Deck 12: Monopolistic Competition and Oligopoly

Question 1

The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
In the short-run, a monopolistically competitive firm:

A)can earn only a normal profit.
B)will produce at the point where marginal revenue is greater than marginal cost, in order to maximize profits.
C)will produce at the point at which price equals minimum ATC, to maximize profits.
D)will charge a price equal to its marginal revenue.
E)will shut down temporarily if price is less than AVC.

Answer 1

will shut down temporarily if price is less than AVC.

Question 2

The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
When the existing firms in a monopolistically competitive industry earn above-normal profit:

A)new firms enter into the market, and entry continues until firms earn normal profit.
B)new firms have no incentive to enter the market.
C)new firms have an incentive to enter the market but are legally barred from doing so.
D)they increase their production and lower the price level.
E)their cost structure automatically changes, eliminating the additional profit.

Answer 2

new firms enter into the market, and entry continues until firms earn normal profit.

Question 3

The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
If a monopolistically competitive industry is in long-run equilibrium and suddenly the cost of resources increases, then:

A)the demand and average-revenue curves will shift to the right.
B)the demand and average-revenue curves will shift to the left.
C)some firms will eventually leave the industry.
D)new firms will eventually enter the industry.
E)the cost structure of the firm will shift down.

Answer 3

some firms will eventually leave the industry.

Question 4

The figure given below shows revenue and cost curves of a monopolistically competitive firm.Figure: 12.1
In the figure,
MR: Marginal revenue curve
ATC: Average total cost curve
AVC: Average variable cost curve
MC: Marginal cost curve
A firm under monopolistic competition reaches equilibrium in the short run at a point where:

A)price equals average variable cost.
B)marginal revenue equals rising marginal cost.
C)price equals marginal cost.
D)marginal revenue equals average revenue.
E)the firm's marginal-cost curve intersects its marginal-revenue curve from above.

Question 5

The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
Which of the following statements about the monopolistically competitive market, in the long run, is true?

A)The resources are efficiently utilized.
B)The firms make above-normal profit in the long run.
C)The marginal-revenue curve coincides with the demand curve facing the firm.
D)The firms produce the output level that is less than the output corresponding to the minimum of average total cost.
E)The firms operate on the upward-sloping portion of the long run average cost curve.

Question 6

The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
As new firms enter a monopolistically competitive industry, the demand for a typical firm's product will most likely:

A)increase and become less elastic.
B)decrease and become more elastic.
C)increase and become more elastic.
D)decrease and become less elastic.
E)remain unaffected.

Question 7

The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
The market structure called monopolistic competition is named using both monopoly and perfect competition. Why?

A)There are few firms in the market all producing identical products.
B)There is just one firm whose product can be easily differentiated.
C)There are a huge number of firms selling identical products at the same price.
D)There are many firms with easy entry and exit but each firm sells a unique product.
E)Firms spend very little on advertising and promotion and thus are price takers.

Question 8

The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
Monopolistic competition is similar to perfect competition in that:

A)there are only a few firms in the market.
B)the entry into and exit from the market is easy.
C)there are significant barriers to entry in the market.
D)each firm sells a homogeneous product.
E)each firm differentiates its product through advertising.

Question 9

The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
A monopolistically competitive market is characterized by:

A)one firm selling a unique product.
B)many firms selling identical products.
C)many firms selling similar but differentiated products.
D)few firms selling identical products.
E)few firms selling similar but differentiated products.

Question 10

The figure given below shows revenue and cost curves of a monopolistically competitive firm.Figure: 12.1
In the figure,
MR: Marginal revenue curve
ATC: Average total cost curve
AVC: Average variable cost curve
MC: Marginal cost curve
According to Figure 12.1, the profit-maximizing firm is making an average:

A)profit on each unit produced, equal to the distance BG.
B)loss on each unit produced, equal to the distance BG.
C)profit on each unit produced, equal to the distance CE.
D)loss on each unit produced, equal to the distance DG.
E)loss on each unit produced, equal to the distance AC.

