Question 1

If a firm has substantial market power, it must be operating in an industry that would be classified as:

Accepted Answer

A)   a monopoly or oligopoly.
B)   perfectly competitive.
C)   monopolistically competitive.
D)   perfectly competitive or monopolistically competitive.
E)   perfectly competitive or a monopoly.F) C) and E)
G) A) and B)

Question 2

A major cartel problem is that member firms cheat by attempting to steal customers from one another.

Accepted Answer

A) True 
 B)False

Question 3

A cartel is a formal agreement among firms to control price and output of a product.

Accepted Answer

A) True 
 B)False

Question 4

In a monopolistically competitive market like retail trade, firms can easily enter and exit the market.

Accepted Answer

A) True 
 B)False

Question 5

A cartel maximizes industry profit by:

Accepted Answer

A)   eliminating quotas.
B)   producing at the kink in its demand curve.
C)   producing where MR = MC.
D)   giving secret price concessions.
E)   producing more output than a monopoly would.F) B) and D)
G) C) and E)

Question 6

Which of the following most closely approximates the conditions of a monopolistically competitive market?

Accepted Answer

A)   The market for Grade A eggs, which is characterized by a large number of firms producing a homogeneous product.
B)   The restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers.
C)   Local cable television service, where a licensed supplier competes with firms offering satellite service.
D)   The market for jumbo aircraft, where one major domestic firm competes with one major foreign firm.E) A) and B)
F) All of the above

Question 7

Costume jewelry is produced in a monopolistically competitive market. One producer finds that MR = MC = $3 when output is 700 necklaces. An economist studying this information can conclude that:

Accepted Answer

A)   the producer is charging a price of $3.
B)   economic profit is $2,100.
C)   the producer charges a price greater than $3.
D)   new firms will want to enter.
E)   this producer should produce more than 700 necklaces.F) B) and D)
G) None of the above

Question 8

If a firm reacts to other firms' market decisions by anticipating how the other will then react, this is:

Accepted Answer

A)   not profit-maximizing behavior
B)   a monopolistic competitive market
C)   a market with a low concentration ratio
D)   mutual interdependence
E)   collusion by definitionF) B) and D)
G) B) and C)

Question 9

Exhibit 9-2  A monopolistic competitive firm  As presented in Exhibit 9-2, the long-run profit-maximizing output for the monopolistic competitive firm is:

Accepted Answer

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

Question 10

Exhibit 9-3  A monopolistic competitive firm in the long run  As presented in Exhibit 9-3, the long-run profit-maximizing output for the monopolistic competitive firm is:

Accepted Answer

A)   zero units per week.
B)   200 units per week.
C)   400 units per week.
D)   600 units per week.
E)   800 units per week.F) None of the above
G) A) and B)

Question 11

Which of the following explains how a cartel with 100 percent control might raise price to monopoly-like levels?

Accepted Answer

A)   By setting a group output level equal to a profit-maximizing monopolist, and then assigning binding quota shares to cartel members.
B)   By setting an official price that members can secretly undercut.
C)   By forbidding price competition, but allowing non-cooperative rivalry in output levels.
D)   None of the above.E) A) and B)
F) A) and C)

Question 12

Defenders of advertising argue that it:

Accepted Answer

A)   informs buyers and broadens the market for goods.
B)   enhances economic efficiency by lowering prices.
C)   enables small firms to compete more effectively with large ones.
D)   all of the above.E) All of the above
F) A) and C)

Question 13

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

Accepted Answer

A)   It is not always successful in increasing demand for a firm's product.
B)   It attempts to increase demand and to make demand more inelastic.
C)   It may reduce per unit costs of production when economies of scale are experienced.
D)   All of the above.E) None of the above
F) C) and D)

Question 14

In the long run, a monopolistic competitive firm will operate at a price which:

Accepted Answer

A)   is higher than minimum long-run average cost.
B)   equals minimum long-run average cost.
C)   equals marginal cost.
D)   none of the above.E) All of the above
F) A) and B)

Question 15

In the long run, the economic profits of Hoot's Chicken 'n' Ribs, a monopolistic competitor, are:

Accepted Answer

A)   not eliminated, because competition is not perfect.
B)   not eliminated, because the demand curve slopes downward.
C)   eliminated due to firms entering the industry.
D)   eliminated due to firms leaving the industry.
E)   not eliminated, because firms cannot enter the industry.F) A) and E)
G) None of the above

Question 16

A major characteristic of the theory of oligopoly is that:

Accepted Answer

A)   there are no real-world examples.
B)   the reactions of each firm depends on how the firm believes rivals will react.
C)   in reality few oligopolies survive more than 10 years.
D)   none of the above.E) A) and D)
F) A) and C)

Question 17

What are the characteristics of monopolistic competition?

Accepted Answer

Monopolistic competition is characterize...

Question 18

Which of the following is true about advertising?

Accepted Answer

A)   If monopolistically competitive firms compete through advertising, that creates brand loyalty, then advertising can be an effective entry cost.
B)   Advertising may be the only way that a new entrant can penetrate a market dominated by long-established firms.
C)   Advertising has no impact on entry costs or market structure.
D)   Both a. and b. above are correct.E) A) and B)
F) A) and D)

Question 19

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

Accepted Answer

A)   produce the output level at which price equals long-run marginal cost.
B)   operate at minimum long-run average cost.
C)   overutilize its insufficient capacity.
D)   produce the output level at which price equals long-run average cost.E) C) and D)
F) B) and D)

Question 20

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

Accepted Answer

A)   There is little price or quality competition.
B)   The firms compete, using quality, location, advertising, and price.
C)   Firms do not compete using advertising.
D)   There is little competition between firms.E) None of the above
F) C) and D)

Exam 9: Monopolistic Competition and Oligopoly

Defenders of advertising argue that it:

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What are the characteristics of monopolistic competition?

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In the long run, the economic profits of Hoot's Chicken 'n' Ribs, a monopolistic competitor, are:

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

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Which of the following explains how a cartel with 100 percent control might raise price to monopoly-like levels?

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Exhibit 9-2 A monopolistic competitive firm As presented in Exhibit 9-2, the long-run profit-maximizing output for the monopolistic competitive firm is:

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

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In a monopolistically competitive market like retail trade, firms can easily enter and exit the market.

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

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If a firm reacts to other firms' market decisions by anticipating how the other will then react, this is:

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A cartel is a formal agreement among firms to control price and output of a product.

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Costume jewelry is produced in a monopolistically competitive market. One producer finds that MR = MC = $3 when output is 700 necklaces. An economist studying this information can conclude that:

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Which of the following is true about advertising?

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Which of the following most closely approximates the conditions of a monopolistically competitive market?

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A cartel maximizes industry profit by:

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A major cartel problem is that member firms cheat by attempting to steal customers from one another.

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In the long run, a monopolistic competitive firm will operate at a price which:

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If a firm has substantial market power, it must be operating in an industry that would be classified as:

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A major characteristic of the theory of oligopoly is that:

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Exhibit 9-3 A monopolistic competitive firm in the long run As presented in Exhibit 9-3, the long-run profit-maximizing output for the monopolistic competitive firm is:

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Monopolistic competition is characterize...
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