Question 1

Monopolistically competitive firms are inefficient because they produce at a point on the rising segment of their average cost curves.

Accepted Answer

A) True 
 B)False

Question 2

In a sequential game,the first mover into a new market:

Accepted Answer

A)   always earns a greater payoff than the second mover.
B)   may discourage the second mover from entering that market.
C)   only enters when there is a dominant strategy.
D)   guarantees that a Nash equilibrium will result.E) All of the above
F) A) and D)

Question 3

Both collusive and noncollusive oligopoly models suggest that price changes will be relatively infrequent in these types of industries.

Accepted Answer

A) True 
 B)False

Question 4

If the four-firm concentration ratio for industry X is 80:

Accepted Answer

A)   the four largest firms account for 80 percent of total sales.
B)   each of the four largest firms accounts for 20 percent of total sales.
C)   the four largest firms account for 20 percent of total sales.
D)   the industry is monopolistically competitive.E) None of the above
F) A) and D)

Question 5

Game theory:

Accepted Answer

A)   is the analysis of how people (or firms) behave in strategic situations.
B)   is best suited for analyzing purely competitive markets.
C)   reveals that mergers between rival firms are self-defeating.
D)   reveals that price-fixing among firms reduces profits.E) B) and D)
F) A) and D)

Question 6

When a monopolistically competitive firm is in long-run equilibrium:

Accepted Answer

A)   production takes place where ATC is minimized.
B)   marginal revenue equals marginal cost and price equals average total cost.
C)   normal profit is zero and price equals marginal cost.
D)   economic profit is zero and price equals marginal cost.E) B) and C)
F) A) and D)

Question 7

If an oligopoly is faced with a kinked-demand curve that is relatively elastic above,and relatively inelastic below,the going price,then it will:

Accepted Answer

A)   increase total revenue by increasing price but lower total revenue by decreasing price.
B)   decrease total revenue by either increasing or decreasing price.
C)   increase total revenue by either increasing or decreasing price.
D)   increase total revenue by decreasing price but lower total revenue by increasing price.E) B) and D)
F) B) and C)

Question 8

The likelihood of a cartel being successful is greater when:

Accepted Answer

A)   firms are producing a differentiated,rather than a homogeneous,product.
B)   cost and demand curves of various participants are very similar.
C)   the number of firms involved is relatively large.
D)   the economy is in the recession phase of the business cycle.E) C) and D)
F) A) and D)

Question 9

The Herfindahl index for a pure monopolist is:

Accepted Answer

A)   100.
B)   10,000.
C)   100,000.
D)   10.E) B) and C)
F) A) and B)

Question 10

Concentration ratios may be inaccurate indicators of the degree of monopoly power in an industry because:

Accepted Answer

A)   they include interindustry competition.
B)   foreign competition is not considered.
C)   they are only calculated for local and regional markets.
D)   they do not distinguish between normal and economic profit.E) A) and C)
F) A) and B)

Question 11

The monopolistically competitive seller's demand curve will become more elastic the:

Accepted Answer

A)   more significant the barriers to entering the industry.
B)   greater the degree of product differentiation.
C)   larger the number of competitors.
D)   smaller the number of competitors.E) A) and B)
F) All of the above

Question 12

The first mover in a sequential game always has the advantage over the second mover.

Accepted Answer

A) True 
 B)False

Question 13

If three or four homogeneous oligopolists collude,the resulting price and production outcomes will be similar to those of pure monopoly.

Accepted Answer

A) True 
 B)False

Question 14

Aluminum competes with copper in the market for power transmission lines.This illustrates:

Accepted Answer

A)   mutual interdependence.
B)   differentiated oligopoly.
C)   interindustry competition.
D)   homogeneous oligopoly.E) A) and B)
F) C) and D)

Question 15

Industries X and Y both have four-firm concentration ratios of 65 percent,but the Herfindahl index for X is 1,500 while that for Y is 2,000.These data suggest:

Accepted Answer

A)   greater market power in X than in Y.
B)   greater market power in Y than in X.
C)   that X is more technologically progressive than Y.
D)   that price competition is stronger in Y than in X.E) C) and D)
F) B) and D)

Question 16

Monopolistically competitive firms:

Accepted Answer

A)   realize normal profits in the short run but losses in the long run.
B)   incur persistent losses in both the short run and long run.
C)   may realize either profits or losses in the short run but realize normal profits in the long run.
D)   persistently realize economic profits in both the short run and long run.E) None of the above
F) A) and B)

Question 17

The highest possible value of the Herfindahl index is 1,000.

Accepted Answer

A) True 
 B)False

Question 18

Advertising can impede economic efficiency when it:

Accepted Answer

A)   increases entry barriers.
B)   reduces brand loyalty.
C)   enables firms to achieve substantial economies of scale.
D)   increases consumer awareness of substitute products.E) A) and B)
F) A) and C)

Question 19

The copper,aluminum,cement,and industrial alcohol industries are examples of:

Accepted Answer

A)   interproduct competition.
B)   homogeneous oligopoly.
C)   monopolistic competition.
D)   differentiated oligopoly.E) B) and C)
F) A) and D)

Question 20

Monopolistically competitive sellers produce efficiently because they obtain only normal profits in the long run.

Accepted Answer

A) True 
 B)False

Exam 13: Monopolistic Competition and Oligopoly

Concentration ratios may be inaccurate indicators of the degree of monopoly power in an industry because:

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In a sequential game,the first mover into a new market:

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Monopolistically competitive firms are inefficient because they produce at a point on the rising segment of their average cost curves.

Correct AnswerverifiedShow Answer

When a monopolistically competitive firm is in long-run equilibrium:

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Both collusive and noncollusive oligopoly models suggest that price changes will be relatively infrequent in these types of industries.

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If the four-firm concentration ratio for industry X is 80:

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The Herfindahl index for a pure monopolist is:

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If an oligopoly is faced with a kinked-demand curve that is relatively elastic above,and relatively inelastic below,the going price,then it will:

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The highest possible value of the Herfindahl index is 1,000.

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Aluminum competes with copper in the market for power transmission lines.This illustrates:

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Monopolistically competitive firms:

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The monopolistically competitive seller's demand curve will become more elastic the:

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Advertising can impede economic efficiency when it:

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Game theory:

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The first mover in a sequential game always has the advantage over the second mover.

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The likelihood of a cartel being successful is greater when:

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The copper,aluminum,cement,and industrial alcohol industries are examples of:

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If three or four homogeneous oligopolists collude,the resulting price and production outcomes will be similar to those of pure monopoly.

Correct AnswerverifiedShow Answer

Industries X and Y both have four-firm concentration ratios of 65 percent,but the Herfindahl index for X is 1,500 while that for Y is 2,000.These data suggest:

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Monopolistically competitive sellers produce efficiently because they obtain only normal profits in the long run.

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