Chap 025

CHAPTER 25

Monopolistic Competition and Oligopoly

Topic

Question numbers

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1. Monopol polist istic co competitio ition n: def definit initio ion n; cha character teristic tics 2. Demand curve 3. Pr Price-output behavior 4. Efficiency aspects 5. Oligopoly: de definition; ch characteristics 6. Concentration ratio; Herfindahl Index 7. Game theory 8. Kinked-demand curve model 9. Collusion; cartels; price leadership 10. Advertising 11. Efficiency aspects 12. Review of four structures Consider This Last Word True-False

1-17 -17 18-24 25-78 79-88 89-112 113-140 141-156 157-176 177-194 195-200 201-204 205-226 227-228 229-233 234-258

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Multiple Choice Questions Monopolistic competition: definition; characteristics

Type: D Topic: 1 E: 460 MI: 216 1. Mon Monopo opolist listic ic compe competiti tition on means means:: A) a market market situation where where competition competition is based based entirely on product product differentiation differentiation and advertising. advertising. B) a large number number of firms firms producing producing a standardiz standardized ed or homogeneous homogeneous product. product. C) many many firms produc producing ing differen differentiated tiated produc products. ts. D) a few firms firms producing producing a standardized standardized or homogen homogeneous eous product. product. Answer: C

Type: A Topic: 1 E: 461 MI: 217 2. Monopolistic Monopolistic competition competition is chara characteriz cterized ed by by a: a: A) few domin dominant ant firms firms and low low entry entry barriers barriers.. B) large large number number of firms firms and substa substantial ntial entry entry barriers. barriers. C) large large number number of firms firms and and low low entry entry barriers. barriers. D) few dominan dominantt firms and and substantia substantiall entry barrier barriers. s. Answer: C

Type: A Topic: 1 E: 461 MI: 217 3. Under mono monopolistic polistic competition competition entr entry y to the the industry industry is: is: A) comple completel tely y free of of barrie barriers. rs. B) more more difficult than under under pure competition competition but not nearly nearly as difficult as under under pure monopoly. monopoly. C) more more difficult difficult than under under pure pure mono monopoly. poly. D) bloc locked. ked. Answer: B

Type: A Topic: 1 E: 461 MI: 217 4. Monopolistic Monopolistic compet competition ition resemb resembles les pure pure competition competition becaus because: e: A) both industr industries ies emphasize emphasize nonpric nonpricee competition. competition. B) in both instance instancess firms will operate operate at the minimum minimum point on their long-run long-run average average total total cost curves. curves. C) both industries industries entail entail the productio production n of differentiat differentiated ed products. products. D) barriers barriers to entry entry are are either weak weak or nonex nonexistent istent.. Answer: D

Type: A Topic: 1 E: 460-461 MI: 216-217 5. Whic Which h of the the fol follo lowin wing g is not a basic characteristic of monopolistic competition? A) the use of tradem trademark arkss and and brand brand names names C) produc productt differ different entiat iation ion B) reco recogni gnized zed mutual mutual inter interdep depend endenc encee D) a relat relative ively ly large large num number ber of seller sellerss Answer: B

Type: D Topic: 1 E: 461-462 MI: 217-218 6. Nonpri Nonprice ce comp competi etition tion refers refers to: A) competition competition between between products products of different different industries, industries, for example, example, competition competition between aluminum aluminum and steel in the manufacture of automobile parts. B) price price increases increases by a firm that that are ignore ignored d by its rivals. rivals. C) advertisin advertising, g, product promotion promotion,, and changes changes in the real or perceived perceived characterist characteristics ics of a product. D) reduction reductionss in production production costs that are not not reflected reflected in price reductio reductions. ns. Answer: C

Type: A Topic: 1 E: 462-463 MI: 218-219 7. Whic Which h of the the fol follo lowin wing g is not characteristic of monopolistic competition? A) relat relative ively ly large large num number berss of seller sellerss C) produc production tion at minimum minimum ATC ATC in the long-r long-run un B) produ product ct differ different entiati iation on D) relativ relatively ely easy easy entry entry to the indust industry ry Answer: C

Type: A Topic: 1 E: 462 MI: 218 8. The book book publishing, publishing, furniture, furniture, and and clothing clothing industries industries are each each illustratio illustrations ns of: A) count counterv ervaili ailing ng power. power. C) mon monopo opolist listic ic compe competiti tition. on. B) homo homoge gene neou ouss oligo oligopo poly. ly. D) pure pure mono monopo poly. ly. Answer: C

Chapter 25: Monopolistic Competition and Oligopoly

Type: A Topic: 1 E: 461 MI: 217 9. If the number number of firms in a monopolistic monopolistically ally competitive competitive industry industry increases increases and and the degree of product product differentiation diminishes: A) the likelihoo likelihood d of realizing realizing economic economic profits in the long long run would be enhance enhanced. d. B) individual individual firms firms would now be operatin operating g at outputs where where their average average total costs costs would be higher. higher. C) the industry industry would would more closel closely y approximate approximate pure pure competition. competition. D) the likeliho likelihood od of collusive collusive pricin pricing g would increas increase. e. Answer: C

Type: A Topic: 1 E: 461 MI: 217 10. Economic Economic analysis analysis of a monopolistical monopolistically ly competitive competitive industry industry is more complicate complicated d than that of pure competition because: A) the number number of of firms firms in the the industry industry is larger. larger. B) mono monopolistic polistically ally competitive competitive firms firms cannot cannot realize an economic economic profit profit in the long run. C) of product product differentia differentiation tion and conseque consequent nt product product promotion promotion activities. activities. D) mono monopolistic polistically ally competitive competitive producers producers use strategic strategic pricing strategies strategies to combat rivals. rivals. Answer: C

Type: A Topic: 1 E: 461 MI: 217 11. A monopolistic monopolistically ally competitiv competitivee industry industry combines combines element elementss of both competition and monopoly. The monopoly element results from: A) the likeli likelihoo hood d of collus collusion ion.. C) produc productt differ different entiat iation ion.. B) high high entry entry barri barriers ers.. D) mutual mutual interd interdepe epende ndence nce in decisio decision n makin making. g. Answer: C

Type: D Topic: 1 E: 462 MI: 218 12. 12. Nonpri Nonprice ce compe competiti tition on refe refers rs to: to: A) low barri barriers ers to entr entry. y. B) product product developme development, nt, advertisin advertising, g, and product product packagin packaging. g. C) the differen differences ces in information information which consumers consumers have regardin regarding g various products products.. D) an industr industry y or firm firm in long-run long-run equilibrium equilibrium.. Answer: B

Type: A Topic: 1 E: 461 MI: 217 13. A significant significant differen difference ce between between a monopolistica monopolistically lly competitive competitive firm and a purely purely competitive competitive firm is that that the: A) former former does does not not seek to to maximize maximize profits profits.. B) latter latter recognizes recognizes that that price must must be reduced reduced to sell more more output. output. C) former former sells sells similar, similar, although although not identical identical,, products. products. D) former's former's deman demand d curve curve is perfectly perfectly inelas inelastic. tic. Answer: C

Type: A Topic: 1 E: 460 MI: 216 14. A monopolistic monopolistically ally competitiv competitivee industry industry combines combines element elementss of both competition and monopoly. It is correct to say that the competitive element results from: A) a relatively relatively large number number of firms and the monopolistic monopolistic element element from product product differentiati differentiation. on. B) product product differenti differentiation ation and the monopolistic monopolistic element element from high entry entry barriers. barriers. C) a perfectly perfectly elastic elastic demand demand curve and the monopoli monopolistic stic element element from low entry barriers barriers.. D) a highly inelastic inelastic demand demand curve and the monopolistic monopolistic element element from advertising advertising and product product promotion. promotion. Answer: A

Type: A Topic: 1 E: 461 MI: 217 15. Monopolistic Monopolistically ally competitive competitive and and purely competi competitive tive industries industries are are similar similar in that: A) both are are assured assured of of short-run short-run econom economic ic profits. profits. B) both produce produce differen differentiated tiated products. products. C) the demand demand curves curves facing individual individual firms firms are perfectly perfectly elastic elastic in both industries. industries. D) there there are few, few, if any, any, barrier barrierss to entry. entry. Answer: D

Type: A Topic: 1 E: 462 MI: 218 16. The mon monopolis opolistic tic competitio competition n model model predic predicts ts that: that: A) allocative allocative effic efficiency iency will be be achieved achieved.. B) productiv productivee efficien efficiency cy will will be achieved. achieved. C) firms firms will will engage engage in in nonpr nonprice ice competiti competition. on. D) firms firms will realize realize economic economic profits profits in the long long run. Answer: C

Type: C Topic: 1 E: 460 MI: 216 17. Use your your basic knowled knowledge ge and your unders understandin tanding g of market market structures structures to answer answer this question question.. Which Which of the following companies most closely approximates a monopolistic competitor? A) Subway Subway Sandwiches Sandwiches B) Pittsburg Pittsburgh h Plate Glass Glass C) Ford Ford Motor Motor Company Company D) Microsof Microsoft. t. Answer: A

Demand curve

Type: D Topic: 2 E: 462 MI: 218 18. A monopo monopolist listica ically lly compet competitiv itivee firm has has a: A) highly highly elastic elastic demand demand curve. curve. B) highly highly inelas inelastic tic deman demand d curve. curve. Answer: A

C) perfec perfectly tly inelas inelastic tic deman demand d curve. curve. D) perfec perfectly tly elastic elastic demand demand curve. curve.

Type: A Topic: 2 E: 462 MI: 218 19. The monopolis monopolistically tically competitiv competitivee seller's seller's demand demand curve will become become more more elastic the: the: A) more more significant significant the barrier barrierss to entering entering the industry. industry. B) greater greater the the degree degree of product product differe differentiatio ntiation. n. C) larger larger the the number number of compe competito titors. rs. D) smaller smaller the the numb number er of of competito competitors. rs. Answer: C

Type: A Topic: 2 E: 462 MI: 218 20. The larger larger the number number of firms and and the smaller the degree degree of product product differen differentiation tiation the: the: A) greater greater the divergenc divergencee between the demand demand and the marginal revenue revenue curves curves of the monopolistical monopolistically ly competitive firm. B) larger larger will be the monopo monopolistica listically lly competitive competitive firm's firm's fixed costs. costs. C) less elastic elastic is the the monopolistic monopolistically ally competitive competitive firm's firm's demand demand curve. curve. D) more more elastic is the monopolis monopolistically tically competitive competitive firm's firm's demand demand curve. Answer: D


Type: A Topic: 2 E: 462 MI: 218 21. The demand demand curve curve of a mono monopolistic polistically ally competitive competitive produc producer er is: A) less elastic elastic than than that of either either a pure monopoli monopolist st or a pure competito competitor. r. B) less elastic elastic than that that of a pure monopolist, monopolist, but more more elastic than that that of a pure competitor. competitor. C) more more elastic than that that of a pure monopolist, monopolist, but less elastic elastic than that that of a pure competitor. competitor. D) more more elastic than than that of either either a pure pure monopolist monopolist or a pure pure competitor. competitor. Answer: C

Type: A Topic: 2 E: 462-463 MI: 218-219 22. A monopolis monopolistically tically compet competitive itive firm's firm's margin marginal al revenue revenue curve: curve: A) is downslo downsloping ping and coinc coincides ides with the the demand demand curve. curve. B) coincides coincides with the the demand demand curve and and is parallel parallel to the horizon horizontal tal axis. C) is downslo downsloping ping and lies below below the the demand demand curve. curve. D) does does not exist exist because because the firm firm is a "price "price maker." maker." Answer: C

Type: A Topic: 2 E: 462-463 MI: 218-219 23. In comparing comparing the demand demand curve curve of a pure monopolist monopolist with that of a monopolis monopolistically tically competitive competitive firm, firm, we would expect the monopolistic competitor to have a: A) perfectly elastic elastic demand curve curve and the monopolist to have have a perfectly perfectly inelastic demand demand curve. B) generally generally more elastic elastic deman demand d curve. curve. C) genera generally lly less less elastic elastic demand demand curve. curve. D) demand demand curve whose whose elasticity elasticity coefficien coefficientt is 1 at all possible possible prices. prices. Answer: B

Type: A Topic: 2 E: 462 MI: 218 24. The price price elasticity elasticity of a monopo monopolistica listically lly competitive competitive firm's firm's demand demand curve varies: varies: A) inversely inversely with the number number of competitors competitors and the degree of product product differentiat differentiation. ion. B) directly directly with the number number of competitors competitors and the degree degree of product product differenti differentiation ation.. C) directly directly with the number of competitor competitors, s, but inversely inversely with the degree of product product differentiatio differentiation. n. D) inversely inversely with the number number of competitors, competitors, but directly directly with the degree of product product differentiatio differentiation. n. Answer: C

Price-output behavior

Type: A Topic: 3 E: 464 MI: 220 Status: New 25. In short-run short-run equilib equilibrium, rium, a monopolis monopolistically tically competitive competitive firm firm sets it price: price: A) equal to marginal revenue. C) above marginal cost. B) equal to marginal cost. D) below marginal cost. Answer: C

Type: A Topic: 3 E: 464 MI: 220 Status: New 26. In long-run long-run equilibr equilibrium, ium, a monopolistic monopolistically ally competitive competitive firm firm sets it price: price: A) above marginal cost. C) equal to marginal revenue. B) below marginal cost. D) equal to marginal cost. Answer: A

