Deck 11: Imperfect Competition and Strategic Behaviour

Question 1

In an imperfectly competitive market,changes in market conditions are often signalled to the individual firms by a change in the

A)firmʹs sales.
B)price of the product.
C)government policy.
D)cost conditions.
E)elasticity of supply.

Answer 1

firmʹs sales.

Question 2

The table below shows the market shares for the only firms in a domestic cement market. TABLE 11-1
Refer to Table 11-1.The eight-firm concentration ratio in this industry is ________%.

A)100
B)92
C)85
D)67
E)45

Answer 2

100

Question 3

Suppose the market for gasoline retailing (gas stations)in an island economy has 12 firms.The two largest firms each account for 30% of sales,the third accounts for 15%,the fourth for 7%,the fifth for 4% and the remaining firms for 2% each.What is the four-firm concentration ratio?

A)8%
B)60%
C)75%
D)82%
E)100%

Answer 3

82%

Question 4

By calculating a concentration ratio,economists measure the

A)degree to which a monopolistʹs output is lower than in perfect competition.
B)control of a monopolist over its input prices.
C)fraction of total industry sales accounted for by the largest firms.
D)degree to which firms in the industry use similar technologies.
E)concentration of firms in one geographic location.

Question 5

An example of a Canadian industry composed of a few large firms is

A)the accounting profession.
B)clothing retailing.
C)gasoline retailing.
D)restaurants.
E)hair dressers.

Question 6

In Canada,concentration ratios are the highest in

A)tobacco products.
B)petroleum and coal products.
C)mining.
D)machinery.
E)clothing industries.

Question 7

A monopolistically competitive firm and a monopoly are similar because

A)both firms will earn zero profits in the long run.
B)both firms always operate at their point of minimum average cost.
C)each firm can raise its price without losing all of its sales.
D)both firms must behave strategically toward other firms in the industry.
E)each firm has a large number of competitors.

Question 8

Which of the following characteristics is NOT associated with imperfectly competitive markets?

A)firms are price setters
B)products are differentiated
C)firms engage in non-price competition
D)firms are price takers
E)firms can shift the demand curve for their product by advertising

Question 9

Suppose the 2-firm concentration ratio (measuring output)in a Canadian manufacturing industry is over 90%.Why might the market power of these 2 firms be less than the concentration ratio suggests?

A)The product is purely domestic and there is no international trade.
B)A high concentration ratio usually indicates low degrees of market power.
C)The product is traded internationally and the two Canadian firms compete with many global rivals.
D)The relevant market is regional and so the concentration ratio is not relevant.
E)A 2-firm concentration ratio does not provide enough information.

Question 10

A Canadian industry composed of many small firms is

A)steel manufacturing.
B)automobile production.
C)gasoline retailing.
D)restaurants.
E)natural gas transmission.

Question 11

Which of the following products is best considered a differentiated product?

A)wheat
B)steel
C)soap
D)topsoil
E)sugar

Question 12

Which of the following characteristics is NOT typically associated with imperfectly competitive market structures?

A)each firm faces a downward sloping demand curve
B)products are differentiated
C)firms engage in non-price competition
D)each firm faces a horizontal demand curve for its product
E)firms can shift the demand curve for their product by advertising

Question 13

In which market structure are price fluctuations most common?

A)price fluctuations occur with the same frequency in all market structures
B)monopoly
C)oligopoly
D)monopolistic competition
E)perfect competition

Question 14

One difference between a perfectly competitive market and a monopolistically competitive market is that

A)there are no barriers to entry in monopolistic competition.
B)there are no barriers to exit in monopolistic competition.
C)there is no product differentiation in perfect competition
D)there is no product differentiation in monopolistic competition
E)there is strategic interaction among firms in monopolistic competition.

Question 15

A monopolistically competitive firm and a monopoly are similar because

A)both firms will earn zero profits in the long run.
B)both firms always operate at their point of minimum average cost.
C)they each face a downward-sloping demand curve.
D)both firms must behave strategically toward other firms in the industry.
E)each firm has a large number of competitors.

Question 16

In imperfectly competitive markets, ʺadministeredʺ prices usually change ________ than prices in perfectly competitive markets, because ________.

A)more often; they are more flexible
B)more often; perfectly competitive firms are price takers
C)more often; price becomes a strategic choice
D)less often; changing prices is costly
E)less often; changing prices is costless

Question 17

A characteristic common to most imperfectly competitive markets is

A)inelastic market demand curves.
B)a homogeneous product.
C)non-price competition among firms.
D)unexploited economies of scale.
E)common pricing among firms.

