question
LESSON 7.1.1
answer
DEFINING MONOPOLY POWER
question
A natural monopoly arises because of the interaction between the __________ of the market and the __________ scale of operation of a single firm.
profitability; efficient.
size; inefficient.
size; efficient.
downsizing; efficient.
profitability; efficient.
size; inefficient.
size; efficient.
downsizing; efficient.
answer
size; efficient.
question
Market power exists when a firm is
all of the above
able to influence the market price of its good and service.
a price setter.
able determine the output level for the entire market.
all of the above
able to influence the market price of its good and service.
a price setter.
able determine the output level for the entire market.
answer
all of the above
question
All of the following are examples of how monopolies are created except
copyrights.
profitability.
special licenses.
patents.
copyrights.
profitability.
special licenses.
patents.
answer
profitability.
question
Which of the following is a a good example of a monopoly?
a construction firm
a soft drink company
a fast-food restaurant
a local electric power company
a construction firm
a soft drink company
a fast-food restaurant
a local electric power company
answer
a local electric power company
question
If one company is a single seller of a good and is earning economic profits, what prevents other firms from entering the market and competing with the firm?
government protection for the monopolist
high barriers to entry
economies of scale
low barriers to entry
government protection for the monopolist
high barriers to entry
economies of scale
low barriers to entry
answer
high barriers to entry
question
A natural monopoly exists when
the monopolist produces a product because it has exclusive ownership of a natural resource.
there are few close substitutes for a firm's product.
economies of scale are so large that only one firm can survive and achieve low unit cost.
the firm has a patent on an essential process.
the monopolist produces a product because it has exclusive ownership of a natural resource.
there are few close substitutes for a firm's product.
economies of scale are so large that only one firm can survive and achieve low unit cost.
the firm has a patent on an essential process.
answer
economies of scale are so large that only one firm can survive and achieve low unit cost.
question
A monopoly is a single seller of a good or service.
True
False
True
False
answer
True
question
Monopolists always require government protection to maintain their monopoly position.
True
False
True
False
answer
False
question
LESSON 7.1.2
answer
DEFINING MARGINAL REVENUE FOR A FIRM WITH MARKET POWER
question
Marginal revenue is equal to the
change in total revenue - change in quantity sold.
change in total revenue ⋅ change in quantity sold.
change in total revenue + change in quantity sold.
change in total revenue ÷ change in quantity sold.
change in total revenue - change in quantity sold.
change in total revenue ⋅ change in quantity sold.
change in total revenue + change in quantity sold.
change in total revenue ÷ change in quantity sold.
answer
change in total revenue ÷ change in quantity sold.
question
Examine the graph of a monopolist's market. The __________ curve is always downward sloping because price and quantity are _____________ related.
demand; directly
supply; inversely
demand; inversely
supply; constantly
demand; directly
supply; inversely
demand; inversely
supply; constantly
answer
demand; inversely
question
Which of the following statements about marginal revenue is true?
Marginal revenue (MR) is always less than the price.
Marginal revenue (MR) is the same as average revenue.
The slope of the marginal revenue (MR) curve is always positive.
As the price a monopolist charges per unit decreases, the marginal revenue (MR) increases because of the additional unit sold.
Marginal revenue (MR) is always less than the price.
Marginal revenue (MR) is the same as average revenue.
The slope of the marginal revenue (MR) curve is always positive.
As the price a monopolist charges per unit decreases, the marginal revenue (MR) increases because of the additional unit sold.
answer
Marginal revenue (MR) is always less than the price.
question
A monopolist can sell 20 widgets at $25 each. In order to sell 21 widgets, the firm must lower the price to $23. What happens to marginal revenue?
The marginal revenue (MR) would be $17.
The marginal revenue (MR) would be −$17.
The marginal revenue (MR) would remain constant.
The marginal revenue (MR) would be $2.
The marginal revenue (MR) would be $17.
The marginal revenue (MR) would be −$17.
The marginal revenue (MR) would remain constant.
The marginal revenue (MR) would be $2.
answer
The marginal revenue (MR) would be −$17.
question
If the total revenue (TR) that a monopolist earns for 50 widgets is $20,000 and the marginal revenue (MR) for selling 51 widgets is $145, what is the average revenue (AR) for 51 widgets?