Type: A Topic: 3 E: 464 MI: 220 Status: New 27. In short-run short-run equilibr equilibrium, ium, the price charge charged d by the monopolistica monopolistically lly competitive competitive firm: A) must must be be less less tha than n ATC. ATC. B) must must be be more more tha than n ATC. ATC. C) may be be either equal equal to ATC, ATC, less than than ATC, ATC, or more more than ATC. ATC. D) must must be be equa equall to ATC ATC.. Answer: C

Type: A Topic: 3 E: 464 MI: 220 Status: New 28. In long-run long-run equilibrium equilibrium,, the price charged charged by the monopolistic monopolistically ally competitive competitive firm: firm: A) must must be be less less tha than n ATC. ATC. B) must must be be more more tha than n ATC. ATC. C) may be be either equal equal to ATC, ATC, less than than ATC, ATC, or more more than ATC. ATC. D) will will be be equa equall to ATC ATC.. Answer: D

Type: A Topic: 3 E: 464 MI: 220 29. 29. Mon Monopo opolist listica ically lly competi competitive tive firms firms:: A) realize realize normal normal profits profits in the short short run but losses losses in the long long run. B) incur incur persisten persistentt losses in both the short short run run and long long run. run. C) may realize realize either either profits or losses losses in the short short run, but realize realize normal normal profits in the long long run. D) persisten persistently tly realize realize economic economic profits in both the short short run and long long run. Answer: C

Type: A Topic: 3 E: 464 MI: 220 30. The monopolis monopolistically tically competitiv competitivee seller maximizes maximizes profit profit by producing producing at the point where: where: A) total total reven revenue ue is at a maxim maximum. um. C) margin marginal al reven revenue ue equal equalss margi marginal nal cost. cost. B) avera average ge costs costs are are at a minimum minimum.. D) price price equal equalss margi margina nall reven revenue. ue. Answer: C

Type: A Topic: 3 E: 464 MI: 220 31. In long-run long-run equilib equilibrium rium a monopolis monopolistically tically competitiv competitivee firm's firm's price will: will: A) be less less than than both both MC and and ATC. ATC. C) exceed exceed MC, but equal equal ATC. ATC. B) exce exceed ed ATC, ATC, but but equa equall MC. MC. D) exce exceed ed both both MC and and ATC. ATC. Answer: C

Type: A Topic: 3 E: 465 MI: 221 32. 32. Whic Which h of the the fol follo lowin wing g is correct for a monopolistically competitive firm in long-run equilibrium? A) MC = ATC ATC B) MC MC exceed exceedss MR C) P exceeds minimum ATC D) P = MC Answer: C

Type: A Topic: 3 E: 465-466 MI: 221-222 33. In long-ru long-run n equilibrium equilibrium a monopolis monopolistically tically compe competitive titive firm firm will: A) earn earn an econom economic ic prof profit. it. C) equat equatee price price and margi margina nall cost. cost. B) reali realize ze all econom economies ies of scale scale.. D) have have excess excess produc productio tion n capac capacity. ity. Answer: D


Type: D Topic: 3 E: 465-466 MI: 221-222 34. 34. Excess Excess capaci capacity ty refe refers rs to to the: the: A) amount amount by which actual actual productio production n falls short short of the minimum minimum ATC output. output. B) fact fact that entry barriers barriers artificia artificially lly reduce reduce the number of firms firms in an industry. industry. C) differen differential tial between price price and marginal marginal costs which character characterizes izes monopolistica monopolistically lly competitive firms. firms. D) fact fact that most monopolistical monopolistically ly competitive competitive firms encounter encounter diseconomie diseconomiess of scale. scale. Answer: A

Use the following to answer questions 35-38:

Type: G Topic: 3 E: 463-464 MI: 219-220 35. Refer to the above above diagram diagram for a monopolistica monopolistically lly competitive competitive firm in short-run short-run equilibr equilibrium. ium. This firm's firm's profit-maximizing price will be: A) $10 $10.. B) $13 $13.. C) $16 $16.. D) $19 $19.. Answer: C

Type: G Topic: 3 E: 463-464 MI: 219-220 36. Refer to the above above diagram diagram for a monopolistica monopolistically lly competitive competitive firm in short-run short-run equilibr equilibrium. ium. The profitprofitmaximizing output for this firm will be: A) 210 210.. B) 180 180.. C) 160 160.. D) 100 100.. Answer: C

Type: G Topic: 3 E: 463-464 MI: 219-220 37. Refer to the above above diagram diagram for a monopolistica monopolistically lly competitive competitive firm in short-run short-run equilibr equilibrium. ium. This firm will realize an economic: A) loss of $320. $320. B) loss of $280. $280. C) profit profit of $480. $480. D) profit profit of $600. $600. E) profit profit of $360. $360. Answer: C

Type: G Topic: 3 E: 464 MI: 220 38. Refer to the above above diagram diagram for a monopolistica monopolistically lly competitive competitive firm in short-run short-run equilibr equilibrium. ium. Assume Assume the firm is part of an increasing-cost industry. In the long run firms will: A) leave leave this industry, industry, causing causing both demand demand and the ATC curve to shift shift upward. upward. B) enter enter this industry, industry, causing causing demand demand to rise and the ATC curve curve to shift downward. downward. C) enter enter this industry, industry, causing causing demand demand to fall fall and the ATC ATC curve to shift shift upward. upward. D) enter enter this industry, industry, causing causing both demand demand and the ATC curve curve to shift upward. upward. Answer: C

Type: A Topic: 3 E: 464 MI: 220 39. In the short short run run a monopolis monopolistically tically competitiv competitivee firm's econo economic mic profit: profit: A) will be maximiz maximized ed where where price price equals avera average ge total total cost. B) may may be positi positive, ve, zero zero,, or negati negative. ve. C) are are alwa always ys posi positiv tive. e. D) will will alw alway ayss be zer zero. o. Answer: B


Type: G Topic: 3 E: 463 MI: 219 Status: New 40. In short-run short-run equilibr equilibrium, ium, the monopolistic monopolistically ally competitive competitive firm shown shown above will set its price: price: A) below below ATC. B) above above ATC. C) below below MC. D) below below MR. Answer: A

Type: G Topic: 3 E: 463-464 MI: 219-220 41. The monopo monopolistica listically lly competitive competitive firm firm shown in the above above figure: figure: A) is in lon long-r g-run un equil equilibr ibrium ium.. B) might realize realize an economic economic profit profit or a loss, depending depending on its choice choice of output level. level. C) cannot cannot operate operate profita profitably, bly, at least least in the short short run. run. D) can can realiz realizee an econom economic ic profit. profit. Answer: C

Type: G Topic: 3 E: 464 MI: 220 Status: New 42. If all monopolistic monopolistically ally competitive competitive firms firms in the industry industry have profit profit circumstances circumstances similar similar to the firm shown shown above: A) new firms will enter the industry. C) all firms will exit the industry. B) some firms will exit the industry. D) no firms will exit the industry. Answer: B



Type: G Topic: 3 E: 463 MI: 219 Status: New 43. In short-run short-run equilibr equilibrium, ium, the monopolistic monopolistically ally competitive competitive firm shown shown in the above figure figure will set its price: price: A) below below ATC. B) above above ATC. C) below below MC. D) below below MR. Answer: B

Type: G Topic: 3 E: 463-464 MI: 219-220 44. The monopo monopolistica listically lly competitive competitive firm firm shown in the above above figure: figure: A) will realize realize allocative allocative efficienc efficiency y at its profit-maximizin profit-maximizing g output. B) canno cannott opera operate te at a loss. loss. C) is in in longlong-run run equilib equilibriu rium. m. D) is reali realizin zing g an econom economic ic profit. profit. Answer: D

Type: G Topic: 3 E: 464 MI: 220 Status: New 45. If all monopolistic monopolistically ally competitive competitive firms firms in the industry industry have profit profit circumstances circumstances similar similar to the firm shown shown above: A) new firms will enter the industry. C) all firms will exit the industry. B) some firms will exit the industry. D) no firms will enter the industry. Answer: A


Type: G Topic: 3 E: 463 MI: 219 46. Refer to the above above diagrams, diagrams, which pertain to monopolistic monopolistically ally competitive competitive firms. Short-run Short-run equilibr equilibrium ium entailing economic loss is shown by: A) diagra gram a only. B) diagram b only. C) diagram c only. D) both diagrams a and c. Answer: C

Type: G Topic: 3 E: 463 MI: 219 47. Refer to the above above diagrams, diagrams, which pertain to monopolistic monopolistically ally competitive competitive firms. A short-run short-run equilibrium equilibrium entailing economic profits is shown by: A) diagra gram a only. B) diagram b only. C) diagram c only. D) both both diagrams b and c. Answer: B

Type: G Topic: 3 E: 463 MI: 219 48. Refer to the above above diagrams, diagrams, which pertain pertain to monopolistic monopolistically ally competitive competitive firms. firms. Long-run Long-run equilibrium equilibrium is shown by: A) diagra gram a only. B) diagram b only. C) diagram c only. D) both both diagrams b and c. Answer: A

Type: A Topic: 3 E: 464 MI: 220 49. 49. Whic Which h of the the fol follo lowin wing g is not characteristic of long-run equilibrium under monopolistic competition? A) price price equals equals minimu minimum m avera average ge total total cost cost C) price price is equal equal to avera average ge total total cost cost B) margi margina nall cost cost equal equalss margi marginal nal revenu revenuee D) price price exceed exceedss margi margina nall cost cost Answer: A



Type: G Topic: 3 E: 463 MI: 219 50. Refer to the above above diagram diagram for a monopolistica monopolistically lly competitive competitive firm. Long-run Long-run equilibriu equilibrium m price will be: A) above A. B) EF . C) A. D) B. Answer: C

Type: G Topic: 3 E: 463 MI: 219 51. Refer to the above above diagram diagram for a monopolistica monopolistically lly competitive competitive firm. Long-run Long-run equilibriu equilibrium m output will be: E E D C A) grea greate terr than than . B) . C) . D) . Answer: C

Type: G Topic: 3 E: 464 MI: 220 52. Refer to the above above diagram diagram for a monopolistica monopolistically lly competitive competitive firm. If more more firms would enter enter the industry industry and product differentiation would weaken: A) resourc resourcee misallocation misallocation would would become become more more severe. severe. B) the deman demand d curve curve would would become become more more elastic. elastic. C) equilibrium equilibrium output output would would decline and and equilibrium equilibrium price price would rise. rise. D) equilibrium equilibrium output output would would decline and and equilibrium equilibrium price price would fall. fall. Answer: B

Type: A Topic: 3 E: 464 MI: 220 53. Long-run Long-run equilibrium equilibrium for a monopolisti monopolistically cally competitive competitive firm where where economic economic profits are zero results results from: from: A) risi rising ng marg margin inal al cost costs. s. C) rela relativ tivel ely y easy easy entr entry. y. B) a perfectly perfectly elastic elastic product product demand demand curve. curve. D) product product differen differentiation tiation and developmen development. t. Answer: C


Type: G Topic: 3 E: 464 MI: 220 54. In long-run long-run equilib equilibrium, rium, the firm firm shown shown in the diagra diagram m above above will: A) earn a normal normal profit. profit. B) go bankrupt. bankrupt. C) incur a loss. D) realize an economic economic profit. profit. Answer: A

Type: G Topic: 3 E: 465 MI: 221 55. In long-run long-run equilibr equilibrium, ium, production production for for the firm shown shown in the diagram diagram above above is: A) greater greater than than would occur occur under under pure pure competitio competition. n. B) less effic efficient ient than than in a purely purely competitive competitive marke market. t. C) more more efficient efficient than than in a purely purely competitive competitive marke market. t. D) optim optimally ally effici efficient ent.. Answer: B

Type: A Topic: 3 E: 463-464 MI: 219-220 56. When a monop monopolistica olistically lly competitive competitive firm firm is in long-r long-run un equilibrium equilibrium:: A) productio production n takes place place where where ATC is minimized. minimized. B) marginal marginal revenue revenue equals equals marginal marginal cost and price price equals average average total total cost. C) normal normal profit profit is zero zero and price price equals equals margina marginall cost. D) economic economic profit profit is zero and and price equals equals marginal marginal cost. cost. Answer: B

Type: A Topic: 3 E: 464 MI: 220 57. In the long long run, new firms firms will enter enter a monopolistic monopolistically ally competitive competitive industry industry:: A) provided provided economies economies of scale scale are are being being realiz realized. ed. C) until minimum minimum average average total cost is achieved. achieved. B) even even thoug though h losses losses are are inc incurr urred ed in the the sho short rt run. run. D) until until econ economi omicc profit profitss are are zero. zero. Answer: D

Type: A Topic: 3 E: 464 MI: 220 58. If some firms firms leave a monopolis monopolistically tically competitive competitive industry, industry, the demand demand curves curves of the remaining remaining firms firms will: A) be unaffecte unaffected. d. B) shift to the left. C) become more elastic. elastic. D) shift to the right. right. Answer: D


Type: A Topic: 3 E: 463-464 MI: 219-220 59. When a monop monopolistica olistically lly competitive competitive firm firm is in long-r long-run un equilibrium equilibrium:: A) P = MC = ATC. ATC. C) MR > MC and and P = minimum ATC. B) MR = MC and and mini minimu mum m ATC ATC > P . D) MR = MC and P > minimum ATC. Answer: D