Question 18

Suppose the market for gasoline retailing (gas stations)in an island economy has 12 firms.The two largest firms each account for 30% of sales,the third accounts for 15%,the fourth for 7%,the fifth for 4% and the remaining firms for 2% each.Which of the following statements best describes the structure of this local industry?

A)This industry is an oligopoly.
B)This industry is perfectly competitive.
C)This industry is a monopoly.
D)This industry is monopolistically competitive.
E)Either A or D could be correct.

Question 19

An imperfectly competitive industry is often allocatively inefficient when compared to the performance of a competitive industry,because imperfect competitors

A)maximize profits.
B)make profits.
C)obtain economies of scale.
D)operate in the global economy.
E)set price above the marginal cost.

Question 20

The table below shows the market shares for the only firms in a domestic cement market. TABLE 11-1
Refer to Table 11-1.The four-firm concentration ratio in this industryis ________%.

A)100
B)92
C)85
D)67
E)45

Question 21

A monopolistically competitive firm maximizes profits in the short run

A)by equating MC with price.
B)by equating MC with MR.
C)when P = AVC.
D)when P = ATC.
E)by maximizing total revenue.

Question 22

The main difference between perfect competition and monopolistic competition is

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 23

Monopolistic competition is similar to perfect competition in that

A)firms in both types of market structures produce a standardized product.
B)strategic behaviour is common to both market structures.
C)neither has significant barriers to entry.
D)each firm faces a horizontal demand curve.
E)firms in both types of market structure engage in non -price competition.

Question 24

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?

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 25

Consider the following characteristics of a particular industry: - the four-firm concentration ratio is 78% (in the relevant market)
- each firm produces output where P > MC
- the products are highly differentiated This industry is likely to be

A)an oligopoly.
B)one where each firm has limited market power.
C)monopolistic.
D)perfectly competitive.
E)a cartel.

Question 26

Consider the following characteristics of a particular industry: - each firm faces a demand curve with price elasticity greater than 10 000
- each firm produces at a minimum efficient scale in long-run equilibrium This industry is likely to be

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

Question 27

Compared with perfect competition,monopolistic competition results in

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 28

Consider the following characteristics of a particular industry: - there are natural barriers to entry
- market price exceeds marginal cost of production
- there is no strategic behaviour in the industry This industry is likely to be

A)an oligopoly.
B)a monopoly.
C)monopolistically competitive.
D)perfectly competitive.
E)one where each firm has limited market power.

Question 29

If entry into a monopolistically competitive industry occurs because of positive profits earned by the existing firms,the

A)industry demand curve will shift to the left.
B)industry demand curve will shift to the right.
C)demand curve for each existing firm will shift to the left.
D)demand curve for each existing firm will shift to the right.
E)demand curves for the existing firms will remain unchanged.

Question 30

If there are economic profits in a monopolistically competitive industry,they will generally be competed away through the

A)introduction of brand name products by existing firms.
B)entry of new firms.
C)increasing advertising budgets of existing firms.
D)manipulation of the demand curve.
E)exit of existing firms.

Question 31

In a monopolistically competitive industry,the freedom of entry and exit leads to

A)a negatively sloped demand curve for the industry.
B)strategic behaviour with regard to other firms in the industry.
C)brand proliferation.
D)zero profits in long-run equilibrium.
E)deficient capacity in the industry.

Question 32

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

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

Question 33

A characteristic of a monopolistically competitive market is that

A)each firmʹs marginal revenue curve lies above its demand curve.
B)the firms in the industry engage in strategic,non-price competition.
C)entry into the industry is difficult.
D)each firm faces a downward-sloping demand curve.
E)the firms sell an identical product.

Question 34

Of the following,which is the best example of a monopolistically competitive firm?

A)Apple
B)Air Canada
C)Burger King
D)a PEI potato farmer
E)a local hair salon

Question 35

Consider the following characteristics of a particular industry: - the firms in the industry are maximizing their joint profits
- entry of new firms is restricted This industry is likely to be

A)a monopoly.
B)one where each firm has limited market power.
C)monopolistically competitive.
D)perfectly competitive.
E)a cartel.

Question 36

Which of the following is most characteristic of a monopolistically competitive market?

A)Firms engage in strategic behaviour.
B)There are many small firms in the industry.
C)Economic profits are often positive in the long run.
D)Each firm faces a horizontal demand curve.
E)All firms are price takers.

Question 37

The presence of significant scale economies in an industry implies that

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.

