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| 1 | |
Which would be most characteristic of monopolistic competition? |
| | A) | collusion among firms |
| | B) | firms selling a homogeneous product |
| | C) | a relatively large number of firms |
| | D) | difficult entry into and exit from the industry |
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| 2 | |
The demand curve a monopolistically competitive firm faces is |
| | A) | perfectly elastic |
| | B) | perfectly inelastic |
| | C) | highly, but not perfectly inelastic |
| | D) | highly, but not perfectly elastic |
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| 3 | |
In monopolistic competition, the price at the profit-maximizing level of output is |
| | A) | greater than MC |
| | B) | less than MC |
| | C) | less than MR |
| | D) | greater than minimum ATC |
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| 4 | |
A monopolistically competitive firm is producing at an output level in the short run where average total cost is $3.50, price is $3.00, marginal revenue is $1.50, and marginal cost is $1.50. This firm is operating |
| | A) | with an economic loss in the short run |
| | B) | with an economic profit in the short run |
| | C) | at the break-even level of output in the short run |
| | D) | at an inefficient level of output in the short run |
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| 5 | |
Excess capacity occurs in a monopolistically competitive industry because firms |
| | A) | advertise and promote their product |
| | B) | charge a price that is less than marginal cost |
| | C) | produce at an output level lower than the least-cost output |
| | D) | have a perfectly elastic demand for the products that they produce |
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| 6 | |
The monopolistic competitor above will realize an economic profit of
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| | A) | $510 |
| | B) | $765 |
| | C) | $1,021 |
| | D) | $1,170 |
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| 7 | |
If a monopolistically competitive industry was in long-run equilibrium, a firm in that industry might be able to increase its economic profits by |
| | A) | increasing the price of its product |
| | B) | increasing its advertising |
| | C) | decreasing the price of its product |
| | D) | decreasing its output |
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| 8 | |
Given a representative firm in a typical monopolistically competitive industry, in the long run |
| | A) | the firm will produce that output at which marginal cost and price are equal |
| | B) | the elasticity of demand for the firm's product will be less than it was in the short run |
| | C) | the number of competitors the firm faces will be greater than it was in the short run |
| | D) | the economic profits being earned by the firm will tend to equal zero |
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| 9 | |
Mutual interdependence means that |
| | A) | each firm produces a product similar but not identical to the products produced by its rivals |
| | B) | each firm produces a product identical to the products produced by its rivals |
| | C) | each firm must consider the reactions of its rivals when it determines its price policy |
| | D) | each firm faces a perfectly elastic demand for its product |
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| 10 | |
Which of the following contributes to the existence of oligopoly in an industry? |
| | A) | low barriers to entry |
| | B) | standardized products |
| | C) | economies of scale |
| | D) | elastic demand |
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| 11 | |
Industry A is composed of four large firms that hold market shares of 40, 30, 20, and 10. The Herfindahl index for this industry is |
| | A) | 100 |
| | B) | 1,000 |
| | C) | 3,000 |
| | D) | 4,500 |
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| 12 | |
What is the situation called when firms in an industry reach an agreement to fix prices, divide up the market, or otherwise restrict competition? |
| | A) | inter industry competition |
| | B) | incentive to cheat |
| | C) | price leadership |
| | D) | collusion |
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| 13 | |
To be successful, collusion requires that oligopolists are able to |
| | A) | keep prices and profits as low as possible |
| | B) | block or restrict the entry of new producers |
| | C) | reduce legal obstacles that protect market power |
| | D) | keep the domestic economy from experiencing high inflation |
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| 14 | |
The prisoner's dilemma is |
| | A) | a two-player game which illustrates the difficulties of cooperating under specific conditions |
| | B) | a two-player game which illustrates collusive behaviour in prisons |
| | C) | a two-player game which illustrates price fixing behaviour |
| | D) | a term used by game theorists to explain criminal behaviour |
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| 15 | |
Many economists would conclude that in a highly oligopolistic market there is |
| | A) | allocative efficiency, but not productive efficiency |
| | B) | productive efficiency, but not allocative efficiency |
| | C) | both allocative and productive efficiency |
| | D) | neither allocative nor productive efficiency |
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