistic competition has lower costs. 
A) there are more firms in perfect competition. 
B) perfect competition has freedom of entry and exit. 
C) monopolistic competition has product differentiation. 
D) firms earn profits in the long run in monopolistic competition. 
E) monopolistic competition has lower costs.

Question 14

Compared with perfect competition,monopolistic competition results in

Accepted Answer

A) a wider variety of the good produced,but at higher unit costs. 
B) the same degree of variety of the good,but higher unit costs. 
C) fewer varieties of the good produced at lower unit costs. 
D) fewer varieties of the good produced at higher unit costs. 
E) a clearly more efficient social outcome. 
A) a wider variety of the good produced,but at higher unit costs. 
B) the same degree of variety of the good,but higher unit costs. 
C) fewer varieties of the good produced at lower unit costs. 
D) fewer varieties of the good produced at higher unit costs. 
E) a clearly more efficient social outcome.

Question 15

Consider the following characteristics of a particular industry: - there is freedom of entry and exit
- in long-run equilibrium,each firm is producing a level of output where there are increasing returns to scale
This industry is likely to be

Accepted Answer

A) an oligopoly. 
B) highly concentrated. 
C) monopolistically competitive. 
D) perfectly competitive. 
E) a cartel. 
A) an oligopoly. 
B) highly concentrated. 
C) monopolistically competitive. 
D) perfectly competitive. 
E) a cartel.

Question 16

The following statements describe a cooperative equilibrium in an oligopoly where the firms are jointly maximizing profits by restricting output.Which statement is false?

Accepted Answer

A) An individual firm could increase profits by cheating. 
B) P > MC for each individual firm. 
C) MR > MC for each individual firm. 
D) The firms in the industry will jointly be earning monopoly profits. 
E) No individual firm will have an incentive to change output. 
A) An individual firm could increase profits by cheating. 
B) P > MC for each individual firm. 
C) MR > MC for each individual firm. 
D) The firms in the industry will jointly be earning monopoly profits. 
E) No individual firm will have an incentive to change output.

Question 17

When a monopolistically competitive industry is in long-run equilibrium,each firm will be operating where price is

Accepted Answer

A) greater than average total cost but equal to marginal cost. 
B) greater than average total cost and greater than marginal cost. 
C) equal to average total cost and to marginal cost. 
D) greater than marginal cost but equal to average total cost. 
E) less than marginal cost and equal to average total cost. 
A) greater than average total cost but equal to marginal cost. 
B) greater than average total cost and greater than marginal cost. 
C) equal to average total cost and to marginal cost. 
D) greater than marginal cost but equal to average total cost. 
E) less than marginal cost and equal to average total cost.

Question 18

Advertising by existing firms in an oligopolistic industry

Accepted Answer

A) will increase the expected market share of new entrants to the industry. 
B) can be an effective entry barrier to potential entrants to the industry. 
C) only exists where natural entry barriers are weak. 
D) allows easy entry to a new entrant with small sales. 
E) maximizes joint profits for firms in the industry. 
A) will increase the expected market share of new entrants to the industry. 
B) can be an effective entry barrier to potential entrants to the industry. 
C) only exists where natural entry barriers are weak. 
D) allows easy entry to a new entrant with small sales. 
E) maximizes joint profits for firms in the industry.

Question 19

What is a Nash equilibrium?

Accepted Answer

A) an example of a cooperative equilibrium 
B) a situation where all players are maximizing their payoffs given the current behaviour of the other players 
C) a situation where all players are better off than they would be with any other combination of strategies 
D) is an unstable equilibrium 
E) will in general produce the greatest payoff for the players 
A) an example of a cooperative equilibrium 
B) a situation where all players are maximizing their payoffs given the current behaviour of the other players 
C) a situation where all players are better off than they would be with any other combination of strategies 
D) is an unstable equilibrium 
E) will in general produce the greatest payoff for the players

Question 20

The diagram below shows selected cost and revenue curves for a firm in a monopolistically competitive industry.   FIGURE 11-4
-Refer to Figure 11-4.Assuming this firm is producing its profit-maximizing level of output,what are the profits or losses being earned by this firm?

Accepted Answer

A) $0 per unit 
B) $7 per unit 
C) $13 per unit 
D) $6 per unit 
E) $20 per unit 
A) $0 per unit 
B) $7 per unit 
C) $13 per unit 
D) $6 per unit 
E) $20 per unit

Exam 11: Imperfect Competition and Strategic Behaviour

For firms in an oligopoly,the main advantage of explicit collusion is that it

The presence of significant scale economies in an industry implies that

The diagram below shows selected cost and revenue curves for a firm in a monopolistically competitive industry. FIGURE 11-1 -Refer to Figure 11-1.Assuming that this firm is producing its profit-maximizing level of output,what are the profits or losses being earned by this firm?

If joint profits are to be maximized in an oligopolistic industry with a homogeneous product,the firms

The diagram below shows demand and cost curves for a monopolistically competitive firm. FIGURE 11-3 -Refer to Figure 11-3.If a decrease in industry demand led to an inward shift of each firm's demand curve,a typical firm would

When a monopolistically competitive industry is in long-run equilibrium,the excess capacity in an individual firm is indicated by the difference between

Which of the following industries in Canada can best be thought of as oligopolies? 1)breweries 2)women's clothing retailers 3)automobile manufacturers

"Brand proliferation" is an example of

The diagram below shows selected cost and revenue curves for a firm in a monopolistically competitive industry. FIGURE 11-1 -Refer to Figure 11-1.Which of the following statements best describes the long-run equilibrium for this firm?

FIGURE 11-2 -Refer to Figure 11-2.In diagram B,the firm's short-run supply curve is

The main difference between perfect competition and monopolistic competition is

Compared with perfect competition,monopolistic competition results in

Consider the following characteristics of a particular industry: - there is freedom of entry and exit - in long-run equilibrium,each firm is producing a level of output where there are increasing returns to scale This industry is likely to be

The following statements describe a cooperative equilibrium in an oligopoly where the firms are jointly maximizing profits by restricting output.Which statement is false?

When a monopolistically competitive industry is in long-run equilibrium,each firm will be operating where price is

Advertising by existing firms in an oligopolistic industry

What is a Nash equilibrium?

The diagram below shows selected cost and revenue curves for a firm in a monopolistically competitive industry. FIGURE 11-4 -Refer to Figure 11-4.Assuming this firm is producing its profit-maximizing level of output,what are the profits or losses being earned by this firm?

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