question
Monopolistic competition means:
<a market situation where competition is based entirely on product differentiation and advertising.
<a large number of firms producing a standardized or homogeneous product.
<many firms producing differentiated products.
<a few firms producing a standardized or homogeneous product.
<a market situation where competition is based entirely on product differentiation and advertising.
<a large number of firms producing a standardized or homogeneous product.
<many firms producing differentiated products.
<a few firms producing a standardized or homogeneous product.
answer
many firms producing differentiated products.
question
Monopolistic competition is characterized by a:
<few dominant firms and low entry barriers.
<large number of firms and substantial entry barriers.
<large number of firms and low entry barriers.
<few dominant firms and substantial entry barriers.
<few dominant firms and low entry barriers.
<large number of firms and substantial entry barriers.
<large number of firms and low entry barriers.
<few dominant firms and substantial entry barriers.
answer
large number of firms and substantial entry barriers.
question
Under monopolistic competition, entry to the industry is:
<completely free of barriers.
<as difficult as under pure monopoly.
<more difficult than under pure monopoly.
<blocked.
<completely free of barriers.
<as difficult as under pure monopoly.
<more difficult than under pure monopoly.
<blocked.
answer
more difficult than under pure competition but not nearly
question
Which of the following is not a basic characteristic of monopolistic competition?
<The use of trademarks and brand names.
<Recognized mutual interdependence.
<Product differentiation.
<A relatively large number of sellers.
<The use of trademarks and brand names.
<Recognized mutual interdependence.
<Product differentiation.
<A relatively large number of sellers.
answer
Recognized mutual interdependence.
question
A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from:
<the likelihood of collusion.
<high entry barriers.
<product differentiation.
<mutual interdependence in decision making.
<the likelihood of collusion.
<high entry barriers.
<product differentiation.
<mutual interdependence in decision making.
answer
product differentiation.
question
The monopolistic competition model assumes that:
<allocative efficiency will be achieved.
<productive efficiency will be achieved.
<firms will engage in nonprice competition.
<firms will realize economic profits in the long run.
<allocative efficiency will be achieved.
<productive efficiency will be achieved.
<firms will engage in nonprice competition.
<firms will realize economic profits in the long run.
answer
firms will engage in nonprice competition.
question
A monopolistically competitive firm's marginal revenue curve:
<is downsloping and coincides with the demand curve.
<coincides with the demand curve and is parallel to the horizontal axis.
<is downsloping and lies below the demand curve.
<does not exist because the firm is a "price maker."
<is downsloping and coincides with the demand curve.
<coincides with the demand curve and is parallel to the horizontal axis.
<is downsloping and lies below the demand curve.
<does not exist because the firm is a "price maker."
answer
is downsloping and lies below the demand curve.
question
In the long run, the price charged by the monopolistically competitive firm attempting to maximize profits:
<must be less than ATC.
<must be more than ATC.
<may be either equal to ATC, less than ATC, or more than ATC.
<will be equal to ATC.
<must be less than ATC.
<must be more than ATC.
<may be either equal to ATC, less than ATC, or more than ATC.
<will be equal to ATC.
answer
will be equal to ATC.
question
Which of the following is correct for a monopolistically competitive firm in long-run equilibrium?
<MC = ATC.
<MC exceeds MR.
<P exceeds minimum ATC.
<P = MC.
<MC = ATC.
<MC exceeds MR.
<P exceeds minimum ATC.
<P = MC.
answer
P exceeds minimum ATC.
question
In the long run, economic theory predicts that a monopolistically competitive firm will:
<earn an economic profit.
<realize all economies of scale.
<equate price and marginal cost.
<have excess production capacity.
<earn an economic profit.
<realize all economies of scale.
<equate price and marginal cost.
<have excess production capacity.
answer
...
question
Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be:
<$10.
<$13.
<$16.
<$19.
<$10.
<$13.
<$16.
<$19.
answer
$16.
question
Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be:
<100.
<160.
<180.
<210.
<100.
<160.
<180.
<210.
answer
160.
question
Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic:
<loss of $320.
<profit of $480.
<profit of $280.
<profit of $600.
<loss of $320.
<profit of $480.
<profit of $280.
<profit of $600.
answer
profit of $480.
question
In short-run equilibrium, the monopolistically competitive firm shown will set its price:
<below ATC.
<above ATC.
<below MC.
<below MR.
<below ATC.
