Question 1

In the long run,a profit-maximizing monopolistically competitive firm sells at a price that is:

Accepted Answer

A)   equal to average total cost.
B)   equal to marginal cost.
C)   below average total cost
D)   the same as in perfect competition.E) All of the above
F) A) and B)

Question 2

A monopolistically competitive market can also be:

Accepted Answer

A)   perfectly competitive market.
B)   a monopoly.
C)   an oligopoly.
D)   All of the above.E) B) and D)
F) B) and C)

Question 3

It is important for a business owner to understand the market structure in which they operate because:

Accepted Answer

A)   it defines how much freedom they have to set prices.
B)   it will tell how much attention to pay to competitors' behavior.
C)   it can help in deciding whether to advertise.
D)   All of these statements are true.E) A) and B)
F) B) and C)

Question 4

Just like a monopolist,a monopolistically competitive firm:

Accepted Answer

A)   cannot sell additional units of output without lowering the price.
B)   is a price taker.
C)   sets the price according to marginal revenue and marginal cost; the demand curve doesn't matter.
D)   faces a perfectly elastic demand curve.E) None of the above
F) A) and D)

Question 5

These are the cost and revenue curves associated with a firm.  If the firm in the graph were producing Q2 and charging P2,it:

Accepted Answer

A)   represents the perfectly competitive outcome.
B)   is an efficient outcome.
C)   is an outcome that eliminates deadweight loss.
D)   All of these statements are true.E) A) and D)
F) A) and C)

Question 6

These are the cost and revenue curves associated with a firm.  If the firm in the given graph were to produce Q1 and charge P3,the area C would represent:

Accepted Answer

A)   producer surplus.
B)   consumer surplus.
C)   deadweight loss.
D)   profits.E) All of the above
F) A) and B)

Question 7

An outcome in which all players choose the best strategy they can,given the choices of all other players,is called:

Accepted Answer

A)   a dominant strategy.
B)   collusion.
C)   a Nash equilibrium.
D)   the prisoner's dilemma.E) B) and D)
F) None of the above

Question 8

In the short run,product differentiation enables firms in monopolistically competitive markets to:

Accepted Answer

A)   produce a good for which there are exact substitutes.
B)   produce a good which is standardized.
C)   price the good at marginal cost.
D)   earn a positive economic profit.E) A) and B)
F) B) and C)

Question 9

Which of the following is not a characteristic of monopolistically competitive firms in the long run:

Accepted Answer

A)   firms earns zero profits
B)   each firm maximizes profits.
C)   firms charge a price above marginal cost.
D)   there is no deadweight loss.E) A) and B)
F) A) and C)

Question 10

The process of entry and exit into a monopolistically competitive market continues until:

Accepted Answer

A)   profits are positive.
B)   profits are negative.
C)   profits are zero.
D)   Any of these statements could be true.E) B) and D)
F) All of the above

Question 11

This prisoner's dilemma game shows the payoffs associated with two firms,A and B,in an oligopoly and their choices to either collude with one another or not.  Given the payoffs in the matrix shown,Firm A:

Accepted Answer

A)   has a dominant strategy to compete.
B)   does not have a dominant strategy.
C)   has a dominant strategy to collude.
D)   None of these statements is true.E) A) and D)
F) B) and D)

Question 12

Strategic behavior is key feature in which market structure?

Accepted Answer

A)   Monopoly
B)   Oligopoly
C)   Monopolistic competition
D)   Perfect competitionE) A) and D)
F) C) and D)

Question 13

A Nash equilibrium is:

Accepted Answer

A)   an outcome in which all players choose the best strategy they can, given the choices made by all of the other players.
B)   when one strategy is always the best for a player to choose, regardless of what other players do.
C)   an outcome in which all players follow a "leader" in order to maximize profits.
D)   None of these statements is true.E) A) and B)
F) A) and C)

Question 14

A market that consists of only a few large firms is probably a(n) :

Accepted Answer

A)   monopoly.
B)   perfectly competitive market.
C)   monopolistically competitive market.
D)   oligopoly.E) None of the above
F) A) and B)

Question 15

For an oligopoly,when the quantity effect does not outweigh the price effect,the firm:

Accepted Answer

A)   has an incentive to increase output.
B)   has no incentive to decrease output.
C)   has no incentive to increase output.
D)   None of these statements is true.E) B) and D)
F) B) and C)

Question 16

If a firm in a monopolistically competitive market has a demand curve that is shifting to the right,it will only stop shifting when:

Accepted Answer

A)   the firm is earning zero economic profits.
B)   the firm's price is equal to its average total costs.
C)   other firms have no incentive to leave the market.
D)   All of these statements are true.E) All of the above
F) A) and D)

Question 17

For the monopolistically competitive firm,the demand curve it faces will be flatter:

Accepted Answer

A)   the more differentiated the good is.
B)   the less differentiated the good is.
C)   the more complementary the good is.
D)   the less complementary the good is.E) A) and C)
F) A) and B)

Question 18

Oligopolists need to consider:

Accepted Answer

A)   the substitution effect.
B)   the supply effect.
C)   the price effect.
D)   the income effect.E) B) and C)
F) All of the above

Question 19

If a monopolistically competitive firm is suffering losses in the short run:

Accepted Answer

A)   the exit of competing firms will shift the firm's demand to the right.
B)   the exit of competing firms will shift the firm's demand to the left.
C)   the exit of competing firms will cause price to drop, but not affect the firm's demand curve.
D)   the exit of competing firms will cause price to rise, but not affect the firm's demand curve.E) A) and B)
F) A) and C)

Question 20

Because the price effect is smaller when there are _________ firms,each firm will increase its quantity by __________ before the price effect and quantity effect are equal.

Accepted Answer

A)   more; more
B)   less; more
C)   similar; less
D)   more; lessE) A) and B)
F) All of the above

Exam 15: Monopolistic Competition and Oligopoly

It is important for a business owner to understand the market structure in which they operate because:

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These are the cost and revenue curves associated with a firm. If the firm in the graph were producing Q2 and charging P2,it:

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Just like a monopolist,a monopolistically competitive firm:

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Strategic behavior is key feature in which market structure?

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If a firm in a monopolistically competitive market has a demand curve that is shifting to the right,it will only stop shifting when:

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A Nash equilibrium is:

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Which of the following is not a characteristic of monopolistically competitive firms in the long run:

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The process of entry and exit into a monopolistically competitive market continues until:

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These are the cost and revenue curves associated with a firm. If the firm in the given graph were to produce Q1 and charge P3,the area C would represent:

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This prisoner's dilemma game shows the payoffs associated with two firms,A and B,in an oligopoly and their choices to either collude with one another or not. Given the payoffs in the matrix shown,Firm A:

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Because the price effect is smaller when there are _________ firms,each firm will increase its quantity by __________ before the price effect and quantity effect are equal.

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For an oligopoly,when the quantity effect does not outweigh the price effect,the firm:

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If a monopolistically competitive firm is suffering losses in the short run:

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For the monopolistically competitive firm,the demand curve it faces will be flatter:

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In the short run,product differentiation enables firms in monopolistically competitive markets to:

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In the long run,a profit-maximizing monopolistically competitive firm sells at a price that is:

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An outcome in which all players choose the best strategy they can,given the choices of all other players,is called:

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A monopolistically competitive market can also be:

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Oligopolists need to consider:

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A market that consists of only a few large firms is probably a(n) :

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Because the price effect is smaller when there are _ firms,each firm will increase its quantity by __ before the price effect and quantity effect are equal.

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