Question 1

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) B) and C)
F) A) and B)

Question 2

In the short run,monopolistically competitive firms:

Accepted Answer

A)  can earn positive economic profits by acting like a monopolist.
B)  can earn positive economic profits by acting like a perfectly competitive firm.
C)  will earn zero economic profits by acting like a monopolist.
D)  will earn zero economic profits by acting like a perfectly competitive firm.E) C) and D)
F) None of the above

Question 3

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 situation in the matrix shown,we can predict that Firm A's profits will be:

Accepted Answer

A)  $50 million.
B)  $100 million.
C)  $200 million.
D)  $300 million.E) A) and C)
F) A) and D)

Question 4

When a Nash equilibrium is reached:

Accepted Answer

A)  no one has an incentive to break the equilibrium by changing his strategy.
B)  the outcome will only change if the "lead" player changes his strategy.
C)  it must be true that all players have a dominant strategy.
D)  None of these statements is true.E) A) and B)
F) All of the above

Question 5

If producers do not object to banning advertising they:

Accepted Answer

A)  probably use it simply to inform customers.
B)  see the ban as decreasing competition.
C)  believe doing so will benefit them.
D)  All of these statements are true.E) B) and C)
F) A) and C)

Question 6

For an oligopoly,when the quantity effect outweighs the price effect,the typical firm may find it optimal to:

Accepted Answer

A)  expect firms will enter the industry.
B)  collude.
C)  increase output.
D)  decrease output.E) A) and B)
F) B) and D)

Question 7

Cartels:

Accepted Answer

A)  can effectively sustain large profits in the long run.
B)  are usually illegal.
C)  can create outcomes similar to a monopoly.
D)  All of these statements are true.E) A) and D)
F) A) and C)

Question 8

Regulating a monopolistically competitive market:

Accepted Answer

A)  is easier than regulating a monopoly.
B)  is more difficult than regulating a monopoly.
C)  is very common in the U.S.today.
D)  has grown over the past 50 years.E) All of the above
F) B) and C)

Question 9

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 10

If a firm's demand curve in a monopolistically competitive market is shifting left:

Accepted Answer

A)  competition is likely entering with similar products.
B)  firms must be exiting the industry.
C)  positive economic profits must be getting bigger.
D)  None of these statements is true.E) None of the above
F) A) and B)

Question 11

For the monopolistically competitive firm,the steepness of the demand curve depends on:

Accepted Answer

A)  the availability of close substitutes.
B)  the steepness of the MC curve.
C)  the number of consumers in the market.
D)  None of these statements is correct.E) B) and D)
F) None of the above

Question 12

Advertising:

Accepted Answer

A)  is valuable because it provides free information about products and prices to consumers.
B)  is harmful because it creates a false sense of differentiation,driving prices up unnecessarily.
C)  Neither of these statements are true.
D)  Both of these statements are true.E) A) and D)
F) B) and D)

Question 13

Once a monopolistically competitive firm innovates,it is likely that:

Accepted Answer

A)  other firms will rush to create similar,highly substitutable goods.
B)  it will enjoy long-run profits.
C)  it will need government protection to earn enough to cover its R & D costs.
D)  None of these is likely to happen.E) None of the above
F) B) and C)

Question 14

Firms have incentive to enter a monopolistically competitive market if:

Accepted Answer

A)  positive profits are being earned and they can create a similar product.
B)  positive profits are being earned and the price is below MC.
C)  zero profits are being made and they can duplicate the product exactly.
D)  zero profits are being made and they can create a similar product.E) A) and D)
F) A) and B)

Question 15

When a single firm in an oligopoly market decides to increase output,that firm:

Accepted Answer

A)  feels the quantity effect,but other firms feel the price effect.
B)  feels both the quantity effect and price effect,but other firms only feel the price effect.
C)  feels the price effect,but other firms feel the quantity effect.
D)  feels the price effect,but other firms feel both the price and quantity effects.E) None of the above
F) B) and C)

Question 16

These are the cost and revenue curves associated with a firm. 
Assuming the firm in the graph is producing Q1 and charging P3,it is likely showing the cost and revenue curves of a firm in:

Accepted Answer

A)  the long run,and economic profits are zero.
B)  the short run,and accounting profits are negative.
C)  the long run,and accounting profits are zero.
D)  the short run,and economic profits are positive.E) B) and C)
F) None of the above

Question 17

Competition between oligopolists drives:

Accepted Answer

A)  price and profits down to below the monopoly level.
B)  price and profits down to the perfect competition level.
C)  some firms out until the market becomes a monopoly.
D)  collusion to happen frequently.E) All of the above
F) B) and C)

Question 18

When firms are faced with repeating games,such as the prisoner's dilemma,they:

Accepted Answer

A)  are more likely to collude.
B)  face different incentives.
C)  must consider the long-run effects of their current decision.
D)  All of these statements are true.E) A) and B)
F) C) and D)

Question 19

Product differentiation refers to:

Accepted Answer

A)  firms who offer similar products to their competitors' products,but that are more attractive in some way.
B)  the process of creating a standardized product with a lower-cost method than the competitors' method.
C)  the process of informing the public of differences in products as a result of error.
D)  consumers who sort and group goods based on similar characteristics.E) A) and B)
F) A) and C)

Question 20

These are the cost and revenue curves associated with a firm. 
Assuming the firm in the graph shown is producing Q1 and charging P3,it is likely showing the cost and revenue curves of a monopolistically competitive firm that is:

Accepted Answer

A)  maximizing profits.
B)  earning zero profits.
C)  in long-run equilibrium.
D)  All of these statements are true.E) B) and C)
F) A) and D)

Exam 15: Monopolistic Competition and Oligopoly

These are the cost and revenue curves associated with a firm. Assuming the firm in the graph is producing Q1 and charging P3,it is likely showing the cost and revenue curves of a firm in:

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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 situation in the matrix shown,we can predict that Firm A's profits will be:

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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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Competition between oligopolists drives:

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When a single firm in an oligopoly market decides to increase output,that firm:

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Regulating a monopolistically competitive market:

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When a Nash equilibrium is reached:

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If a firm's demand curve in a monopolistically competitive market is shifting left:

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For an oligopoly,when the quantity effect outweighs the price effect,the typical firm may find it optimal to:

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Once a monopolistically competitive firm innovates,it is likely that:

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If producers do not object to banning advertising they:

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Product differentiation refers to:

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When firms are faced with repeating games,such as the prisoner's dilemma,they:

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Advertising:

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For the monopolistically competitive firm,the steepness of the demand curve depends on:

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Firms have incentive to enter a monopolistically competitive market if:

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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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These are the cost and revenue curves associated with a firm. Assuming the firm in the graph shown is producing Q1 and charging P3,it is likely showing the cost and revenue curves of a monopolistically competitive firm that is:

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Cartels:

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In the short run,monopolistically competitive firms:

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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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