$20,145
$395
$7395
$145
$20,145
$395
$7395
$145
answer
$395
question
Which of the statements concerning a monopolist's revenue is not always true?
Total revenue increases with each additional unit of output.
Marginal revenue is less than price.
Average revenue equals price.
Increasing sales may decrease marginal revenue.
Total revenue increases with each additional unit of output.
Marginal revenue is less than price.
Average revenue equals price.
Increasing sales may decrease marginal revenue.
answer
Total revenue increases with each additional unit of output.
question
For a profit-maximizing monopoly, when total revenue is maximized, marginal revenue is zero.
True
False
True
False
answer
True
question
Marginal revenue is always less than price for a competitive firm.
True
False
True
False
answer
False
question
For a firm with market power, marginal revenue (MR) equals price.
True
False
True
False
answer
False
question
LESSON 7.1.3
answer
DETERMINING THE MONOPOLIST'S PROFIT-MAXIMIZING OUTPUT AND PRICE
question
What is the profit maximizing point for both firms in competition and in a monopoly?
P = MC
P
MR>MC
MR = MC
P = MC
P
MR>MC
MR = MC
answer
MR = MC
question
To maximize revenue, a monopolist prices its product at the point where ___________ is equal to zero.
marginal cost
marginal revenue
average cost
total revenue
marginal cost
marginal revenue
average cost
total revenue
answer
marginal revenue
question
Examine the graph below. This monopolist is maximizing profits at
Q0 and charging a price of P0.
Q1 and charging a price of P1.
Q0 and charging a price of P1.
Q1 and charging a price of P0.
Q0 and charging a price of P0.
Q1 and charging a price of P1.
Q0 and charging a price of P1.
Q1 and charging a price of P0.
answer
Q1 and charging a price of P1.
question
For a monopolist, marginal revenue is
less than the product's price.
more than the product's price.
equal to the average price.
equal to the product's price.
less than the product's price.
more than the product's price.
equal to the average price.
equal to the product's price.
answer
less than the product's price.
question
By following the profit maximizing rule, a monopolist
could earn a larger profit by increasing output.
will always have an above-zero profit.
maximizes its profit (or minimizes its losses).
will always have a normal profit.
could earn a larger profit by increasing output.
will always have an above-zero profit.
maximizes its profit (or minimizes its losses).
will always have a normal profit.
answer
maximizes its profit (or minimizes its losses).
question
At which level of output would a monopolist produce to maximize profit?
The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) is 0.
The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) is maximum.
The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) equals marginal cost (MC).
The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) is constant.
The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) is 0.
The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) is maximum.
The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) equals marginal cost (MC).
The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) is constant.
answer
The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) equals marginal cost (MC).
question
For a monopolist, which of the following statements about marginal revenue is true?
For a monopolist, marginal revenue depends on the elasticity of the demand curve.
For a monopolist, marginal revenue equals price.
For a monopolist, marginal revenue is not important.
For a monopolist, marginal revenue is greater than price.
For a monopolist, marginal revenue depends on the elasticity of the demand curve.
For a monopolist, marginal revenue equals price.
For a monopolist, marginal revenue is not important.
For a monopolist, marginal revenue is greater than price.
answer
For a monopolist, marginal revenue depends on the elasticity of the demand curve.
question
A monopolist is constrained by marginal revenue in setting price.
True
False
True
False
answer
False
question
For a monopolist, maximizing revenue is the same as maximizing profit.
True
False
True
False
answer
False
question
For a monopolist, profit maximization occurs at the output where marginal revenue is equal to marginal cost.
True
False
True
False
answer
True
question
The demand curve facing a monopolist is the same as the one facing every other firm in the industry.
True
False
True
False
answer
False
question
A monopolist maximizes profit by maximizing price.
True
False
True
False
answer
False
question
LESSON 7.1.4
answer
CALCULATING A MONOPOLIST'S PROFIT AND LOSS
question
Examine the graph below. The firm's profit is
$750.
$6000.
$1500.
$6750.
$750.
$6000.
$1500.
$6750.
answer
$750.
question
If a monopolist sells 100 units for $10 per unit and has an average cost of $8 per unit, what is the firm's total cost?