Type: A Topic: 3 E: 464 MI: 220 60. Other things things equal, equal, if more more firms enter enter a monopolistic monopolistically ally competitive competitive industry: industry: A) the demand demand curves curves facing facing existing existing firms firms would shift shift to the right. right. B) the demand demand curves curves facing facing existing existing firms firms would shift shift to the left. C) the demand demand curves curves facing facing existing existing firms firms would become become less elastic. elastic. D) losses losses would would neces necessar sarily ily occur. occur. Answer: B

Type: A Topic: 3 E: 464 MI: 220 61. 61. Which Which of of the foll followi owing ng state statemen ments ts is correct ? A) Purely Purely competitive competitive firms, monopolistic monopolistically ally competitive competitive firms, and pure monopo monopolies lies all earn zero economic profits in the long run. B) Purely Purely competitive competitive firms, monopolistic monopolistically ally competitive competitive firms, and pure monopo monopolies lies all earn positive positive economic profits in the long run. C) In the long run purely purely competitive competitive firms and monopolistic monopolistically ally competitive competitive firms earn earn zero economic economic profits, while pure monopolies may or may not earn economic profits. D) Monopolistically competitive firms firms earn zero zero economic economic profits in both both the short short run and and the long long run. Answer: C

Type: A Topic: 3 E: 463 MI: 219 62. For a monopo monopolistica listically lly competitive competitive firm firm in long-run long-run equilibr equilibrium: ium: A) price price will will equal equal margin marginal al cost. cost. C) margin marginal al reven revenue ue will exceed exceed margin marginal al cost. cost. B) price price will will equal equal averag averagee total total cost. cost. D) econom economic ic profi profits ts will will be som somee posit positive ive amoun amount. t. Answer: B

Type: A Topic: 3 E: 463-464 MI: 219-220 63. In long-run long-run equilibrium equilibrium both both purely competitive competitive and and monopolistica monopolistically lly competitive competitive firms will: A) produ produce ce at minimum minimum avera average ge total total cost. cost. C) achie achieve ve alloc allocativ ativee effici efficienc ency. y. B) earn earn econom economic ic profi profits. ts. D) equat equatee margina marginall cost cost and and margi marginal nal reven revenue. ue. Answer: D

Type: A Topic: 3 E: 465-466 MI: 221-222 64. In long-ru long-run n equilibr equilibrium ium monopolis monopolistic tic competiti competition on entails: entails: A) an efficient efficient alloca allocation tion of of resourc resources. es. B) an overa overalloc llocatio ation n of resourc resources. es. C) an under underallo allocat cation ion of resour resources ces.. D) productio production n at the minimum minimum attainabl attainablee average average total cost. cost. Answer: C

Type: A Topic: 3 E: 464 MI: 220 65. Which Which of the following following statements statements concerning concerning a monopolistic monopolistically ally competitive competitive industry industry is correct ? A) If there are short-run losses, losses, firms will leave the the industry and the demand curves of of the remaining remaining firms will shift to the right. B) If there there are short-run short-run economic economic profits, firms will enter the industry and the demand curves of existing firms will shift to the right. C) If there there are short-run short-run losses, losses, firms will leave leave the industry industry and the demand curves curves of the remaining firms will shift to the left. D) If there there are short-run short-run economic economic profits, firms will leave the industry and the demand curves curves of the remaining firms will shift to the right. Answer: A

Use the following to answer questions 66-71: Answer the next question(s) on the basis of the following demand and cost data for a specific firm: D P

( 1 ) r i c $

1 9 9 8 7 6 5 1

e

1 . 9

9

. 1

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Type: T Topic: 3 E: 464 MI: 220 66. If columns columns (1) and (3) of of the demand demand data shown above above are this firm's firm's demand schedule, schedule, the profitprofitmaximizing level of output will be: A) 12 units. units. B) 8 units. units. C) 10 units. units. D) 9 units. units. Answer: B

Type: T Topic: 3 E: 464 MI: 220 67. If columns columns (1) and (3) of of the demand demand data shown above above are this firm's firm's demand schedule, schedule, the profitprofitmaximizing price will be: A) $9. $9. B) $7. $7. C) $11 $11.. D) $6. $6. Answer: A

Type: T Topic: 3 E: 464 MI: 220 68. If columns columns (1) and (3) of of the demand demand data shown above above are this firm's firm's demand schedule, schedule, economic economic profit profit will be: A) $10 $10.. B) $19 $19.. C) $6. $6. D) $8. Answer: D

Type: T Topic: 3 E: 464 MI: 220 69. Suppose Suppose that entry entry into the industry industry changes changes this firm's demand demand schedule schedule from from columns columns (1) and (3) shown shown above to columns (2) and (3). Economic profit will: A) fall by $10. B) fall to $6. C) increase increase by $10. D) decline decline to zero. zero. Answer: D


Type: T Topic: 3 E: 464 MI: 220 70. Suppose Suppose that entry entry into this industry industry changes this this firm's demand demand schedule schedule from from columns (1) (1) and (3) shown shown above to columns (2) and (3). We can conclude that this industry is: A) a pure pure mono monopo poly ly.. C) a cons constan tantt cost cost indu indust stry ry.. B) purely purely compe competiti titive. ve. D) mon monopo opolist listica ically lly compe competiti titive. ve. Answer: D

Type: T Topic: 3 E: 464 MI: 220 71. With the demand demand schedul schedulee shown above above by columns columns (2) and and (3), in long-run long-run equilibr equilibrium: ium: A) price price will will equal equal averag averagee total total cost. cost. C) margin marginal al cost cost will will exceed exceed price price.. B) total total cost cost will will exceed exceed total total revenu revenue. e. D) price price will will equal equal margina marginall reven revenue. ue. Answer: A

Type: A Topic: 3 E: 463-464 MI: 219-220 72. An important important similarity similarity between a monopolis monopolistically tically competitive competitive firm firm and a purely competitive competitive firm firm is that: A) both face perfectly perfectly elastic elastic demand demand schedules schedules.. C) both realize realize productiv productivee efficienc efficiency. y. B) econo economic mic profi profitt tends tends towar toward d zero zero for both. both. D) both both realize realize alloc allocativ ativee effici efficienc ency. y. Answer: B

Type: A Topic: 3 E: 462 MI: 218 73. An important important similarity similarity between a monopolis monopolistically tically competitive competitive firm firm and a pure monopolist monopolist is that both: both: A) realize realize an economic economic profit profit in the the long long run. B) achie achieve ve allocat allocative ive effici efficienc ency. y. C) face face demand demand curves which which are are less than perfec perfectly tly elastic. elastic. D) achieve achieve productive productive efficienc efficiency. y. Answer: C

Type: A Topic: 3 E: 462, 464 MI: 218, 220 74. The less elasti elasticc a monopolistic monopolistic competitor competitor's 's long-run long-run demand demand curve, curve, the: A) less less its its excess excess capa capacity city.. B) higher higher its price relative relative to that of a pure pure competitor competitor having having the same cost curves. curves. C) higher higher its its long-r long-run un profi profits. ts. D) lower lower its average average total total cost at its equilibri equilibrium um level of output. output. Answer: B


Type: G Topic: 3 E: 463-464 MI: 219-220 75. Refer to the the above above diagram diagram for a monopolistic monopolistically ally competitive competitive produc producer. er. The firm firm is: A) minimiz minimizing ing losses losses in the long long run. run. C) realizi realizing ng a norma normall profit profit in the long long run. run. B) minimiz minimizing ing losses losses in the short short run. run. D) about about to leave leave the indust industry. ry. Answer: C

Type: G Topic: 3 E: 465-466 MI: 221-222 76. Refer to the above above diagram diagram for a monopolistica monopolistically lly competitive competitive producer. producer. This firm firm is experiencing experiencing:: A) a sho shorta rtage ge of produc productio tion n capac capacity. ity. C) excess excess capac capacity ity of DE DE . B) exce excess ss cap capac acity ity of CD. D) dise diseco cono nomie miess of scal scale. e. Answer: C

Type: G Topic: 3 E: 465 MI: 221 77. Refer to the above above diagram diagram for a monopolistica monopolistically lly competitive competitive producer. producer. If this firm firm were to realize realize productive efficiency, it would: A) also also reali realize ze an econo economic mic profit. profit. C) also also achie achieve ve alloc allocativ ativee effici efficienc ency. y. B) incu incurr a loss loss.. D) have have to prod produc ucee a sm smal aller ler outp output ut.. Answer: B

Type: A Topic: 3 E: 463-464 MI: 219-220 78. In the the long long run a monopo monopolistical listically ly competitive competitive firm: firm: A) earns earns an econom economic ic profit profit.. C) produc produces es where where MR exceed exceedss MC. MC. B) prod produc uces es wher wheree P = ATC. ATC. D) achie achieves ves alloca allocative tive effici efficienc ency. y. Answer: B

Efficiency aspects

Type: D Topic: 4 E: 465-466 MI: 221-222 79. Monopolistic Monopolistically ally competitive competitive industr industries ies are ineff inefficien icientt because: because: A) they realize realize diseco diseconomies nomies of scale scale.. B) advertisin advertising g costs retard retard technological technological advance advance and product product development. development. C) mono monopolistic polistically ally competitive competitive industries industries are overpopulated overpopulated with firms whose plants plants are underutilized. underutilized. D) mono monopolistic polistically ally competitive competitive sellers sellers engage in misleading misleading advertising advertising.. Answer: C


Type: A Topic: 4 E: 466 MI: 222 80. The economic economic inefficien inefficiencies cies of monopolist monopolistic ic competition competition may be offset offset by the fact that: A) advertisin advertising g expenditures expenditures shift shift the average average cost curve curve upward. upward. B) avail availabl ablee capacit capacity y is fully utiliz utilized. ed. C) resourc resources es are optimally optimally allocated allocated to the the production production of the the product. product. D) consumer consumerss have a number of variatio variations ns of the product product from which which to choose. choose. Answer: D

Type: A Topic: 4 E: 465-466 MI: 221-222 81. Inefficien Inefficiencies cies occur occur under under monopolis monopolistic tic competition competition because because:: A) each each firm's demand demand curve curve becomes becomes more elastic elastic as we move down the curve. curve. B) each each firm's margin marginal al revenue revenue curve curve coincides coincides with its demand demand curve. curve. C) each each firm's downslop downsloping ing demand demand curve curve is tangent tangent to the ATC curve curve in the long run. run. D) entry entry barriers barriers greatly greatly restrict restrict the entry entry of new firms. firms. Answer: C

Type: F Topic: 4 E: 466 MI: 222 82. A significan significantt benefit of monopo monopolistic listic competition competition compare compared d with pure competitio competition n is: A) less likelihood likelihood of X-ineffic X-inefficiency iency.. B) improv improved ed resourc resourcee allocatio allocation. n. C) great greater er pro produc ductt varie variety. ty. D) stronger stronger incent incentives ives to achieve achieve econom economies ies of scale. scale. Answer: C

Type: A Topic: 4 E: 466 MI: 222 83. Produc Productt variety variety is likel likely y to be great greater er in: in: A) mono monopolistic polistic compe competition tition than than in pure pure competiti competition. on. B) pure competition competition than than in mono monopolistic polistic compet competition. ition. C) homo homogenous genous oligopo oligopoly ly than in monopo monopolistic listic competitio competition. n. D) homo homogenous genous oligopo oligopoly ly than in differen differentiated tiated oligopol oligopoly. y. Answer: A

Type: A Topic: 4 E: 466 MI: 222 84. 84. Whic Which h of the the fol follo lowin wing g is correct ? A) The excess excess capacity capacity problem problem diminishes diminishes as the mono monopolistic polistically ally competitive competitive firm's demand demand curve curve becomes less elastic. B) The excess excess capacity capacity problem problem means that monopolistic monopolistically ally competitive competitive firms typically typically produce produce at some point on the rising segment of their average total cost curve. C) The greater greater the degree degree of product product variation variation,, the lesser is the excess excess capacity capacity problem. problem. D) The greater greater the degree degree of product product variation, variation, the greater is the excess capacity problem. problem. Answer: D

Type: A Topic: 4 E: 465 MI: 221 85. In monop monopolistica olistically lly competitiv competitivee markets markets resou resources rces are: are: A) overallo overallocated cated because because long-run equilibrium equilibrium occurs occurs where price exceeds exceeds marginal marginal cost. B) underallo underallocated cated because because long-run long-run equilibrium equilibrium occurs where price price exceeds marginal marginal cost. C) overallo overallocated cated because because long-run equilibrium equilibrium occurs occurs where marginal marginal cost exceeds price. price. D) underallocated because because long-run long-run equilibrium occurs occurs where where marginal marginal cost exceeds exceeds price. price. Answer: B

Type: A Topic: 4 E: 465 MI: 221 86. In long-run long-run equilibr equilibrium ium a monopolistic monopolistically ally competitive competitive producer producer achieve achieves: s: A) neither neither productive productive efficien efficiency cy nor allocative allocative efficienc efficiency. y. B) both produ productive ctive efficie efficiency ncy and allocat allocative ive efficien efficiency. cy. C) productiv productivee efficienc efficiency, y, but not allocat allocative ive efficien efficiency. cy. D) allocative allocative efficien efficiency, cy, but not productiv productivee efficiency efficiency.. Answer: A

Type: A Topic: 4 E: 465-466 MI: 221-222 87. The less elasti elasticc a monopolistic monopolistic competitor competitor's 's long-run long-run demand demand curve, curve, the: A) great greater er its exce excess ss capac capacity. ity. B) lower lower its price relative relative to that of a pure competito competitorr having the same same cost curves. curves. C) higher higher its its long-run long-run econo economic mic profit. profit. D) lower lower its average average total total cost at its equilibri equilibrium um level of output. output. Answer: A