Question 38

Suppose there are many independent dry cleaners in your city,each of which is earning economic profits.According to the theory of monopolistic competition,

A)existing dry cleaners will cooperate and maximize their joint profits.
B)existing dry cleaners will engage in non-price competition and maintain their profits in the long run.
C)existing dry cleaners will expand until they reach the quantity associated with minimum long -run average cost.
D)existing dry cleaners will cooperate and restrict entry of new firms.
E)new dry cleaners will enter this market until each firm is earning zero profits.

Question 39

Suppose that a monopolistically competitive firm decides to raise its price.The theory of monopolistic competition predicts that

A)this firm would lose some,but not all of its customers.
B)this firm would increase its profits.
C)this firm would lose all of its customers.
D)increasing the price has no effect on profits.
E)a large loss of customers as the demand facing the firm is quite inelastic.

Question 40

The demand curve facing a monopolistically competitive firm is quite elastic because

A)there are many close substitutes to the good the firm is producing.
B)goods that are complements to the good the firm is producing also have elastic demand curves.
C)of the possibility of entry of new firms.
D)the industry is producing a homogeneous product.
E)firms are not behaving strategically.

Question 41

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.What quantity of output will this profit-maximizing firm choose to sell?

A)80 units
B)100 units
C)120 units
D)140 units
E)150 units

Question 42

A monopolistically competitive firm is predicted to earn positive profits

A)because there are barriers to entry.
B)only in the long run.
C)only in the short run.
D)only if it advertises its own product.
E)only if it maintains excess capacity in the production of it product.

Question 43

A monopolistically competitive firm has some degree of market power because

A)it always makes positive profits.
B)there are few firms in the industry.
C)of natural barriers to entry.
D)of legal barriers to entry.
E)it sells a differentiated product.

Question 44

The diagram below shows demand and cost curves for a monopolistically competitive firm.
FIGURE 11-3
Refer to Figure 11-3.A monopolistically competitive firm is allocatively inefficient because in the long-run equilibrium

A)LRAC is not at its minimum.
B)MC is greater than price.
C)price is greater than MC at Q1.
D)price is greater than LRAC at Q1.
E)None of the above - the long-run equilibrium is allocatively efficient.

Question 45

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?

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

Question 46

The diagram below shows demand and cost curves for a monopolistically competitive firm.
FIGURE 11-3
Refer to Figure 11-3.In the long run,a monopolistically competitive firm will

A)produce Q2 at Price P1.
B)produce Q1 at Price P2.
C)produce Q1 at Price P1.
D)produce Q2 at Price P2.
E)produce the output where AC is at its minimum.

Question 47

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.Which of the following best describes this industry if all firms have the same cost and revenue curves and are producing output of q0?

A)firms are earning positive profits and new firms will enter the industry until all firms are operating at their minimum LRAC
B)all firms are earning positive profits and there is no incentive for firms to enter or exit the industry
C)firms are earning zero profits and there is no incentive for firms to enter or leave the industry
D)all firms will try to minimize costs and move toward minimum LRAC
E)firms are incurring losses and firms will exit this industry

Question 48

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.What price will this profit-maximizing firm set?

A)$5
B)$10
C)$15
D)$20
E)$25

Question 49

The diagram below shows demand and cost curves for a monopolistically competitive firm.
FIGURE 11-3
Refer to Figure 11-3.A monopolistically competitive firm is said to be inefficient because in the long-run equilibrium

A)MC is greater than LRAC.
B)MC is greater than price.
C)price is greater than MC at Q1.
D)price is greater than LRAC at Q1.
E)LRAC at Q1 is not at its minimum.

Question 50

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.How is the excess-capacity theorem demonstrated in this diagram?

A)The short-run equilibrium occurs where the firm is producing output at q0,which is less than that corresponding to the lowest point on its LRAC curve.
B)The long-run equilibrium occurs where the firm is producing output at q1,which is the same as for a perfectly competitive industry.
C)In long-run equilibrium the firm is earning positive profits,but has unexploited economies of scale.
D)In long-run equilibrium,this firm has excess capacity because they are selling output at a price below their LRAC.
E)The long-run equilibrium occurs where the firm is producing output at q0,which is less than that corresponding to the lowest point on its LRAC curve.

Question 51

One prediction about monopolistic competition is that it has higher unit costs than perfect competition.But it is unreasonable to conclude that monopolistic competition is therefore bad for consumers because

A)consumers benefit from lower prices.
B)consumers benefit from an increased variety of products.
C)consumers benefit because of an increase in quantity available.
D)consumers benefit from products becoming more homogeneous.
E)higher production costs means more employment.