$800
$200
$1000
None of the above.
$800
$200
$1000
None of the above.
answer
$800
question
If a monopolist sells 100 units for $10 per unit and has an average cost of $8 per unit, what is the firm's total revenue?
$1000
None of the above.
$800
$200.
$1000
None of the above.
$800
$200.
answer
$1000
question
Which of these statements about the marginal cost (MC) curve and average total cost (ATC) curve is true?
For a monopolist, the marginal cost (MC) curve is at a minimum when the sum of average variable cost (AVC) and average fixed cost (AFC) is at a minimum.
For a monopolist, the marginal cost (MC) curve and average total cost (ATC) curve are the same.
For a monopolist, the marginal cost (MC) curve is at a minimum when the average total cost (ATC) curve is at a maximum.
For a monopolist, the average total cost (ATC) curve is decreasing when it is above the marginal cost (MC) curve and is increasing when it is below the marginal cost (MC) curve.
For a monopolist, the marginal cost (MC) curve is at a minimum when the sum of average variable cost (AVC) and average fixed cost (AFC) is at a minimum.
For a monopolist, the marginal cost (MC) curve and average total cost (ATC) curve are the same.
For a monopolist, the marginal cost (MC) curve is at a minimum when the average total cost (ATC) curve is at a maximum.
For a monopolist, the average total cost (ATC) curve is decreasing when it is above the marginal cost (MC) curve and is increasing when it is below the marginal cost (MC) curve.
answer
For a monopolist, the average total cost (ATC) curve is decreasing when it is above the marginal cost (MC) curve and is increasing when it is below the marginal cost (MC) curve.
question
What is the difference between price and average cost?
The difference between price and average cost is fixed cost.
The difference between price and average cost is the marginal cost.
The difference between price and average cost is the profit per unit, or profit margin.
The difference between price and average cost is profit.
The difference between price and average cost is fixed cost.
The difference between price and average cost is the marginal cost.
The difference between price and average cost is the profit per unit, or profit margin.
The difference between price and average cost is profit.
answer
The difference between price and average cost is the profit per unit, or profit margin.
question
A monopolist calculates its profit by multiplying the quantity of output by average revenue minus average cost.
True
False
True
False
answer
True
question
Is the following statement true or false? A monopolist will always be able to operate at a profit.
True
False
True
False
answer
False
question
LESSON 7.1.5
answer
GRAPHING THE RELATIONSHIP BETWEEN MARGINAL REVENUE AND ELASTICITY
question
Examine the demand curve for a monopolist below. If the monopolist decreases the price of the product from P2 to P1, the area ______________ represents the firm's additional revenue.
ABFG
DEBC
CBF
DEBC + ABFG
ABFG
DEBC
CBF
DEBC + ABFG
answer
ABFG
question
Examine the graph below. If the firm decreases the product price from P2 to P1, area ____________ represents the firm's lost revenue.
EDCB
ABFG
0EFG
CBF
EDCB
ABFG
0EFG
CBF
answer
EDCB
question
Which of these statements is true about a firm with market power?
If a firm with market power faces an elastic demand curve, a small change in price results in positive marginal revenue.
A firm with market power is guaranteed to be profitable.
All firms with market power face inelastic demand curves.
A firm with market power can sell each unit of output at a different price.
If a firm with market power faces an elastic demand curve, a small change in price results in positive marginal revenue.
A firm with market power is guaranteed to be profitable.
All firms with market power face inelastic demand curves.
A firm with market power can sell each unit of output at a different price.
answer
If a firm with market power faces an elastic demand curve, a small change in price results in positive marginal revenue.
question
Which of the following statements about elasticity is true?
A firm with market power can determine the elasticity of its demand curve.
If a firm with market power faces an elastic demand curve, a small reduction in price will result in negative marginal revenue.
A firm with market power does not need to be concerned about the elasticity of its demand curve.
Elasticity changes as the quantity demanded changes.
A firm with market power can determine the elasticity of its demand curve.
If a firm with market power faces an elastic demand curve, a small reduction in price will result in negative marginal revenue.
A firm with market power does not need to be concerned about the elasticity of its demand curve.
