Deck 9: Monopolistic Competition and Oligopoly

Question 1

The prisoners' dilemma is an example of a cooperative game.

Answer 1

False

Question 2

Oligopoly, like perfect competition, is a market structure in which firms can easily enter and leave the industry.

Answer 2

False

Question 3

In the long run, monopolistically competitive firms meet the condition for allocative efficiency.

Answer 3

False

Question 4

Cartels are legal in many countries, including the United States.

Question 5

At long-run equilibrium, the demand curve faced by a monopolistically competitive firm will be tangent to its average cost curve.

Question 6

A cartel is a group of firms that attempt to collude by coordinating price and output decisions.

Question 7

The demand curve faced by an oligopolistic producer depends on how rival firms react to its prices and policies.

Question 8

Oligopolists may charge a price lower than the profit-maximizing price to discourage new firms from entering a market.

Question 9

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

Question 10

Unlike perfectly competitive firms, monopolistically competitive firms do not attain productive efficiency.

Question 11

There are significant technological barriers to entry that help make the automobile industry oligopolistic.

Question 12

Large oligopoly firms are often able to take advantage of significant economies of scale. As a result, they can often produce at a lower average total cost than can smaller firms.

Question 13

The primary difference between cooperative and noncooperative games is the ability to form contracts.

Question 14

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

Question 15

As in perfect and monopolistic competition, oligopoly firms cannot earn economic profits in the long run.

Question 16

Oligopoly is an industry with a small number of firms producing homogeneous or differentiated goods with minimal barriers to entry.

Question 17

Collusive oligopoly behavior guarantees economic profits in the long run.

Question 18

Equating price and marginal cost would lead to positive economic gains for monopolistically competitive firms.

Question 19

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

Question 20

Although there are certain inefficiencies associated with monopolistic competition, society receives a benefit from monopolistic competition in the form of product variety.

Question 21

The following graph shows a monopolistically competitive firm. Which of the following is the maximum amount of profit the firm could earn?Figure 9.1:

A)$150
B)$210
C)$245
D)$315
E)$300

Question 22

If the ice cream industry is monopolistically competitive, then:

A)the price of ice cream equals marginal revenue at equilibrium.
B)the marginal revenue equals marginal cost at short-run equilibrium.
C)the price of ice cream equals marginal cost at long-run equilibrium.
D)there are significant barriers to entering the ice cream business.
E)the firms earn economic profits in the long run.

Question 23

The following graph shows a monopolistically competitive firm. Which of the following is the total cost of the firm at the profit-maximizing level of output?Figure 9.1:

A)$560
B)$665
C)$875
D)$900
E)$600

Question 24

Monopolistic competition is common in:

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

Question 25

The following graphs show two firms operating in a monopolistically competitive market. The firm illustrated in Graph A maximizes profits by producing at a level of output _____ and charging a price _____.​Figure 9.2:

A)q₁; P₁
B)q₂; P₁
C)q₁; P₂
D)q₂; P₂
E)between q₁ and q₂; between P₂ and P₁

Question 26

When free entry is one of the attributes of a market structure, economic profits are:

A)generally driven to zero in the long run
B)generally negative for all firms operating in the short run.
C)generally zero in the short run.
D)generally positive in the long run.
E)generally negative in the long run.

Question 27

Which of the following is not a source of product differentiation?

A)Physical differences in products
B)Differences in the services provided by firms
C)Differences in the location of sales outlets
D)Prestige considerations in products
E)Differences in the cost of production of products

Question 28

In a monopolistically competitive market, _____.

A)there are significant barriers to the entry of new sellers
B)firms sell differentiated products
C)firms face horizontal demand curves
D)there are a few producers selling standardized products
E)firms earn long-run economic profits

Question 29

Under monopolistic competition, _____.

A)there are significant barriers to entry
B)there are few barriers to entry
C)firms sell identical products
D)firms face perfectly elastic demand curves
E)there are a few producers selling standardized products

Question 30

Suppose Billy sells burgers in Sierra Island and the market for fast-food burgers is monopolistically competitive. Which of the following is most likely to be true of Billy's burger stand at short-run equilibrium?

