Deck 13: Between Competition and Monopoly

Question 1

Monopolistically competitive markets and monopoly market have a common characteristic: high barriers to entry.

Answer 1

False

Question 2

Monopolistic competition differs from perfect competition only in the number of firms participating in the market.

Answer 2

False

Question 3

Monopolistically competitive markets feature heterogeneous products.

Answer 3

True

Question 4

The demand curve for a monopolistic competitor is likely to be flatter than that of a monopolist.

Question 5

Monopolistically competitive markets feature high barriers to entry.

Question 6

Unlike the situation for a firm in perfect competition, positive economic profit exists for firms in monopolistic competition for both the short run and in the long run.

Question 7

Monopolistic competition is a market structure characterized by many small firms selling a homogeneous product.

Question 8

Most economic activity in the United States is carried out by monopolies.

Question 9

A firm in perfect competition and one in monopolistic competition are very similar in that MR = P for firms in both markets.

Question 10

A monopolistic competitor faces a horizontal demand curve.

Question 11

The demand curve for a monopolistic competitor is likely to be steeper than that of a monopolist.

Question 12

The cost-revenue diagrams for a monopolist and a monopolistic competitor are similar except that the demand curve for the monopolistic competitor is flatter.

Question 13

Monopolistically competitive firms can earn large profits in the long run.

Question 14

The demand curve for a monopolistic competitor has a negative slope.

Question 15

In the long run, zero economic profit exists in monopolistic competition and perfect competition.

Question 16

In the long run, a monopolistically competitive firm's demand curve must be tangent to its average cost curve.

Question 17

A monopolistic competitor can expect to earn an economic profit in the long run.

Question 18

For the monopolistic competitor, MR = P.

Question 19

Monopolistic competition has at least one similarity to perfect competition: firms are free to enter and leave the industry.

Question 20

There are a smaller number of firms that operate in both monopolistic competition and perfect competition.

Question 21

Oligopolists seldom change prices, because they don't like change.

Question 22

An oligopoly is a market dominated by a few sellers.

Question 23

Average cost is higher with a monopolistically competitive firm than with a perfectly competitive firm.

Question 24

An oligopoly is a market structure in which a few large firms dominate the sale of a single product.

Question 25

Under monopolistic competition, profits cannot persist because new firms will be attracted to the market.

Question 26

An oligopoly is a market in which at least some firms are large enough to influence market price.

Question 27

The entry of new firms into a monopolistically competitive industry will cause the long-run equilibrium price to rise.

Question 28

Since firms in both monopolistic competition and perfect competition earn zero economic profit, price must be equal to average cost for both types of firms.

Question 29

In the long run, a monopolistically competitive firm and a perfectly competitive firm both produce at minimum average cost.

Question 30

In the long run, a monopolistically competitive firm produces at minimum average cost.

Question 31

Society benefits from monopolistic competition because the firms are allocatively efficient.

Question 32

An oligopoly can be characterized by production of either identical goods or differentiated goods.

Question 33

Oligopolists use advertising as a way of differentiating their products.

Question 34

Excess capacity and inefficiency result under monopolistic competition.

Question 35

Advertising never makes sense for an oligopolistic firm.

Question 36

In the long run, a monopolistically competitive firm earns small economic profits.

Question 37

Society definitely benefits by reducing the number of monopolistically competitive firms.

Question 38

When comparing industries, a monopolistically competitive industry is less competitive than an oligopoly.

Question 39

The short-run equilibrium of the firm under monopolistic competition has excess capacity.

Question 40

The excess capacity theorem states that society would clearly benefit from a reduction in the number of monopolistic competitors.

Question 41

The key difference between oligopoly and other market structures is the interdependence among producers.

Question 42

An oligopolist cares very much about what other firms in her industry are doing.

Question 43

Oligopolies are difficult to analyze because of the interdependent nature of management decisions.

Question 44

Because members of a cartel have a strong incentive to cheat on production and pricing agreements, these groups often develop complicated enforcement arrangements.

Question 45

Price leadership may sometimes be an example of covert collusive behavior by oligopolies.

Question 46

One of the most famous cartels is OPEC.

Question 47

An oligopolist who sets the price for the industry is a price leader.

Question 48

Cartels provide uniform management, but none of the advantages of economies of scale.

Question 49

Price leadership is an example of explicit collusion by oligopolies.

Question 50

Firms in oligopoly markets are unable to collude effectively because cooperation is difficult with a large number of firms.

Question 51

Oligopolists behave independently of each other.

Question 52

Oligopolists almost always cooperate in making price and output decisions.

Question 53

OPEC became a successful cartel in the 1970s by deciding to restrict oil production.

Question 54

An oligopoly firm with a differentiated product will generally earn the largest profits without advertising.

Question 55

Economists place cartels among the least-desirable forms of market organization.

Question 56

Price leadership works only if there is a single, dominant firm in the oligopoly.

Question 57

Sticky prices are a direct result of the kinked demand curve.

Question 58

A cartel is a group of sellers of a single product who have joined together in order to enjoy the advantages of perfect competition.

Question 59

Firms that practice tacit collusion may receive some of the benefits of a cartel without explicitly organizing a group of firms.

Question 60

Oligopolistic firms never collude because they have almost no incentive to do so.

Question 61

The kinked demand curve model is based on the assumption that rival firms will match a price cut but ignore a price increase.

Question 62

The kinked demand curve model explains pricing in monopoly markets.

Question 63

An oligopoly using a maximin strategy must believe that the losses from underestimating a competitor's skill are worse than those from overestimating it.

Question 64

An oligopoly will always use game theory to maximize sales rather than profits.

Question 65

Game theory is based on the idea that each participant makes decisions based on how she believes the competition will react.

Question 66

Game theory is not useful for analyzing perfectly competitive markets.

Question 67

A dominant strategy is one that gives a player in a game a bigger payoff than the other player receives.

Question 68

International trade can be correctly considered as an example of a zero-sum game.

Question 69

If five firms constitute all of the producers in the wristwatch industry, we would call this market a duopoly.

Question 70

In a monopoly market, no dominant strategies are possible.

Question 71

All players have dominant strategies.

Question 72

A duopoly is a form of oligopoly with two firms.

Question 73

The kinked demand curve is an explanation of sticky prices.

Question 74

If a market situation is an example of a prisoners' dilemma, society can benefit by preventing the firms in the market from cooperating with each other.

Question 75

If a player in a game has a dominant strategy, her choice will depend upon the strategy that another player has chosen.

Question 76

A dominant strategy is one that is best for one player regardless of the strategy chosen by the other player.

Question 77

If a game is a prisoners' dilemma, neither player has dominant strategy.

Question 78

Repeated games can lead to tacit collusion.

Question 79

The maximin criterion seeks to minimize the maximum payoffs in order to win.

Question 80

Game theory may be used to solve problems of interdependent decision making by large firms.