Elasticity changes as the quantity demanded changes.
answer
Elasticity changes as the quantity demanded changes.
question
If reducing the price of a product from $20 to $18 results in an increase in sales from 100 units to 106 units, what is the product's elasticity of demand?
2
6
1
0.6
2
6
1
0.6
answer
0.6
question
If a monopolist firm has an inelastic demand curve, it can increase its price and expect a more than proportionate increase in revenue.
True
False
True
False
answer
True
question
A firm with market power faces a demand curve with constant elasticity.
True
False
True
False
answer
False
question
LESSON 7.2.1
answer
DETERMINING THE SOCIAL COST OF MONOPOLY
question
All of the following are reasons some monopolies are legal in the U.S. except
economies of scale.
natural barriers to entry.
increasing availability of jobs.
public safety issues.
economies of scale.
natural barriers to entry.
increasing availability of jobs.
public safety issues.
answer
increasing availability of jobs.
question
Which of the following effects is not created by a monopoly?
the restriction of free trade
the creation of deadweight loss
an increase in prices
an increase in innovation
the restriction of free trade
the creation of deadweight loss
an increase in prices
an increase in innovation
answer
an increase in innovation
question
A monopolist's price is _______ and output is ______ than perfect competition.
less; greater
greater; less
greater; greater
less; less
less; greater
greater; less
greater; greater
less; less
answer
greater; less
question
A monopolist is not as good for society as a perfectly competitive firm because
the monopolist is inefficient.
output is lower and price is higher than under competition.
the monopolist doesn't sell the profit maximizing quantity.
the monopolist's costs are higher than perfect competition.
the monopolist is inefficient.
output is lower and price is higher than under competition.
the monopolist doesn't sell the profit maximizing quantity.
the monopolist's costs are higher than perfect competition.
answer
output is lower and price is higher than under competition.
question
Monopoly pricing blocks some trades from taking place. These trades would have taken place if the industry were perfectly competitive. These unrealized trades are
irrelevant to the issue of economic value.
not a cost.
a deadweight loss to society.
a sunk cost.
irrelevant to the issue of economic value.
not a cost.
a deadweight loss to society.
a sunk cost.
answer
a deadweight loss to society.
question
The main problem with monopolies is their ability to
manipulate the political system to their favor.
force consumers to pay more than they are willing to pay.
restrict output to level below the socially efficient level.
undercut competitors' pricing.
manipulate the political system to their favor.
force consumers to pay more than they are willing to pay.
restrict output to level below the socially efficient level.
undercut competitors' pricing.
answer
restrict output to level below the socially efficient level.
question
Monopolies create a social cost because consumers who may be willing to pay for the product up to its marginal cost are not served.
True
False
True
False
answer
True
question
Monopolists set the price of their products on the demand curve at the output level where the supply curve intersects the marginal revenue curve.
True
False
True
False
answer
False
question
LESSON 7.2.2
answer
CALCULATING DEADWEIGHT LOSS
question
Use the graph to answer the question. If the graph is a market for a monopoly, which area represents the consumer surplus?
abcdef.
cdef.
ab.
abcdg.
abcdef.
cdef.
ab.
abcdg.
answer
ab.
question
Use the graph to answer the question. Which area represents the deadweight loss in a monopoly?
d
g
ef
f
d
g
ef
f
answer
ef
question
Deadweight loss compares
monopoly producer surplus to competitive prices.
monopoly quantity to competitive price.
monopoly surplus to competitive surplus.
monopoly profits to competitive profits.
monopoly producer surplus to competitive prices.
monopoly quantity to competitive price.
monopoly surplus to competitive surplus.
monopoly profits to competitive profits.
answer
monopoly surplus to competitive surplus.
question
Use the graph to answer the question. Which letter represents the profit-maximizing output in a monopoly?
B.
D.
A.
C.
B.
D.
A.
C.
answer
B.
question
Examine the graph below. The areas of deadweight loss are
c and d.
e and f.
a, b, c, and d.
a and b.
c and d.
e and f.
a, b, c, and d.
a and b.
answer
e and f.
question
The following are all examples of rent-seeking practices except
bribing public officials.
political lobbying.
soft money contributions to political candidates.
increasing the monthly rental rate for tenants in a building.
bribing public officials.
political lobbying.
soft money contributions to political candidates.
increasing the monthly rental rate for tenants in a building.
answer
increasing the monthly rental rate for tenants in a building.
question
A deadweight loss caused by a monopoly produces results similar to a deadweight loss created by an excise tax.