Type: A Topic: 4 E: 465 MI: 221 88. The more more elastic a monopo monopolistic listic competitor competitor's 's long-run long-run demand demand curve, curve, the: A) great greater er its exce excess ss capac capacity. ity. B) the higher higher its price price relative to that that of a pure competitor competitor having having the same cost curves. curves. C) lower lower its its longlong-run run profit. profit. D) lower lower its average average total total cost at its equilibri equilibrium um level of output. output. Answer: D

Oligopoly: definition; characteristics

Type: A Topic: 5 E: 467 MI: 223 Status: New 89. In which of these these continuums continuums of degrees degrees of competitio competition n (highest (highest to lowest) is oligopoly oligopoly properly properly placed? placed? A) pure competitio competition, n, oligopoly, oligopoly, pure monopoly, monopoly, monopolistic monopolistic competitio competition n B) oligopoly, oligopoly, pure competitio competition, n, monopolistic monopolistic competition competition,, pure monopoly monopoly C) mono monopolistic polistic competitio competition, n, pure competitio competition, n, pure monopo monopoly, ly, oligopoly oligopoly D) pure competitio competition, n, monopolistic monopolistic competition, competition, oligopoly, oligopoly, pure monopo monopoly ly Answer: D

Type: D Topic: 5 E: 467 MI: 223 90. 90. The The term term oligo oligopol poly y indic indicates ates:: A) a one-fir one-firm m ind indust ustry. ry. B) many many producers producers of a differ differentiat entiated ed product. product. C) a few firms firms producing producing either a differen differentiated tiated or a homogene homogeneous ous product. product. D) an industry industry whose whose four-firm four-firm concen concentration tration ratio ratio is low. Answer: C

Type: A Topic: 5 E: 467 MI: 223 91. 91. In an oligop oligopoli olistic stic marke market: t: A) one one firm firm is alway alwayss dom domina inant. nt. B) products products may may be standa standardize rdized d or differ differentia entiated. ted. C) the four four largest largest firms accoun accountt for 20 percent percent or less of of total sales. sales. D) the industr industry y is monop monopolistic olistically ally competitiv competitive. e. Answer: B


Type: D Topic: 5 E: 467-468 MI: 223-224 92. Oligopolistic Oligopolistic industries industries are character characterized ized by: A) a few domina dominant nt firms and and substant substantial ial entry entry barriers. barriers. B) a few dominant dominant firms firms and and no barrie barriers rs to entry. entry. C) a large large number number of firms firms and low low entry entry barrier barriers. s. D) a few dominant dominant firms firms and and low entry entry barrier barriers. s. Answer: A

Type: A Topic: 5 E: 467 MI: 223 93. The automobile automobile,, household household appliance, appliance, and automobile automobile tire industries industries are are all illustrations illustrations of: A) homo homoge gene neou ouss oligo oligopo poly. ly. C) pure pure mono monopo poly. ly. B) monop monopolis olistic tic compe competitio tition. n. D) differ different entiate iated d oligop oligopoly oly.. Answer: D

Type: C Topic: 5 E: 467 MI: 223 94. Use your your basic knowled knowledge ge and your unders understandin tanding g of market market structures structures to answer answer this question question.. Which Which of the following companies most closely approximates a differentiated oligopolist in a highly concentrated industry? A) Subway Subway Sandwiches Sandwiches B) Pittsburgh Pittsburgh Plate Plate Glass C) Ford Motor Motor Company Company D) Kaiser Aluminum. Aluminum. Answer: C

Type: C Topic: 5 E: 467 MI: 223 95. Use your your basic knowled knowledge ge and your unders understandin tanding g of market market structures structures to answer answer this question question.. Which Which of the following companies most closely approximates a homogenous oligopolist in a highly concentrated industry? A) Kellogg Kellogg B) Pittsburg Pittsburgh h Plate Glass C) Ford Ford Motor Motor Company Company D) Starbucks Starbucks Coffee. Coffee. Answer: B

Type: A Topic: 5 E: 467 MI: 223 96. The mutual mutual interdependen interdependence ce that character characterizes izes oligopoly oligopoly arises arises because: because: A) the products products of of various various firms firms are homog homogeneou eneous. s. B) the products products of of various various firms firms are differ differentiat entiated. ed. C) a small small number of firms firms produce produce a large large proportion proportion of of industry industry output. D) the demand demand curves curves of firms firms are kinked kinked at the prevaili prevailing ng price. price. Answer: C

Type: A Topic: 5 E: 467 MI: 223 97. Barriers Barriers to entry entry in oligopolis oligopolistic tic industrie industriess may consist consist of: of: A) diseco diseconom nomies ies of scale scale.. C) owners ownership hip of essent essential ial resou resourc rces. es. B) dimi dimini nish shin ing g retur returns ns.. D) paten patentt expi expira ratio tions ns.. Answer: C

Type: A Topic: 5 E: 467 MI: 223 98. The copper, copper, aluminum aluminum,, cement, and and industrial industrial alcohol alcohol industries industries are are examples examples of: A) interp interpro roduc ductt compe competiti tition. on. C) mon monopo opolist listic ic compe competiti tition. on. B) homog homogene eneous ous oligop oligopoly oly.. D) differ different entiate iated d oligop oligopoly oly.. Answer: B

Type: A Topic: 5 E: 467 MI: 223 99. Which Which of the following following is the the best best example example of oligopo oligopoly? ly? A) women's women's dress dress manufactu manufacturing ring B) automobile automobile manufactu manufacturing ring Answer: B

C) restaura restaurants nts

D) cotton cotton farming farming

Type: A Topic: 5 E: 467 MI: 223 100. If there there are signif significan icantt economies economies of scale scale in an indus industry, try, then: then: A) a firm that that is large may may be able to produc producee at a lower unit cost cost than can can a small firm. firm. B) a firm that that is large will will have to charge charge a higher higher price price than will will a small firm. firm. C) entry entry to that that indus industry try will will be easy. easy. D) firms firms must differentia differentiate te their products products to earn economic economic profits. profits. Answer: A

Type: A Topic: 5 E: 472 MI: 228 101. In which which of the following following market market models models do demand demand and marginal marginal revenue revenue diverge? diverge? A) pure mono monopoly, poly, oligopoly, oligopoly, and and monopolistic monopolistic compet competition ition B) pure mono monopoly, poly, oligopo oligopoly, ly, and and pure pure competitio competition n C) pure pure mono monopo poly ly onl only y D) oligo ligopo poly ly only only Answer: A

Type: A Topic: 5 E: 471 MI: 227 102. Oligopoly Oligopoly is difficult difficult to to analyze analyze primarily primarily becaus because: e: A) the number number of firms firms is too large large to make make collusion collusion understand understandable. able. B) the price price and output decisions decisions of any any one firm depend depend on the reactions reactions of its rivals. rivals. C) output output may be be either either homogeno homogenous us or differ differentiat entiated. ed. D) neither neither allocative allocative nor nor productive productive efficienc efficiency y is achieved. achieved. Answer: B

Type: A Topic: 5 E: 471 MI: 227 103. Oligopoly Oligopoly is more more difficult difficult to analyze analyze than other other market market models models because: because: A) the number number of firms is so large large that market market behavior behavior cannot cannot be accurately accurately predicted. predicted. B) the marginal marginal cost cost and marginal marginal revenue revenue curves of an an oligopolist oligopolist play no part part in the determination determination of equilibrium price and quantity. C) of mutual mutual interdependen interdependence ce and the fact that oligopoly oligopoly outcomes are less certain certain than in other market market models. D) unlike unlike the firms of other market market models, it cannot be assumed assumed that oligopolists oligopolists are profit maximizers maximizers.. Answer: C

Type: A Topic: 5 E: 467 MI: 223 104. Which 104. Which of the the follow following ing is an illus illustra tration tion of of differentiated oligopoly? A) the the alum alumin inum um indu indust stry ry C) the the soft soft drin drink k indu indust stry ry B) the the stee steell indu indust stry ry D) reta retail il stor stores es in larg largee citie citiess Answer: C

Type: A Topic: 5 E: 467 MI: 223 105. Which Which of the the followin following g industries industries is an illustration illustration of of homogeneous oligopoly? A) hous household ehold laundry laundry products products B) personal personal computers computers C) aluminum aluminum D) the auto industry industry


Answer: C

Type: D Topic: 5 E: 467 MI: 223 106. Different Differentiated iated oligopoly oligopoly exists exists where where a small small number number of firms firms are: are: A) producin producing g goods that that differ in terms terms of quality quality and and design. design. B) settin setting g price and and output output collusiv collusively ely.. C) setting setting price price and output output indepen independently. dently. D) producin producing g virtually virtually identi identical cal produc products. ts. Answer: A

Type: D Topic: 5 E: 467 MI: 223 107. Homogeneo Homogeneous us oligopoly oligopoly exists exists where where a small small number of of firms firms are: A) produ producin cing g virtua virtually lly identi identical cal produc products. ts. C) settin setting g price price and and output output collus collusive ively. ly. B) settin setting g price price and and output output indepe independe ndentl ntly. y. D) produc producing ing differ different entiat iated ed produc products. ts. Answer: A

Type: D Topic: 5 E: 467 MI: 223 108. 108. Oligopo Oligopolist listic ic indust industrie ries: s: A) are charac characterize terized d by a relatively relatively large number number of small sellers. sellers. B) may produc producee either standar standardized dized or differ differentia entiated ted products. products. C) always always produ produce ce diffe differentia rentiated ted produ products. cts. D) always always produce produce standard standardized ized product products. s. Answer: B

Type: A Topic: 5 E: 467 MI: 223 109. Which Which of the following following is a unique unique feature feature of of oligopoly? oligopoly? A) mutual mutual interd interdepen ependen dence ce C) produc productt differ different entiat iation ion B) adve advert rtis isin ing g expe expend ndit itur ures es D) nonp nonpri rice ce comp compet etiti ition on Answer: A

Type: A Topic: 5 E: 467 MI: 223 110. Price 110. Pricess are likel likely y to be leas leastt flexible flexible:: A) in oligopoly. B) in monopolistic competition. Answer: A

C) where product demand is inelastic. D) in pure competition.

Type: D Topic: 5 E: 467 MI: 223 111. Mutual Mutual interdepen interdependence dence means means that that each each oligopolistic oligopolistic firm: firm: A) faces faces a perfectl perfectly y elastic demand demand for for its product product.. B) must conside considerr the reactions reactions of its rivals rivals when when it determines determines its price price policy. policy. C) produces produces a product product identica identicall to those those of its rivals. rivals. D) produces produces a product product similar similar but not identical identical to the products products of its rivals. rivals. Answer: B

Type: A Topic: 5 E: 467 MI: 223 112. Clear-cut Clear-cut mutual mutual interdependenc interdependencee with respect respect to the price-output price-output policies policies exists exists in: A) pure mono monopoly poly B) oligopoly oligopoly C) mono monopolisti polisticc competition competition D) pure competition competition Answer: B


Concentration ratio; Herfindahl Index

Type: D Topic: 6 E: 468 MI: 224 113.. Concen 113 Concentra tration tion rati ratios os measur measuree the: A) geograph geographic ic location location of the largest largest corporations corporations in each each industry. industry. B) degree degree to which product product price price exceeds exceeds marginal marginal cost in various various industries. industries. C) percenta percentage ge of total sales accounted accounted for for by the four largest largest firms firms in the industry. industry. D) num number ber of of firms firms in an indus industry try.. Answer: C

Type: A Topic: 6 E: 468 MI: 224 114. If the four-firm four-firm concen concentration tration ratio ratio for for industry industry X is is 80: A) the four four largest largest firms accoun accountt for 80 percent percent of total total sales. B) each each of the four larges largestt firms accounts accounts for for 20 percent percent of total total sales. C) the four four largest largest firms accoun accountt for 20 percent percent of total total sales. D) the industr industry y is monop monopolistic olistically ally competitiv competitive. e. Answer: A

Type: A Topic: 6 E: 468 MI: 224 115. An industry industry having having a four-firm four-firm conce concentratio ntration n ratio of 85 percen percent: t: A) appro approxima ximates tes pure pure compet competitio ition. n. C) is a pure pure mon monopo opoly. ly. B) is mon monopo opolist listica ically lly compe competiti titive. ve. D) is an oligop oligopoly oly.. Answer: D

Type: A Topic: 6 E: 468 MI: 224 116. As a general general rule, rule, oligopoly oligopoly exists when when the four-firm four-firm concen concentration tration ratio: ratio: A) excee exceeds ds the Herfin Herfindah dahll index. index. C) is 40 percen percentt or more. more. B) is less less than than the Herfin Herfindah dahll index. index. D) is 15 perc percent ent or more. more. Answer: C

Type: A Topic: 6 E: 469 MI: 225 117. Aluminum Aluminum competes competes with copper in the market market for power power transmissi transmission on lines. This illustrat illustrates: es: A) mutual mutual interd interdepen ependen dence. ce. C) interi interindu ndustr stry y compe competiti tition. on. B) differ different entiat iated ed oligop oligopoly oly.. D) hom homoge ogeneo neous us oligop oligopoly. oly. Answer: C

Type: A Topic: 6 E: 469 MI: 225 118. The Herfin Herfindahl dahl index index for for a pure pure mono monopolist polist is: is: A) 100 100.. B) 10,00 10,000. 0. C) 100 100,00 ,000. 0. D) 10. Answer: B

