Question 1

In the long run,typical firms that are monopolistically competitive earn economic profits.

Accepted Answer

A) True 
 B)False

Question 2

Refer to the above graph of a representative firm in monopolistic competition.What does line 3 represent?

Accepted Answer

A)   Demand
B)   Marginal cost
C)   Marginal revenue
D)   Average total costE) C) and D)
F) A) and C)

Question 3

Game theory analysis of oligopolistic behavior suggests that oligopolists will benefit from collusion.

Accepted Answer

A) True 
 B)False

Question 4

In long-run equilibrium,a profit-maximizing firm in a monopolistically competitive industry produces the quantity of output where:

Accepted Answer

A)   AC = P,MR = MC = P.
B)   AC 
C)   AC 
D)   AC = P,MR = MC < P.E) None of the above
F) B) and C)

Question 5

In the kinked-demand model of noncollusive oligopoly,each firm thinks the demand curve below the going price is:

Accepted Answer

A)   more elastic than the demand curve above the going price.
B)   less elastic than the demand curve above the going price.
C)   more elastic than the marginal revenue curve above the going price.
D)   less elastic than the marginal revenue curve above the going price.E) C) and D)
F) B) and C)

Question 6

The demand curve faced by a monopolistically competitive firm is more elastic than the monopolist's demand curve.

Accepted Answer

A) True 
 B)False

Question 7

A cartel is formed among the major firms in an industry that maximizes joint profits of the firms.Each firm:

Accepted Answer

A)   will operate at the level of output associated with the kink in the demand curve.
B)   will be protected from the economic effects of a recession.
C)   has a perfectly elastic demand for its product.
D)   has the incentive to cheat by cutting its price.E) All of the above
F) B) and C)

Question 8

In an oligopolistic market there are:

Accepted Answer

A)   many buyers.
B)   few buyers.
C)   few sellers.
D)   many sellers.E) A) and C)
F) A) and D)

Question 9

The demand curve faced by a monopolistically competitive firm is:

Accepted Answer

A)   vertical.
B)   horizontal.
C)   highly elastic.
D)   highly inelastic.E) None of the above
F) All of the above

Question 10

A monopolistically competitive firm is operating at a short-run level of output where price is $21,average total cost is $15,marginal cost is $13,and marginal revenue is $13.In the short run this firm should:

Accepted Answer

A)   reduce product price.
B)   increase the level of output.
C)   decrease the level of output.
D)   make no change in the level of output.E) B) and D)
F) A) and D)

Question 11

The graph depicts a monopolistically competitive firm.  Refer to the above graph.This monopolistically competitive firm is:

Accepted Answer

A)   making economic profit in the long run.
B)   making economic profit in the short run
C)   making a loss in the long run.
D)   making a loss in the short run.E) A) and B)
F) C) and D)

Question 12

Monopolistic competition is characterized by excess capacity because:

Accepted Answer

A)   firms are always profitable in the long run.
B)   firms charge a price that is less than marginal cost.
C)   firms produce at an output level less than the least-cost output.
D)   the demand for a product is perfectly elastic in this type of industry.E) None of the above
F) B) and D)

Question 13

What are the payoffs in the typical duopoly game?

Accepted Answer

A)   Increased economies of scale
B)   Increased barriers to entry
C)   Product differentiation
D)   ProfitsE) A) and B)
F) All of the above

Question 14

A unique feature of oligopolies,when compared with other industry types,is:

Accepted Answer

A)   low barriers to entry.
B)   standardized products.
C)   diminishing marginal returns.
D)   mutual interdependence.E) B) and C)
F) A) and D)

Question 15

The demand curve of the monopolistic competitor is likely to be more elastic than the demand curve of the pure monopolist.

Accepted Answer

A) True 
 B)False

Question 16

Which statement is true?

Accepted Answer

A)   Monopoly will result in a higher price and a larger output than pure competition.
B)   Monopoly will result in a higher price and a larger output than monopolistic competition.
C)   Pure competition will result in a lower price and a higher output than monopolistic competition.
D)   Monopolistic competition will result in a lower price and a lower output than pure competition.E) C) and D)
F) A) and B)

Question 17

In monopolistic competition,a firm has a limited degree of "price-making" ability.This means that the firm will:

Accepted Answer

A)   always earn an economic profit.
B)   set price equal to marginal cost.
C)   set price above marginal cost.
D)   produce at minimum average total cost.E) B) and C)
F) A) and D)

Question 18

A major reason that firms form a cartel is to:

Accepted Answer

A)   reduce the elasticity of demand for the product.
B)   enlarge the market share for each producer.
C)   minimize the costs of production.
D)   maximize joint profits.E) C) and D)
F) B) and C)

Question 19

What is a potential negative effect of advertising?

Accepted Answer

A)   It provides important information to consumers.
B)   It promotes monopoly power in industry.
C)   It contributes to allocative and productive efficiency.
D)   It lowers search costs in product purchases.E) None of the above
F) All of the above

Question 20

The principle underlying the kinked-demand curve model of oligopoly is that the demand curve facing one firm is more elastic when other firms in the industry:

Accepted Answer

A)   match the firm's price changes.
B)   hold price constant when the firm changes its prices.
C)   hold quantities constant when the firm changes its prices.
D)   change prices in the opposite direction when the firm changes its prices.E) C) and D)
F) B) and D)

Exam 9: Monopolistic Competition and Oligopoly

What are the payoffs in the typical duopoly game?

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The demand curve of the monopolistic competitor is likely to be more elastic than the demand curve of the pure monopolist.

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The demand curve faced by a monopolistically competitive firm is:

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What is a potential negative effect of advertising?

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In an oligopolistic market there are:

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Monopolistic competition is characterized by excess capacity because:

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A cartel is formed among the major firms in an industry that maximizes joint profits of the firms.Each firm:

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A major reason that firms form a cartel is to:

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Refer to the above graph of a representative firm in monopolistic competition.What does line 3 represent?

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A unique feature of oligopolies,when compared with other industry types,is:

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The principle underlying the kinked-demand curve model of oligopoly is that the demand curve facing one firm is more elastic when other firms in the industry:

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The graph depicts a monopolistically competitive firm. Refer to the above graph.This monopolistically competitive firm is:

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Which statement is true?

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A monopolistically competitive firm is operating at a short-run level of output where price is $21,average total cost is $15,marginal cost is $13,and marginal revenue is $13.In the short run this firm should:

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In the long run,typical firms that are monopolistically competitive earn economic profits.

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Game theory analysis of oligopolistic behavior suggests that oligopolists will benefit from collusion.

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In the kinked-demand model of noncollusive oligopoly,each firm thinks the demand curve below the going price is:

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In long-run equilibrium,a profit-maximizing firm in a monopolistically competitive industry produces the quantity of output where:

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The demand curve faced by a monopolistically competitive firm is more elastic than the monopolist's demand curve.

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In monopolistic competition,a firm has a limited degree of "price-making" ability.This means that the firm will:

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