CHAPTER 11
Monopolistic Competition in the Short Run 26. Assume the firm in Figure 11-2 is currently producing 13 units of output and charging $380 each. The firm a. will increase its profit if it raises its price and reduces its production level b. will increase its profit if it lowers its price and expands its production level c. cannot increase economic profit by changing its price and output since it is already maximizing its profit d. will increase its profit if it raises its price and expands its production level e. will increase its profit by lowering its price and reducing its production level
A PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 33. At the profit-maximizing, or loss-minimizing, level of output for the firm in Figure 11-3, total revenue is approximately a. $10,500 b. $11,000 c. $5,600 d. $8,250 e. zero because the firm should shut down immediately
A PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 34. At the profit-maximizing, or loss-minimizing, level of output in Figure 11-3, the firm's total cost is approximately a. $14,000 b. $12,750 c. $9,100 d. $16,185 e. $8,400
A PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Oligopoly Behavior Verses Other Market Structures 90. An oligopolist cannot use the MR = MC rule to find its equilibrium output level because a. oligopolists do not face stable demand curves for their output b. oligopolists do not try to maximize profits in the long run c. it is too difficult to estimate marginal cost d. the rule applies only in perfect competition e. the minimum efficient scale exceeds total quantity demanded
A PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
The Game Theory Approach 103. The players in a two-person game are choosing between Strategy X and Strategy Y. If the second player chooses Strategy X, the first player's best outcome is also to select X. If the second player chooses Strategy Y, the first player's best outcome is to select X. For the first player, Strategy X is called a a. dominant strategy b. collusive strategy c. tit-for-tat strategy d. repeated-trial strategy e. tacit strategy
A PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 74. By keeping new firms from entering the market, oligopolies are more likely to have a. long-run economic profit b. low prices c. great efficiency d. decreasing marginal costs e. economies of scale
A PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 79. One barrier to entry that may maintain an oligopoly is a. government policy designed to limit foreign competition b. a low minimum efficient scale c. bounded markup pricing d. efficiency wages that make it impossible for new entrants to compete profitably e. executive payoffs
A PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
The Game Theory Approach 105. Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for repair work and a high price. The yearly economic profits from each strategy are indicated in Figure 11-12. The upper right side of each rectangle shows Brian's profits; the lower left side shows Matt's profits. Which of the following statements is correct? a. Matt's dominant strategy is to charge a low price. b. Brian's dominant strategy is to charge a high price. c. The dominant strategy for both Brian and Matt is to charge a low price. d. Matt's dominant strategy is to charge a high price. e. Neither Brian nor Matt has a dominant strategy.
A PTS: 1 DIF: 3 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Monopolistic Competition in the Short Run 20. In the short run, a monopolistically competitive firm a. must earn zero economic profit b. may earn positive or negative economic profits c. will produce output up at the point where TR = TC d. will be protected from competition by barriers to entry e. will equate price and marginal cost
B PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Nonprice Competition 55. Camille's Chicken operates in a monopolistically competitive market. If Camille implements a new free delivery service for customers, a. this is an example of advertising b. this is a form of nonprice competition c. total revenue will increase d. total cost will decrease e. her firm will be acting as if it were perfectly competitive market
B PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Oligopoly 67. In which market structure do firms consider the actions of their rivals when setting prices and output? a. monopoly b. oligopoly c. perfect competition d. both monopoly and perfect competition e. monopolistic competition
B PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Oligopoly 69. The key characteristic of oligopoly is a. that firms are price takers b. strategic interaction among firms c. strategic independence among firms d. that firms deal with few resource suppliers e. a low minimum efficient scale of production
B PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
The Game Theory Approach 100. A Nash equilibrium a. occurs when quantity demanded equals quantity supplied b. exists when each player in a game is taking its best action -- given the actions taken by the other players c. exists when each player in a game picks the collectively optimal strategy d. is a kind of equilibrium that exists only in an oligopoly e. is a kind of equilibrium that exists only in a duopoly
B PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
The Game Theory Approach 102. The outcomes of different combinations of strategies by two players in a game are indicated in the a. strategy box b. payoff matrix c. competition matrix d. outcome dilemma e. collusion matrix
B PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
The Game Theory Approach 94. In game theory a listing of the rewards or punishments that each player will receive for each possible combination of strategies is called a. the marginal strategy schedule b. the payoff matrix c. strategic planning d. the input-output matrix e. the game listing payoff
B PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Excess Capacity Under Monopolistic Competition 51. Which of the following is not true of the firm in Figure 11-9? a. It has excess capacity. b. It produces at the minimum efficient scale of production. c. It cannot earn an economic profit. d. It is operating in the long run. e. It has no fixed costs.