<above ATC.
<below MC.
<below MR.
answer
<below ATC
question
Which of the following is not characteristic of long-run equilibrium under monopolistic competition?
<Price equals minimum average total cost.
<Marginal cost equals marginal revenue.
<Price is equal to average total cost.
<Price exceeds marginal cost.
<Price equals minimum average total cost.
<Marginal cost equals marginal revenue.
<Price is equal to average total cost.
<Price exceeds marginal cost.
answer
Price equals minimum average total cost.
question
If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will:
<be unaffected.
<shift to the left.
<become more elastic.
<shift to the right.
<be unaffected.
<shift to the left.
<become more elastic.
<shift to the right.
answer
shift to the right.
question
In long-run equilibrium, monopolistic competition entails:
<an efficient allocation of resources.
<an overallocation of resources due to inadequate capacity.
<an underallocation of resources due to excess capacity.
<production at the minimum attainable average total cost.
<an efficient allocation of resources.
<an overallocation of resources due to inadequate capacity.
<an underallocation of resources due to excess capacity.
<production at the minimum attainable average total cost.
answer
an underallocation of resources due to excess capacity.
question
Refer to the data. If columns (1) and (3) of the demand data shown are this firm's demand schedule, the profit-maximizing level of output will be:
<12 units.
<8 units.
<10 units.
<9 units.
<12 units.
<8 units.
<10 units.
<9 units.
answer
8 units.
question
Refer to the data. If columns (1) and (3) of the demand data shown are this firm's demand schedule, the profit-maximizing price will be:
<$9.
<$7.
<$11.
<$6.
<$9.
<$7.
<$11.
<$6.
answer
$9.
question
Refer to the data. If columns (1) and (3) of the demand data shown are this firm's demand schedule, economic profit will be:
<$10.
<$19.
<$6.
<$8.
<$10.
<$19.
<$6.
<$8.
answer
$8.
question
Refer to the data. Suppose that entry into the industry changes this firm's demand schedule from columns (1) and (3) shown to columns (2) and (3). Economic profit will:
<fall by $10.
<fall to $6.
<increase by $10.
<decline to zero.
<fall by $10.
<fall to $6.
<increase by $10.
<decline to zero.
answer
decline to zero.
question
Refer to the data. Suppose that entry into this industry changes this firm's demand schedule from columns (1) and (3) shown to columns (2) and (3). We can conclude that this industry is:
<a pure monopoly.
<purely competitive.
<a constant cost industry.
<monopolistically competitive.
<a pure monopoly.
<purely competitive.
<a constant cost industry.
<monopolistically competitive.
answer
monopolistically competitive.
question
Refer to the data. With the demand schedule shown by columns (2) and (3), in long-run equilibrium:
<price will equal average total cost.
<total cost will exceed total revenue.
<marginal cost will exceed price.
<price will equal marginal revenue.
<price will equal average total cost.
<total cost will exceed total revenue.
<marginal cost will exceed price.
<price will equal marginal revenue.
answer
price will equal average total cost.
question
An important similarity between a monopolistically competitive firm and a pure monopolist is that both:
<realize an economic profit in the long run.
<achieve allocative efficiency.
<face demand curves that are less than perfectly elastic.
<achieve productive efficiency.
<realize an economic profit in the long run.
<achieve allocative efficiency.
<face demand curves that are less than perfectly elastic.
<achieve productive efficiency.
answer
face demand curves that are less than perfectly elastic.
question
In the long run a monopolistically competitive firm:
<earns an economic profit.
<produces where P = ATC.
<produces where MR exceeds MC.
<achieves allocative efficiency.
<earns an economic profit.
<produces where P = ATC.
<produces where MR exceeds MC.
<achieves allocative efficiency.
answer
produces where P = ATC.
question
A significant benefit of monopolistic competition compared with pure competition is:
<less likelihood of X-inefficiency.
<improved resource allocation.
<greater product variety.
<stronger incentives to achieve economies of scale.
<less likelihood of X-inefficiency.
<improved resource allocation.
<greater product variety.
<stronger incentives to achieve economies of scale.
answer
greater product variety.
question
Product variety is likely to be greater in:
<monopolistic competition than in pure competition.
<pure competition than in monopolistic competition.
<homogeneous oligopoly than in monopolistic competition.
<homogeneous oligopoly than in differentiated oligopoly.
<monopolistic competition than in pure competition.
