Question 1

The demand curve of a monopolistically competitive firm is more elastic than that of a pure monopolist.

Accepted Answer

The demand curve for a monopolistically competitive firm is more elastic because there are close substitutes available for the product. This means that if the firm were to raise its price, consumers can easily switch to a competing product, causing a significant loss in demand. In contrast, a pure monopolist has no close substitutes for its product, meaning consumers are more likely to continue buying the product even if the price increases, resulting in a less elastic demand curve.

Question 2

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

Accepted Answer

The answer of Monopolistically competitive firms are inefficient because they...

Question 3

(Last Word)Which of the following statements best describes the Internet market structure?

Accepted Answer

The Internet market structure is characterized by a few large firms like Google, Facebook, and Amazon, each dominating specific sectors but also competing and trying to expand into new areas, reflecting the dynamic and competitive nature of the digital economy.

Question 4

The monopolistically competitive seller maximizes profits by equating price and marginal cost.

Accepted Answer

In a monopolistically competitive market, the seller chooses a price that is higher than marginal cost in order to earn economic profits in the short run. However, in the long run, other firms can enter the market, causing the demand for the seller's product to decrease, and forcing the seller to lower their price and reduce profits. Ultimately, in the long run, the seller in a monopolistically competitive market earns only normal profits, where total revenue equals total cost, including opportunity costs.

Question 5

If an oligopolist's several rivals exactly match any price changes it initiates,the demand curve will be less elastic than if its price changes are ignored by its rivals.

Accepted Answer

If an oligopolist's rivals exactly match any price changes it initiates, the market becomes more coordinated and the demand curve becomes less elastic, as consumers have fewer alternatives to switch to. This is known as a collusive oligopoly.

Question 6

Mutual interdependence means that oligopolistic producers rely primarily on price competition in determining their shares of the total market for their product.

Accepted Answer

Mutual interdependence means that oligopolistic producers rely on non-price competition (such as advertising, innovation, and product differentiation) as well as price competition.

Question 7

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

Accepted Answer

Monopolistically competitive sellers do not necessarily produce efficiently in the long run. While they may obtain normal profits, they may still be producing at a higher cost than a perfectly competitive market, leading to a less efficient allocation of resources.

Question 8

The larger the number of firms and the less the degree of product differentiation,the greater will be the elasticity of a monopolistically competitive seller's demand curve.

Accepted Answer

In monopolistic competition, there are many firms selling differentiated products, but they are not perfect substitutes for each other. As a result, the demand for each firm's product is more elastic compared to a monopoly or oligopoly. As the number of firms increases and the products become less differentiated, the consumer has more options and can easily switch to other substitutes. Hence, the demand curve facing the seller becomes more elastic.

Question 9

(Last Word)Major Internet-related firms such as Google,Apple,Amazon,Microsoft,and Facebook each has an area of the market that it dominates.Which of the following is true about their interaction in the market?

Accepted Answer

The passage mentions that each firm has an area of the market that it dominates, implying that there is competition among them. Additionally, the passage states that they are "major" firms, indicating that they are large enough to be mutually competitive. Therefore, option D, which suggests that they compete fiercely and try to expand into rivals' markets, is the most accurate choice.

Question 10

(Consider This)The prisoner's dilemma reveals that:

Accepted Answer

The prisoner's dilemma is a game theory concept that shows that when individuals act independently in their own self-interest, everyone is worse off than if they had cooperated. This is because while each individual's best outcome is to defect (or betray), if both individuals defect, they both receive a worse outcome compared to if they had both cooperated. Therefore, the dilemma shows that cooperation and trust can lead to better outcomes for everyone involved.

Question 11

(Last Word)Microsoft:

Accepted Answer

While Microsoft has a significant presence in the primary Internet markets such as search, email, and cloud computing, it is currently attempting to diversify and gain market share in the smartphone and tablet markets to offset the declining PC market. There is no evidence to suggest that Microsoft has colluded with Amazon and Google to fix online advertising prices, and while they do have a presence in the search market, they do not hold a near-monopoly.

Question 12

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

Accepted Answer

When oligopolists collude, they can act like a single monopolist, controlling production levels and prices in the market. This results in a similar outcome to that of a pure monopoly where a single firm controls the market.

Question 13

The oligopolist's kinked-demand curve is highly elastic below and highly inelastic above the going product price.

Accepted Answer

The oligopolist's kinked-demand curve is highly inelastic above the going product price and highly elastic below it, reflecting the belief that competitors will not follow price increases but will match price decreases.

Question 14

The demand curve of a monopolistically competitive producer is less elastic than that of a purely competitive producer.

Accepted Answer

In monopolistic competition, producers have some degree of market power and are able to differentiate their products, which makes their demand curve less elastic compared to a perfectly competitive producer who faces a horizontal demand curve.

Question 15

(Last Word)In the Internet search market:

Accepted Answer

According to the given information, Google holds about 70 percent of the Internet search market, while Bing and Yahoo together comprise about 28 percent. Therefore, option C is the correct answer. Options A and D are incorrect as they contradict the given information, and option B is irrelevant to the question.

Question 16

The economic profits earned by monopolistically competitive sellers are zero in the long run.

Accepted Answer

In the long run, monopolistically competitive sellers will face competition from similar products and will need to lower their prices and increase their product differentiation to maintain market share. As a result, in the long run, economic profits will be driven to zero.

Question 17

In the long run,monopolistically competitive firms make normal profits because they are forced to operate at the minimum point on their average total cost curve.

Accepted Answer

In the long run, monopolistically competitive firms can make economic profits if they are able to differentiate their products and maintain a loyal customer base. However, if they are making economic profits, new firms may enter the market and compete away these profits, leading the existing firms to only earn normal profits in the long run. The firms are not necessarily forced to operate at the minimum point on their average total cost curve.

Question 18

(Last Word)Which market structure best characterizes the various Internet markets?

Accepted Answer

The answer of (Last Word)Which market structure best characterizes the...

Question 19

Monopolistically competitive sellers realize economic profits in the long run because entry barriers are significant.

Accepted Answer

In the long run, entry and exit of firms causes the demand curve of a monopolistically competitive firm to shift leftward, reducing the firm's output and profits. Therefore, in the long run, a monopolistically competitive firm earns zero economic profits.

Question 20

The excess capacity problem associated with monopolistic competition implies that fewer firms could produce the same industry output at a lower total cost.

Accepted Answer

In monopolistic competition, firms have some market power and engage in non-price competition, leading to excess capacity, i.e., firms produce at a lower level of output than the one that would minimize their average total cost. This implies that fewer firms could produce the same industry output at a lower total cost, as they would not waste resources on product differentiation and advertising.

Quiz 13: Monopolistic Competition and Oligopoly