Question 11

The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
In long-run equilibrium, the monopolistically competitive firm:

A)will break even.
B)will cease to advertise.
C)will earn a positive economic profit.
D)will face a perfectly elastic demand curve.
E)will no longer need to engage in non-price competition.

Question 12

The figure below shows the revenue and cost curves of a monopolistically competitive firm.Figure: 12.2
In the figure,
D: Demand curve
MR: Marginal revenue curve
ATC₁ and ATC₂: Average total cost curves
MC: Marginal cost curve
In Figure 12.2, assume that the average total cost of the firm is represented by the curve ATC₂. In the long run, we would expect:

A)entry of firms into the market because economic profits exist.
B)exit of firms from the market because the existing firms suffer economic losses.
C)each firm's demand curve to shift to the right.
D)the market to become perfectly competitive.
E)the market to become a monopoly.

Question 13

The figure below shows the revenue and cost curves of a monopolistically competitive firm.Figure: 12.2
In the figure,
D: Demand curve
MR: Marginal revenue curve
ATC₁ and ATC₂: Average total cost curves
MC: Marginal cost curve
In Figure 12.2, if the market is monopolistically competitive, which quantity represents long-run equilibrium for the firm?

A)15
B)Between 15 and 40
C)40
D)55
E)60

Question 14

The figure given below shows revenue and cost curves of a monopolistically competitive firm.Figure: 12.1
In the figure,
MR: Marginal revenue curve
ATC: Average total cost curve
AVC: Average variable cost curve
MC: Marginal cost curve
Consider the monopolistically competitive firm described in the Figure 12.1. The profit-maximizing output level and price are _____ and _____ respectively.

A)0; 0
B)H; D
C)I; A
D)J; C
E)J; E

Question 15

The figure given below shows revenue and cost curves of a monopolistically competitive firm.Figure: 12.1
In the figure,
MR: Marginal revenue curve
ATC: Average total cost curve
AVC: Average variable cost curve
MC: Marginal cost curve
According to Figure 12.1, the firm:

A)will shut down temporarily at any price below A.
B)will operate at a price below A, as long as it is greater than marginal cost.
C)will shut down at a price below A only in the long run.
D)will break-even at the price level C.
E)will shut down if the price falls below E.

Question 16

The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
Why is a firm in a monopolistically competitive industry considered a "mini" monopoly?

A)There are large number of sellers in the market.
B)Each firm in monopolistic competition is a price taker.
C)The product of each firm is unique in some way or the other.
D)Each firm faces a perfectly elastic demand curve.
E)There exists a large number of close substitutes of the products.

Question 17

The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
The major similarity between a monopolist and a monopolistically competitive firm is that:

A)both are price takers.
B)both face a horizontal demand curve.
C)both are the sole producers of a particular good.
D)both face a negatively sloped demand curve.
E)both are affected by the decision of their rivals.

Question 18

The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
In the context of market structure, the characteristic that best describes a monopolistically competitive market is that:

A)there are few firms in the market.
B)the products produced cannot be easily differentiated.
C)entry and exit are both difficult.
D)firms spend a great deal on advertising and promotion.
E)firms spend very little on advertising and promotion.

Question 19

The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
In a certain monopolistically competitive market that is characterized by high prices and equally high-quality merchandise, if a firm's competitors begin to successfully introduce new products that cut into the firm's market share, the firm's best counter-strategy is to:

A)raise prices in order to increase the revenue.
B)introduce few new products in order to meet competitors head on.
C)reduce its advertising budget in order to save costs.
D)ignore its competitors and hope its customers' loyalty carry it through the threat.
E)look to the government for protection.

Question 20

The figure given below shows the cost and revenue curves of a monopolist.Figure 11.9
D: Average revenue
MR: Marginal revenue
ATC: Average total cost
MC: Marginal cost
A monopolistically competitive firm's demand curve slopes downward because:

A)new firms are free to enter the market.
B)there are a large number of firms in the market.
C)a differentiated product gives the firm some monopoly power.
D)the firm has complete information about the market.
E)the firm sells a standardized product.

