Deck 9: Pricing and Output Decisions: Monopolistic Competition and Oligopoly

Question 1

The four-firm concentration ratio

A)indicates the total profitability among the top four firms in an industry.
B)is an indicator of the degree of monopolistic competition.
C)indicates the presence and intensity of an oligopoly market.
D)is used by the government as a basis for anti-trust cases.

Answer 1

C

Question 2

If firms are earning economic profit in a monopolistically competitive market,which of the following is most likely to happen in the long run?

A)Some firms will leave the market.
B)Firms will join together to keep others from entering.
C)New firms will enter the market,thereby eliminating the economic profit.
D)Firms will continue to earn economic profit.

Answer 2

C

Question 3

Mutual interdependence occurs when

A)all firms in an industry are affected by the same macro economic conditions,such as a recession,inflation,interest rates,exchange rates,etc.
B)the actions of firms are independent of each other.
C)the actions of one firm in an industry are easily recognized and perhaps copied by others.
D)monopolists recognize that they must face eventual competition in the long run.

Answer 3

C

Question 4

The main difference between perfect competition and monopolistic competition is

A)the number of sellers in the market.
B)the ease of exit from the market.
C)the difference in the firm's profits in the long run.
D)the degree of product differentiation.

Question 5

The demand curve,which assumes that competitors will follow price decreases but not price increases,is called

A)an industry demand curve.
B)an inelastic demand curve.
C)a kinked demand curve.
D)a competitive demand curve.

Question 6

The existence of a kinked demand curve under oligopoly conditions may result in

A)price flexibility.
B)price rigidity.
C)competitive pricing.
D)None of the above

Question 7

In general,there is a(n)________ relationship between the height/strength of the barriers and the number of firms in an industry.

A)direct
B)inverse
C)constant
D)random

Question 8

Which of the following industries is most likely to represent the monopolistic competition market structure?

A)automobiles
B)tobacco products
C)restaurants
D)farm equipment

Question 9

Convenience stores with gas stations tend to sell an essentially identical variety of products and services.Yet this is generally considered to be a monopolistically competitive industry selling differentiated products.How can this be considered a differentiated product?

Question 10

The Herfindahl-Hirschman (HH)Index is used to

A)measure the degree of nonprice competition.
B)measure the degree of market concentration in an industry.
C)measure the extent of price leadership.
D)None of the above

Question 11

Describe the transition from short-run to long-run equilibrium in a monopolistically competitive industry.

Question 12

The kinked demand curve model best reflects

A)mutual interdependence among sellers.
B)a game theory approach to price-output decisions.
C)price rigidities in oligopolistic markets.
D)All of the above

Question 13

In which of these markets would the firms be facing the least elastic demand curve?

A)perfect competition
B)pure monopoly
C)monopolistic competition
D)oligopoly

Question 14

Firms in monopolistic competition would

A)persistently realize economic profits in both the short and long run.
B)may realize economic profits in the long run and normal profits in the short run.
C)tend to incur persistent losses in both the short and long run.
D)tend to realize economic profits in the short run and normal profits in the long run.

Question 15

In the kinked demand curve model,the demand curve is ________ for price increases and ________ for price decreases.

A)unit elastic; relatively elastic
B)relatively inelastic; relatively elastic
C)relatively elastic; relatively inelastic
D)perfectly elastic; perfectly inelastic

Question 16

In the long run,the most helpful action that a monopolistically competitive firm can take to maintain its economic profit is to

A)continue its efforts to differentiate its product.
B)raise its price.
C)lower its price.
D)do nothing,because it will inevitably experience a decline in profits.

Question 17

Porter's "Five Forces Model" is based on

A)the laws of supply and demand.
B)the law of diminishing returns.
C)the Structure-Conduct-Performance model.
D)the key factors affecting demand.

Question 18

Mutual interdependence means that

A)all firms are price takers.
B)each firm sets its own price based on its anticipated reaction by its competitors.
C)all firms collaborate to establish one price.
D)all firms are free to enter or leave the market.

Question 19

When a company is faced by a kinked demand curve,the marginal revenue curve

A)will be upward sloping.
B)will be horizontal.
C)will always be zero at the quantity produced.
D)will be discontinuous.

Question 20

Which of the following represents a good example of an oligopoly?

A)the agriculture industry
B)a public utility
C)the automobile industry
D)the restaurant industry

Question 21

Restaurants cluster together.That is,on one corner,there may be four similar fast-food restaurants.How can this be explained using a location game theory model?

Question 22

Describe the structure-conduct-performance (S-C-P)paradigm.

Question 23

How is a monopolistically competitive industry like perfect competition? How is it like monopoly?

Question 24

Why might a concentration ratio be a poor measure of actual industry competition?

Question 25

Explain why the "kinked demand curve" model of oligopoly represents a game theory approach to oligopolistic behavior.

Question 26

Microsoft has integrated many components into its Windows operating systems,such as a web browser,media player,etc.How might this be an example of nonprice competition?

Question 27

Describe the factors in Michael Porter's "Five Forces Model" that affect the ability of any firm in an industry to earn a profit.