Question 1

Which of the following is an example of an actual cartel?

Accepted Answer

A)  the three largest cereal producers in the United States 
B)  General Motors,Ford,and Chrysler 
C)  the Organization of Petroleum Exporting Countries (OPE
C)  
D)  the three major U.S.cigarette manufacturers 
E)  U.S.television networks -- ABC,NBC,CBS,and Fox 
A)  the three largest cereal producers in the United States 
B)  General Motors,Ford,and Chrysler 
C)  the Organization of Petroleum Exporting Countries (OPE
C)  
D)  the three major U.S.cigarette manufacturers 
E)  U.S.television networks -- ABC,NBC,CBS,and Fox C

Question 2

-All of the following statements regarding Exhibit 10-13 are true except one.Which is the exception?

Accepted Answer

A)  The firm represented in the exhibit will likely be a perfect competitor. 
B)  There are economies of scale in this industry. 
C)  The minimum efficient quantity is 1,000 units. 
D)  At 500 units there is excess capacity. 
E)  A firm too small to produce at least 1,000 units will have difficulty surviving in this industry. 
A)  The firm represented in the exhibit will likely be a perfect competitor. 
B)  There are economies of scale in this industry. 
C)  The minimum efficient quantity is 1,000 units. 
D)  At 500 units there is excess capacity. 
E)  A firm too small to produce at least 1,000 units will have difficulty surviving in this industry. A

Question 3

One common assumption in game theory is that firms

Accepted Answer

A)  try to avoid the worst outcome 
B)  try to achieve the best outcome 
C)  minimize losses 
D)  always cooperate 
E)  always compete 
A)  try to avoid the worst outcome 
B)  try to achieve the best outcome 
C)  minimize losses 
D)  always cooperate 
E)  always compete A

Question 4

An intersection known as Four Corners lies 300 miles from the nearest town.At this intersection are three independently owned gas stations and one small pharmacy.Which of the following is true?

Accepted Answer

A)  The firms are all perfectly competitive because of their size. 
B)  It would be easier for all four firms to form a cartel than for only the gas stations to do so. 
C)  The gas stations are monopolistically competitive because there are so few of them that they are almost monopolists. 
D)  The gas stations are perfectly competitive;the pharmacy is not. 
E)  The gas stations are oligopolists;the pharmacy is a monopolist. 
A)  The firms are all perfectly competitive because of their size. 
B)  It would be easier for all four firms to form a cartel than for only the gas stations to do so. 
C)  The gas stations are monopolistically competitive because there are so few of them that they are almost monopolists. 
D)  The gas stations are perfectly competitive;the pharmacy is not. 
E)  The gas stations are oligopolists;the pharmacy is a monopolist.

Question 5

A monopolistically competitive firm is producing an output level at which marginal revenue is greater than marginal cost.This firm should _____ quantity and _____ price to increase profit or reduce losses.

Accepted Answer

A)  increase,increase 
B)  increase;decrease 
C)  decrease;increase 
D)  decrease;decrease 
E)  increase;not change 
A)  increase,increase 
B)  increase;decrease 
C)  decrease;increase 
D)  decrease;decrease 
E)  increase;not change

Question 6

If a firm must produce a significant share of market output before low average costs can be achieved,the structure of this industry will tend to be

Accepted Answer

A)  monopolistic competition 
B)  perfect competition 
C)  oligopoly 
D)  either monopolistic competition or oligopoly 
E)  either perfect competition or monopolistic competition 
A)  monopolistic competition 
B)  perfect competition 
C)  oligopoly 
D)  either monopolistic competition or oligopoly 
E)  either perfect competition or monopolistic competition

Question 7

A brand name may contribute to oligopolists' economic profit by

Accepted Answer

A)  shifting the demand curve leftward 
B)  shifting the supply curve leftward 
C)  overcoming economies of scale 
D)  acting as a barrier to entry 
E)  reducing advertising costs 
A)  shifting the demand curve leftward 
B)  shifting the supply curve leftward 
C)  overcoming economies of scale 
D)  acting as a barrier to entry 
E)  reducing advertising costs

Question 8

Which of the following is most likely produced in a monopolistically competitive market?