<pure competition than in monopolistic competition.
<homogeneous oligopoly than in monopolistic competition.
<homogeneous oligopoly than in differentiated oligopoly.
answer
monopolistic competition than in pure competition.
question
The more elastic a monopolistic competitor's long-run demand curve, the:
<greater its excess capacity.
<higher its price relative to that of a pure competitor having the same cost curves.
<lower its long-run profit.
<lower its average total cost at its profit-maximizing level of output.
<greater its excess capacity.
<higher its price relative to that of a pure competitor having the same cost curves.
<lower its long-run profit.
<lower its average total cost at its profit-maximizing level of output.
answer
lower its average total cost at its profit-maximizing level of output.
question
The mutual interdependence that characterizes oligopoly arises because:
<the products of various firms are homogeneous.
<the products of various firms are differentiated.
<each firm in an oligopoly depends on its own pricing strategy and that of its rivals.
<the demand curves of firms are kinked at the prevailing price.
<the products of various firms are homogeneous.
<the products of various firms are differentiated.
<each firm in an oligopoly depends on its own pricing strategy and that of its rivals.
<the demand curves of firms are kinked at the prevailing price.
answer
each firm in an oligopoly depends on its own pricing strategy and that of its rivals.
question
The copper, aluminum, cement, and industrial alcohol industries are examples of:
<interproduct competition.
<homogeneous oligopoly.
<monopolistic competition.
<differentiated oligopoly.
<interproduct competition.
<homogeneous oligopoly.
<monopolistic competition.
<differentiated oligopoly.
answer
homogeneous oligopoly.
question
Oligopoly is more difficult to analyze than other market models because:
<the number of firms is so large that market behavior cannot be accurately predicted.
<the marginal cost and marginal revenue curves of an oligopolist play no part in the determination of equilibrium price and quantity.
<of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models.
<unlike the firms of other market models, it cannot be assumed that oligopolists are profit maximizers.
<the number of firms is so large that market behavior cannot be accurately predicted.
<the marginal cost and marginal revenue curves of an oligopolist play no part in the determination of equilibrium price and quantity.
<of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models.
<unlike the firms of other market models, it cannot be assumed that oligopolists are profit maximizers.
answer
of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models.
question
Which of the following is an illustration of differentiated oligopoly?
<The aluminum industry.
<The steel industry.
<The soft drink industry.
<Retail stores in large cities.
<The aluminum industry.
<The steel industry.
<The soft drink industry.
<Retail stores in large cities.
answer
The soft drink industry.
question
Differentiated oligopoly exists where a small number of firms are:
<producing goods that differ in terms of quality and design.
<setting price and output collusively.
<setting price and output independently.
<producing virtually identical products.
<producing goods that differ in terms of quality and design.
<setting price and output collusively.
<setting price and output independently.
<producing virtually identical products.
answer
producing goods that differ in terms of quality and design.
question
Homogeneous oligopoly exists where a small number of firms are:
<producing virtually identical products.
<setting price and output independently.
<setting price and output collusively.
<producing differentiated products.
<producing virtually identical products.
<setting price and output independently.
<setting price and output collusively.
<producing differentiated products.
answer
producing virtually identical products.
question
Clear-cut mutual interdependence with respect to the price-output policies exists in:
<pure monopoly.
<oligopoly.
<monopolistic competition.
<pure competition.
<pure monopoly.
<oligopoly.
<monopolistic competition.
<pure competition.
answer
oligopoly.
question
Concentration ratios measure the:
<geographic location of the largest corporations in each industry.
<degree to which product price exceeds marginal cost in various industries.
<percentage of total industry sales accounted for by the largest firms in the industry.
<number of firms in an industry.
<geographic location of the largest corporations in each industry.
<degree to which product price exceeds marginal cost in various industries.
<percentage of total industry sales accounted for by the largest firms in the industry.
<number of firms in an industry.
answer
percentage of total industry sales accounted for by the largest firms in the industry.
question
If the four-firm concentration ratio for industry X is 80:
<the four largest firms account for 80 percent of total sales.
<each of the four largest firms accounts for 20 percent of total sales.
<the four largest firms account for 20 percent of total sales.
<the industry is monopolistically competitive.
<the four largest firms account for 80 percent of total sales.
<each of the four largest firms accounts for 20 percent of total sales.
<the four largest firms account for 20 percent of total sales.