Type: A Topic: 6 E: 469 MI: 225 119. Industries Industries X and Y both have have four-firm four-firm concentra concentration tion ratios of 65 percen percent, t, but the Herfindahl Herfindahl index for for X is 1,500 while that for Y is 2,000. These data suggest: A) great greater er marke markett power power in X than than in Y. B) great greater er marke markett power power in Y than than in in X. C) that X is more more technologic technologically ally progress progressive ive than Y. D) that price price competi competition tion is stron stronger ger in Y than than in X. Answer: B

Type: A Topic: 6 E: 468 MI: 224 120. Suppose Suppose that total total sales in an industry industry in a particular particular year are are $600 million million and sales by the top four four sellers sellers are $200 million, $150 million, $100 million, and $50 million, respectively. We can conclude that: A) price price leadership leadership exists exists in this industr industry. y. B) the conce concentrat ntration ion ratio is more more than 80 percen percent. t. C) this industry industry is a differe differentiated ntiated oligopoly. oligopoly. D) the firms firms in this industr industry y face a kinked kinked deman demand d curve. curve. Answer: B

Type: A Topic: 6 E: 468 MI: 224 121. The four-fir four-firm m sales concen concentratio tration n ratio for an industr industry y measures measures the: A) geograph geographic ic concen concentratio tration n of firms. firms. B) extent extent to which the four four largest largest firms dominat dominatee the production production of a good. good. C) percenta percentage ge of the industry's industry's capital capital facilities facilities owned by the four four largest largest firms. D) degree degree of X-inef X-inefficien ficiency cy in the the industry. industry. Answer: B

Type: A Topic: 6 E: 468 MI: 224 122. 122. Conc Concen entr trat ation ion ratio ratios: s: A) may overstate overstate the degree degree of competition competition because because they ignore imported imported products. products. B) may overstate overstate the degree degree of competition competition because because interindustry interindustry competition competition is ignored. ignored. C) may understa understate te the degree of competiti competition on because because they ignore ignore imported imported products. products. D) provide provide detailed detailed insights as to the price and output output behavior behavior of firms which comprise comprise the various various industries. Answer: C

Type: A Topic: 6 E: 468-469 MI: 224-225 123. If a product product such as cement cement or bricks bricks is costly to ship and, and, therefore, therefore, markets markets are very localiz localized, ed, the national concentration ratio for that industry: A) will will be greate greaterr than than 50 percen percent. t. B) may understa understate te the degree degree of of monopo monopoly. ly. C) may overstate overstate the degre degreee of mono monopoly. poly. D) will yield yield an accurate accurate impression impression of the the degree degree of monopoly. monopoly. Answer: B


Type: A Topic: 6 E: 469 MI: 225 124. Concentra Concentration tion ratios may be inaccurate inaccurate indicator indicatorss of the degree degree of monopoly monopoly power in an industry because because:: A) they include include interin interindustr dustry y competitio competition. n. B) foreign foreign competition competition is not not consid considered ered.. C) they are are only only calculated calculated for for local local and regiona regionall markets. markets. D) they do not not distinguish distinguish between between normal normal and economic economic profit. profit. Answer: B

Type: A Topic: 6 E: 468 MI: 224 125. If an industry industry evolves evolves from from monopolistic monopolistic competiti competition on to oligopoly, oligopoly, we would would expect: expect: A) the four-fir four-firm m concentra concentration tion ratio to decrease. decrease. B) the four-fir four-firm m concentra concentration tion ratio ratio to increa increase. se. C) the four-fir four-firm m concentra concentration tion ratio to remain remain the same. same. D) barri barriers ers to to entry entry to weaken weaken.. Answer: B

Type: D Topic: 6 E: 469 MI: 225 126. Inter 126. Interind indust ustry ry competi competition tion means means that: that: A) in oligopolistic oligopolistic industries industries a few large firms firms compete compete with one another in bidding down down product price. price. B) in some markets markets the producers producers of a particular particular product might face face competition competition from products products produced produced by other industries. C) firms firms that sell a product product at one stage of product production ion are faced faced with firms that that buy the product product at the next stage of production. D) in most industries industries there there are usually a number number of firms producing producing identical identical products. products. Answer: B

Type: A Topic: 6 E: 469 MI: 225 127. If you sum the squares squares of the market market shares shares of each each firm in an industry industry (as measured measured by percent percent of industry industry sales), you are calculating: A) the fourfour-fir firm m conce concentr ntratio ation n ratio ratio.. C) the degre degreee of collus collusion ion.. B) the the Herf Herfin inda dahl hl inde index. x. D) the the Lern Lerner er inde index. x. Answer: B

Type: A Topic: 6 E: 469 MI: 225 128. 128. The The Herfi Herfind ndah ahll Index Index:: A) measures measures the prices prices charged charged by oligopolist oligopolistic ic manufacture manufacturers. rs. B) is another another name name for the four-fir four-firm m concentrat concentration ion ratio. ratio. C) tells us whether whether oligopo oligopolistic listic firms firms are engaging engaging in collusio collusion. n. D) gives much much greater greater weight to larger larger firms firms than to smaller firms firms in an industry. industry. Answer: D

Type: A Topic: 6 E: 469 MI: 225 129. If the four-firm four-firm concen concentration tration ratio ratio in an oligopolistic oligopolistic industry industry is 100 percent percent and each firm firm has an equal percentage of sales, the Herfindahl Index is: A) 10,00 10,000. 0. B) 2,500. 2,500. C) 3,750. 3,750. D) 1,000. 1,000. Answer: B

Type: A Topic: 6 E: 469 MI: 225 130. Assume Assume six firms comprisin comprising g an industry industry have market market shares of 30, 30, 30, 10, 10, 10, and 10 percent. percent. The Herfindahl Index for this industry is: A) 2,525. 2,525. B) 1,600. 1,600. C) 2,200. 2,200. D) 80. Answer: C

Type: A Topic: 6 E: 469 MI: 225 131. Suppose Suppose the Herfindah Herfindahll Indexes for for industries industries A, B, and C are 1,200, 5,000, 5,000, and 7,500 respect respectively. ively. These These data imply that: A) market market power power is greatest greatest in industry industry A. B) marke markett power power is greate greatest st in indust industry ry B. C) marke markett power power is greate greatest st in indust industry ry C. D) industry industry A is is more more monopolistic monopolistic than than industr industry y C. Answer: C

Use the following to answer questions 132-136: F

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Type: T Topic: 6 E: 468 MI: 224 132. The industr industry y character characterized ized by by the above above inform information ation is: is: A) an oligopoly. C) a purely competitive industry. B) a monopolistically competitive industry. D) a pure monopoly. Answer: A

Type: T Topic: 6 E: 468 MI: 224 133. The four-fi four-firm rm concentr concentration ation ratio ratio for the the above above industry industry is: A) 100 100 per perce cent nt.. B) indetermin indeterminate, ate, since since we don't know know which four firms firms are are included. included. C) 80 perc percen ent. t. D) 20 perc percen ent. t. Answer: C

Type: T Topic: 6 E: 469 MI: 225 134. The Herfin Herfindahl dahl Index Index for the above above indus industry try is: is: A) 1,600. 1,600. B) 1,800. 1,800. C) 18,000 18,000.. D) 80. Answer: B

Type: T Topic: 6 E: 469 MI: 225 135. If all the firms firms in the above industry industry merged merged into a single single firm, the Herfindah Herfindahll Index would become: become: A) 100 100.. B) 1,000. 1,000. C) 10,000 10,000.. D) 100 100,00 ,000. 0. Answer: C


Type: T Topic: 6 E: 468-469 MI: 224-225 136. Suppose Suppose that firms firms in this industry industry miraculously miraculously split up such such that there were were 100 firms, firms, each with a one percent market share. The four-firm concentration ratio and the Herfindahl Index respectively would be: A) 100 percent percent and 10,000. 10,000. B) 4 percent percent and 4. C) 100 percent percent and 16. D) 4 percent percent and 16. Answer: D

Use the following to answer questions 137-140: F

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A B C D E

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Type: A Topic: 6 E: 468 MI: 224 Status: New 137. Refer to the above above data. data. The four-fir four-firm m concentra concentration tion ratio for for this indus industry try is: A) 90 perc percen ent. t. B) 95 perc percen ent. t. C) 100 100 per perce cent nt.. D) indetermin indeterminate, ate, because because we don't know know which four firms firms are included. included. Answer: B

Type: A Topic: 6 E: 469 MI: 225 Status: New 138. Refer to the above above data. data. The Herfin Herfindahl dahl Index Index for for this this industr industry y is: A) 95. B) 1000. 1000. C) 292 2925. 5. D) 295 2950. 0. Answer: D

Type: A Topic: 6 E: 467-468 MI: 223-224 Status: New 139. Refer to the the above above data. data. This industry industry illustr illustrates: ates: A) pure competition. competition. B) monopolistic monopolistic competition competition.. C) oligopoly. oligopoly. D) pure mono monopoly. poly. Answer: C

Type: A Topic: 6 E: 468-469 MI: 224-225 Status: New 140. Refer to the the data above. above. If Firm Firm B merged with Firm Firm C, the industry's industry's four-fir four-firm m concentra concentration tion ratio would would ____ and its Herfindahl Index would ____: A) rise; rise; rise. rise. B) fall; rise C) remain remain the same; same; rise. rise. D) remain remain the same; fall. Answer: C

Game theory

Type: A Topic: 7 E: 469 MI: 225 Status: New 141. 141. Game Game theo theory ry:: A) is the analysis analysis of how people people (or firms) firms) behave behave in strategic strategic situations. situations. B) is best best suited suited for analyzin analyzing g purely purely competitive competitive markets markets.. C) reveals reveals that that mergers mergers between between rival firms firms are self-de self-defeatin feating. g. D) reveals reveals that that price-fixin price-fixing g among firms firms reduces reduces profits. profits. Answer: A

Type: A Topic: 7 E: 469 MI: 225 Status: New 142. The study study of how people people (or firms) firms) behave behave in strategic strategic situation situationss is called: A) cost-ben cost-benefit efit analysis. analysis. B) recursive recursive analysis. analysis. C) normative normative economics economics.. D) game theory. theory. Answer: D

Type: A Topic: 7 E: 469-470 MI: 225-226 143. The terms terms strategic strategic behavio behaviorr and payoff payoff matrix matrix both relate relate directly directly to: A) the perfect competition model. C) game theory. B) the monopolistic competition model. D) the price leadership model. Answer: C

Type: A Topic: 7 E: 469 MI: 225 144. Game theory theory is best best suited suited to analyze analyze the the pricing pricing behavior behavior of: of: A) pure mono monopolists polists.. B) pure competitor competitors. s. C) monopolistic monopolistic competitor competitors. s. D) oligopolists oligopolists.. Answer: D

Type: A Topic: 7 E: 470 MI: 226 145. Game theory theory can can be used used to demonstrat demonstratee that oligopo oligopolists: lists: A) rarely rarely consider consider the potential potential reactions reactions of of rivals. rivals. B) exper experien ience ce econom economies ies of scale scale.. C) that oligopoli oligopolists sts can increas increasee their profits profits through through collusion collusion.. D) may be be either either homogeneo homogeneous us or differ differentiat entiated. ed. Answer: C


Type: T Topic: 7 E: 470 MI: 226 146.. The 146 The above above matrix matrix best best illus illustra trates tes:: A) game theory. B) the principal-agent problem. C) product differentiation. D) price discrimination. Answer: A


Type: T Topic: 7 E: 470 MI: 226 147. Refer to the above above diagram diagram where the numerica numericall data show profits profits in millions of dollars. dollars. Beta's Beta's profits profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If both firms follow a high-price policy: A) Alpha will will realize realize a $10 million million profit profit and Beta a $30 million million profit. profit. B) each each will will realize realize a $20 milli million on profit. profit. C) Beta will will realize realize a $10 million million profit profit and and Alpha a $30 $30 million million profit. profit. D) each each will realiz realizee a $15 $15 million million profit. profit. Answer: B

Type: T Topic: 7 E: 470 MI: 226 148. Refer to the above above diagram diagram wherein wherein the numerical numerical data show profits profits in millions millions of dollars. dollars. Beta's profits profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Beta commits to a high-price policy, Alpha will gain the largest profit by: A) also adopting adopting a high-p high-price rice policy. policy. B) adopt adopting ing a low-pr low-price ice policy policy.. C) adopting adopting a low-price low-price policy, policy, but only only if Beta agrees agrees to do the same. same. Answer: B

Type: T Topic: 7 E: 470 MI: 226 149. Refer to the above above diagram diagram where the numerica numericall data show profits profits in millions of dollars. dollars. Beta's Beta's profits profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. With independent pricing the outcome of this duopoly game will gravitate to cell: A) A. B) B. C) C. D) D. Answer: D

Type: T Topic: 7 E: 470-471 MI: 226-227 150. Refer to the above above diagram diagram where the numerica numericall data show profits profits in millions of dollars. dollars. Beta's Beta's profits profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Alpha and Beta engage in collusion, the outcome of the game will be at cell: A) A. B) B. C) C. D) D. Answer: A

Type: T Topic: 7 E: 470-471 MI: 226-227 151. Refer to the above above diagram diagram where the numerica numericall data show profits profits in millions of dollars. dollars. Beta's Beta's profits profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Alpha and Beta agree to a high-price policy through collusion, the temptation to cheat on that agreement is demonstrated by the fact that: A) Beta can can increas increasee its profit profit by lowerin lowering g its price. price. B) Beta can can increase increase its profit profit by increasi increasing ng its price price still further. further. C) both Alpha Alpha and Beta can earn earn even more more profits if both both agree to a low-price low-price policy. policy. D) Alpha can can increase increase its profit profit by reducin reducing g its production production costs. costs. Answer: A


