Question 1

Which of the following is the best example of a firm operating in a monopolistically competitive market?

Accepted Answer

A)   A Kansas wheat farmer.
B)   TGI Fridays, a family restaurant.
C)   U.S. Postal Service.
D)   Boeing, an aircraft manufacturer

Question 2

Which of the following is true for a firm operating under perfect competition, monopolistic competition, and monopoly?

Accepted Answer

A)   Firms earn positive economic profits in the long run.
B)   Firms earn zero economic profits in the long run.
C)   Profits are maximized when marginal cost equals marginal revenue.
D)   Price equals marginal cost.

Question 3

Supporters of advertising claim that it:

Accepted Answer

A)   makes demand for a firm's product more elastic.
B)   is a barrier to entry.
C)   promotes better quality products.
D)   all of these.

Question 4

Supporters of advertising claim that it:

Accepted Answer

A)   increases the variety of products.
B)   attacks established brand loyalties.
C)   allows new firms to compete.
D)   all of these.

Question 5

As new firms enter a monopolistic competitive industry, it can be expected that:

Accepted Answer

A)   market price will increase.
B)   the output of existing firms will increase.
C)   profits of existing firms will increase.
D)   market demand should decrease.
E)   profits of existing firms will decrease.

Question 6

Cartel members have an incentive to cheat on the cartel because:

Accepted Answer

A)   the cartel does not maximize profits.
B)   the cartel price is the competitive price.
C)   each member's output quota is too high.
D)   each member's MR is not equal to the cartel's MC.
E)   the industry profit would be higher under competitive conditions.

Question 7

Exhibit 10-4 Kinked demand curves 1. B)  follow along demand curve D2. C)  ignore this price decrease and cause the price-raising firm to move along D1. D)  ignore this price decrease and cause the price-raising firm to move along D2. E)  raise their prices." class="answers-bank-image d-inline" rel="preload" >
-In Exhibit 10-4, the exhibit represents a kinked-demand oligopoly model. Suppose the current price is $50. If one firm in the oligopoly now attempts to lower price, all firms will:

Accepted Answer

A)   follow along demand curve D1.
B)   follow along demand curve D2.
C)   ignore this price decrease and cause the price-raising firm to move along D1.
D)   ignore this price decrease and cause the price-raising firm to move along D2.
E)   raise their prices.

Question 8

A monopolistic competitive firm is inefficient because the firm:

Accepted Answer

A)   earns positive economic profit in the long run.
B)   is producing at an output corresponding to the condition that marginal cost equals price.
C)   is not maximizing its profit.
D)   produces an output where average total cost is not minimum.

Question 9

Exhibit 10-2 A monopolistic competitive firm 
-As presented in Exhibit 10-2, the long-run profit-maximizing output for the monopolistic competitive firm is:

Accepted Answer

A)   zero units per week.
B)   100 units per week.
C)   200 units per week.
D)   300 units per week.
E)   400 units per week.

Question 10

Which of the following is a game theory strategy for oligopolists to avoid a low-price outcome?

Accepted Answer

A)   Tit-for-tat
B)   Win-win
C)   Last in-first out
D)   Second best

Question 11

Which of the following is true about advertising by a firm?

Accepted Answer

A)   It is not always successful in increasing demand for a firm's product.
B)   It attempts to increase demand and to make demand more inelastic.
C)   It may reduce per unit costs of production when economies of scale are experienced.
D)   All of these.

Question 12

When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called:

Accepted Answer

A)   mutual interdependence.
B)   price leadership.
C)   collusion.
D)   monopolistic competition.

Question 13

Monopolistic competitive firms in the long run earn:

Accepted Answer

A)   positive economic profits.
B)   zero pure economic profits.
C)   negative economic profits.
D)   none of these.

Question 14

Compared to monopoly, the market results with monopolistic competition are usually expected to be:

Accepted Answer

A)   worse because consumers get fewer choices.
B)   worse because consumers pay a higher price.
C)   the same.
D)   better because consumers get less output.
E)   better because consumers pay a lower price.

Question 15

In the short run, the monopolistic competitive firm will charge a price equal to marginal cost.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements best describes firms under monopolistic competition?

Accepted Answer

A)   Profits will be positive in the long run.
B)   Price always equals average variable cost.
C)   In the long run, positive economic profit will be eliminated.
D)   Marginal revenue equals minimum average total cost in the short run.

Question 17

A characteristic of an oligopoly is:

Accepted Answer

A)   mutual interdependence in pricing decisions.
B)   independent pricing decisions.
C)   lack of control over prices.
D)   none of these.

Question 18

Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

Accepted Answer

A)   new tombstone firms will want to enter.
B)   this producer is losing $2,000 a week.
C)   this producer is making an economic profit of $400.
D)   this producer is setting MR = MC.
E)   this producer should increase production.

Question 19

Exhibit 10-5 Two-Firm Payoff Matrix 
-Suppose costs are identical for the two firms in Exhibit 10-5. Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price. Under these "tit-for-tat" conditions, equilibrium will be established by:

Accepted Answer

A)   Beta Co. charging $1,000 and Alpha Co. charging $1,000.
B)   Beta Co. charging $1,000 and Alpha Co. charging $500.
C)   Beta Co. charging $500 and Alpha Co. charging $500.
D)   Beta Co. charging $500 and Alpha Co. charging $1,000.

Question 20

The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:

Accepted Answer

A)   produce at the level in which price equals long-run average cost.
B)   operate at minimum long-run average cost.
C)   overutilize its insufficient capacity.
D)   none of these.

Exam 10: Monopolistic Competition and Oligopoly

Which of the following is true about advertising by a firm?

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A monopolistic competitive firm is inefficient because the firm:

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As new firms enter a monopolistic competitive industry, it can be expected that:

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In the short run, the monopolistic competitive firm will charge a price equal to marginal cost.

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When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called:

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Which of the following is a game theory strategy for oligopolists to avoid a low-price outcome?

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Exhibit 10-5 Two-Firm Payoff Matrix -Suppose costs are identical for the two firms in Exhibit 10-5. Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price. Under these "tit-for-tat" conditions, equilibrium will be established by:

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Which of the following is the best example of a firm operating in a monopolistically competitive market?

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Which of the following statements best describes firms under monopolistic competition?

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Exhibit 10-4 Kinked demand curves -In Exhibit 10-4, the exhibit represents a kinked-demand oligopoly model. Suppose the current price is $50. If one firm in the oligopoly now attempts to lower price, all firms will:

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Cartel members have an incentive to cheat on the cartel because:

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Compared to monopoly, the market results with monopolistic competition are usually expected to be:

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Which of the following is true for a firm operating under perfect competition, monopolistic competition, and monopoly?

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Supporters of advertising claim that it:

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Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

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Supporters of advertising claim that it:

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A characteristic of an oligopoly is:

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Monopolistic competitive firms in the long run earn:

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Exhibit 10-2 A monopolistic competitive firm -As presented in Exhibit 10-2, the long-run profit-maximizing output for the monopolistic competitive firm is:

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The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:

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