Question 1

An oligopolistic price leader increases the price of its product.If all other firms follow the leader's example,the price leader will:

Accepted Answer

A)   decrease its price.
B)   increase its price.
C)   maintain its new price.
D)   increase its quantity of output.E) A) and C)
F) A) and B)

Question 2

The primary aluminum industry in the United States would be described by an economist as:

Accepted Answer

A)   pure monopoly.
B)   pure competition.
C)   oligopoly.
D)   monopolistic competition.E) A) and B)
F) None of the above

Question 3

The cigarette industry in the United States would be an example of a:

Accepted Answer

A)   duopoly.
B)   noncollusive oligopoly.
C)   homogeneous oligopoly.
D)   differentiated oligopoly.E) All of the above
F) A) and D)

Question 4

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00,marginal cost is $5.00,marginal revenue is $6.00,and price is $12.00.In the short run,the firm should:

Accepted Answer

A)   decrease the level of output.
B)   increase the level of output.
C)   make no change in the level of output.
D)   increase product price.E) B) and D)
F) None of the above

Question 5

Suppose some firms exit a monopolistic competition industry.We would expect the demand curve of a firm already in the industry to:

Accepted Answer

A)   shift to the left.
B)   shift to the right.
C)   become more elastic.
D)   remain the same since entering firms serve other customers in the market.E) B) and C)
F) B) and D)

Question 6

The Organization of Petroleum Exporting Countries (OPEC) behaves in many ways like an international cartel.If the cartel were to hire a consulting firm to monitor the production rates of member countries,the economic reason for this monitoring is to:

Accepted Answer

A)   make sure that each member country is producing at an output level at which price equals marginal cost.
B)   make sure all the member countries produce at least their quotas so that there will be no oil shortage.
C)   detect those member countries that are depressing prices by producing more than their assigned quotas.
D)   make sure that the marginal revenue for the last barrel of oil sold by each member country is less than its price.E) B) and C)
F) None of the above

Question 7

In competing with rivals,oligopolistic firms will tend to use:

Accepted Answer

A)   price cuts because they do not add to costs like advertising.
B)   advertising because it is less easily duplicated than price cuts.
C)   collusion because it is a legal way to increase market share.
D)   price wars because they will increase the profits of firms.E) None of the above
F) B) and C)

Question 8

Refer to the above graphs.Which graph would not be a possible depiction of short-run or long-run outcomes for a monopolistically competitive firm?

Accepted Answer

A)   A
B)   B
C)   C
D)   DE) C) and D)
F) None of the above

Question 9

The downward-sloping demand curve of a monopolistic competitor:

Accepted Answer

A)   reflects product differentiation.
B)   becomes horizontal in the long run.
C)   indicates collusion among the members of the product group.
D)   ensures that the firm will produce at minimum average cost in the long run.E) B) and D)
F) C) and D)

Question 10

If a particular bank regularly announces changes in its interest rate schedules before its competitors,which then set rates very close to those announced by that bank,this could be described as:

Accepted Answer

A)   markup pricing.
B)   predatory pricing.
C)   price leadership.
D)   explicit price collusion.E) A) and B)
F) All of the above

Question 11

The variety of products and product features that consumers may choose from in monopolistically competitive industries:

Accepted Answer

A)   at least partially offsets the economic inefficiencies of this market structure.
B)   leads to an optimal allocation of resources in the market structure.
C)   guarantees that firms produce at full-capacity output levels.
D)   makes the demand curves facing firms in these industries more elastic.E) None of the above
F) B) and D)

Question 12

The graph depicts a monopolistically competitive firm.  Refer to the above graph representing an individual firm.In the short run,this monopolistically competitive firm will set price at:

Accepted Answer

A)   $65 and produce 45 units of output.
B)   $65 and produce 35 units of output.
C)   $50 and produce 35 units of output.
D)   $50 and produce 50 units of output.E) A) and D)
F) B) and C)

Question 13

Assume that in a monopolistically competitive industry,firms are earning economic profit.This situation will:

