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1

An industry in which 8 firms each have a 10 percent market share and 20 firms each have a 1 percent market share will have a Herfindahl index equal to:
A)500.
B)550.
C)820.
D)1500.
2

The advantage of the Herfindahl index over the concentration ratio is that:
A)the Herfindahl index ignores the smallest firms.
B)the Herfindahl index is much easier to compute.
C)the Herfindahl index gives a more accurate measure of the market shares of all the firms in the industry.
D)the concentration ratio can only be calculated in those industries that happen to have only four firms.
3

Marginal revenue for a monopolistically competitive firm:
A)is greater than the price.
B)is equal to the price.
C)is less than the price.
D)has no relation to price.
4

For a monopolist competitor, average revenue is equal to:
A)marginal cost.
B)average revenue.
C)average total costs.
D)price.
5

In long-run equilibrium for a monopolistically competitive firm, price:
A)is equal to average total cost.
B)exceeds average total cost.
C)is equal to marginal revenue.
D)is equal to marginal cost.
6

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The monopolistically competitive firm represented by the above graph is:
A)in both short-run and long-run equilibrium because marginal revenue equals marginal cost.
B)in both short-run and long-run equilibrium because price exceeds marginal cost.
C)not in long-run equilibrium because economic profits are positive.
D)in long-run equilibrium because economic profits are positive.
7

If there are economies of scale, advertising for a monopolistic competitor is most likely to shift the ATC curve ________ and ________ per unit costs.
A)upward; increase
B)upward; decrease
C)downward; decrease
D)downward; increase
8

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Refer to the graph above. The oligopolist shown in the graph above currently charges a price P1. It believes that rival firms will:
A)gain market share if it lowers its price.
B)lose market share if it lowers price.
C)not raise price if it raises price.
D)not lower price if it lowers price.
9

According to the contestable market model, an oligopolistic industry would be more likely to have:
A)a monopolistic price.
B)a competitive price.
C)either a monopolistic or a competitive price, depending on barriers to entry and exit.
D)a price war.
10

Don and Dana have both been accused of insider trading. Don knows that if he confesses while Dana keeps silent, he will receive a one-month jail sentence. He also knows that if Dana confesses and he keeps silent, he will receive a one-year jail sentence. If neither of them confesses, there will be insufficient evidence to convict either and they will serve no time. If both of them confess, they will both serve a three-month jail sentence. If Don believes there is a good chance Dana will confess, his best strategy is to:
A)confess in order to avoid the possibility of a one-year jail sentence.
B)confess because then he will not have to serve a jail sentence.
C)not confess because keeping silent ensures that will not have to serve a jail sentence.
D)not confess because doing so guarantees a jail sentence.