Question 21

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Consider the monopolistically competitive firm described in Figure 12.4. The profit-maximizing output level and price are _____ and _____, respectively.

A)F; A
B)F; E
C)J; B
D)L; D
E)N; P

Question 22

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
For years, Intel was able to charge a higher price for microchips because:

A)it had a higher quality product than its rivals.
B)it spent less on advertising than its rivals.
C)consumers knew that Intel had the best employees.
D)Intel relied more on foreign labor.
E)of its successful product differentiation.

Question 23

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
In monopolistic competition, firms may differentiate their products in many ways except on the basis of:

A)quality.
B)style.
C)price.
D)packaging.
E)guarantees.

Question 24

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Product differentiation:

A)is carried out by both perfectly competitive and monopolistically competitive firms.
B)is succesful if a firm faces a relatively inelastic demand curve.
C)does not allow the firm to raise its price without losing all of its customers.
D)cannot be accomplished through advertising or trivial product changes.
E)if carried out successfully enables the firms to enjoy market power.

Question 25

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure: 12.3
In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
Refer to Figure 12.3. A perfectly competitive outcome would exist at a price of _____ and an output level of _____.

A)P₆; Q₂
B)P₄; Q₄
C)P₃; Q₂
D)P₁; Q₁
E)P₅; Q₃

Question 26

The figure below shows the revenue and cost curves of a monopolistically competitive firm.Figure: 12.2
In the figure,
D: Demand curve
MR: Marginal revenue curve
ATC₁ and ATC₂: Average total cost curves
MC: Marginal cost curve
In the long-run, in a monopolistically competitive market:

A)marginal revenue is greater than average revenue.
B)price equals marginal cost.
C)price equals minimum average total cost.
D)the firms earn positive economic profits.
E)resources are inefficiently allocated .

Question 27

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
One major similarity between perfect competition and monopolistic competition is that:

A)the firms earn above normal profits in the long run.
B)the firms are price makers.
C)the firms produce identical products.
D)the firms just break even in the long run.
E)entry of firms is barred in the long run.

Question 28

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Which of the following is not an example of nonprice competition?

A)Kellogg's introduces Froot Loops with Lemonberry Swirls.
B)Sterling Planet provides consumers the opportunity to purchase renewable electricity in upstate New York.
C)Mountain Dew sells "Livewire" orange soda in the summer of 2003.
D)Nissan lowers the interest rate charged for new automobile financing.
E)Honda produces a hybrid version of its Civic.

Question 29

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Advertising, brand names, packaging, and celebrity endorsements all occur in monopolistically competitive markets because:

A)significant barriers to entry exist in the real world.
B)in the real world, there are very few markets with many firms.
C)that gives the producer some command over the price of their products.
D)product differentiation seldom occurs in the real world.
E)monopolistically competitive firms have an incentive to spend as much money as possible compared to their rivals.

Question 30

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Assume that the firm in Figure 12.4 is monopolistically competitive. In the long-run, we would expect:

A)the price of the firm's output to increase.
B)new firms to enter into the market.
C)few firms to leave the market.
D)the firm's demand curve to shift outward.
E)the firm's demand curve to become less elastic.

Question 31

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Refer to Figure 12.4. What is the profit earned by the firm at equilibrium?

A)0AGF
B)0BKJ
C)ACHG
D)AEIG
E)CEIH

Question 32

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure: 12.3
In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
The monopolistically competitive firm, in Figure 12.3, will maximize profits (or minimize losses) by producing _____ levels of output at a price of _____.

A)Q₂; P₆
B)Q₁; P₁
C)Q₂; P₂
D)Q₃; P₃
E)Q₄; P₅

Question 33

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Which of the following is an example of price competition?

A)Nike signs LeBron James to a $90 million contract for endorsements.
B)Kellogg's puts the images of Snap, Crackle, and Pop on boxes of Cocoa Krispies, linking the cereal with Rice Krispies.
C)McDonald's introduces new garden McSalads.
D)Tropicana introduces the Blue Raspberry Rush juice.
E)Apple offers a 20% discount on its new range of iPhones.

