Question 1

The demand curve faced by the monopolistically competitive firm is:

Accepted Answer

A)  flat.
B)  vertical.
C)  U-shaped.
D)  None of these is true.E) A) and D)
F) A) and C)

Question 2

A dominant strategy is one that is:

Accepted Answer

A)  chosen by a player first, determining the best strategies of the other players that follow.
B)  cannot be changed without making at least one of the players worse off.
C)  always the best for a player to choose, regardless of what other players do.
D)  None of these is true.E) C) and D)
F) All of the above

Question 3

The prisoner's dilemma shown displays the payoffs associated with two firms: Firm A and Firm B. These firms are in an oligopoly and they can choose to either collude or compete.  How much will be produced if both firms collude?

Accepted Answer

A)  50 million units
B)  65 million units
C)  70 million units
D)  85 million unitsE) None of the above
F) C) and D)

Question 4

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm.  This firm will produce _______ units.

Accepted Answer

A)  90
B)  100
C)  120
D)  160E) A) and B)
F) None of the above

Question 5

A market that consists of a few large firms and has barriers to entry:

Accepted Answer

A)  must be perfectly competitive.
B)  is likely an oligopoly.
C)  must be monopolistically competitive.
D)  is likely a monopoly.E) All of the above
F) None of the above

Question 6

How can monopolistically competitive firms earn profits in the long run?

Accepted Answer

A)  Price discrimination
B)  Innovation
C)  Cost minimization
D)  Monopolistically competitive firms cannot earn profits in the long run.E) B) and D)
F) B) and C)

Question 7

The fewer the number of firms present in a market, the:

Accepted Answer

A)  more competition is likely to be present.
B)  less likely barriers to entry are present.
C)  more likely market power will exist.
D)  less like a monopoly it will behave.E) A) and B)
F) All of the above

Question 8

Which of the following market structures is considered imperfectly competitive?

Accepted Answer

A)  Perfect competition
B)  Monopolistic competition
C)  Monopoly
D)  All of these are considered imperfectly competitive.E) C) and D)
F) None of the above

Question 9

Suppose Bank of America hires Jordan Rogers, a professional athlete, as a spokesperson. Bank of America likely made the decision to hire Rogers because:

Accepted Answer

A)  he is more informed about financial services than the general public.
B)  it signals to consumers that the company has a high quality product that it is willing to spend money advertising.
C)  it signals to other companies that they must advertise in order to compete with Bank of America.
D)  people are more likely to trust a familiar face.E) All of the above
F) A) and B)

Question 10

When a firm sells goods that are similar to, but more attractive than, those produced by competitors, that firm is conducting:

Accepted Answer

A)  product distinction.
B)  product differentiation.
C)  price-point pinning.
D)  deceptive advertising.E) B) and C)
F) A) and B)

Question 11

In an oligopoly, the price effect is:

Accepted Answer

A)  the increase in price that occurs when the quantity sold decreases.
B)  the decrease in total revenue that occurs when an increased quantity sold pushes the market price down.
C)  the increase in total revenue that occurs when additional units are sold.
D)  the increase in output that occurs when the market price increases.E) All of the above
F) A) and D)

Question 12

A strategy that is always the best for a player to choose, regardless of what other players do, is called:

Accepted Answer

A)  a dominant strategy.
B)  a Nash equilibrium.
C)  collusion.
D)  the prisoner's dilemma.E) A) and B)
F) A) and C)

Question 13

Just like a monopolist, a monopolistically competitive firm:

Accepted Answer

A)  cannot sell additional units of output without lowering price.
B)  is a price taker.
C)  sets price according to marginal revenue and marginal cost, ignoring the demand curve.
D)  faces a perfectly elastic demand curve.E) A) and B)
F) A) and D)

Question 14

In the long run, firms in a monopolistically competitive market operate:

Accepted Answer

A)  at the lowest average total costs possible.
B)  at full capacity.
C)  at less than full capacity.
D)  on an efficient scale.E) B) and D)
F) C) and D)

Question 15

Which of the following statements about cartels is true?

Accepted Answer

A)  Cartels can effectively sustain large profits in the long run.
B)  Cartels are usually illegal.
C)  A cartel can act as if it is a single monopoly.
D)  All of these are true.E) A) and D)
F) C) and D)

Question 16

When choosing its production level, an oligopolist needs to consider how the _______ effect affects its profit.

Accepted Answer

A)  substitution
B)  supply
C)  price
D)  incomeE) B) and D)
F) A) and D)

Question 17

Advertising can:

Accepted Answer

A)  convey useful information to consumers.
B)  cause perceived differences that don't exist and drive prices up.
C)  increase competition in the marketplace and lower prices.
D)  All of these are true.E) B) and C)
F) All of the above

Question 18

The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm.  This firm will charge a price of _______ in the _______ and earn _______ profits.

Accepted Answer

A)  P3; short run; positive
B)  P2; long run; zero
C)  P3; long run; zero
D)  P2; short run; positiveE) A) and B)
F) A) and C)

Question 19

Monopolistically competitive firms have an incentive to:

Accepted Answer

A)  attempt to draw in more customers.
B)  advertise.
C)  engage in brand promotion.
D)  All of these are true.E) A) and B)
F) A) and C)

Question 20

The welfare loss associated with the outcome in a competitive oligopoly is:

Accepted Answer

A)  larger than that of a monopoly.
B)  smaller than that of a monopoly.
C)  the same as that of a monopoly.
D)  the same as that of colluding oligopolists.E) All of the above
F) A) and B)

Exam 15: Monopolistic Competition and Oligopoly

The prisoner's dilemma shown displays the payoffs associated with two firms: Firm A and Firm B. These firms are in an oligopoly and they can choose to either collude or compete. How much will be produced if both firms collude?

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Just like a monopolist, a monopolistically competitive firm:

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A market that consists of a few large firms and has barriers to entry:

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In the long run, firms in a monopolistically competitive market operate:

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When choosing its production level, an oligopolist needs to consider how the _______ effect affects its profit.

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The welfare loss associated with the outcome in a competitive oligopoly is:

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Which of the following statements about cartels is true?

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The fewer the number of firms present in a market, the:

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Suppose Bank of America hires Jordan Rogers, a professional athlete, as a spokesperson. Bank of America likely made the decision to hire Rogers because:

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When a firm sells goods that are similar to, but more attractive than, those produced by competitors, that firm is conducting:

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A strategy that is always the best for a player to choose, regardless of what other players do, is called:

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The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. This firm will charge a price of _______ in the _______ and earn _______ profits.

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The demand curve faced by the monopolistically competitive firm is:

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In an oligopoly, the price effect is:

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How can monopolistically competitive firms earn profits in the long run?

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A dominant strategy is one that is:

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Monopolistically competitive firms have an incentive to:

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Advertising can:

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Which of the following market structures is considered imperfectly competitive?

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The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. This firm will produce _______ units.

Correct AnswerverifiedShow Answer

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The graph shown displays the cost and revenue curves associated with a monopolistically competitive firm. This firm will charge a price of ___ in the _ and earn _____ profits.

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