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Excess Capacity Under Monopolistic Competition 52. Which of the following best describes the idea of excess capacity in monopolistic competition? a. Firms produce more output than is socially desirable. b. The output produced by a typical firm is less than what would occur at the minimum point on its ATC curve. c. Due to product differentiation, firms choose output levels at which P > ATC. d. Firms keep some surplus output on hand in case there is a shift in demand for their product. e. The collective output of all firms in the market typically exceeds the quantity demanded.
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Excess Capacity Under Monopolistic Competition 53. Since the demand curve faced by a monopolistically competitive firm is downward sloping, a. the firm is a price-taker in the short run b. in the long run there will be excess capacity c. the output decisions of one firm will influence profits of all other firms d. the product in the market is viewed by consumers as being standardized e. the ATC curve is U-shaped
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition 10. A firm in a monopolistically competitive market is similar to a monopolist in the sense that it a. must overcome significant barriers to entry b. faces a downward-sloping demand curve c. produces a large share of the market output d. is dependent on the actions of other firms e. produces the same product as its competitors do
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition 12. If a monopolistically competitive firm raises its price, a. quantity demanded falls to zero b. quantity demanded declines, but not to zero c. the market supply curve shifts outward d. the market supply curve shifts inward e. quantity demanded remains constant
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition 13. The demand curve faced by a monopolistically competitive firm a. is the same as the market demand curve b. is less elastic than the one faced by firms in perfect competition c. is perfectly elastic d. is perfectly inelastic e. has a constant slope
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition 6. All of the following, except one, are characteristics of monopolistic competition. Which is the exception? a. There is a large number of sellers. b. Each seller faces a horizontal demand curve for its product. c. There are no significant barriers to entry or exit. d. Sellers produce differentiated products. e. There is a large number of buyers.
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Long Run 45. If the firm represented in Figure 11-7 is typical of other firms in the industry, then, as the long run approaches, a. some firms will exit, and the demand curves facing the remaining firms will shift to the left b. some firms will exit, and the demand curves facing the remaining firms will shift to the right c. some firms will enter, and the demand curves facing the remaining firms will shift to the left d. some firms will enter, and the demand curves facing the remaining firms will shift to the right e. the industry will eventually disappear
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Long Run 40. At the long-run equilibrium output level, a monopolistically competitive firm's average total cost curve a. lies below the demand curve b. is tangent to (just touches but does not cross) the demand curve c. crosses the demand curve from below d. crosses the demand curve from above e. is at its minimum point
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Long Run 43. In the long run, a monopolistic competitor will a. always produce at minimum efficient scale b. produce too little output to achieve minimum cost per unit c. use limit pricing to forestall competition d. earn economic profits e. standardize its product
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 22. Figure 11-2 illustrates a monopolistically competitive firm. In order to maximize profit, or minimize loss, the firm will a. close down b. produce approximately 10 units of output and charge approximately $500 c. produce approximately 7.5 units of output and charge nearly $600 d. produce approximately 12.5 units of output and charge approximately $425 e. produce 5 units of output and charge $650
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 25. At the profit-maximizing, or loss-minimizing, output level, the firm in Figure 11-2 has total cost approximately equal to a. $2,000 b. $3,000 c. $3,600 d. $800 e. $1,625
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 31. The profit-maximizing price for the firm in Figure 11-3 is a. $165 b. $150 c. less than $150, but more than $100 d. irrelevant because the firm should shut down immediately e. less than $100
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 32. The best outcome the firm illustrated in Figure 11-3 can achieve is a(n) a. economic loss equal to its fixed cost b. economic loss of $3,500 c. economic loss of slightly more than $7,000 d. economic loss of approximately $4,000 e. profit per unit of output approximately equal to $40
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 36. The monopolistic competitor in Figure 11-4 will maximize its economic profits, or minimize its losses, by a. producing 100 units of output and charging $200 b. producing 100 units of output and charging slightly more than $300 c. producing 125 units of output and charging $300 d. shutting down, since it has greater losses at any level of production than at zero e. producing approximately 180 units of output and charging approximately $225