Question 34

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Which of the following is true of the model of monopolistic competition?

A)Barriers to entry enable firms to enjoy positive profits in the long run.
B)The number of firms declines over time as a result of economies of scale.
C)The monopolistically competitive firms enjoy a greater market power than a monopolist.
D)Firms tend to locate near each other in order to minimize total travel costs for consumers.
E)The firms end up charging same prices for their individual products.

Question 35

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
If firms are successful in product differentiation:

A)their demand will become relatively elastic.
B)consumers will believe that the firms are producing more or less identical goods.
C)they can raise their prices without losing all of their customers to rivals.
D)they tend to face a horizontal demand curve.
E)they gradually emerge as price takers.

Question 36

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Which of the following is true of product differentiation?

A)Product differentiation is the first order derivative of the production function.
B)Product differentiation exists only when the products are actually different from each other.
C)Product differentiation exists when consumers perceive the products to be different.
D)Product differentiation exists when producers perceive the products to be different.
E)Product differentiation exists when similar goods are sold in geographically segregated markets.

Question 37

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
If all firms in a monopolistically competitive market are incurring losses, then eventually:

A)the demand for the products in the market will increase.
B)the supply of the products in the market will increase.
C)the price of the products in general will decline.
D)the cost of production will increase.
E)the firms will exit until the existing ones just break even.

Question 38

The figure below shows the revenue and cost curves of a monopolistically competitive firm.Figure: 12.2
In the figure,
D: Demand curve
MR: Marginal revenue curve
ATC₁ and ATC₂: Average total cost curves
MC: Marginal cost curve
In contrast to perfect competition, in a monopolistically competitive industry:

A)new firms entering the market produce a good that is identical to the existing ones.
B)new firms entering the market produce a completely different product.
C)there are legal restrictions on the entry of new firms.
D)new firms entering the market produce a close substitute, not an identical or standardized product.
E)new firms are allowed to enter the industry but there are legal restrictions on their exit.

Question 39

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure: 12.3
In the figure,
D: Demand curve
MR: Marginal revenue curve
MC: Marginal cost curve
ATC: Average total cost curve
The profit per unit of output for the firm in the Figure 12.3 is:

A)P₅ - P_3.
B)P₆ - P_3.
C)P₃ - P_2.
D)P₆ - P_2.
E)P₄ - P_2.

Question 40

The figure below shows the revenue and cost curves of a monopolistically competitive firm.Figure: 12.2
In the figure,
D: Demand curve
MR: Marginal revenue curve
ATC₁ and ATC₂: Average total cost curves
MC: Marginal cost curve
If economic losses exist in a monopolistically competitive market,

A)new products will be introduced.
B)new firms will enter the market because they see potential for profit in the future.
C)firms will exit the market and the existing firms' demand curves will shift to the left.
D)the average total cost curve must lie below the demand curve.
E)firms will exit the market and existing firms' demand curves will shift to the right.

Question 41

The following table shows the payoff matrix of the two firms (Firm X and Firm Y), in dollars, when they advertise and when they do not advertise.Table 12.1

According to Table 12.1, if firm X advertises and Y does not advertise,:

A)firm X earns $50 and firm Y earns $200.
B)firm X earns $150 and firm Y earns $200.
C)firm X earns $100 and firm Y earns $200.
D)firm X earns $50 and firm Y earns $180.
E)firm X earns $180 and firm Y earns $80.

Question 42

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Compared with generic products, a brand name:

A)reduces the price elasticity of demand and gives a firm more market power.
B)increases the price elasticity of demand and gives a firm more market power.
C)increases the price elasticity of demand and gives a firm less market power.
D)reduces the price elasticity of demand and gives a firm less market power.
E)has no effect on price elasticity of demand or market power.

Question 43

The following table shows the payoff matrix of the two firms (Firm X and Firm Y), in dollars, when they advertise and when they do not advertise.Table 12.1

Refer to Table 12.1. If firm Y follows its dominant strategy and firm X does not then:

A)firm X earns $150 and firm Y earns $200.
B)firm X earns $50 and firm Y earns $200.
C)firm X earns $150 and firm Y earns $180.
D)firm X earns $50 and firm Y earns $100.
E)firm X earns $150 and firm Y earns $100.