True
False
True
False
answer
True
question
LESSON 7.2.3
answer
UNDERSTANDING MONOPOLY REGULATION
question
Average cost pricing
allows the monopolist to cover per-unit costs.
allows the monopolist to make an average profit.
sets price equal to average revenue.
allows the monopolist to cover marginal costs.
allows the monopolist to cover per-unit costs.
allows the monopolist to make an average profit.
sets price equal to average revenue.
allows the monopolist to cover marginal costs.
answer
allows the monopolist to cover per-unit costs.
question
The economic problem with a monopoly is
price and quantity are high.
price is low and quantity is high.
price and quality are low.
price is high and quantity is low.
price and quantity are high.
price is low and quantity is high.
price and quality are low.
price is high and quantity is low.
answer
price is high and quantity is low.
question
Which of the following is a serious problem associated with breaking up a monopoly?
Price always rises.
Economies of scale may be disrupted.
Supply is disrupted.
Diseconomies of scale may be disrupted.
Price always rises.
Economies of scale may be disrupted.
Supply is disrupted.
Diseconomies of scale may be disrupted.
answer
Economies of scale may be disrupted.
question
All of the following may be methods of regulating a monopoly, except
restricting price.
requiring the company to become multiple firms.
restricting quantity sold.
restricting market influence.
restricting price.
requiring the company to become multiple firms.
restricting quantity sold.
restricting market influence.
answer
restricting quantity sold.
question
Governments sometimes force monopolies to set their price at their average cost. The main problem with this regulatory pricing method is that
this method increases producer surplus.
this method decreases social welfare.
monopolists can easily avoid this regulation.
there is no incentive for a monopolist to lower its costs.
this method increases producer surplus.
this method decreases social welfare.
monopolists can easily avoid this regulation.
there is no incentive for a monopolist to lower its costs.
answer
there is no incentive for a monopolist to lower its costs.
question
One method of government regulation of monopolies is to require the firm to price the product at its marginal cost and produce at the competitive output level. The problem with this scheme is
some trades will be blocked.
the monopolist may have economic losses and exit the industry.
the monopolist still causes a deadweight loss.
the monopolist will increase its profit.
some trades will be blocked.
the monopolist may have economic losses and exit the industry.
the monopolist still causes a deadweight loss.
the monopolist will increase its profit.
answer
the monopolist may have economic losses and exit the industry.
question
For natural monopolies, average total cost falls continuously and never begins to increase. Therefore, marginal cost
is always equal to average total cost.
is unrelated to average total cost.
is always greater than average total cost.
is always less than average total cost.
is always equal to average total cost.
is unrelated to average total cost.
is always greater than average total cost.
is always less than average total cost.
answer
is always less than average total cost.
question
If a regulated monopolist has a loss when the government forces it to price at its marginal cost,
the firm should minimize its losses.
the firm should exit the industry.
the government should subsidize the firm.
the government should take over the business.
the firm should minimize its losses.
the firm should exit the industry.
the government should subsidize the firm.
the government should take over the business.
answer
the government should subsidize the firm.
question
When regulators consider ways to regulate monopolies, they should choose to set price and output where marginal cost equals demand, thus maximizing social value.
True
False
True
False
answer
False
question
LESSON 7.3.1
answer
INTRODUCING OLIGOPOLY AND THE PRISONER'S DILEMMA
question
One of the paradoxes of game theory is that the players' "dominant strategy"
is not necessarily the most efficient outcome
usually is difficult to achieve
is seldom regulated by governmental agencies
seeks to maximize profits at all times.
is not necessarily the most efficient outcome
usually is difficult to achieve
is seldom regulated by governmental agencies
seeks to maximize profits at all times.
answer
is not necessarily the most efficient outcome
question
Which of the following markets is least likely to be an oligopoly?
