question
Refer to the above graph. A successful advertising campaign by a monopolistically competitive firm will cause the demand curve for that firm to shift from:
A to B and become more elastic.
A to B and become less elastic.
B to A and become more elastic.
B to A and become less elastic.
A to B and become more elastic.
A to B and become less elastic.
B to A and become more elastic.
B to A and become less elastic.
answer
A to B and become less elastic
question
Refer to the above graph. It represents a monopolistically competitive firm in a constant-cost industry. The firm:
will produce less than Q0.
will produce more than Q0.
is earning an economic profit at Q0.
is suffering an economic loss at Q0.
will produce less than Q0.
will produce more than Q0.
is earning an economic profit at Q0.
is suffering an economic loss at Q0.
answer
is earning an economic profit at Q0
question
Refer to the above graphs. The long-run equilibrium for a monopolistically competitive firm is represented by graph:
A.
B.
C.
D.
A.
B.
C.
D.
answer
B
question
Refer to the above payoff matrix. If both firms collude to maximize joint profits, the total profits for the two firms will be:
$350 million.
$400 million.
$500 million.
$525 million
$350 million.
$400 million.
$500 million.
$525 million
answer
$500 million
question
Refer to the above payoff matrix. If both firms operate independently and do not collude, the most likely profit is:
$175 million for firm A and $175 million for firm B.
$250 million for firm A and $250 million for firm B.
$200 million for firm A and $325 million for firm B.
$325 million for firm A and $200 million for firm B.
$175 million for firm A and $175 million for firm B.
$250 million for firm A and $250 million for firm B.
$200 million for firm A and $325 million for firm B.
$325 million for firm A and $200 million for firm B.
answer
$175 million for firm A and $175 million for firm B.
question
A feature of monopolistic competition is:
a patent-protected product.
homogeneous or standardized products.
considerable control over price.
nonprice competition.
a patent-protected product.
homogeneous or standardized products.
considerable control over price.
nonprice competition.
answer
nonprice competition
question
A major prediction of the kinked-demand curve model is:
price stability in oligopolies.
price instability in oligopolies.
stability of production costs in oligopolies.
stable purchasing behavior by consumers over time.
price stability in oligopolies.
price instability in oligopolies.
stability of production costs in oligopolies.
stable purchasing behavior by consumers over time.
answer
price stability in oligopolies
question
A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating:
with a profit in the short run.
with a loss in the short run.
at the break-even level of output in the short run.
at an efficient level of output in the short run.
with a profit in the short run.
with a loss in the short run.
at the break-even level of output in the short run.
at an efficient level of output in the short run.
answer
with a loss in the short run
question
Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will:
reduce the excess capacity in the industry as firms expand production.
attract other firms to enter the industry since the barriers to entry are low.
cause firms to standardize their product to limit the degree of competition.
make the industry allocatively efficient as each firm seeks to maintain its profits.
reduce the excess capacity in the industry as firms expand production.
attract other firms to enter the industry since the barriers to entry are low.
cause firms to standardize their product to limit the degree of competition.
make the industry allocatively efficient as each firm seeks to maintain its profits.
answer
attract other firms to enter the industry since the barriers to entry are low
question
If an oligopolist's demand curve has a "kink" in it, then:
the oligopolist's marginal cost curve has a break in it.
the oligopolist need not fear entry into the industry by new firms.
the oligopolist's competitors will not react to its price changes, either up or down.
over some interval, a change in the oligopolist's marginal cost will not cause a change in the oligopolist's profit-maximizing price.
the oligopolist's marginal cost curve has a break in it.
the oligopolist need not fear entry into the industry by new firms.
the oligopolist's competitors will not react to its price changes, either up or down.
over some interval, a change in the oligopolist's marginal cost will not cause a change in the oligopolist's profit-maximizing price.
answer
over some interval, a change in the oligopolist's marginal cost will not cause a change in the oligopolist's profit-maximizing price
question
In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry produces the quantity of output where:
AC = P, MR = MC = P.
AC < P, MR = MC = P.
AC < P, MR + MC < P.
AC = P, MR = MC < P.
AC = P, MR = MC = P.
AC < P, MR = MC = P.