A)Its demand curve would be horizontal.
B)Its marginal revenue curve would lie below the demand curve.
C)It would be maximizing profits where price equals marginal cost.
D)It would be maximizing profits at the minimum point of the average total cost curve.
E)It would be maximizing profits where price equals average total cost.

Question 31

Which of the following conditions distinguishes perfect competition from monopolistic competition?

A)The number of sellers
B)Freedom of entry and exit
C)Homogeneity of products
D)Economic profits in the long run
E)The slope of the market demand curve

Question 32

In Rhode Island, there are a large number of qualified, primary-care physicians whose services are highly personalized. In addition to price, factors such as age, sex, location, and personality influence the choice of physicians. Thus, it can be said that the primary-care physician market is most probably a:

A)perfectly competitive market
B)oligopolistic market
C)monopolistic market
D)monopolistically competitive market.
E)cartel.

Question 33

In a monopolistically competitive market, _____.

A)firms are price takers
B)firms try to differentiate their products from those of competitors
C)firms maximize profits by producing output where price equals marginal cost
D)there are significant barriers to entry
E)firms earn economic profits in the long run

Question 34

The following graph shows a monopolistically competitive firm. Which of the following is the total revenue of the firm at the profit-maximizing level of output?Figure 9.1: ​

A)$245
B)$350
C)$875
D)$1,050
E)$900

Question 35

Monopolistic competition is characterized by:

A)a small number of firms selling differentiated products.
B)a large number of firms selling identical products.
C)high barriers to entry.
D)a large number of firms selling differentiated products.
E)a perfectly elastic demand curve.

Question 36

The restaurants in San Francisco can probably be categorized as examples of firms

A)operating in a perfectly competitive market
B)operating in a monopolistic market
C)operating in a monopolistically competitive market
D)operating in a oligopolistic market.
E)forming a cartel.

Question 37

In a monopolistically competitive market structure, because each good sold in the market is _____, each firm _____.

A)slightly different; is considered a price maker
B)slightly different; is considered a price taker
C)the same; is considered a price maker
D)the same; is considered a price taker
E)the same; has some role in determining price

Question 38

Monopolistic competition is characterized by:

A)homogeneous products.
B)significant barriers to entry.
C)firms earning zero economic profits in the long run
D)perfectly elastic demand curves.
E)a few producers selling standardized products.

Question 39

In monopolistically competitive markets, economic profits _____, which shifts the demand curve of the remaining firms to the _____.

A)signal some remaining firms to exit; right
B)signal some remaining firms to exit; left
C)signal new firms to enter; left
D)signal new firms to enter; right
E)of the new firms equal to zero; right

Question 40

In a monopolistically competitive industry, the competitive element results from _____ and the monopoly element results from _____.

A)product differentiation; substantial barriers to entry
B)a large number of firms and free entry; product differentiation
C)advertising; product differentiation
D)product differentiation; the small number of large producers
E)positive economic profit in the long run and substantial barriers to entry; perfectly elastic demand curve

Question 41

Monopolistic and perfect competition are alike in that:

A)a firm's long-run equilibrium output is located where long-run average total cost is increasing.
B)a firm's long-run equilibrium output is located where long-run average total cost is minimized.
C)firms earn a normal rate of return in the long run.
D)firms are price takers.
E)firms face a downward-sloping, linear demand curve.

Question 42

The following graphs show two firms operating in a monopolistically competitive market. The firm illustrated in Graph B will minimize losses by producing at a level of output _____ and charging a price _____.​Figure 9.2:

A)q₁; P₁
B)q₂; P₁
C)q₁; P₂
D)q₂; P₂
E)between q₁ and q₂; between P₂ and P₁

Question 43

The demand curve for a monopolistically competitive firm is _____.