Question 52

The diagram below shows demand and cost curves for a monopolistically competitive firm.
FIGURE 11-3
Refer to Figure 11-3.In the long run,a monopolistically competitive firm will

A)make profit by producing at Q2 and charging price P1.
B)lose money by producing at Q1 and charging price P2.
C)maximize profit and make positive profit by producing at Q1 and charging price P1.
D)maximize profit but only break even by producing at Q1 and charging price P1.
E)maximize profit by producing output level Q2,the minimum point of its LRAC curve.

Question 53

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 this firm is producing its profit-maximizing level of output,what is the per-unit profit being earned by this firm?

A)-$5
B)-$10
C)$20
D)$10
E)$5

Question 54

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 firmʹs demand curve,a typical firm would

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 55

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

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 56

In the long run,a monopolistically competitive firm will

A)lose money.
B)operate where price = marginal cost.
C)earn positive economic profits.
D)produce where price exceeds the minimum of average costs.
E)produce the output where average costs are minimized.

Question 57

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?

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

Question 58

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

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 59

In long-run equilibrium,a monopolistically competitive industry is characterized by

A)positive profits for all firms in the industry.
B)a perfectly elastic demand curve facing each firm in the industry.
C)zero profits for all firms in the industry.
D)positive profits as a result of barriers to entry.
E)all firms operating at the minimum point of their long-run average cost curves.

Question 60

The diagram below shows demand and cost curves for a monopolistically competitive firm.
FIGURE 11-3
Refer to Figure 11-3.If an increase in industry demand led to an outward shift in each firmʹs demand curve,and no change to the firmʹs costs,the typical firm would

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)would expand its output in the long run.
D)increase costs in order to break even at P1 and Q1 in the long run.
E)decrease costs in order to break even at P1 and Q1 in the long run.

Question 61

If a monopolistically competitive industry is in long-run equilibrium,then for each firm

A)the demand curve is tangent to its LRAC curve.
B)the MC curve intersects MR at the minimum level of its LRAC curve.
C)price equals MC at the minimum level of the firmʹs LRAC curve.
D)the demand curve cuts the MC curve at the minimum level of the LRAC curve.
E)positive profits are being earned.

Question 62

Oligopolists make decisions after taking into account the expected reaction of their competitors.In doing this,oligopolists are exhibiting

A)non-strategic behaviour.
B)collusive behaviour.
C)cooperative behaviour.
D)non-cooperative behaviour.
E)strategic behaviour.

Question 63

Unlike perfectly competitive and monopolistically competitive firms,oligopolists

A)operate where MR = MC.
B)take account of the likely reactions of their competitors to their actions.
C)always make positive profits.
D)always have differentiated products.
E)earn zero profits in the long run.

Question 64

If firms are able to freely enter and exit a monopolistically competitive industry,then we can predict

A)a negatively sloped demand curve for the industry.
B)strategic behaviour with regard to other firms in the industry.
C)brand proliferation.
D)zero profits in long-run equilibrium.
E)that exit will occur until no firm has excess capacity.

Question 65

The excess-capacity theorem predicts that

A)when price-taking firms maximize their profits by setting price equal to marginal cost,each firm operates with some excess capacity.
B)long-run equilibrium in a monopolistically competitive industry occurs with all firms producing at a lower output level than that which minimizes average total costs.
C)profit-maximizing firms will always choose to operate with some degree of excess capacity,in order to be flexible in the face of shifts in demand.
D)monopolistic firms will achieve positive economic profits by restricting output below the economically efficient level at which average total costs are minimized.
E)all firms in a perfectly competitive industry will produce at a lower output level than that which minimizes average total costs.

Question 66

One characteristic of oligopolistic markets is

A)ease of entry and exit.
B)zero profits in the long run.
C)mutual interdependence between firms.
D)a horizontal demand curve facing each individual firm.
E)a large number of firms in the industry.

Question 67

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

A)removes much of the uncertainty about rivalsʹ 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.

Question 68

Consider an example of the prisonerʹs dilemma where 2 firms are making sealed bids on a contract and each firm is allowed to bid either $100 or $180.If both firms bid the same price,the job is shared equally and each firm earns half the value of its bid.Otherwise the lowest bidder wins the contract and receives the full value of its bid (and the other bidder earns zero).The non-cooperative outcome in this situation is

A)both firms bid $100.
B)both firms bid $180.
C)one firm bids $100,the other firm bids $180.
D)both firms bid $50.
E)both firms bid $90.

Question 69

Consider an example of the prisonerʹs dilemma where 2 firms are making sealed bids on a highway-construction contract and each firm is allowed to bid either $100 million or $120 million.If both firms bid the same price,the job is shared equally and each firm earns half the value of its bid.Otherwise the lowest bidder wins the contract and receives the full value of its bid (and the other bidder earns zero).The
Non-cooperative outcome in this situation is

A)both firms bid $50 million.
B)both firms bid $60 million.
C)one firm bids $100 million,the other firm bids $120 million.
D)both firms bid $100 million.
E)both firms bid $120 million.