Accepted Answer

A)   reduce the excess capacity in the industry as firms expand production.
B)   attract other firms to enter the industry since the barriers to entry are low.
C)   cause firms to standardize their product to limit the degree of competition.
D)   make the industry allocatively efficient as each firm seeks to maintain its profits.E) A) and D)
F) None of the above

Question 14

Refer to the above graph of the representative firm in monopolistic competition.Demand is tangent to average total cost at point:

Accepted Answer

A)   a.
B)   b.
C)   c.
D)   d.E) A) and D)
F) None of the above

Question 15

A feature of monopolistic competition is:

Accepted Answer

A)   a patent-protected product.
B)   homogeneous or standardized products.
C)   considerable control over price.
D)   nonprice competition.E) A) and B)
F) A) and C)

Question 16

Monopolistically competitive firms are productively inefficient because production occurs where:

Accepted Answer

A)   marginal cost is greater than marginal revenue.
B)   marginal cost is less than marginal revenue.
C)   average total cost is greater than the minimum average total cost.
D)   average total cost is less than the difference between average total cost and average variable cost.E) None of the above
F) A) and B)

Question 17

OPEC is a classic example of a kinked-demand curve oligopoly.

Accepted Answer

A) True 
 B)False

Question 18

In the short run,the monopolistically competitive firm will experience:

Accepted Answer

A)   an economic profit,and also one in the long run.
B)   a normal profit,but in the long run only an economic profit.
C)   economic profits or losses,but in the long run only a normal profit.
D)   economic profits or losses,but in the long run only an economic profit.E) A) and D)
F) None of the above

Question 19

If an oligopolist's competitors follow its price cuts but ignore its price increases,the oligopolist will face a gap in its marginal revenue schedule.

Accepted Answer

A) True 
 B)False

Question 20

Mutual interdependence means that:

Accepted Answer

A)   product differentiation exists,that is,firms produce close substitutes but not identical products.
B)   each seller faces a completely inelastic demand curve.
C)   each firm must consider the possible reactions of rivals when establishing price policy.
D)   when a pure monopolist chooses a price,it also necessarily chooses some specific level of output.E) A) and C)
F) A) and B)

Exam 9: Monopolistic Competition and Oligopoly

In the short run,the monopolistically competitive firm will experience:

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The variety of products and product features that consumers may choose from in monopolistically competitive industries:

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The Organization of Petroleum Exporting Countries (OPEC) behaves in many ways like an international cartel.If the cartel were to hire a consulting firm to monitor the production rates of member countries,the economic reason for this monitoring is to:

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An oligopolistic price leader increases the price of its product.If all other firms follow the leader's example,the price leader will:

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Assume that in a monopolistically competitive industry,firms are earning economic profit.This situation will:

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OPEC is a classic example of a kinked-demand curve oligopoly.

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The graph depicts a monopolistically competitive firm. Refer to the above graph representing an individual firm.In the short run,this monopolistically competitive firm will set price at:

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The primary aluminum industry in the United States would be described by an economist as:

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In competing with rivals,oligopolistic firms will tend to use:

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A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00,marginal cost is $5.00,marginal revenue is $6.00,and price is $12.00.In the short run,the firm should:

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Refer to the above graphs.Which graph would not be a possible depiction of short-run or long-run outcomes for a monopolistically competitive firm?

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The downward-sloping demand curve of a monopolistic competitor:

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Refer to the above graph of the representative firm in monopolistic competition.Demand is tangent to average total cost at point:

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If an oligopolist's competitors follow its price cuts but ignore its price increases,the oligopolist will face a gap in its marginal revenue schedule.

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Monopolistically competitive firms are productively inefficient because production occurs where:

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Suppose some firms exit a monopolistic competition industry.We would expect the demand curve of a firm already in the industry to:

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Mutual interdependence means that:

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If a particular bank regularly announces changes in its interest rate schedules before its competitors,which then set rates very close to those announced by that bank,this could be described as:

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The cigarette industry in the United States would be an example of a:

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A feature of monopolistic competition is:

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