A)more elastic than the demand curve for a monopolist
B)perfectly elastic
C)perfectly inelastic
D)more inelastic than the demand curve for a monopolist
E)unit elastic

Question 44

The following graphs show two firms operating in a monopolistically competitive market. In Graph B, the loss-minimizing firm is making a loss, shown by the area _____.Figure 9.2​

A)VRSP₁
B)P₁STP₂
C)VRq₁O
D)VRTP₂
E)P₂Tq₁O

Question 45

The following graph shows a firm producing jeans in a monopolistically competitive market. The firm faces a downward-sloping, linear demand curve, D. The marginal revenue curve of the firm is shown by MR. AC and MC are the average total cost and marginal cost curves of the firm. Which of the following is likely to be true about the apparel industry?Figure 9.3:

A)New firms will enter the jeans industry.
B)Existing firms will exit the jeans industry.
C)The industry is at long-run equilibrium.
D)At the profit-maximizing level, output is produced at the minimum average total cost.
E)At the profit-maximizing level, price equals marginal revenue.

Question 46

The following graphs show two firms operating in a monopolistically competitive market. In Graph B, a loss-minimizing firm will experience a _____ at an output quantity _____.Figure 9.2:

A)minimum loss; of q₁
B)minimum loss; of q₂
C)profit; of q₁
D)profit; of q₂
E)profit; between q₁ and q₂

Question 47

Long-run equilibrium under monopolistic competition is similar to long-run equilibrium under perfect competition in that:

A)price equals the minimum average total cost.
B)firms face perfectly elastic demand curves.
C)price equals average cost.
D)marginal revenue equals average cost.
E)price equals marginal cost.

Question 48

The firm will charge a price of $34 per pair of jeans.​The following graph shows a firm producing jeans in a monopolistically competitive market. The firm faces a downward-sloping, linear demand curve, D. The marginal revenue curve of the firm is shown by MR. AC and MC are the average total cost and marginal cost curves of the firm. Which of the following is likely to true of the firm at the profit-maximizing point?Figure 9.3: ​

A)The firm will produce 11,000 pairs of jeans each month.
B)The firm will produce 10,000 pairs of jeans each month.
C)The firm will produce 7,000 pairs of jeans each month.
D)The firm will charge a price of $48 per pair of jeans.
E)The firm will charge a price of $34 per pair of jeans.

Question 49

In the long run, a monopolistically competitive firm operates _____.

A)at the minimum point of its average total cost curve
B)on the rising portion of its average total cost curve
C)on the rising portion of its marginal cost curve
D)on the declining portion of its average total cost curve
E)on the declining portion of its marginal cost curve

Question 50

In a monopolistically competitive market structure, the force that leads to zero economic profits in the long run is:

A)excess capacity.
B)price wars among firms.
C)the entry of new firms into the industry.
D)excessive advertising.
E)differentiated products.

Question 51

The following graphs show two firms operating in a monopolistically competitive market. In Graph A, the profit-maximizing firm is making a profit, shown by the area _____.

A)P₁XZP₂
B)P₁XYW
C)P₂Zq₁O
D)WYZP₂
E)WYq₁O

Question 52

Which of the following is generally true of a monopolistically competitive firm operating in the long run?

A)Price is greater than minimum average total cost
B)Price is equal to marginal revenue.
C)Price is equal to marginal cost.
D)Economic profits are positive.
E)Price is greater than average revenue.

Question 53

A monopolistically competitive firm derives its ability to influence price from:

A)the perfectly elastic demand curve it faces.
B)barriers to entry.
C)barriers to entry
D)its position as the sole supplier in the market.
E)its ability to earn positive economic profit in the long run.

Question 54

When a monopolistically competitive firm is at long-run equilibrium, _____.

A)the demand curve will be perfectly elastic
B)marginal cost must be falling
C)price exceeds marginal cost
D)marginal revenue exceeds marginal cost
E)price exceeds average total cost

Question 55

When a firm's demand curve is tangent to its average total cost curve, _____.

A)the firm is operating in a monopolistically competitive market
B)economic profits are zero
C)the firm is earning economic profits
D)the firm is incurring economic losses
E)price is equal to the marginal cost of production

Question 56

In the long run, a profit-maximizing, monopolistically competitive firm operates:

A)at the minimum point of average total cost.
B)at the point where demand is unit elastic.
C)with excess capacity.
D)at an economically efficient scale.
E)at the point where price equals marginal revenue.