Question 70

Consider the following statement: ʺA monopolistically competitive market in which there are no entry barriers will have the identical long-run equilibrium as if the market were perfectly competitive.ʺ Is this statement correct?

A)No,because firms in the monopolistically competitive market will not reach their minimum efficient scale as they would in perfect competition - the result is higher prices and lower output.
B)No,because firms in the monopolistically competitive market do not produce at an output level where MC = MR,as in perfect competition,which leads to a different price and output in long -run equilibrium.
C)No,firms in the monopolistically competitive market earn economic profits in the long run because they are facing a downward-sloping demand curve,whereas in perfect competition they earn zero profits.
D)Yes,in the absence of entry barriers,new firms enter the industry until industry price and output are identical to perfect competition.
E)Yes,in the absence of entry barriers,firms in the monopolistically competitive market will expand until they are producing at the minimum of their LRAC curves,just as in perfect competition.

Question 71

Consider an example of the prisonerʹs dilemma where 2 firms are making sealed bids on a contract and each firm is allowed to bid either $100 or $180.If both firms bid the same price,the job is shared equally and each firm earns half the value of its bid.Otherwise the lowest bidder wins the contract and receives the full value of its bid (and the other bidder earns zero).The cooperative outcome in this situation is

A)both firms bid $100.
B)both firms bid $180.
C)one firm bids $100,the other firm bids $180.
D)both firms bid $50.
E)both firms bid $90.

Question 72

Consider an example of the prisonerʹs dilemma where 2 firms are making sealed bids on a highway-construction contract and each firm is allowed to bid either $100 million or $120 million.If both firms bid the same price,the job is shared equally and each firm earns half the value of its bid.Otherwise the lowest bidder wins the contract and receives the full value of its bid (and the other bidder earns zero).The cooperative outcome in this situation is

A)both firms bid $50 million.
B)both firms bid $60 million.
C)one firm bids $100 million,the other firm bids $120 million.
D)both firms bid $100 million.
E)both firms bid $120 million.

Question 73

Which of the following is a characteristic of oligopoly?

A)Firms compete solely on the basis of price.
B)The pricing policies of one firm have no impact on pricing policies of other firms.
C)There are large numbers of significantly sized sellers.
D)The industry usually has a low concentration ratio.
E)Prices are usually above marginal costs.

Question 74

In long-run equilibrium,a monopolistically competitive industry operates where

A)P > LRAC.
B)MR > MC.
C)LRAC is increasing.
D)LRAC > minimum average cost.
E)LRAC = MC.

Question 75

When the firms in an oligopoly are in a cooperative equilibrium and are maximizing their joint profits,which of the following statements is true?

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)All of the above statements are true.

Question 76

Which of the following is an incorrect statement about a Nash equilibrium?

A)A Nash equilibrium is an example of a non-cooperative equilibrium.
B)In a Nash equilibrium,all players are maximizing their payoffs given the current behaviour of the other players.
C)In a Nash equilibrium,all players are better off than they would be with any other combination of strategies.
D)A Nash equilibrium is a self-policing equilibrium.
E)Once a Nash equilibrium is established,no individual firm has an incentive to depart from it.

Question 77

A duopoly is

A)an oligopoly with only two products.
B)an oligopoly with only two sellers.
C)an oligopoly with only two buyers.
D)a monopoly firm that has only two suppliers.
E)a monopolist that has two related products.

Question 78

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?

A)New firms will enter,causing this firmʹs 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 79

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.If this firm is maximizing its profits,does the diagram depict a long-run equilibrium situation?

A)Yes,because this firm is producing where MC = MR and is earning zero profits.
B)Yes,because this firm is producing where MC = MR and is earning economic profits.
C)No,because this firm is earning profits which will attract new firms to this market.
D)No,because this firm is suffering losses and firms will exit this market.
E)No,because this firm is a natural monopoly.

Question 80

With regard to the long-run equilibrium in the two market structures,the higher unit costs in monopolistic competition relative to perfect competition implies that

A)society would be better off if there were fewer,and more homogeneous,goods produced at the scale at which average costs are minimized.
B)resources are being used inefficiently in perfect competition.
C)there is a tradeoff between product variety and the ability to minimize cost per unit.
D)firms are restricting output to extract positive economic profits.
E)the government should force monopolistically competitive firms to behave like perfectly competitive firms.