the U.S. airline industry
the U.S. bread market
professional baseball
the U.S. soft drink industry
the U.S. airline industry
the U.S. bread market
professional baseball
the U.S. soft drink industry
answer
the U.S. bread market
question
What do oligopolies and perfectly competitive firms have in common?
the number of sellers
the rule of profit maximization
firm interdependence
level of product differentiation
the number of sellers
the rule of profit maximization
firm interdependence
level of product differentiation
answer
the rule of profit maximization
question
An oligopoly assumes
each firm needs the other to stay in business.
each firm will match its competitor's price increases.
the firms agree to price cooperatively.
each firm will react to its competitor's price decreases.
each firm needs the other to stay in business.
each firm will match its competitor's price increases.
the firms agree to price cooperatively.
each firm will react to its competitor's price decreases.
answer
each firm will react to its competitor's price decreases.
question
An outcome of the prisoner's dilemma in which each player does the best that he / she can do, given what the other players are doing is known as a
monopoly
cooperative oligopoly
Nash equilibrium
negotiated settlement
monopoly
cooperative oligopoly
Nash equilibrium
negotiated settlement
answer
Nash equilibrium
question
The prisoner's dilemma game does not explain _____________________ markets, but is useful in explaining behavior in ________________ markets.
oligopoly, competitive
oligopoly, monopoly
competitive, oligopoly
monopoly, competitive
oligopoly, competitive
oligopoly, monopoly
competitive, oligopoly
monopoly, competitive
answer
competitive, oligopoly
question
One of the main characteristics of an oligopoly is firms' complete independence from one another.
True
False
True
False
answer
False
question
LESSON 7.3.2
answer
UNDERSTANDING A CARTEL AS A PRISONER'S DILEMMA
question
Which of the following would hinder the success of a cartel?
none of the above
low barriers to entry
governmental awareness of the existence of the cartel
control of the resources that are necessary to produce
none of the above
low barriers to entry
governmental awareness of the existence of the cartel
control of the resources that are necessary to produce
answer
low barriers to entry
question
Which of the following is not a problem associated with cartels?
difficult to regulate
higher production costs
higher selling prices
high incentives to cheat
difficult to regulate
higher production costs
higher selling prices
high incentives to cheat
answer
higher production costs
question
A cartel is different from a monopoly
because a cartel doesn't maximize profits.
with regard to their cost curves.
because a cartel does not have a downward sloping demand curve.
because a cartel is made up of multiple firms.
because a cartel doesn't maximize profits.
with regard to their cost curves.
because a cartel does not have a downward sloping demand curve.
because a cartel is made up of multiple firms.
answer
because a cartel is made up of multiple firms.
question
Oil producing countries can operate as a cartel in all of the following ways except
each country sets its profit maximizing price and quantity.
they limit the international oil supply to keep prices elevated.
they attempt to punish countries who cheat.
make joint decisions.
each country sets its profit maximizing price and quantity.
they limit the international oil supply to keep prices elevated.
they attempt to punish countries who cheat.
make joint decisions.
answer
each country sets its profit maximizing price and quantity.
question
Cartels are
illegal in the U.S. for restraining free trade.
easily enforced agreements.
ineffective at keeping prices higher than the competitive price.
the most efficient type of firm structure.
illegal in the U.S. for restraining free trade.
easily enforced agreements.
ineffective at keeping prices higher than the competitive price.
the most efficient type of firm structure.
answer
illegal in the U.S. for restraining free trade.
question
When firms have either an explicit or implicit agreement among themselves to restrict the quantity of product and regulate its price, the arrangement is called a
a Nash equilibrium.
cartel.
an oligopoly.
a monopoly.
a Nash equilibrium.
cartel.
an oligopoly.
a monopoly.
answer
cartel.
question
A Nash equilibrium means that in an oligopoly market,
firms may not try to maximize profit.
firms choose their own best pricing strategy, given the behavior of other firms in the industry.
market price will be different for each firm.
each firm will try not to observe the pricing strategies of its competitors.
firms may not try to maximize profit.
firms choose their own best pricing strategy, given the behavior of other firms in the industry.
market price will be different for each firm.
each firm will try not to observe the pricing strategies of its competitors.
answer
firms choose their own best pricing strategy, given the behavior of other firms in the industry.