Question 57

If the pharmaceutical industry is monopolistically competitive, then in the long-run, _____.

A)the price of medicines will equal marginal revenue
B)the price of medicines will exceed marginal cost
C)firms earn economic profits
D)the price of medicines will be equal to marginal cost
E)firms earn negative economic profits

Question 58

The following graph shows a firm producing jeans in a monopolistically competitive market. The firm faces a downward-sloping, linear demand curve, D. The marginal revenue curve of the firm is shown by MR. AC and MC are the average total cost and marginal cost curves of the firm. Which of the following is most likely to be true of the firm at the profit-maximizing point?Figure 9.3: ​

A)The firm will earn $64,000 in profits
B)The firm will earn $112,000 in profits.
C)The firm will earn $30,000 in profits.
D)The firm will earn zero economic profits.
E)The firm will earn negative economic profits.

Question 59

The following graph shows a firm producing jeans in a monopolistically competitive market. The firm faces a downward-sloping, linear demand curve, D. The marginal revenue curve of the firm is shown by MR. AC and MC are the average total cost and marginal cost curves of the firm. Which of the following is likely to true of the firm at the profit-maximizing point?Figure 9.3:

A)The firm will charge $50 per pair of jeans.
B)The firm will charge $48 per pair of jeans.
C)The firm will charge $34 per pair of jeans.
D)The firm will produce 11,000 pairs of jeans each month.
E)The firm will produce 10,000 pairs of jeans each month.

Question 60

The following graphs show two firms operating in a monopolistically competitive market. The firm illustrated in Graph A will experience a _____ at a quantity _____.Figure 9.2:​

A)loss; of q₁
B)loss; of q₂
C)profit; of q₁
D)profit; of q₂
E)profit; between q₁ and q₂

Question 61

Which of the following is a reason for the presence of barriers to entry in an oligopolistic market?

A)Economies of scale
B)Diseconomies of scale
C)Productive inefficiency
D)Allocative inefficiency
E)Product differentiation

Question 62

For a time, either R. J. Reynolds or Phillip Morris raised the prices of cigarettes twice a year by about 50 cents per carton. The other firms in the industry raised their prices by the same amount. Such behavior results in:

A)predatory pricing.
B)a price war.
C)price leadership.
D)producer sovereignty.
E)productive efficiency.

Question 63

The equilibrium price and quantity for a collusive oligopoly are determined by the intersection of the _____ curve and the horizontal sum of the short-run _____ curves for the oligopolists.

A)total revenue; total cost
B)marginal revenue; marginal cost
C)average revenue; average variable cost
D)marginal revenue; average total cost
E)demand; average total cost

Question 64

During the past 20 years, Marzi Corp., a large firm in an oligopolistic industry, has changed prices a number of times. Each time it does so, the other firms in the industry follow suit. Marzi Corp. is a _____.

A)monopolist
B)perfectly competitive firm
C)price leader
D)price follower
E)monopolistically competitive firm

Question 65

Which of the following is true of game theory?

A)Cooperation is more likely to occur in repeated games than in one-shot games.
B)At a Nash equilibrium, all firms have an incentive to change behavior.
C)Cooperative strategies are equally likely in one-shot and repeated games.
D)A tit-for-tat strategy is a way to reward noncooperation and punish cooperation in a repeated game.
E)Collusion is an example of a noncooperative game.

Question 66

Identify the correct statement about game theory.

A)The prisoners' dilemma is an example of a cooperative game.
B)The Nash equilibrium is a dominant strategy.
C)Collusion is an example of a noncooperative game.
D)The prisoners' dilemma does not have a dominant strategy.
E)In a cooperative game, each firm sets its own price without consulting other firms.

Question 67

Which of the following is a unique characteristic of an oligopolistic market structure?

A)Low barriers to entry
B)A large number of firms
C)The presence of diseconomies of scale
D)Mutual interdependence among firms
E)Zero long-run economic profit

Question 68

Which of the following is true of game theory?

