Question 1

In the long run,a monopolistically competitive firm will

Accepted Answer

In the long run, a monopolistically competitive firm will produce where price exceeds the minimum of average costs. This is because, in the long run, other firms can enter the market with similar products, increasing competition and reducing the firm's market power. As a result, the firm cannot sustain positive economic profits in the long run, so it will produce where it can minimize costs and still earn enough revenue to stay in business.

Question 2

FIGURE 11- 2 
-Refer to Figure 11- 2.Diagram D depicts the only possible long- run equilibrium for a typical firm in

Accepted Answer

In a monopolistically competitive industry, firms can only achieve normal profits in the long run due to the entry of new firms, which erodes any economic profits. Diagram D likely shows a firm making zero economic profit, which is typical in long-run equilibrium for monopolistic competition.

Question 3

FIGURE 11- 2 
-Refer to Figure 11- 2.In diagram A,the profit- maximizing output for a competitive firm is one where

Accepted Answer

The profit-maximizing output for a competitive firm is where P = AR = MC, as shown in diagram A. This is because in a perfectly competitive market, the firm is a price taker and must accept the market price as given, and thus the marginal revenue (MR) is equal to the price (P). The firm will produce at the point where MC is equal to MR (and therefore P) in order to maximize profits. At this point, the firm's revenue is covering its variable and fixed costs, and any further production would result in a loss. Therefore, the profit-maximizing output is where P = AR = MC.

Question 4

FIGURE 11- 2 
-Assume that the world's largest smart- phone producers (Apple,Nokia,Samsung,etc.)operate in an oligopolistic industry.In the long run,which of the following is the most important form of competition between these firms?

Accepted Answer

In an oligopolistic industry, the firms compete using product innovation as it allows them to gain a competitive edge in the market. Advertising, predatory pricing, and brand proliferation can also be used by the firms, but product innovation is the most important form of competition as it helps in enhancing the customer experience and attracting new customers. Tacit collusion is illegal and can lead to antitrust violations.

Question 5

A monopolistically competitive firm maximizes profits in the short run

Accepted Answer

In the short run, a monopolistically competitive firm maximizes profits by producing the quantity where marginal revenue (MR) is equal to marginal cost (MC) and then charging a price based on the demand curve for that output level. This is because in the short run, the firm faces fixed costs and can only adjust its variable costs, which means that it can increase profits by producing at a point where its marginal revenue covers its variable costs and contributes to paying down its fixed costs. Therefore, the best choice is E, where the firm equates MC with MR.

Question 6

The payoff matrix below shows the payoffs for Firm A and Firm B,each of whom can either "cooperate" or "cheat." The numbers in parentheses are (payoff for A,payoff for B). $\begin{array}{c}
&\text { Firm B }\
\text { Firm A }&
\begin{array}{l|cr} 
& \text { Coop erate } & \text { Cheat } \
\hline \text { Cooperate } & (30,30) & (10, x) \
\text { Cheat } & (x, 10) & (20,20)
\end{array}\end{array}$
-Refer to Table 11- 2.Of the choices provided below,what is the minimum value for x in order for both firms' cheating to be a Nash equilibrium?

Accepted Answer

For both firms' cheating to be a Nash equilibrium, neither firm should have an incentive to deviate from cheating. If Firm A cheats and Firm B cheats, Firm A gets 20. If Firm A cheats and Firm B cooperates, Firm A gets x. For cheating to be a Nash equilibrium, x must be less than or equal to 20. Therefore, the minimum value for x is 40, as it is the smallest value greater than 20 among the choices.

Question 7

An example of a Canadian industry composed of a few large firms is

Accepted Answer

Gasoline retailing is dominated by a few large firms such as Petro-Canada, Esso, and Shell. These firms have significant market power and control a large share of the industry.

Question 8

FIGURE 11- 2 
-When a monopolistically competitive industry is in long- run equilibrium,each firm will be operating where price is

Accepted Answer

In long-run equilibrium, a monopolistically competitive firm sets price equal to average total cost (ATC) to earn zero economic profit, but price is greater than marginal cost (MC) due to downward-sloping demand and product differentiation.

Question 9

The diagram below shows selected cost and revenue curves for a firm in a monopolistically competitive industry.
  FIGURE 11- 1
-Refer to Figure 11- 1.What price will this profit- maximizing firm set?

Accepted Answer

The answer of The diagram below shows selected cost and...