Accepted Answer

A)  soybeans 
B)  autos 
C)  fast food 
D)  oil 
E)  local phone service 
A)  soybeans 
B)  autos 
C)  fast food 
D)  oil 
E)  local phone service

Question 9

In game theory,if two rivals in an oligopoly can avoid a large loss by cutting price from $40 to $35,

Accepted Answer

A)  neither will cut its price 
B)  one will charge $40 and the other will charge $35 
C)  their actions will depend on their respective strategies 
D)  each will cut price but not all the way to $35 
E)  they will collude to do what's best for both of them 
A)  neither will cut its price 
B)  one will charge $40 and the other will charge $35 
C)  their actions will depend on their respective strategies 
D)  each will cut price but not all the way to $35 
E)  they will collude to do what's best for both of them

Question 10

There are multiple models of pricing behavior in oligopolistic markets because

Accepted Answer

A)  it is difficult to predict how rival firms will react to any pricing decision 
B)  the demand curve slopes upward for these firms 
C)  firms could earn profit in the long run unlike other markets 
D)  price has a direct impact on profit for a firm in oligopoly 
E)  the products are not identical in terms of quality,image,location 
A)  it is difficult to predict how rival firms will react to any pricing decision 
B)  the demand curve slopes upward for these firms 
C)  firms could earn profit in the long run unlike other markets 
D)  price has a direct impact on profit for a firm in oligopoly 
E)  the products are not identical in terms of quality,image,location

Question 11

Collusion is easier to achieve and maintain in oligopoly when

Accepted Answer

A)  there are many firms in the industry 
B)  the firms' products are homogeneous 
C)  the firms' cost structures are very different 
D)  there are very weak barriers to entry 
E)  the industry is located in the United States 
A)  there are many firms in the industry 
B)  the firms' products are homogeneous 
C)  the firms' cost structures are very different 
D)  there are very weak barriers to entry 
E)  the industry is located in the United States

Question 12

A prisoner's dilemma can be described as a situation in which

Accepted Answer

A)  a decision maker is uncertain about the potential punishment for something done in the past 
B)  an individual decision maker finds it in his best interest to pursue a course of action that can lead to a less than desirable outcome for the group 
C)  producers act so as to avoid maximizing profits because of government retaliation 
D)  individual firms seeks to maximize their own profits with no regard for the group 
E)  the summation of individual demand curves creates an inelastic demand curve facing the industry 
A)  a decision maker is uncertain about the potential punishment for something done in the past 
B)  an individual decision maker finds it in his best interest to pursue a course of action that can lead to a less than desirable outcome for the group 
C)  producers act so as to avoid maximizing profits because of government retaliation 
D)  individual firms seeks to maximize their own profits with no regard for the group 
E)  the summation of individual demand curves creates an inelastic demand curve facing the industry

Question 13

In both monopolistic competition and non-price-discriminating monopoly,

Accepted Answer

A)  the marginal revenue curve lies above the average revenue curve 
B)  the marginal revenue curve lies above the demand curve 
C)  the marginal revenue curve lies below the demand curve 
D)  marginal revenue is equal to average revenue 
E)  marginal revenue is equal to price 
A)  the marginal revenue curve lies above the average revenue curve 
B)  the marginal revenue curve lies above the demand curve 
C)  the marginal revenue curve lies below the demand curve 
D)  marginal revenue is equal to average revenue 
E)  marginal revenue is equal to price

Question 14

A firm will only earn normal profit in the long run

Accepted Answer

A)  if firms can freely enter or leave the market 
B)  if firms do not try to maximize profit 
C)  only if the industry is perfectly competitive 
D)  whenever products are not differentiated 
E)  if barriers to entry exist 
A)  if firms can freely enter or leave the market 
B)  if firms do not try to maximize profit 
C)  only if the industry is perfectly competitive 
D)  whenever products are not differentiated 
E)  if barriers to entry exist

Question 15

If the firms in a monopolistically competitive industry are earning short-run profit,which of the following is not likely to occur in the long run?

Accepted Answer

A)  New firms will enter the industry. 
B)  New firms in the industry will draw customers away from existing firms. 
C)  Existing firms in the industry will face a decrease in demand. 
D)  Firms will continue to earn profit. 
E)  Firms will produce with some excess capacity. 
A)  New firms will enter the industry. 
B)  New firms in the industry will draw customers away from existing firms. 
C)  Existing firms in the industry will face a decrease in demand. 
D)  Firms will continue to earn profit. 
E)  Firms will produce with some excess capacity.