<the industry is monopolistically competitive.
answer
the four largest firms account for 80 percent of total sales.
question
The Herfindahl index for a pure monopolist is:
100.
10,000.
100,000.
10.
100.
10,000.
100,000.
10.
answer
10,000.
question
The four-firm sales concentration ratio for an industry measures the:
<geographic concentration of firms.
<extent to which the four largest firms dominate the production of a good.
<percentage of the industry's capital facilities owned by the four largest firms.
<degree of X-inefficiency in the industry.
<geographic concentration of firms.
<extent to which the four largest firms dominate the production of a good.
<percentage of the industry's capital facilities owned by the four largest firms.
<degree of X-inefficiency in the industry.
answer
extent to which the four largest firms dominate the production of a good.
question
Assume six firms comprising an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl index for this industry is:
<2,000.
<1,600.
<2,200.
<80.
<2,000.
<1,600.
<2,200.
<80.
answer
2,200.
question
Game theory:
<is the analysis of how people (or firms) behave in strategic situations.
<is best suited for analyzing purely competitive markets.
<reveals that mergers between rival firms are self-defeating.
<reveals that price-fixing among firms reduces profits.
<is the analysis of how people (or firms) behave in strategic situations.
<is best suited for analyzing purely competitive markets.
<reveals that mergers between rival firms are self-defeating.
<reveals that price-fixing among firms reduces profits.
answer
is the analysis of how people (or firms) behave in strategic situations.
question
Game theory is best suited to analyze the pricing behavior of:
<pure monopolists.
<pure competitors.
<monopolistic competitors.
<oligopolists.
<pure monopolists.
<pure competitors.
<monopolistic competitors.
<oligopolists.
answer
oligopolists.
question
Game theory can be used to demonstrate that oligopolists:
<rarely consider the potential reactions of rivals.
<experience economies of scale.
<can increase their profits through collusion.
<may be either homogeneous or differentiated
<rarely consider the potential reactions of rivals.
<experience economies of scale.
<can increase their profits through collusion.
<may be either homogeneous or differentiated
answer
can increase their profits through collusion.
question
The kinked-demand curve of an oligopolist is based on the assumption that:
<competitors will follow a price cut but ignore a price increase.
<competitors will match both price cuts and price increases.
<competitors will ignore a price cut but follow a price increase.
<there is no product differentiation.
<competitors will follow a price cut but ignore a price increase.
<competitors will match both price cuts and price increases.
<competitors will ignore a price cut but follow a price increase.
<there is no product differentiation.
answer
competitors will follow a price cut but ignore a price increase.
question
If an oligopoly is faced with a kinked-demand curve that is relatively elastic above, and relatively inelastic below, the going price, then it will:
<increase total revenue by increasing price but lower total revenue by decreasing price.
<decrease total revenue by either increasing or decreasing price.
<increase total revenue by either increasing or decreasing price.
<increase total revenue by decreasing price but lower total revenue by increasing price.
<increase total revenue by increasing price but lower total revenue by decreasing price.
<decrease total revenue by either increasing or decreasing price.
<increase total revenue by either increasing or decreasing price.
<increase total revenue by decreasing price but lower total revenue by increasing price.
answer
decrease total revenue by either increasing or decreasing price.
question
The kinked-demand curve model of oligopoly is useful in explaining:
<the way that collusion works.
<why oligopolistic prices and outputs are extremely sensitive to changes in marginal cost.
<why oligopolistic prices might change only infrequently.
<the process by which oligopolists merge with one another.
<the way that collusion works.
<why oligopolistic prices and outputs are extremely sensitive to changes in marginal cost.
<why oligopolistic prices might change only infrequently.
<the process by which oligopolists merge with one another.
answer
why oligopolistic prices might change only infrequently.
question
The kinked-demand curve model helps to explain price rigidity because:
<there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price.
<demand is inelastic above and elastic below the going price.
<the model assumes firms are engaging in some form of collusion.
<the associated marginal revenue curve is perfectly elastic at the going price.
<there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price.
<demand is inelastic above and elastic below the going price.
<the model assumes firms are engaging in some form of collusion.
<the associated marginal revenue curve is perfectly elastic at the going price.
answer
there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price.
question
OPEC provides an example of:
<an unwritten, informal understanding.
<noncollusive oligopoly.
<an international cartel.
<a monopolistically competitive industry.
<an unwritten, informal understanding.
<noncollusive oligopoly.