Question 44

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Which of the following is a characteristic of an oligopoly market?

A)Each firm in an oligopoly market can take independent pricing and output decisions.
B)There are many firms in an oligopoly market hence a firm cannot influence the market price.
C)In an oligopoly market, each firm's pricing and output decisions depend on those of its rivals.
D)Firms in an oligopoly market always manufacture differentiated products.
E)Barriers to entry does not exist in an oligopoly market.

Question 45

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
The objective of creating a brand name is:

A)to reduce the price of the product.
B)to ensure a steady supply of the good in the market.
C)to reduce the price elasticity of demand.
D)to reduce the cost of production of the firm.
E)to attract rival firms into the market.

Question 46

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
One reason that monopolistically competitive firms often use celebrity endorsements is that:

A)the firm owners like to be around celebrities so they can feel important.
B)they can link their product's reputation with the celebrity's reputation.
C)celebrity endorsements are comparatively inexpensive.
D)they can have the celebrity as their potential customer.
E)firms like to spend a lot on advertisements.

Question 47

The following table shows the payoff matrix of the two firms (Firm X and Firm Y), in dollars, when they advertise and when they do not advertise.Table 12.1

According to Table 12.1, if both the firms follow their dominant strategies,:

A)firm X earns $100 and firm Y earns $150.
B)firm X earns $50 and firm Y earns $200.
C)firm X earns $180 and firm Y earns $150.
D)firm X earns $180 and firm Y earns $100.
E)firm X earns $150 and firm Y earns $180.

Question 48

The following table shows the payoff matrix of the two firms (Firm X and Firm Y), in dollars, when they advertise and when they do not advertise.Table 12.1

According to the payoffs in Table 12.1:

A)firm X will not advertise, no matter what, if Firm Y does not advertise.
B)firm X will advertise only if Firm Y does not advertise.
C)firm X does not have a dominant strategy, but Firm Y does.
D)firm Y does not have a dominant strategy, but Firm X does.
E)both firms will be better off if neither of them advertised.

Question 49

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
The oligopoly market structure model is characterized by:

A)many firms in an industry producing differentiated products.
B)many firms in an industry producing identical products.
C)few firms in an industry with natural barriers to entry.
D)a single firm in an industry with barriers to entry.
E)many firms in an industry with barriers to entry.

Question 50

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Oligopoly can arise from:

A)diseconomies of scale in production.
B)limited demand for a product in the market.
C)government regulations.
D)easy availability of the crucial inputs.
E)reduction of trade barriers.

Question 51

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Which of the following theories applies to strategic behavior?

A)Field Theory
B)Game Theory
C)Theory of Consumers' Behavior
D)Social Contract Theory
E)Rational Choice Theory

Question 52

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Strategic behavior occurs when:

A)there are a large number of firms selling identical products.
B)there is only one firm in the market.
C)the firms have no command over the prices of the good they produce.
D)the firms can take any decision irrespective of what their rival does.
E)what is best for a firm depends on what his rival does.

Question 53

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Firms in monopolistically competitive markets spend significant sums on product differentiation because:

A)it enables them to earn positive profits in the short run.
B)it increases the elasticity of demand for a firm's product.
C)it reduces the number of competitors.
D)it causes the firm's supply curve to become horizontal so the firm can expand output indefinitely.
E)it causes the firm's demand curve to become horizontal so that it can charge a fixed price for its product.

Question 54

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
A consumer becomes loyal to a product when:

A)the good is available at a very low price.
B)the product is as good as its substitutes.
C)the product comes with a gift occasionally.
D)he/she has had a positive experience with that good.
E)discounts are offered periodically.

Question 55

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Which of the following statements about a monopolistically competitive firm, in the short run, is true?

A)Profits will be maximized at the point at which price equals marginal cost and hence there is no deadweight loss.
B)The firms earn zero economic profit in the short run.
C)The firms achieve allocative and productive efficiency in the short run.
D)Advertising may enable a firm to charge a higher price than that charged by rival firms.
E)It faces a perfectly elastic demand curve.