Question 10

A monopolistically competitive firm and a monopoly are similar because

Accepted Answer

Both monopolistically competitive firms and monopolies have some market power, which allows them to raise their price without losing all of their sales. However, monopolies typically have much greater market power than monopolistically competitive firms.

Question 11

By calculating a concentration ratio,economists measure the

Accepted Answer

By calculating a concentration ratio, economists measure the fraction of total industry sales that are accounted for by the largest firms. This helps to determine the degree of market concentration and the level of competition within the industry. A higher concentration ratio indicates that a smaller number of firms control a larger share of the market, potentially leading to less competition and higher prices for consumers.

Question 12

Suppose the market for gasoline retailing (gas stations)in an island economy has 12 firms.The two largest firms each account for 30% of sales,the third accounts for 15%,the fourth for 7%,the fifth for 4% and the remaining firms for 2% each.What is the four- firm concentration ratio?

Accepted Answer

The four-firm concentration ratio is the total market share of the four largest firms. In this case, the four largest firms account for 30% + 30% + 15% + 7% = 82% of the market share. Therefore, the four-firm concentration ratio is 82%.

Question 13

With regard to the long- run equilibrium in the two market structures,the higher unit costs in monopolistic competition relative to perfect competition implies that

Accepted Answer

There is a tradeoff between product variety and the ability to minimize cost per unit.

Question 14

Consider an industry that is monopolistically competitive.In such a market,

Accepted Answer

In a monopolistically competitive market, firms have some price-setting power due to product differentiation, but they are constrained by the presence of close substitutes, which limits their ability to set prices too high.

Question 15

A characteristic common to most imperfectly competitive markets is

Accepted Answer

Non-price competition among firms is a characteristic common to most imperfectly competitive markets. In these markets, firms can differentiate their products and compete based on factors such as advertising, product design, and customer service rather than solely on price. This allows for a degree of market power and can lead to higher profits for firms.

Question 16

Consider the three largest cell- phone service providers in Canada - Bell,Telus,and Rogers.If we observe that all three companies increase their monthly service fees simultaneously,we might conclude that

Accepted Answer

When all three companies increase their monthly service fees simultaneously, it suggests that there is tacit collusion among these firms. Tacit collusion occurs when firms coordinate their pricing decisions without explicit communication, and this behavior is often observed in oligopolistic markets where there are few dominant players. By raising prices together, these firms can maintain their market power and profitability, at the expense of consumers who have limited alternatives to choose from.

Question 17

Which of the following statements is the best description of a Nash equilibrium?

Accepted Answer

A Nash equilibrium is a situation in which each player in a game chooses the best strategy for themselves based on the strategies chosen by the other players. In other words, no player can benefit by changing their strategy if the other players keep their strategies unchanged. Option A correctly describes this concept.

Question 18

Suppose there are many independent dry cleaners in your city,each of which provides essentially the same service.However,one offers local delivery,another offers free coffee in the shop,while another offers one- hour dry cleaning.Which of the following statements explains what is happening in this market?

Accepted Answer

The differentiation of the product (local delivery, free coffee, and one-hour dry cleaning) indicates that these firms are trying to distinguish their services from other dry cleaners in the market. This is a characteristic of monopolistic competition where firms aim to create a unique identity for their product to attract customers.

Question 19

In an oligopolistic industry,which of the following is an example of a firm- created entry barrier?

Accepted Answer

Brand proliferation is a strategy used by firms in an oligopoly to create an entry barrier by saturating the market with their own brands, making it difficult for new entrants to gain market share.

Question 20

Compared with perfect competition,monopolistic competition results in

Accepted Answer

Monopolistic competition results in a wider variety of goods produced as firms are able to differentiate their products through branding and advertising. However, this differentiation results in higher unit costs as firms have to spend more on marketing and research and development. In perfect competition, there is no differentiation and thus no additional costs for branding or advertising. Therefore, monopolistic competition results in higher unit costs compared to perfect competition while still providing a wider variety of goods.

Quiz 11: Imperfect Competition and Strategic Behaviour

In the long run,a monopolistically competitive firm will

FIGURE 11- 2 -Refer to Figure 11- 2.Diagram D depicts the only possible long- run equilibrium for a typical firm in

FIGURE 11- 2 -Refer to Figure 11- 2.In diagram A,the profit- maximizing output for a competitive firm is one where

FIGURE 11- 2 -Assume that the world's largest smart- phone producers (Apple,Nokia,Samsung,etc.) operate in an oligopolistic industry.In the long run,which of the following is the most important form of competition between these firms?