AC < P, MR + MC < P.
AC = P, MR = MC < P.
answer
AC = P, MR = MC < P
question
In monopolistic competition, there is:
allocative efficiency.
productive efficiency.
both allocative and productive efficiency.
neither allocative nor productive efficiency.
allocative efficiency.
productive efficiency.
both allocative and productive efficiency.
neither allocative nor productive efficiency.
answer
neither allocative nor productive efficiency
question
In the long run, the representative firm in monopolistic competition tends to have:
excess capacity.
economic profits.
limited product differentiation.
a perfectly elastic demand curve.
excess capacity.
economic profits.
limited product differentiation.
a perfectly elastic demand curve.
answer
excess capacity
question
In the short run, the monopolistically competitive firm will experience:
an economic profit, and also one in the long run.
a normal profit, but in the long run only an economic profit.
economic profits or losses, but in the long run only a normal profit.
economic profits or losses, but in the long run only an economic profit.
an economic profit, and also one in the long run.
a normal profit, but in the long run only an economic profit.
economic profits or losses, but in the long run only a normal profit.
economic profits or losses, but in the long run only an economic profit.
answer
economic profits or losses, but in the long run only a normal profit
question
Monopolistic competition is characterized by firms:
producing differentiated products.
making economic profits in the long run.
producing at optimal productive efficiency.
producing where price equals marginal cost.
producing differentiated products.
making economic profits in the long run.
producing at optimal productive efficiency.
producing where price equals marginal cost.
answer
producing differentiated products
question
Mutual interdependence means that:
product differentiation exists, that is, firms produce close substitutes but not identical products.
each seller faces a completely inelastic demand curve.
each firm must consider the possible reactions of rivals when establishing price policy.
when a pure monopolist chooses a price, it also necessarily chooses some specific level of output.
product differentiation exists, that is, firms produce close substitutes but not identical products.
each seller faces a completely inelastic demand curve.
each firm must consider the possible reactions of rivals when establishing price policy.
when a pure monopolist chooses a price, it also necessarily chooses some specific level of output.
answer
each firm must consider the possible reactions of rivals when establishing price policy
question
The demand curve faced by a monopolistically competitive firm:
is more elastic than the monopolist's demand curve.
is less elastic than the monopolist's demand curve.
will shift outward as new firms enter the industry.
is more elastic than the demand curve faced by the purely competitive firm.
is more elastic than the monopolist's demand curve.
is less elastic than the monopolist's demand curve.
will shift outward as new firms enter the industry.
is more elastic than the demand curve faced by the purely competitive firm.
answer
is more elastic than the monopolist's demand curve.
question
The demand curve for a monopolistically competitive firm has a:
positive slope and the marginal revenue curve has a negative slope.
positive slope and the marginal revenue curve has a positive slope.
negative slope and the marginal revenue curve has a negative slope.
negative slope and the marginal revenue curve has a positive slope.
positive slope and the marginal revenue curve has a negative slope.
positive slope and the marginal revenue curve has a positive slope.
negative slope and the marginal revenue curve has a negative slope.
negative slope and the marginal revenue curve has a positive slope.
answer
negative slope and the marginal revenue curve has a negative slope
question
The graph depicts a monopolistically competitive firm. Refer to the above graph representing an individual firm. In the short run, this monopolistically competitive firm will set price at:
$65 and produce 45 units of output.
$65 and produce 35 units of output.
$50 and produce 35 units of output.
$50 and produce 50 units of output.
$65 and produce 45 units of output.
$65 and produce 35 units of output.
$50 and produce 35 units of output.
$50 and produce 50 units of output.
answer
$65 and produce 35 units of output
question
The graph depicts a monopolistically competitive firm. Refer to the above graph. This monopolistically competitive firm is:
making economic profit in the long run.
making economic profit in the short run
making a loss in the long run.
making a loss in the short run.
making economic profit in the long run.
making economic profit in the short run
making a loss in the long run.
making a loss in the short run.
answer
making economic profit in the short run
question
When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are using the strategy of:
interindustry competition.
limit pricing.
price leadership.
collusion.
interindustry competition.
limit pricing.
price leadership.
collusion.
answer
collusion
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