question
LESSON 7.3.3
answer
UNDERSTANDING THE KINKED-DEMAND CURVE MODEL
question
In the kinked-demand curve model, the kink means that
other firms in the industry match all price decreases below the kink.
other firms in the industry match all price decreases above the kink.
other firms in the industry ignore the actions of competitors.
other firms in the industry match all price increase above the kink.
other firms in the industry match all price decreases below the kink.
other firms in the industry match all price decreases above the kink.
other firms in the industry ignore the actions of competitors.
other firms in the industry match all price increase above the kink.
answer
other firms in the industry match all price decreases below the kink.
question
In a kinked-demand curve model, the demand curve at prices greater than the kink is _______________, but the curve below the kink is______________.
elastic; perfectly inelastic
elastic; inelastic
elastic, elastic,
inelastic; elastic
elastic; perfectly inelastic
elastic; inelastic
elastic, elastic,
inelastic; elastic
answer
elastic; inelastic
question
What would be the result for a firm if its marginal cost curve shifted up within the gap on the marginal revenue curve?
The firm would raise output but not price.
The firm would decrease output and raise price.
The firm would not change either price or output.
The firm would raise both price and output.
The firm would raise output but not price.
The firm would decrease output and raise price.
The firm would not change either price or output.
The firm would raise both price and output.
answer
The firm would not change either price or output.
question
The main criticism of the kinked-demand curve model is that it does not explain how firms reach the original price / output at the kink.
True
False
True
False
answer
True
question
LESSON 7.4.1
answer
DEFINING MONOPOLISTIC COMPETITION
question
Which of the following would not be an example of product differentiation?
All of the above are methods of differentiation.
special warranties
packaging
shelf location
All of the above are methods of differentiation.
special warranties
packaging
shelf location
answer
All of the above are methods of differentiation.
question
Advertising by monopolistically competitive firms assumes that
demand for advertising is competitive.
demand for substitutes is inelastic.
people will pay more for a product they consider superior.
consumers listen to commercials.
demand for advertising is competitive.
demand for substitutes is inelastic.
people will pay more for a product they consider superior.
consumers listen to commercials.
answer
people will pay more for a product they consider superior.
question
Which of the following characteristics can be used to differentiate products in a specific market?
Advertising.
Low costs.
Barriers to entry.
Low prices.
Advertising.
Low costs.
Barriers to entry.
Low prices.
answer
Advertising.
question
Product differentiation matters because it is the method by which monopolistically competitive firms
can minimize their costs.
can identify the elasticity of demand for their product.
determine their selling price.
can have some control over their share of the market.
can minimize their costs.
can identify the elasticity of demand for their product.
determine their selling price.
can have some control over their share of the market.
answer
can have some control over their share of the market.
question
In the market for pants, there are many sellers. These sellers distinguish themselves from one another and thus
accept the market price for their similar products.
face downward sloping demand curves.
face horizontal demand curves.
face highly elastic demand and low brand loyalty.
accept the market price for their similar products.
face downward sloping demand curves.
face horizontal demand curves.
face highly elastic demand and low brand loyalty.
answer
face downward sloping demand curves.
question
Product differentiation is a type of
nonprice competition.
price taking.
price competition.
collusion.
nonprice competition.
price taking.
price competition.
collusion.
answer
nonprice competition.
question
Which of the following is an example of a monopolistically competitive industry?
automobiles
wheat farming
cable TV
fast-food hamburger restaurants
automobiles
wheat farming
cable TV
fast-food hamburger restaurants
answer
fast-food hamburger restaurants
question
Which of the following is probably not a method of product differentiation.
brand name loyalty
product packaging
advertising
small number of sellers
brand name loyalty
product packaging
advertising
small number of sellers
answer
small number of sellers
question
A monopolistically competitive firm is characterized by high barriers to entry.
True
False
True
False
answer
False
question
Product differentiation leads to some degree of market power.
True
False
True
False
answer
True
question
LESSON 7.4.2
answer
UNDERSTANDING PRICING AND OUTPUT UNDER MONOPOLISTIC COMPETITION
question
Use the graph to answer the question. If this firm is behaving as a firm with some market power, it is experiencing
economic profit.
normal profit.
a loss.
Cannot tell from the information given.
economic profit.
normal profit.
a loss.