Type: T Topic: 7 E: 470 MI: 226 152. Refer to the above above profits-pa profits-payoff yoff table table for a duopoly. duopoly. If the firms are are acting independ independently ently and firm firm X sets its price at $6, firm Y will achieve the largest profit by selecting: A) a price price higher higher than $6. B) a price price between between $5 and $6. C) $6. D) $4. Answer: D

Type: T Topic: 7 E: 470 MI: 226 153. Refer to the above above profits-pa profits-payoff yoff table table for a duopoly. duopoly. If initially initially firms X and Y are charging charging $5 and $4 respectively: A) the two two firms firms will be be maximizin maximizing g joint profits. profits. B) Y will find it advanta advantageous geous to raise raise its price price if it was certain certain X would would not alter its price price.. C) X will find it advanta advantageous geous to raise raise its price price if it was certain certain Y would would not alter its price price.. D) both firms firms would find find it advantageous advantageous to collude collude to raise their their prices by $1 each. each. Answer: D

Type: T Topic: 7 E: 470 MI: 226 154. Refer to the above above profits-pa profits-payoff yoff table table for a duopoly. duopoly. If initially initially firm X's price was was $6 and Y's price was $5: $5: A) X would find find it profitable profitable to cut price, price, provided provided Y also cut cut price. price. B) Y would would find it profita profitable ble to cut price price,, provided provided X also cut cut price. price. C) Y would find find it profitable profitable to raise raise price by $1, $1, provided provided X would also raise raise price price by $1. D) both firms firms would profit profit by simultaneous simultaneously ly lowering lowering their prices prices by $1. Answer: C


Use the following to answer questions 155-156: A

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Type: A Topic: 7 E: 470 MI: 226 Status: New 155. Refer to the above above game theory theory matrix matrix where the numerica numericall data show the profits profits resulting resulting from from alternative alternative combinations of advertising strategies for for Ajax and Acme. Ajax's profits are shown in the upper upper right part of each cell; Acme's profits profits are shown in the lower left. Without collusion, the outcome of the game is cell: A) A. B) B. C) C. D) D. Answer: A

Type: A Topic: 7 E: 470-471 MI: 226-227 Status: New 156. Refer to the above above game theory theory matrix matrix where the numerica numericall data show the profits profits resulting resulting from from alternative alternative combinations of advertising strategies for for Ajax and Acme. Ajax's profits are shown in the upper upper right part of each cell; Acme's profits profits are shown in the lower left. With collusion and no cheating, the outcome outcome of the game is cell: A) A. B) B. C) C. D) D. Answer: D

Kinked-demand curve model

Type: A Topic: 8 E: 472 MI: 228 157. Suppose Suppose an oligopolistic oligopolistic produc producer er assumes assumes its rivals will ignore ignore a price price increase increase but match a price cut. cut. In this case the firm perceives its: A) demand demand curve curve as being being of unit unit elasticity elasticity through throughout. out. B) supp supply ly curve as kinked kinked,, being steeper steeper below below the going price price than above. above. C) demand demand curve as as kinked, kinked, being steeper steeper below below the going going price than than above. above. D) demand demand curve as kinked, kinked, being being steeper above above the going going price than below. below. Answer: C

Type: A Topic: 8 E: 472 MI: 228 158. The kinked-d kinked-demand emand curve curve of an oligopoli oligopolist st is based on the the assumption assumption that: that: A) competitor competitorss will follow a price price cut but ignore ignore a price price increase. increase. B) competitor competitorss will match both both price price cuts and and price price increases. increases. C) competitor competitorss will ignore a price price cut but follow follow a price price increase. increase. D) there there is no produc productt differen differentiation tiation.. Answer: A

Type: A Topic: 8 E: 472 MI: 228 159. The kinked-d kinked-demand emand curve curve describes describes a situation situation in which which an oligopolis oligopolistt will be: A) interested interested in maintainin maintaining g the going price unless unless there there is a rather large large change change in costs. B) anxious anxious to either either increas increasee or lower lower price. price. C) anxious anxious to incr increase ease price price but but not to lower price. price. D) anxious anxious to lower lower price price but not not to increas increasee price. price. Answer: A

Type: A Topic: 8 E: 472 MI: 228 160. If an oligopoly oligopoly is faced faced with a kinked-deman kinked-demand d curve that is relatively relatively elastic elastic above, above, and relatively relatively inelastic inelastic below, the going price, then it will: A) increase total total revenue by by increasing price, but lower lower total revenue revenue by decreasing decreasing price. B) decrease decrease total revenue revenue by either either increasing increasing or decreas decreasing ing price. price. C) increase increase total total revenue by either either increasin increasing g or decreasing decreasing price. price. D) increase increase total revenue revenue by decreasin decreasing g price, but lower total revenue revenue by increasing increasing price. Answer: B

Type: A Topic: 8 E: 472 MI: 228 161. The kinked-d kinked-demand emand curve curve model model of oligopo oligopoly ly is useful useful in explainin explaining: g: A) the way way that that collus collusion ion works works.. B) why oligopolisti oligopolisticc prices and and outputs are extremel extremely y sensitive sensitive to changes in marginal marginal cost. cost. C) why oligopo oligopolistic listic prices prices might might change change only only infrequent infrequently. ly. D) the process process by which which oligopolists oligopolists merge merge with one one another. another. Answer: C

Type: A Topic: 8 E: 472 MI: 228 162. The kinked-d kinked-demand emand curve curve model model helps to explain explain price price rigidity becaus because: e: A) there there is a gap in the marginal marginal revenue curve curve within which which changes changes in marginal marginal cost will not affect affect output or price. B) demand demand is inelastic inelastic above above and elasti elasticc below the the going going price. price. C) the model model assumes assumes firms are are engaging engaging in some form form of collusion. collusion. D) the associat associated ed marginal marginal revenue revenue curve is perfectl perfectly y elastic at the going going price. Answer: A

Type: A Topic: 8 E: 472 MI: 228 163. If competing competing oligopolists oligopolists complete completely ly ignore oligopoli oligopolist st X's price changes, changes, then X's: A) demand demand curve will be less elastic elastic than than if the other oligopolists oligopolists matched matched X's price price changes. changes. B) demand demand curve will be more more elastic than if the other other oligopolists oligopolists matched matched X's price price changes. changes. C) marginal marginal revenu revenuee curve curve will have have a vertic vertical al gap. D) demand demand and margina marginall revenue revenue curves curves will coincide coincide.. Answer: B


Type: A Topic: 8 E: 472 MI: 228 164. If an oligopoli oligopolist st is faced faced with a marginal marginal revenue revenue curve curve that has a gap gap in it, we may assume assume that: that: A) it is colluding colluding with with its rivals rivals to maximize maximize joint joint profits. profits. B) its demand demand curv curvee is kink kinked. ed. C) it is sellin selling g a standard standardize ized d product. product. D) it is selling selling a differ differentia entiated ted product product.. Answer: B

Type: A Topic: 8 E: 472 MI: 228 165. The kinked kinked-deman -demand d curve curve model model of of oligopo oligopoly: ly: A) assumes assumes a firm's firm's rivals will ignore ignore a price cut but match match a price increase increase.. B) embodies embodies the possibility possibility that changes changes in unit costs costs will have no effect effect on equilibrium equilibrium price price and output. C) assumes assumes a firm's firm's rivals rivals will match any any price change change it may initiate. initiate. D) assumes assumes a firm's firm's rivals rivals will ignore ignore any price price change change it may initiate. initiate. Answer: B


Type: G Topic: 8 E: 472-473 MI: 228-229 166. Refer to the above above diagram diagram for a noncollusiv noncollusivee oligopolist. oligopolist. Suppose Suppose that the firm is initially initially in equilibrium equilibrium at point E where the equilibrium price and quantity are P and Q. Which of the following statements is correct? A) Dema Demand nd cur curve ve D1 assumes that rivals will match any price change initiated by this oligopolist. B) Dema Demand nd cur curve vess D1 and D2 both assume that rivals will ignore any price change initiated by this oligopolist. C) Dema Demand nd cur curve vess D1 and D2 both assume that rivals will match any price change initiated by this oligopolist. D) Dema Demand nd cur curve ve D2 assumes that rivals will match any price change initiated by this oligopolist. Answer: A

Type: G Topic: 8 E: 472-473 MI: 228-229 167. Refer to the above above diagram diagram for a noncollusiv noncollusivee oligopolist. oligopolist. Suppose Suppose that the firm is initially initially in equilibrium equilibrium at point E where the equilibrium price and quantity are P and Q. If the firm's rivals will ignore any price increase but match any price reduction, then the firm's demand curve will be: A) D1 ED2. B) D2 ED1. C) D1 ED1. D) D2 ED2. Answer: B

Type: G Topic: 8 E: 472-473 MI: 228-229 168. Refer to the above above diagram diagram for a noncollusiv noncollusivee oligopolist. oligopolist. We assume assume that the firm is initially initially in equilibrium at point E where the equilibrium price and quantity are P and Q. If the firm's rivals will ignore any price increase but match any price reduction, the firm's marginal revenue curve will be: A) D1 ED2. B) MR 2abMR 1. C) MR 2aMR 2. D) MR 1bMR 1. Answer: B

Type: G Topic: 8 E: 472-473 MI: 228-229 169. Refer to the above above diagram diagram for a noncollusiv noncollusivee oligopolist. oligopolist. We assume assume that the firm is initially initially in equilibrium at point E where the equilibrium price and quantity are P and Q. If the firm's rivals will ignore any price increase but match any price reduction, over what range might marginal cost rise without disturbing equilibrium price and output? A) bE B) ab C) Qa D) Qb Answer: B


Type: G Topic: 8 E: 473 MI: 229 170. The 170. The above above diag diagram ram portra portrays: ys: A) pure competition. competition. B) monopo monopolistic listic competition. competition. Answer: C

Type: G Topic: 8 E: 473 MI: 229 171. Refer to the above above diagram diagram.. Equilibrium Equilibrium output output is: is: A) j. B) h. C) g . D) f . Answer: C

Type: G Topic: 8 E: 473 MI: 229 172. Refer to the above above diagram diagram.. Equilibrium Equilibrium price price is: A) e. B) d . C) c. D) b. Answer: B

C) noncoll noncollusive usive oligopoly. oligopoly.

D) pure pure mono monopoly. poly.


Type: G Topic: 8 E: 472-473 MI: 228-229 173. Refer to the above above diagram. diagram. This firm's firm's demand demand and marginal marginal revenue revenue curves curves are based on the assumpt assumption ion that: A) the firm firm has has no immedia immediate te rivals rivals.. B) rivals rivals will match both both a price increase increase and and a price price decrease. decrease. C) rivals rivals will match a price price increase increase,, but ignore ignore a price decreas decrease. e. D) rivals rivals will ignore ignore a price increase increase,, but match a price price decreas decrease. e. Answer: D

Type: G Topic: 8 E: 472-473 MI: 228-229 174. Refer to the above above diagram diagram.. In equilib equilibrium rium the the firm: firm: A) is reali realizin zing g an econom economic ic profit profit of ad per per unit. unit. C) is incurr incurring ing a loss. loss. B) shoul should d close close down down in the sho short rt run. run. D) is reali realizin zing g an econom economic ic profi profitt of bd per unit. Answer: A

Type: A Topic: 8 E: 472-473 MI: 228-229 175. According According to the kinked-dem kinked-demand and curve curve model, an oligopolistic oligopolistic firm firm will produce produce where: A) avera average ge total total cost is minim minimize ized. d. B) price price equa equals ls margi marginal nal cost cost.. C) marginal marginal revenu revenuee equals equals marginal marginal cost. cost. D) the demand demand curve curve intersects intersects the avera average ge total cost cost curve. curve. Answer: C

Type: A Topic: 8 E: 472-473 MI: 228 176. A kink kink may exist exist in an an oligopolist oligopolist's 's demand demand curve curve because because:: A) produ products cts are are differen differentia tiated ted.. B) an abrup abruptt change change in price price elasticity elasticity occurs. occurs. C) the firm firm will ignore ignore price cuts cuts by rivals, rivals, but will match match their price price increases increases.. D) there there is a gap gap in margi margina nall costs. costs. Answer: B

Collusion; cartels; price leadership

Type: A Topic: 9 E: 475 MI: 231 177. OPEC 177. OPEC provi provides des an exam example ple of: of: A) a tacit understanding. B) nonc noncollu ollusiv sivee oligop oligopoly oly.. Answer: C

C) an international cartel. D) a monopo monopolist listica ically lly compe competiti titive ve indust industry. ry.