Question 56

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Because of their brand names, Kodak, IBM, Honda, Daimler-Chrysler, and other well-known firms are able to charge significantly higher prices for their products than their competitors without losing any business. Expenditures made by firms to create brand names:

A)are always inefficient.
B)provide reliability to consumers.
C)lead to monopolies.
D)necessarily lead to deadweight losses.
E)would not exist if information was less costly for firms to obtain than consumers.

Question 57

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
An oligopoly market consists of:

A)many firms which produce a standardized product.
B)at least five firms one of which dominates the market.
C)firms that make independent pricing and output decisions.
D)a group of firms that dominate the market.
E)firms which face perfectly elastic demand curves.

Question 58

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Martin is in the market for a new television set. He is deciding between two sets: one is rather expensive but offers a guarantee; the other has a lower price but offers no guarantee. Martin's decision to buy the expensive set would indicate that:

A)Martin does not know a good deal when he sees it.
B)Martin interpreted the guarantee as a signal of quality.
C)Martin did not shop around to get a better deal.
D)Martin is not maximizing his utility.
E)Martin has a high income.

Question 59

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Consumers are willing to pay a higher price for a product with a brand name as opposed to a generic product because:

A)a brand name provides a signal about a product's quality and reliability.
B)they are willing to pay more for the privilege of watching the firm's commercials.
C)a product with a brand name is always of higher quality.
D)consumers maximize utility by purchasing the most expensive products.
E)consumers are irrational.

Question 60

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
Wal-Mart created a competitive advantage with its inventory system to reduce the ratio of cost of goods sold to sales, expecting:

A)to enjoy huge economic profits forever.
B)that its rivals will never imitate their strategy and it will continue to enjoy positive economic profits.
C)that its rivals will immediately do the same thing and it will end up earning zero profits.
D)to enjoy economic profits for a few years before its rivals caught up.
E)that it will at least be able to cover its fixed costs.

Question 61

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

Actions that allow oligopoly firms to coordinate their pricing behavior without explicit collusion are referred to as _____.

A)strategic behavior
B)differential pricing strategies
C)facilitating practices
D)duopoly price discrimination mechanisms
E)independent practices

Question 62

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

The Gulf Cartel and Sinaloa Cartel are the two major cartels in illegal drug trade in Mexico. Although, each of these cartels are better off sharing the market, they have an incentive to try to take the entire market. In which of the following ways is cheating among these cartel members dealt with in this region?

A)Through government taxation policy
B)Through legally enforceable contracts
C)Through restrictions on the supply of inputs used by the firms
D)Through output quota and price ceiling
E)Through violence and drug wars

Question 63

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

The most-favored customer is one who:

A)buys a firm's product regularly.
B)is an acquaintance of the owner of a firm.
C)is guaranteed to receive the lowest price for a product.
D)spends the maximum amount of money on a firm's product.
E)has a high purchasing power.

Question 64

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

An efficient way to move toward the Nash equilibrium is called:

A)an agreement.
B)a convention.
C)a principle.
D)a resolution.
E)a convergence.

Question 65

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

When firms in an illegal market form a cartel, _____.

A)they are able to supply higher quality products
B)it becomes more difficult for police to detect their activities
C)they are able to increase profits by behaving as a monopolist
D)they face a deadweight loss
E)they rely on goodwill to ensure the stability of the cartel

Question 66

The following table shows the payoff matrix of the two firms (Firm X and Firm Y), in dollars, when they advertise and when they do not advertise.Table 12.1

According to the Table 12.1, if the firms collude and decide not to advertise, then their combined payoff is:

A)$250.
B)$260.
C)$330.
D)$300.
E)$280

Question 67

The following table shows the payoff matrix of the two firms (Firm X and Firm Y), in dollars, when they advertise and when they do not advertise.Table 12.1

Which of the following is true of a successful cartel?