Cannot tell from the information given.
answer
a loss.
question
Which of the following will be true of the monopolistic competitor in the long run?
The firm will make an economic product because of the level barriers to entry.
The firm will make an economic profit because of the differentiated product.
The firm will not make an economic profit because of the advertising.
The firm will not make an economic profit because low barriers to entry permit other firms to enter.
The firm will make an economic product because of the level barriers to entry.
The firm will make an economic profit because of the differentiated product.
The firm will not make an economic profit because of the advertising.
The firm will not make an economic profit because low barriers to entry permit other firms to enter.
answer
The firm will not make an economic profit because low barriers to entry permit other firms to enter.
question
A monopolistically competitive firm behaves somewhat like
monopoly due to their market power.
monopoly because they have the entire market demand curve.
perfect competition due to their market power.
perfect competition because they produce a homogenous product.
monopoly due to their market power.
monopoly because they have the entire market demand curve.
perfect competition due to their market power.
perfect competition because they produce a homogenous product.
answer
monopoly due to their market power.
question
Monopolistically competitive markets are like competitive markets in that they have
advertising.
differentiated products.
many sellers.
a downward sloping demand curve.
advertising.
differentiated products.
many sellers.
a downward sloping demand curve.
answer
many sellers.
question
In the short run, a monopolistically competitive firm chooses
the quantity to produce and the price at which it can sell the product.
its price, but competition in the industry determines its output.
its production quantity, but market forces determine its price.
its price, but production quotas determine output.
the quantity to produce and the price at which it can sell the product.
its price, but competition in the industry determines its output.
its production quantity, but market forces determine its price.
its price, but production quotas determine output.
answer
the quantity to produce and the price at which it can sell the product.
question
If firms in a monopolistically competitive market are making short-run economic profits,
new firms are likely to enter the market.
the firms may be subject to regulations.
additional barriers to entry are likely to be erected.
some firms may exit the market.
new firms are likely to enter the market.
the firms may be subject to regulations.
additional barriers to entry are likely to be erected.
some firms may exit the market.
answer
new firms are likely to enter the market.
question
In the long run, a monopolistic competitor will
operate at the lowest point on its ATC curve.
earn zero economic profit.
will sell all its product at the market price.
charge a price equal to marginal cost.
operate at the lowest point on its ATC curve.
earn zero economic profit.
will sell all its product at the market price.
charge a price equal to marginal cost.
answer
earn zero economic profit.
question
For a monopolistically competitive firm, when price equals average total cost, the price must lie above marginal cost.
True
False
True
False
answer
True
question
LESSON 7.4.3
answer
UNDERSTANDING MONOPOLISTIC COMPETITION AS A PRISONER'S DILEMMA
question
Why will U.S. companies not jointly decide to cease advertising?
It would be collusive and illegal
They do not like each other
Market share would fall
Advertising is expected by consumers
It would be collusive and illegal
They do not like each other
Market share would fall
Advertising is expected by consumers
answer
It would be collusive and illegal
question
Game theory assumes that your competitor
will react to your actions.
is selling at his lowest possible price.
makes the same level of profit as you.
has the same share of the market as you.
will react to your actions.
is selling at his lowest possible price.
makes the same level of profit as you.
has the same share of the market as you.
answer
will react to your actions.
question
A monopolistically competitive firm will advertise
only if it believes that the market is currently inefficient.
only if it believes the competitor will not.
only if it believes that the competition will advertise.
whether or not it believes the competitor will advertise.
only if it believes that the market is currently inefficient.
only if it believes the competitor will not.
only if it believes that the competition will advertise.
whether or not it believes the competitor will advertise.
answer
whether or not it believes the competitor will advertise.
question
In an advertising "prisoner's dilemma" game, both firms end up __________________ which turns out to be ________________________
advertising; worse for them both
not advertising; worse for them both.
not advertising; better for them both
advertising; better for them both.
advertising; worse for them both
not advertising; worse for them both.
not advertising; better for them both
advertising; better for them both.
answer
advertising; worse for them both
question
In a game of advertising between two monopolistic competitors, the firms choose the most stable outcome because they can enforce the agreement between them.
True
False
True
False
answer
False
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