Type: A Topic: 9 E: 474 MI: 230 178. 178. Oligopo Oligopolist listic ic firms firms engage engage in collusi collusion on to: A) minimiz minimizee unit costs costs of produc productio tion. n. B) realize realize alloca allocative tive efficie efficiency, ncy, that that is, is, the the P = MC level of output. C) earn earn great greater er profit profits. s. D) increa increase se produc production tion.. Answer: C

Type: A Topic: 9 E: 476 MI: 232 179. The likelihoo likelihood d of a cartel cartel being being successfu successfull is greater greater when: when: A) firms firms are producing producing a differentiated differentiated,, rather than a homogeneous homogeneous,, product. B) cost cost and demand demand curves curves of various various participants participants are are very similar. similar. C) the number number of of firms firms involved involved is relativ relatively ely large. large. D) the economy economy is in the reces recession sion phase phase of the business business cycle. cycle. Answer: B

Type: A Topic: 9 E: 476 MI: 232 180. Cartels Cartels are difficult difficult to mainta maintain in in the long run run because because:: A) they are are illegal illegal in all all industrial industrialized ized countrie countries. s. B) individual individual members members may find find it profitable profitable to cheat cheat on agreemen agreements. ts. C) it is more profitable profitable for for the industry industry to charge a lower lower price and produce produce more more output. D) entry entry barriers barriers are insignifica insignificant nt in oligopolistic oligopolistic industries industries.. Answer: B

Type: A Topic: 9 E: 474-476 MI: 230-232 181. Three Three major major means means of collusion collusion by by oligopolis oligopolists ts are: are: A) cartels, cartels, tacit tacit understandin understandings, gs, and price price leadership leadership.. B) market market sharing, sharing, mutual interdepend interdependence, ence, and product product differentiat differentiation. ion. C) cartels, cartels, kinked-dem kinked-demand and pricing, pricing, and product product differentiat differentiation. ion. D) tacit tacit und unders erstan tandin dings, gs, P = MC pricing, and mutual interdependence. Answer: A

Type: A Topic: 9 E: 474 MI: 230 182. If the firms firms in an oligopolistic oligopolistic industry industry can establish establish an effectiv effectivee cartel, the resulting resulting output output and price will approximate those of: A) a purely purely compe competiti titive ve produc producer. er. B) a pure pure mono monopo poly ly.. C) a mono monopolisti polistically cally competitive competitive producer producer.. D) an industr industry y with a low four-fir four-firm m concentra concentration tion ratio. ratio. Answer: B

Type: F Topic: 9 E: 476 MI: 232 183.. In the 183 the Unit United ed State Statess carte cartels ls are: are: A) quite common common in industr industries ies that produce produce nondurab nondurable le goods. goods. B) in viola violation tion of of the anti antitru trust st laws. laws. C) concentr concentrated ated in monopo monopolistica listically lly competitive competitive industri industries. es. D) encourage encouraged d by government government policy policy so firms can achieve achieve economies economies of scale. scale. Answer: B

Type: A Topic: 9 E: 475 MI: 231 184. Assume Assume the several several manufacturer manufacturerss of ceramic ceramic tile in a city reach a verbal verbal agreement agreement to establish establish the price of their product at 55 cents per tile. This best describes: A) multiproduc multiproductt pricing. pricing. B) a cartel. cartel. C) a tacit understan understanding. ding. D) price leadershi leadership. p. Answer: C


Type: A Topic: 9 E: 476 MI: 232 185. One would expect expect that collusion collusion among among oligopolistic oligopolistic producer producerss would be easiest easiest to achieve in which which of the following cases? A) a rather rather large number number of firms firms producing producing a differentiat differentiated ed product product B) a very very few firms firms producin producing g a differenti differentiated ated product product C) a rather rather large number number of firms firms producin producing g a homogeneous homogeneous product product D) a very very few firms firms producin producing g a homogeneou homogeneouss product product Answer: D

Type: D Topic: 9 E: 474 MI: 230 186. Suppose Suppose the only three three existing existing manufacturer manufacturerss of video game players players signed signed a written contrac contractt by which each agreed to charge the same price for products and to distribute their products only in the geographical area assigned them in the contract. This best describes: A) cost-plus cost-plus pricing. pricing. B) multipr multiproduct oduct pricing. pricing. C) a cartel. cartel. D) price price leadership leadership.. Answer: C

Type: D Topic: 9 E: 475 MI: 231 187.. Which 187 Which of of the foll followi owing ng state statemen ments ts is correct ? A) A cartel cartel is usually a formal agreement agreement among oligopolists oligopolists that sets product product price and and determines each each firm's market share. B) The practice practice of price price leadership leadership is almost almost always based based on a formal written written agreement agreement.. C) All oligopo oligopolists lists heavily heavily adver advertise tise their their products products.. D) Active Active and frequent frequent price competition competition between between firms is a basic characteris characteristic tic of oligopoly. oligopoly. Answer: A

Type: D Topic: 9 E: 477 MI: 233 188. Suppose Suppose firms in a collusive collusive oligopoly oligopoly decide decide to establish establish their prices prices at a level that discourag discourages es new rivals rivals from entering the industry. This is called: A) mutual mutual interdepen interdependenc dence. e. B) pricing pricing the demand demand curve. curve. C) limit pricing. pricing. D) price leadership leadership.. Answer: C

Type: A Topic: 9 E: 474 MI: 230 189. If the several several oligopolistic oligopolistic firms that comprise comprise an industry industry behave behave collusively, collusively, the resulting resulting price and output will most likely resemble those of: A) bilateral bilateral mono monopoly. poly. B) pure pure mono monopoly. poly. C) monopo monopolistic listic competition competition.. D) pure pure competition competition.. Answer: B

Type: A Topic: 9 E: 476 MI: 232 190. Other things things equal, cartels cartels and similar collusive collusive arrangemen arrangements ts are easier to establish establish and maintain: maintain: A) when there are ample ample opportunities for the firms to make secret secret price concessions to selected buyers. buyers. B) during during periods periods of cyclica cyclicall stability stability and full full employment. employment. C) when the demand demand and cost cost conditions conditions of the participati participating ng firms differ differ substantia substantially. lly. D) when the the number number of of firms firms is relativ relatively ely large. large. Answer: B

Type: D Topic: 9 E: 477 MI: 233 191. A break-down break-down in price price leadership leadership leading leading to successive successive rounds rounds of price price cuts is known as: as: A) limit pricing. pricing. B) a price price war. C) tacit pricing pricing D) price discrimina discrimination tion

Answer: B


Type: F Topic: 9 E: 475 MI: 231 192. Which Which of the followin following g nations nations is not a member member of the the OPEC OPEC oil cartel? cartel? A) Saudi Saudi Arabia. Arabia. B) Iran. Iran. C) Venezuela Venezuela.. D) Norway. Norway. Answer: D

Type: F Topic: 9 E: 475 MI: 231 193. Which Which of the following following companies companies was convicted convicted in the 1990s as part part of a conspirac conspiracy y to fix prices? A) Archer Archer Daniels Daniels Midland Midland B) Boeing Boeing C) Wendy's Wendy's D) IBM IBM Answer: A

Type: F Topic: 9 E: 475 MI: 231 194. Secret Secret conspira conspiracies cies to fix fix prices prices are are examples examples of: of: A) cartels. cartels. B) price price leadership leadership.. C) overt overt collusion collusion.. D) covert covert collusion. collusion. Answer: D

Advertising

Type: F Topic: 10 E: 477 MI: 233 195. In recent recent years years advertising advertising expendi expenditures tures in the United United States States have been: been: A) 10 to 12 percent of GDP per year. C) more than $215 billion per year. B) $1 to $2 billion per year. D) about $20 billion per year. Answer: C

Type: A Topic: 10 E: 478 MI: 234 196. Advertising Advertising can enhan enhance ce economic economic effic efficienc iency y when it: A) increa increases ses bran brand d loyalt loyalty. y. B) raise raisess entr entry y barr barrier iers. s. C) increases increases consumer consumer aware awareness ness of substitu substitute te products. products. D) boost boostss avera average ge total total cost. cost. Answer: C

Type: A Topic: 10 E: 478 MI: 234 197. Advertising Advertising can enhan enhance ce economic economic effic efficienc iency y when it: A) increa increases ses bran brand d loyalt loyalty. y. B) expands expands sales such such that firms firms achieve achieve substantial substantial economies economies of scale. scale. C) keeps keeps new firms firms from from entering entering profitab profitable le industries. industries. D) is under undertaken taken by pure pure competitor competitors. s. Answer: B

Type: A Topic: 10 E: 478-479 MI: 234-235 198. Advertising Advertising can impede impede econo economic mic efficien efficiency cy when when it: A) increa increases ses entry entry barr barriers iers.. B) reduc reduces es brand brand loyalt loyalty. y. C) enables enables firms firms to achieve achieve substanti substantial al economies economies of scale. scale. D) increases increases consumer consumer aware awareness ness of substitu substitute te products. products. Answer: A

Type: A Topic: 10 E: 478-479 MI: 234-235 199. Advertising Advertising can impede impede econo economic mic efficien efficiency cy when when it: A) reduc reduces es entry entry barr barriers iers.. B) reduc reduces es brand brand loyalt loyalty. y. C) leads leads to great greater er monop monopoly oly power power.. D) provides provides consumers consumers with with useful informa information tion about product product quality. quality. Answer: C

Type: A Topic: 10 E: 479 MI: 235 200. The presen presence ce of advert advertising ising in a particula particularr market: market: A) tells us that that the industry industry is an oligopo oligopoly. ly. B) tells us that the the industry industry is monopoli monopolisticall stically y competitive. competitive. C) means means that barrier barrierss to entering entering the industr industry y are high. high. D) may or may may not mean substan substantial tial monopoly monopoly power in the the industry. industry. Answer: D

Efficiency aspects

Type: A Topic: 11 E: 479 MI: 235 201.. We would 201 would expec expectt a cartel cartel to ach achiev ieve: e: A) both allocati allocative ve efficienc efficiency y and productive productive efficie efficiency. ncy. B) allocative allocative efficie efficiency, ncy, but not not productive productive effici efficiency. ency. C) productiv productivee efficienc efficiency, y, but not allocat allocative ive efficien efficiency. cy. D) neither neither allocative allocative efficiency efficiency nor productiv productivee efficiency. efficiency. Answer: D

Type: C Topic: 11 E: 479 MI: 235 202. Suppose Suppose that a particular particular industry industry has a a four-firm four-firm concentr concentration ation ratio of 85 and and a Herfindahl Herfindahl Index of 3000. Most likely, this industry would achieve: achieve: A) both produc productive tive efficienc efficiency y and allocative allocative efficien efficiency. cy. B) allocative allocative efficie efficiency ncy but not not productiv productivee efficienc efficiency. y. C) neither neither productive productive efficie efficiency ncy nor producti productive ve efficiency efficiency.. D) productiv productivee efficiency efficiency but not not allocative allocative efficienc efficiency. y. Answer: C

Type: A Topic: 11 E: 479 MI: 235 203. Suppose Suppose that an industr industry y is characteriz characterized ed by a few firms firms and price price leadership leadership.. We would would expect expect that: A) price price would would equal equal margi margina nall cost. cost. B) price price would would equal equal avera average ge total total cost. cost. C) price price would exceed exceed both both marginal marginal cost and average average total total cost. D) marginal marginal revenu revenuee would exceed exceed marginal marginal cost. cost. Answer: C


Type: A Topic: 11 E: 479 MI: 235 204. The conclusion conclusion that that oligopoly oligopoly is inefficient inefficient relative relative to the competitive competitive ideal ideal must be qualified qualified because: because: A) industry industry price price leaders leaders often often select select a price equal equal to marginal marginal cost. cost. B) over over time oligopolistic oligopolistic industries industries may promote promote more rapid product product development development and greater greater improvement of production techniques than if they were purely competitive. C) increased increased output output due to persuasive persuasive advertising advertising may perfectly perfectly offset offset the restriction restriction of output caused caused by monopoly power. D) many many oligopolists oligopolists sell their products products in monopolistica monopolistically lly competitive competitive or even purely competitive competitive industries. Answer: B

Review of four structures

Type: A Topic: 12 E: 461, 467 MI: 217, 223 205. Monopolistic Monopolistic compet competition ition and and oligopoly oligopoly are are alike alike in that: that: A) the number number of firms firms is approxima approximately tely the same same in both cases. cases. B) the kinked-de kinked-demand mand analysis analysis is applica applicable ble in both instance instances. s. C) strong strong mutual interdep interdependen endence ce exists among among firms in both market market models. models. D) non nonprice price competition competition is common common to both. both. Answer: D

Type: A Topic: 12 E: 461, 467 MI: 217, 223 206. Produc 206. Productt differen differentia tiation tion is prese present nt in: A) purely purely compe competiti titive ve market marketss only. only. B) mono monopolistic polistically ally competitive competitive markets markets only. only. C) oligop oligopoli olistic stic mar market ketss only. only. D) both monopoli monopolisticall stically y competitive competitive and oligopoli oligopolistic stic markets. markets. Answer: D

Type: A Topic: 12 E: 479 MI: 235 207. Under which which of the following following market market structures structures will the long-run long-run equilibri equilibrium um price be equal equal to marginal marginal cost? A) oligopoly oligopoly B) mono monopolistic polistic competition competition C) pure mono monopoly poly D) pure competition competition Answer: D

Type: A Topic: 12 E: 439, 467 MI: 195, 223 208. In which which of the following following industry industry structur structures es is the entry entry of new firms firms the most most difficult? difficult? A) pure mono monopoly poly B) oligopoly oligopoly C) mono monopolisti polisticc competition competition D) pure competition competition Answer: A

Type: A Topic: 12 E: 460 MI: 216 209. An industry industry comprised comprised of of 40 firms, firms, none of which which has more more than 3 percent percent of the total total market market for a differentiated product is an example of: A) mono monopolistic polistic competition competition B) oligopoly oligopoly C) pure mono monopoly poly D) pure competition competition Answer: A

Type: A Topic: 12 E: 413, 438 MI: 169, 194 210.. A one-f 210 one-firm irm ind indust ustry ry is known known as: as: A) mono monopolistic polistic competition competition B) oligopoly oligopoly C) pure mono monopoly poly Answer: C