Question 16

Which oligopoly model was developed to explain price wars in an industry?

Accepted Answer

A)  natural oligopolies 
B)  cartels 
C)  price leadership by a dominant firm 
D)  game theory 
E)  cost-plus theory 
A)  natural oligopolies 
B)  cartels 
C)  price leadership by a dominant firm 
D)  game theory 
E)  cost-plus theory

Question 17

Monopolistic competitors are

Accepted Answer

A)  price takers 
B)  price searchers 
C)  price maximizers 
D)  price ignorers 
E)  collusive price fixers 
A)  price takers 
B)  price searchers 
C)  price maximizers 
D)  price ignorers 
E)  collusive price fixers

Question 18

Economic analysis of product differentiation leads to all of the following conclusions except one.Which is the exception?

Accepted Answer

A)  Product differentiation makes it harder for firms to collude. 
B)  Product differentiation makes price leadership harder to maintain. 
C)  Product differentiation sometimes contributes to wasteful allocation of resources. 
D)  Product differentiation must be based on real,substantive differences among products. 
E)  There is a tradeoff between using resources efficiently and providing consumers with wide choices. 
A)  Product differentiation makes it harder for firms to collude. 
B)  Product differentiation makes price leadership harder to maintain. 
C)  Product differentiation sometimes contributes to wasteful allocation of resources. 
D)  Product differentiation must be based on real,substantive differences among products. 
E)  There is a tradeoff between using resources efficiently and providing consumers with wide choices.

Question 19

In a monopolistically competitive market,all of the following are correct,except:

Accepted Answer

A)  Firms produce differentiated products 
B)  There are no barriers to entry 
C)  Firms have some control over the price they charge 
D)  There are many firms in the market 
E)  Firms can easily enter and exit the market 
A)  Firms produce differentiated products 
B)  There are no barriers to entry 
C)  Firms have some control over the price they charge 
D)  There are many firms in the market 
E)  Firms can easily enter and exit the market

Question 20

The defining characteristic of oligopoly is that each firm

Accepted Answer

A)  produces the same output as its rivals 
B)  acts independently of its rivals 
C)  is mutually interdependent 
D)  is atomistic 
E)  advertises how its products are different from its rivals' products 
A)  produces the same output as its rivals 
B)  acts independently of its rivals 
C)  is mutually interdependent 
D)  is atomistic 
E)  advertises how its products are different from its rivals' products

Exam 10: Monopolistic Competition and Oligopoly

Which of the following is an example of an actual cartel?

-All of the following statements regarding Exhibit 10-13 are true except one.Which is the exception?

One common assumption in game theory is that firms

An intersection known as Four Corners lies 300 miles from the nearest town.At this intersection are three independently owned gas stations and one small pharmacy.Which of the following is true?

A monopolistically competitive firm is producing an output level at which marginal revenue is greater than marginal cost.This firm should _____ quantity and _____ price to increase profit or reduce losses.

If a firm must produce a significant share of market output before low average costs can be achieved,the structure of this industry will tend to be

A brand name may contribute to oligopolists' economic profit by

Which of the following is most likely produced in a monopolistically competitive market?

In game theory,if two rivals in an oligopoly can avoid a large loss by cutting price from $40 to $35,

There are multiple models of pricing behavior in oligopolistic markets because

Collusion is easier to achieve and maintain in oligopoly when

A prisoner's dilemma can be described as a situation in which

In both monopolistic competition and non-price-discriminating monopoly,

A firm will only earn normal profit in the long run

If the firms in a monopolistically competitive industry are earning short-run profit,which of the following is not likely to occur in the long run?

Which oligopoly model was developed to explain price wars in an industry?

Monopolistic competitors are

Economic analysis of product differentiation leads to all of the following conclusions except one.Which is the exception?

In a monopolistically competitive market,all of the following are correct,except:

The defining characteristic of oligopoly is that each firm

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A monopolistically competitive firm is producing an output level at which marginal revenue is greater than marginal cost.This firm should _ quantity and _ price to increase profit or reduce losses.