Deck 12: Between Competition and Monopoly

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

Monopolistically competitive markets feature high barriers to entry.

Question 5

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

Question 6

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

Question 7

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

Question 8

Monopolistically competitive markets feature heterogeneous products.

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

For the monopolistic competitor, MR = P.

Question 17

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

Question 18

A monopolistic competitor faces a horizontal demand curve.

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

Oligopolists almost always cooperate in making price and output decisions.

Question 24

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

Question 25

An oligopoly is a market dominated by a few sellers.

Question 26

Advertising never makes sense for an oligopolistic firm.

Question 27

Oligopolists use advertising as a way of differentiating their products.

Question 28

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

Question 29

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

Question 30

Excess capacity and inefficiency result under monopolistic competition.

Question 31

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

Question 32

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

Question 33

Oligopolists behave independently of each other.

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

Firms that maximize sales always produce more than profit-maximizing firms.

Question 42

Sales maximization and profit maximization are essentially equivalent.

Question 43

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

Question 44

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

Question 45

To maximize sales revenue, an oligopolist will expand output until the marginal revenue curve cuts the horizontal axis.

Question 46

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

Question 47

Some oligopolies may try to maximize sales revenue rather than maximize profits.

Question 48

One of the most famous cartels is OPEC.

Question 49

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

Question 50

The kinked demand curve is an explanation of sticky prices.

Question 51

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

Question 52

To maximize sales revenue, an oligopoly will expand output until the price is zero.

Question 53

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

Question 54

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

Question 55

The kinked demand curve model explains pricing in monopoly markets.

Question 56

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 57

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

Question 58

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

Question 59

Price leadership is an example of explicit collusion by oligopolies.

Question 60

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

Question 61

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

Question 62

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

Question 63

Monopolistic competition is common in

A) retail selling.
B) farming.
C) basic manufacturing.
D) electric power generation.

Question 64

Repeated games can lead to tacit collusion.

Question 65

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

Question 66

Firms in a perfectly contestable market will earn higher profits than firms in markets that are not perfectly contestable.

Question 67

A monopolistically competitive firm

A) tries to differentiate its product from competitors' products.
B) faces a perfectly elastic demand curve for its product.
C) has more monopoly power in the long run than does a perfectly competitive firm.
D) is always a retail establishment.

Question 68

Monopolistic competition is characterized by

A) one firm selling several products.
B) many firms selling the same product.
C) many firms selling slightly different products.
D) one firm selling one product.

Question 69

To understand most of today's economic activity in the U.S.economy, we should look at which of the following models?

A) perfect competition and pure monopoly
B) perfect competition and oligopoly
C) oligopoly and monopolistic competition
D) monopolistic competition and monopoly

Question 70

All players have dominant strategies.

Question 71

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 72

A perfectly contestable market is one which a firm can enter and exit without losing its investment.

Question 73

A duopoly is a form of oligopoly with two firms.

Question 74

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

Question 75

The models of perfect competition and monopoly are the most realistic.

Question 76

Which of the following is not a requirement for the existence of monopolistic competition in a market?

A) numerous small sellers
B) full information about the market among buyers and sellers
C) product homogeneity
D) freedom of entry into the market

Question 77

Identify the market structure characterized by many small firms selling somewhat different products.

A) Monopoly
B) Monopolistic competition
C) Perfect competition
D) Duopoly

Question 78

A perfectly contestable market is one in which there are excessive costs to entry and exit.

Question 79

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

Question 80

Which of the following characteristics of perfect competition does not apply in monopolistic competition?

A) free entry and exit
B) homogeneous products
C) numerous participants
D) perfect information