D) pure competition competition

Type: A Topic: 12 E: 467 MI: 223 211. An industry industry comprised comprised of of four firms, firms, each each with approxima approximately tely 25 percent percent of the total total market market for a product, product, is an example of: A) mono monopolistic polistic competition competition B) oligopoly oligopoly C) pure mono monopoly poly D) pure competition competition Answer: B

Type: A Topic: 12 E: 413 MI: 169 212. An industry industry comprised comprised of a very large large number of sellers sellers that are producing producing a homogeneous homogeneous or standard standardized ized product is called: A) mono monopolistic polistic competition competition B) oligopoly oligopoly C) pure mono monopoly poly D) pure competition competition Answer: D

Type: A Topic: 12 E: 414, 467 MI: 170, 223 213. An industry industry comprised comprised of a small number number of firms, firms, each of which consider considerss the potential potential reactions reactions of its rivals in making price-output decisions is called: A) mono monopolistic polistic competition competition B) oligopoly oligopoly C) pure mono monopoly poly D) pure competition competition Answer: B

Type: A Topic: 12 E: 468 MI: 224 214. An industry industry producing producing a differen differentiated tiated product product whose four-firm four-firm concent concentration ration ratio is 18 percent percent is an example of: A) mono monopolistic polistic competition competition B) oligopoly oligopoly C) pure mono monopoly poly D) pure competition competition Answer: A

Type: A Topic: 12 E: 468 MI: 224 215. An industry industry producing producing a homo homogeneo geneous us product whose whose four-firm four-firm concentration concentration ratio is 76 percent percent is an example of: A) mono monopolistic polistic competition competition B) oligopoly oligopoly C) pure mono monopoly poly D) pure competition competition Answer: B

Type: A Topic: 12 E: 414 MI: 170 216. In which of the followin following g market models models do individual individual firms exert exert no control over over product product price? A) oligopoly oligopoly B) pure mono monopoly poly C) mono monopolisti polisticc competition competition D) pure competition competition Answer: D


Type: A Topic: 12 E: 414 MI: 170 217. Which Which of the following following correctly correctly arrays arrays the various various market market structures structures in terms of their similariti similarities es to one another? A) pure competitio competition, n, oligopoly, oligopoly, monopolistic monopolistic competition competition,, pure monopoly monopoly B) pure monop monopoly, oly, oligopoly, oligopoly, monopolis monopolistic tic competition, competition, pure pure competition competition C) pure compet competition, ition, pure pure monopoly, monopoly, monopolistic monopolistic competitio competition, n, oligopoly oligopoly D) pure competitio competition, n, oligopoly, oligopoly, pure monopoly, monopoly, monopolistic monopolistic competitio competition n Answer: B


Type: G Topic: 12 E: 426 MI: 182 218. The purely purely competitive competitive market market model model is portrayed portrayed in the above above figures figures by: A) Figure Figure A. B) Figure Figure B. C) both Figures Figures B and D. D) Figure Figure C. Answer: B

Type: G Topic: 12 E: 414, 461 MI: 170, 217 219. Refer to the above above figures. figures. We would expect expect industry industry entry and and exit to be relatively relatively easy in: A) Figure Figure A only. B) Figure Figure C only. only. C) both Figures Figures A and C. D) both Figures Figures B and D. Answer: D

Type: G Topic: 12 E: 432 MI: 188 220. Refer to the above above figures. figures. Both allocative allocative and productiv productivee efficiency efficiency are being being realized realized in: A) all four figures. figures. B) Figures B and D. C) Figure D only. only. D) Figure B only. Answer: D

Type: G Topic: 12 E: 474-475 MI: 230-231 221. Refer to the above above figures. figures. Collusion Collusion is most likely to occur occur in the industry(ies) industry(ies) repres represented ented by: A) Figure Figure A. B) Figure Figure B. C) Figure Figure C. D) both Figures Figures B and D. Answer: C

Type: G Topic: 12 E: 461, 467 MI: 217, 223 222. Refer to the the above above figures. figures. Product Product different differentiation iation may be be present present in: A) Figure Figure A only. B) Figure B only. only. C) Figure C only. D) both Figures Figures C and D. Answer: D

Type: G Topic: 12 E: 453-454 MI: 209-210 223. Refer to the above above figures. figures. Government Government regulation regulation of price price and service service is most likely to occur occur in: A) Figure Figure A only. B) Figure Figure D only. C) both Figures Figures A and C. D) both Figures Figures A and D. Answer: A

Type: G Topic: 12 E: 474 MI: 230 224. Refer to the the above above figures. figures. Long-run Long-run economic economic profits profits are most most likely to occur occur in: A) Figures Figures A and B. B) Figure B only. only. C) Figure D. D) Figures A and C. Answer: D

Type: G Topic: 12 E: 414 MI: 170 225. Refer to the the above above figures. figures. Industry Industry entry entry is likely to be most most difficult difficult in: A) Figure Figure A. B) Figure Figure B. C) Figure Figure C. D) Figure Figure D. Answer: A

Type: G Topic: 12 E: 414 MI: 170 226. Refer to the above above figures. figures. A homogeneous homogeneous or standar standardized dized product product is most likely likely to be produced produced in: A) Figure Figure A. B) Figure Figure B. C) Figure Figure C. D) Figure Figure D. Answer: B

Consider This Questions

Type: A E: 470 MI: 226 Status: New 227. (Consider (Consider This) This) The story story about about three seller sellerss of Native Native American American arts arts and crafts crafts best best illustrates illustrates the the idea of; of; A) strategic behavior. B) excess capacity. C) the role of advertising. D) product differentiation. Answer: A

Type: A E: 470 MI: 226 Status: New 228. (Consider (Consider This) This) The Native Native America American n arts and and crafts crafts story story illustra illustrates tes the twin twin ideas ideas of: of: A) product product differen differentiation tiation and and monopolistic monopolistic competitio competition. n. B) excess excess capacity capacity and monop monopolistic olistic competi competition. tion. C) local local oligopoly oligopoly and and strate strategic gic behav behavior. ior. D) pure mono monopoly poly and and price price discrimina discrimination. tion. Answer: C


Last Word Questions

Type: F E: 480 MI: 236 229.. (Last 229 (Last Word) Word) The The U.S. U.S. beer beer indus industry try:: A) has become become monopolistic monopolistically ally competitive competitive as the result of new production production technologie technologies. s. B) has evolved evolved from from monopolistic monopolistic competitio competition n to oligopoly oligopoly in the past 50 years years.. C) is populated populated by hundreds hundreds of relativel relatively y large, independ independent ent brewers. brewers. D) approxima approximates tes the purely purely competitiv competitivee market market model. Answer: B

Type: F E: 480-481 MI: 236-237 230. (Last (Last Word) Increa Increased sed concentr concentration ation in the beer beer industry industry has been been caused caused by: A) changes in consumer consumer tastes from from the strong beers beers of small small breweries to the light beers beers of the large large brewers. B) a shift shift of beer beer consum consumption ption from from bars bars to homes. homes. C) technolog technological ical progress progress which has speeded speeded up canning canning and bottling lines and and lowered costs. costs. D) all of of the above above fac factor tors. s. Answer: D

Type: F E: 480 MI: 236 231. (Last (Last Word) Word) The two two largest largest U.S. U.S. brewers brewers share share about: about: A) 10 perc percent ent of the beer beer marke market. t. C) 50 percen percentt of the beer beer market market.. B) 20 perc percent ent of the beer beer marke market. t. D) 70 percen percentt of the beer beer market market.. Answer: D

Type: F E: 480 MI: 236 232. (Last (Last Word) Word) The leading leading seller seller of of beer beer in the United United States States is: is: A) Coors. Coors. B) Anheuse Anheuser-Bus r-Busch. ch. C) Miller Miller Brewing Brewing Company. Company. D) Corona. Corona. Answer: B

Type: F E: 469, 480 MI: 225, 236 233. (Last (Last Word) The two leadin leading g producers producers of beer beer in the United United States States have market market shares shares of 47 percent percent and 22 percent, respectively. On the basis of that information, information, we can conclude that: A) the four-fir four-firm m concentratio concentration n ratio in the beer industry industry is nearly nearly 100 percent. percent. B) the Herfind Herfindahl ahl index index in the beer beer industry industry exceed exceedss 2500. C) firms firms practice practice overt overt collusion collusion to set set prices prices in the industr industry. y. D) the industr industry y is monop monopolistic olistically ally competitiv competitive. e. Answer: B

True/False Questions

Type: A E: 464 MI: 220 234. In the long run monopolistic monopolistically ally competitive competitive firms make normal normal profits because because they are forced forced to operate operate at the minimum point on their average total cost curve. Answer: False

Type: A E: 464-465 MI: 220-221 235. The monopolis monopolistically tically competitiv competitivee seller maximizes maximizes profits profits by equating equating price and marginal marginal cost. cost. Answer: False

Type: A E: 464-465 MI: 220-221 236. Monopolistic Monopolistically ally competitive competitive firms firms are inefficien inefficientt because they they produce produce at a point on the rising segment segment of their average cost curves. Answer: False

Type: A E: 462 MI: 218 237. The demand demand curve of a monopolis monopolistically tically competitive competitive produc producer er is less elastic elastic than that of a purely purely competitive producer. Answer: True

Type: D E: 464 MI: 220 238. The larger larger the number number of firms and and the less the degree degree of product product differentia differentiation, tion, the greater greater will be the elasticity of a monopolistically competitive seller's demand curve. Answer: True

Type: A E: 464 MI: 220 239. The economic economic profits profits earned earned by monopolistica monopolistically lly competitive competitive sellers sellers are zero in the long long run. Answer: True

Type: A E: 465-466 MI: 221-222 240. The excess excess capacity capacity problem problem associated associated with monopolis monopolistic tic competition competition implies that that fewer firms firms could produce the same industry output at a lower total cost. Answer: True

Type: A E: 462 MI: 218 241. The demand demand curve of a monopolis monopolistically tically competitive competitive firm firm is more elastic elastic than that of a pure monopolis monopolist. t. Answer: True

Type: A E: 464 MI: 220 242. The monopolis monopolistically tically competitiv competitivee seller equates equates price price and marginal marginal cost in maximizing maximizing profits. profits. Answer: False

Type: A E: 464 MI: 220 243. Monopolistic Monopolistically ally competitive competitive sellers sellers realize economic economic profits profits in the long run because because entry barriers barriers are significant. Answer: False

Type: A E: 464-465 MI: 220-221 244. Monopolistic Monopolistically ally competitive competitive sellers sellers produce efficien efficiently tly because because they obtain only normal normal profits in the long run. Answer: False


Type: A E: 472 MI: 228 245. The oligopolist's oligopolist's kinked-de kinked-demand mand curve curve is highly highly elastic below and highly highly inelastic inelastic above the going product product price. Answer: False

Type: A E: 467 MI: 223 246. Mutual Mutual interdependen interdependence ce means that oligopolistic oligopolistic producer producerss rely on price competition competition in determining determining their shares of the total market for their product. Answer: False

Type: D E: 472 MI: 228 247. If an oligopolist oligopolist's 's several several rivals exactly exactly match any any price changes changes it initiates, initiates, the demand curve curve will be less elastic than if its price changes are ignored by its rivals. Answer: True

Type: A E: 474 MI: 230 248. If three three or four homogeneo homogeneous us oligopolists oligopolists collude, collude, the resulting resulting price price and production production outcomes outcomes will be similar to those of pure monopoly. Answer: True

Type: A E: 476 MI: 232 249. Generally Generally speaking, speaking, the larger larger the number number of firms in an oligopolisti oligopolisticc industry, industry, the more difficult difficult it is for those firms to collude. Answer: True

Type: A E: 467 MI: 223 250. Generally Generally speaking, speaking, oligopolistic oligopolistic industries industries producing producing raw materials and semifinished semifinished goods goods usually offer differentiated products, while oligopolists producing consumer goods usually offer standardized products. Answer: False

Type: C E: 468-469 MI: 224-225 251. Two industries industries that have the same same 4-firm concentrat concentration ion ratio can have significa significantly ntly different different Herfindahl Herfindahl indexes. Answer: True

Type: F E: 469 MI: 225 252. As it relates relates to oligopoly, oligopoly, game theory theory focuses focuses on the strategic strategic behavior behavior of rival firms. firms. Answer: True

Type: F E: 469 MI: 225 253. The highes highestt possible possible value value of the the Herfinda Herfindahl hl index is is 1,000. 1,000. Answer: False

Type: D E: 467 MI: 223 Status: New 254. The market market structure structure called called "oligopoly" "oligopoly" includes includes industries industries with one or a small small number of firms. firms. Answer: False

Type: F E: 467 MI: 223 Status: New 255. The U.S. break breakfast fast cereal cereal industry industry is an example example of differ differentiat entiated ed oligopoly. oligopoly. Answer: True

Type: F E: 467 MI: 223 Status: New 256. The U.S. U.S. steel industr industry y is an example example of homog homogeneous eneous oligopo oligopoly. ly. Answer: True

Type: F E: 472 MI: 228 Status: New 257. In the kinked kinked demand demand curve model, model, the firm's marginal marginal revenue revenue curve curve and demand demand curve are are identical. identical. Answer: False

Type: F E: 467 MI: 223 Status: New 258. Homogenous Homogenous oligopol oligopolists ists tend to advertise advertise more than than do differentia differentiated ted oligopolists. oligopolists. Answer: False

Chap 025

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