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Oligopoly 62. If the sellers in a market are aware of their strategic interdependence, then a. each firm bases its pricing and output decisions on the monopoly model b. each firm, when making pricing or output decisions, must consider the reactions of its competitors c. the firms have little incentive to collude in their pricing and output decisions d. the firms undertake little advertising because they cannot recoup the cost through higher prices e. no firm is able to earn above-normal profit in the long run
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Oligopoly Behavior Verses Other Market Structures 89. Which concept is best illustrated by the "prisoner's dilemma"? a. product standardization b. interaction c. profit maximization d. marginal analysis e. average total cost
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 76. A natural oligopoly occurs when a. few firms can afford to compete in the industry b. the minimum efficient scale is a large fraction of the market c. there are a large number of buyers and sellers of a standardized product d. minimum efficient scale is greater than total market demand at the price equal to minimum long run average total cost e. competitive pricing drives firms from the market
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 80. With economies of scale, a firm can continue to lower its cost per unit by increasing output a. without limit b. up to the minimum efficient scale c. until the firm is meeting market demand single-handedly d. to some point between the minimum efficient scale and the market demand curve e. halfway to the minimum efficient scale
B PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
CHAPTER 11—MONOPOLISTIC COMPETITION AND OLIGOPOLY MULTIPLE CHOICE 1. If a market has more than one seller, but fewer sellers than under perfect competition, it is referred to as a. a monopoly b. competitive c. imperfect competition d. an efficient market e. optimal
C PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition 5. When there are many buyers and sellers, no significant barriers to entry, and a differentiated product, the market structure is called a. an oligopoly b. perfect competition c. monopolistic competition d. a monopoly e. unbalanced monopoly
C PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Nonprice Competition 57. An oligopoly is a market a. dominated by a single seller b. dominated by a single buyer c. dominated by a small number of strategically interacting firms d. with many buyers and sellers, no barriers to entry and differentiated products e. with many buyers and sellers, no barriers to entry and a standardized product
C PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Oligopoly 59. A market with more than one seller and significant barriers to entry is called a. perfect competition b. monopolistic competition c. an oligopoly d. collusive e. regulated
C PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Oligopoly 60. The airline and long-distance telephone service industries are examples of a. monopolistic competition b. monopolies c. oligopolies d. perfect competition e. oligopolistic competition
C PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
The Game Theory Approach 95. A strategy that is best for a player regardless of the strategy of the other player is called a(n) a. subsistence strategy b. determinant strategy c. dominant strategy d. independent strategy e. autonomous strategy
C PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Excess Capacity Under Monopolistic Competition 49. In monopolistic competition, product differentiation causes a. the firms to earn economic profits in the long run b. a horizontal demand curve for each firm's output c. the firms to operate with excess capacity d. significant barriers to entry e. high concentration ratios
C PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition 7. All of the following, except one, are sources of product differentiation. Which is the exception? a. product quality b. location c. price d. consumer tastes e. buyers' perceptions
C PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Long Run 38. If the firms in a monopolistically competitive market are earning short-run economic profits, then a. each existing firm will increase output in the long run as its marginal revenue curve shifts rightward b. each firm will experience an increase in the demand for its output in the long run c. each firm's profit will drop to normal in the long run as its demand curve shifts leftward due to entry of new firms d. barriers to entry will enable them to earn economic profits in the long run e. decreased demand for a key input will reduce that input's price in the long run and lower each firm's average total cost curve
C PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Long Run 42. In the long run, entry ensures that the typical monopolistically competitive firm will a. produce at minimum efficient scale b. earn an economic profit c. earn a normal profit d. price its output at marginal cost e. standardize its product
C PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 30. The profit-maximizing, or loss-minimizing, output for the firm in Figure 11-3 is a. zero units b. 50 units c. 70 units d. 75 units e. 83 units
C PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Oligopoly 63. Which of the following must be true in an oligopoly? a. The firms produce a differentiated product. b. There is one dominant firm in the market. c. The firms are strategically interacting. d. The market is international in scope. e. There are no significant barriers to entry.
C PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Oligopoly 65. Which of the following is a distinguishing characteristic of oligopolies? a. a standardized product b. the goal of profit maximization c. the interdependence among firms d. downward-sloping demand curves faced by firms e. a downward-sloping market demand curve
C PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
The Game Theory Approach 107. A two-player game has an equilibrium outcome a. only if both players have dominant strategies b. if neither player has a dominant strategy c. whenever one player has a dominant strategy d. only with tit-for-tat strategy e. only with repeated trials
C PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 71. The output level at which a firm's long-run average total cost is minimized is known as its a. profit-maximizing output level b. long-run marginal cost c. minimum efficient scale d. revenue maximization level e. equilibrium cost structure
C PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 75. One explanation for why oligopolies exist is that a. it is easier to regulate a smaller number of firms b. minimum efficient scale is small relative to the market, allowing a large number of firms to achieve minimum long-run average total cost c. minimum efficient scale is large relative to the market, allowing only a few firms to achieve minimum long-run average total cost d. minimum efficient scale may be greater than the market quantity demanded at the price equal to minimum long-run average total cost e. competitive pricing drives firms from the market
C PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 83. Figure 11-10 represents the costs of a typical firm along with the market demand curve. In the long run, this industry is most likely going to be a a. declining industry b. natural monopoly c. natural oligopoly d. natural monopolistically competitive industry e. perfectly competitive industry
C PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 86. If the minimum efficient scale of production is small relative to the size of a market, then a. the industry will tend to be highly concentrated b. there will be much strategic interdependence among the sellers in the industry c. the industry is unlikely to be an oligopoly d. it is more likely that sellers in the industry will successfully collude e. there will be much merger activity in the industry
C PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Monopolistic Competition in the Short Run 17. For the monopolistically competitive firm, a. competition is blocked by barriers to entry b. limit pricing can forestall competition indefinitely c. marginal revenue is less than the product's price d. price discrimination is a key tool e. marginal revenue is equal to the product's price
C PTS: 1 DIF: 3 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Oligopoly Behavior Verses Other Market Structures 91. In the prisoner's dilemma, a. the prisoners easily collude in order to achieve the best possible payoff for both b. only one player has a dominant strategy c. each player has a dominant strategy d. playing the dominant strategy leads to a better payoff for one prisoner than if the two jointly selected a strategy e. playing the dominant strategy leads to a better payoff for both prisoners than if the two jointly selected a strategy
C PTS: 1 DIF: 3 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 81. Figure 11-10 shows the long-run market demand curve and the cost structure for a typical monopolistic competitor. The minimum efficient scale (MES) is a. 0 b. 200 units c. 400 units d. 800 units e. 1,200 units
C PTS: 1 DIF: 3 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 82. Figure 11-10 illustrates the long-run market demand curve and a typical firm's costs. How many firms are likely to exist in the long run in this industry? a. none b. 1 c. 2 d. 3 e. 4
C PTS: 1 DIF: 3 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Excess Capacity Under Monopolistic Competition 54. Any action, other than lowering its price, that a firm undertakes to increase the demand for its output is called a. limit pricing b. price enhancement c. illicit competition d. nonprice competition e. price intensive competition
D PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition 8. Each of the following, except one, is a characteristic of a monopolistically competitive market. Which is the exception? a. differentiated products b. no significant barriers to entry c. many buyers d. a standardized product e. many sellers
D PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 19. Firms in a monopolistically competitive industry maximize profits by a. equating total revenue and total cost b. treating price as given and maximizing output c. minimizing costs d. producing the level of output at which MR = MC e. producing the level of output at which TR = TC
D PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Oligopoly 66. Oligopolies feature a. the absence of barriers to entry b. extensive competition c. the goal of profit maximization d. strategic interaction of firms e. product differentiation
D PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Oligopoly 68. Oligopoly a. is a market structure of many small firms b. is the only seller of a good or service c. is a market structure of a few consumers of a product d. is a market structure of a few interdependent firms e. is a more efficient market structure than perfect competition
D PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
The Game Theory Approach 104. The U.S. market for locomotives is divided between two producers; General Electric has 70 percent of the market and General Motors has 30 percent. This market is an example of a. a bilateral monopoly b. monopolistic competition c. a collusive monopoly d. a duopoly e. a cartel
D PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Monopolistic Competition in the Long Run 47. If the monpolistically competitive firm in Figure 11-8 is typical of its competitors, the industry will likely experience a. increasing returns to scale b. entry of new firms c. exit of existing firms d. no change in the long run e. exit of all firms
D PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Long Run 39. In the long run, equilibrium for a monopolistically competitive firm resembles equilibrium for a monopoly in the sense that a. both types of firms are able to earn economic profits b. marginal cost exceeds marginal revenue c. price equals marginal cost d. price exceeds marginal cost e. average revenue exceeds price
D PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 18. In the short run, a monopolistic competitor can a. not earn an economic profit because of competition b. use limit pricing to reduce competition c. maximize profits by charging the highest price the market will bear d. earn an economic profit e. maximize profit by selecting the minimum efficient scale
D PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 23. The maximum total economic profit, or minimum economic loss, for the monopolistically competitive firm in Figure 11-2 is a. zero b. a profit of $575.00 c. a profit of $1,562.50 d. a profit of $2,000.00 e. a loss of $375.00
D PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 27. The total fixed cost in Figure 11-2 is a. increasing as more is produced b. decreasing as more is produced c. larger than variable costs d. less than $1,000 e. more than $1,000
D PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 28. In monopolistic competition, nonprice competition a. allows firms to earn above-normal profit in the long run b. initially causes a leftward shift in the demand curve for each firm's output c. causes each firm to move upward along a given average total cost curve d. might lead to economic profit in the short run e. causes each firm to move toward the right along the given demand curve for its output
D PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Nonprice Competition 56. Which of the following is an example of nonprice competition? a. giving coupons for 10 percent discounts to potential customers b. having a Memorial Day Sale c. lowering the price on several selected brands d. offering a product in three colors-blue, green, and red-in addition to the standard black e. increasing the price on all products
D PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Oligopoly 64. In order for a market to be classified as an oligopoly, a. there must be fewer than 10 firms b. the four largest firms must have 90 percent of the market c. there must be fewer than 5 firms d. the firms must be strategically interacting e. the firms must be strategically independent
D PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Oligopoly Behavior Verses Other Market Structures 88. It is difficult to explain how firms behave in an oligopoly because a. they produce differentiated products b. there are many suppliers and few buyers c. they do not attempt to maximize profits d. each takes into account the behavior of other firms when making pricing decisions e. there are no barriers to entry or exit
D PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
The Game Theory Approach 93. Game theory is based on the idea that a. government determines the rules of the game b. firms are strategically independent c. firms are price takers d. a player's strategy must take account of the strategies followed by other players e. a player's strategy must be independent of the strategies followed by other players
D PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
The Game Theory Approach 96. A dominant strategy is one that a. makes every player better off b. makes at least one player better off without hurting the competitiveness of any other player c. increases the total payoff for one player d. is best for a player, regardless of what strategy other players follow e. leads to quicker convergence to market equilibrium
D PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 72. Natural oligopolies occur when a. the government establishes a market with a few large producers b. the market output could be produced at a higher cost by several large firms rather than many small firms c. there are no barriers to entry d. the total market output could be produced at a lower cost by several large firms rather than many small firms e. one large firm can produce the total market output at a lower cost than several smaller firms could
D PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 73. All of the following are examples of barriers to entry, except one. Which is the exception? a. significant economies of scale b. reputation of established firms c. special deals with distributors d. excessive prices e. patents
D PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 77. If consumers are loyal to the products of an existing firm, this loyalty may a. reduce the incentives for the firm to invest b. result in more responsive management and better quality products c. reduce the demand for imported goods d. serve as a barrier to new entry into the market e. force the firm to produce at higher costs
D PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
The Game Theory Approach 98. We may not be able to predict the outcome of a two-player game when a. each player follows a strategy that negates the strategy of the other player b. price exceeds marginal cost c. neither player has a subsistence strategy d. neither player has a dominant strategy e. at least one player has a bilateral strategy
D PTS: 1 DIF: 3 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Monopolistic Competition 9. An important difference between a perfectly competitive market and a monopolistically competitive market is that, in the latter, a. there are more sellers of the good b. there are only a few large sellers c. there are no barriers to entry or exit d. there is only one seller of the good e. the product is not standardized
E PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 16. The demand curve facing a monopolistic competitor is a. a horizontal line at the market price b. upward sloping c. perfectly elastic d. perfectly inelastic e. downward sloping
E PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Oligopoly 58. A market in which a small number of strategically interacting firms produce the dominant share of output is called a. perfect competition b. a monopoly c. monopolistic competition d. regulated e. an oligopoly
E PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Excess Capacity Under Monopolistic Competition 50. In the long run, a monopolistically competitive firm will produce too little output to minimize average cost. Therefore, it will have a. positive economic profit b. negative economic profit c. excess profit d. X-inefficiency e. excess capacity
E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition 11. Of the following markets, which is most likely to be monopolistically competitive? a. automobiles b. corn c. overnight package delivery d. air travel between a small city and a larger one e. fast food
E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition 14. The model of monopolistic competition assumes that a. there are only a few sellers b. there are significant barriers to exit c. each firm charges the same price for its output d. the buyers are price setters e. firms are strategically independent
E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Long Run 41. Given the marginal cost and average total cost curves in Figure 11-6, a monopolistically competitive firm in long-run equilibrium will produce a. 250 units and charge a price of $6 b. less than 250 units and charge a price below $6 c. more than 250 units and charge a price below $6 d. more than 250 units and charge a price above $6 e. less than 250 units and charge a price above $6
E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Long Run 46. In the long run, monopolistically competitive firms earn zero economic profits because a. each firm produces a small share of total market output b. each firm produces a standardized product c. firms do not equate marginal cost and marginal revenue in the long run d. there is only one seller in the market e. entry of new firms eliminate profits
E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 21. Consider the monopolistically competitive firm whose demand curve and cost structure are illustrated in Figure 11-1. Which of the following statements is correct in the short run? a. The firm will produce 100 units and suffer a loss of $400 per week. b. The firm will produce 100 units and suffer a loss of $300 per week. c. The firm will produce 100 units and suffer a loss of $1,000 per week. d. The firm will produce 100 units and suffer a loss of $100 per week. e. The firm will produce zero units and suffer a loss of $300 per week.