<an international cartel.
<a monopolistically competitive industry.
answer
an international cartel.
question
The likelihood of a cartel being successful is greater when:
<firms are producing a differentiated, rather than a homogeneous, product.
<cost and demand curves of various participants are very similar.
<the number of firms involved is relatively large.
<the economy is in the recession phase of the business cycle.
<firms are producing a differentiated, rather than a homogeneous, product.
<cost and demand curves of various participants are very similar.
<the number of firms involved is relatively large.
<the economy is in the recession phase of the business cycle.
answer
cost and demand curves of various participants are very similar.
question
Cartels are difficult to maintain in the long run because:
<they are illegal in all industrialized countries.
<individual members may find it profitable to cheat on agreements.
<it is more profitable for the industry to charge a lower price and produce more output.
<entry barriers are insignificant in oligopolistic industries.
<they are illegal in all industrialized countries.
<individual members may find it profitable to cheat on agreements.
<it is more profitable for the industry to charge a lower price and produce more output.
<entry barriers are insignificant in oligopolistic industries.
answer
individual members may find it profitable to cheat on agreements.
question
If the firms in an oligopolistic industry can establish an effective cartel, the resulting output and price will approximate those of:
a purely competitive producer.
a pure monopoly.
a monopolistically competitive producer.
an industry with a low four-firm concentration ratio.
a purely competitive producer.
a pure monopoly.
a monopolistically competitive producer.
an industry with a low four-firm concentration ratio.
answer
a pure monopoly.
question
One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the following cases?
<A rather large number of firms producing a differentiated product.
<A very small number of firms producing a differentiated product.
<A rather large number of firms producing a homogeneous product.
<A very small number of firms producing a homogeneous product.
<A rather large number of firms producing a differentiated product.
<A very small number of firms producing a differentiated product.
<A rather large number of firms producing a homogeneous product.
<A very small number of firms producing a homogeneous product.
answer
A very small number of firms producing a homogeneous product.
question
Suppose firms in a collusive oligopoly decide to establish their prices at a level that discourages new rivals from entering the industry. This is called:
<mutual interdependence.
<pricing the demand curve.
<limit pricing.
<price leadership.
<mutual interdependence.
<pricing the demand curve.
<limit pricing.
<price leadership.
answer
limit pricing.
question
A breakdown in price leadership leading to successive rounds of price cuts is known as:
<limit pricing.
<a price war.
<informal pricing.
<price discrimination.
<limit pricing.
<a price war.
<informal pricing.
<price discrimination.
answer
a price war.
question
Secret conspiracies to fix prices are examples of:
<cartels.
<price leadership.
<overt collusion.
<covert collusion.
<cartels.
<price leadership.
<overt collusion.
<covert collusion.
answer
covert collusion.
question
Advertising can enhance economic efficiency when it:
<increases brand loyalty.
<expands sales such that firms achieve substantial economies of scale.
<keeps new firms from entering profitable industries.
<is undertaken by pure competitors.
<increases brand loyalty.
<expands sales such that firms achieve substantial economies of scale.
<keeps new firms from entering profitable industries.
<is undertaken by pure competitors.
answer
expands sales such that firms achieve substantial
question
Advertising can impede economic efficiency when it:
<increases entry barriers.
<reduces brand loyalty.
<enables firms to achieve substantial economies of scale.
<increases consumer awareness of substitute products.
<increases entry barriers.
<reduces brand loyalty.
<enables firms to achieve substantial economies of scale.
<increases consumer awareness of substitute products.
answer
increases entry barriers.
question
The conclusion that oligopoly is inefficient relative to the competitive ideal must be qualified because:
<industry price leaders often select a price equal to marginal cost.
<over time oligopolistic industries may promote more rapid product development and greater improvement of production techniques than if they were purely competitive.
<increased output due to persuasive advertising may perfectly offset the restriction of output caused by monopoly power.
<many oligopolists sell their products in monopolistically competitive or even purely competitive industries.
<industry price leaders often select a price equal to marginal cost.
<over time oligopolistic industries may promote more rapid product development and greater improvement of production techniques than if they were purely competitive.
<increased output due to persuasive advertising may perfectly offset the restriction of output caused by monopoly power.
<many oligopolists sell their products in monopolistically competitive or even purely competitive industries.
answer
over time oligopolistic industries may promote more rapid product development and greater improvement of production techniques than if they were purely competitive.
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