A)A dominant strategy in a non-cooperative game yields the same result as that in a cooperative game.
B)A tit-for-tat strategy is a way to reward noncooperation and punish cooperation in a repeated game.
C)At a Nash equilibrium, all firms have an incentive to change behavior.
D)A tit-for-tat strategy is the most effective strategy to promote cooperation.
E)Collusion is an example of a noncooperative game.

Question 69

Identify the correct statement.

A)A price leader is a perfect competitor who sells as much as it wants at a given price.
B)A price follower has substantial influence over the market price.
C)A price follower is a firm that produces a large portion of the total output produced in an oligopolistic market.
D)A price leader sets the price that maximizes its profits.
E)A price leader sets the price that maximizes its sales.

Question 70

In a collusive oligopoly, joint profits are maximized when the price of a good is based on the:

A)price leader's demand schedule and the price followers' marginal costs.
B)market demand schedule and marginal cost schedules of oligopolists.
C)individual demand schedules and average total cost schedules of oligopolists.
D)price followers' demand schedules and the price leader's marginal costs.
E)total revenue schedule and total cost schedules of oligopolists.

Question 71

Which of the following is likely to reduce the uncertainties associated with oligopoly market structure?

A)Collusion
B)Price leadership
C)Dominant strategy
D)Economies of large-scale production
E)Barriers to entry into the market

Question 72

Under oligopoly, a few large firms control most of the production and sale of a product because:

A)economies of scale make it difficult for small firms to compete.
B)diseconomies of scale make it difficult for small firms to compete.
C)zero economic profits are earned by firms in the long run.
D)marginal costs increase as production expands
E)the average total cost curve is inverted U-shaped.

Question 73

A successful cartel restricts supply so that each member firm:

A)is able to attain economies of large-scale production.
B)is flexible in enforcing production targets.
C)behaves as a monopolist.
D)behaves as a perfectly competitive firm.
E)behaves as a monopolistically competitive firm.

Question 74

Which of the following is true of an oligopoly market?

A)Firms earn zero economic profits in the long run.
B)There are a large number of sellers in the market.
C)The presence of economies of scale discourages new firms from entering the market.
D)Firms choose price and output independently from the decisions made by competitors.
E)There are substantial diseconomies of scale in production.

Question 75

Under conditions of oligopoly, economies of large-scale production mean that:

A)firms are able to sell all of the output they produce.
B)it is difficult for a firm to determine its profit-maximizing price and output.
C)large firms would find it more profitable to break up into smaller production units.
D)small firms are at a cost disadvantage when competing with relatively large firms.
E)small firms are at a cost advantage compared to relatively large firms because of the presence of economies of scope.

Question 76

Oligopolies are characterized by:

A)high barriers to entry.
B)zero economic profits in the long run.
C)low start-up costs.
D)the presence of pronounced diseconomies of scale.
E)a large number of sellers.

Question 77

In an oligopoly market, such as the U.S. domestic airline industry, United Airlines would:

A)carefully anticipate Delta, American, and Southwest's likely responses before it raised or lowered fares.
B)have pronounced diseconomies of scale in the long run.
C)charge a fare that is less than its average variable cost of production.
D)schedule as many flights to as many cities as possible without regard to what Delta, American, and Southwest would do.
E)earn zero economic profits in the long run.

Question 78

One reason collusive oligopolies are usually short lived is that firms participating in the collusion:

A)are unable to earn economic profits in the long run.
B)do not set prices where marginal cost equals marginal revenue.
C)set prices below long-run average total costs.
D)cheat on one another.
E)are unable to attain economies of large-scale production.

Question 79

Which of the following is true of oligopoly?

A)Firms change their prices less frequently than do perfect competitors.
B)A large number of firms control all or most of the production and sale of a product.
C)Firms normally earn zero economic profits in the long run.
D)It is characterized by substantial diseconomies of scale.
E)It is characterized by few barriers to entry into the market.

Question 80

Which of the following is a characteristic of oligopoly?

A)Substantial uncertainties of pricing decisions
B)Zero economic profit in the long run
C)Free entry and exit into the market
D)Diseconomies of scale in production
E)A large number of firms