A)A successful cartel offers consumers the lowest possible price for a product.
B)A successful cartel minimizes profits for its members.
C)A successful cartel behaves as a monopolist in the market.
D)A successful cartel produces a quantity greater than that produced in a competitive market.
E)A successful cartel is always stable.

Question 68

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

Refer to Table 12.2. If firm B follows its dominant strategy but firm A does not, then firm B earns a profit of:

A)$45.
B)$40.
C)$20.
D)$60.
E)$50

Question 69

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

In which market structure model(s) is product differentiation a significant feature?

A)Perfect competition
B)Monopolistic competition
C)Monopoly
D)Oligopoly
E)Both perfect competition and monopolistic competition

Question 70

The following table shows the payoff matrix of the two firms (Firm X and Firm Y), in dollars, when they advertise and when they do not advertise.Table 12.1

A Nash equilibrium occurs when:

A)a unilateral move by a participant makes him better off.
B)one can deviate from the equilibrium and improve the outcome.
C)no one can move from the equilibrium and improve the outcome.
D)participants have an incentive to deviate from the equilibrium.
E)no one is better off.

Question 71

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

Which of the following is an example of a cartel?

A)Advanced Micro Devices
B)AREVA
C)Organization of the Petroleum Exporting Countries
D)Combat Observation Laser Teams
E)Lloyds Banking Group

Question 72

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

The condition under which a cartel can maintain its stability is that:

A)the barriers to entry should be relaxed.
B)an identical product should be produced by the colluding firms.
C)there should be a large number of firms in a market.
D)there should be legal barriers to share agreements.
E)the products of the colluding firms should be highly differentiated.

Question 73

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

In order to survive, cartels must be able to enforce contracts. However, when a cartel is trading in an illegal commodity:

A)it can use the judicial system to enforce contracts.
B)it relies on altruism of members to enforce contracts.
C)it is inherently stable because the market is underground.
D)violence becomes a means of contract enforcement.
E)authorities are effective in preventing the trade.

Question 74

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

Refer to Table 12.2. If both firm A and firm B choose their dominant strategies then:

A)firm A makes a profit of $40 and firm B makes a profit of $45.
B)firm A makes a profit of $50 and firm B makes a profit of $45.
C)firm A makes a profit of $50 and firm B makes a profit of $40.
D)firm A makes a profit of $42 and firm B makes a profit of $40.
E)firm A makes a profit of $40 and firm B makes a profit of $20.

Question 75

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

When firms use cost-plus pricing in a market,

A)each firm determines its price based on other firms' costs and prices.
B)it may appear as though firms are colluding in price when they actually are not.
C)prices of different firms diverge widely.
D)each firm falls short of maximizing profit as they charge the same price irrespective of their costs.
E)each firm sells only to its most-favored customer.

Question 76

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

Which of the following statements about collusion is true?

A)Collusion is legal in the United States.
B)Its overriding goal is to enhance competition and thereby increase profits.
C)The greater the number of firms, the less difficult it is to maintain a collusion.
D)Collusion never results in benefits for the participants.
E)Collusion may help to increase the profits of the participating firms.

Question 77

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

The firms in an oligopoly market structure agree to collude because:

A)it helps them to earn more profits.
B)each firm wants to know the strategy of its rivals.
C)each firm wants to charge a lower price for its product than its rivals.
D)the firms want to maintain a healthy relationship with each other.
E)it helps them to enjoy economies of scale.

Question 78

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

Which of the following is true of price leadership?

A)Price leadership requires that firms collude.
B)Price leadership will not exist when there is a dominant firm.
C)Price leadership may come into being as firms recognize the benefits of not engaging in competitive pricing.
D)Price leadership is most likely to arise when no firm has a history of making accurate evaluations of market conditions.
E)Price leadership is never used in the real world.

Question 79

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

Strategic interdependence occurs in:

A)perfect competition.
B)monopoly.
C)monopolistic competition.
D)oligopoly.
E)monopsony.

Question 80

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

According to Table 12.2, if firm A follows its dominant strategy but firm B does not, then firm A earns a profit of:

A)$50.
B)$40.
C)$60.
D)$45.
E)$42.