E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 29. Given the environment illustrated in Figure 11-3, the best outcome the firm can achieve in the short run is a. both c and e b. an economic profit c. to shut down to minimize short-run loss d. a break-even outcome e. an economic loss
E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 24. The firm in Figure 11-2 is monopolistically competitive. The diagram illustrates a a. shut-down case b. long-run economic loss c. short-run economic loss d. long-run economic profit e. short-run economic profit
E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
The Game Theory Approach 101. In a Nash equilibrium a. any player can improve his outcome by changing one other player's strategy b. any player can improve his outcome by forcing other players to adopt their dominant strategies c. no player plays her dominant strategy d. no player can improve his own outcome e. no player can improve his outcome by changing only his own strategy
E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
The Game Theory Approach 92. The prisoner's dilemma demonstrates that a. breaking out of prison may be too costly for most prisoners b. the opportunity cost of being a prisoner is indeterminate c. the dominant strategies followed by two prisoners may lead to disequilibrium that is unpredictable d. the weak strategy may be followed by both prisoners if the opportunity cost is low e. the dominant strategies followed by two players may lead to an equilibrium that is less not optimal for both players together
E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
The Game Theory Approach 97. An equilibrium occurs in a game when a. price equals marginal cost b. quantity supplied equals quantity demanded c. all independent strategies counterbalance all determinate strategies d. all players follow a strategy that negates the strategies of at least one other player e. all players follow a strategy that they have no incentive to change
E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
The Game Theory Approach 99. We can predict the outcome of a two-player game as long as a. each player follows a strategy that negates the other player's strategy b. at least one player has a bilateral strategy c. neither player has a subsistence strategy d. neither player has a dominant strategy e. at least one of the players has a dominant strategy
E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 85. The minimum efficient scale for the firm in Figure 11-11 a. is less than Q1 b. is Q1 c. is Q2 d. is Q3 e. cannot be determined from this graph
E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 78. One strategic barrier that may keep new firms out of a market is a. producing where marginal cost equals marginal revenue b. a low minimum efficient scale c. bounded markup pricing d. efficiency wages, which may make it impossible for new entrants to compete profitably e. excess capacity, which may serve as a signal to new entrants to stay away
E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Why Oligopolies Exist 84. All of the following, except one, can be a barrier to entry into an oligopoly market. Which is the exception? a. heavy advertising by existing firms b. zoning regulations c. excess production capacity among existing firms d. tariffs and quotas e. a small minimum efficient scale
E PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
The Game Theory Approach 106. Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for repair work and a high price. The yearly economic profits from each strategy are indicated in Figure 11-12. The upper right side of each rectangle shows Brian's profits; the lower left side shows Matt's profits. Which of the following statements is correct for a one-trial game? a. The market equilibrium price is the high price. b. A market equilibrium price cannot be established unless Brian and Matt collude. c. A market equilibrium price cannot be established unless Brian or Matt engages in tit-for-tat strategy. d. A market equilibrium price cannot be established without repeated trials. e. The market equilibrium price is the low price.
E PTS: 1 DIF: 3 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Oligopoly 61. If a market is dominated by a few large, interacting firms, it is said to be a(n) a. oligopoly b. monopoly c. integrated monopoly d. monopolistically competitive market e. perfectly competitive market
A PTS: 1 DIF: 1 NAT: Financial theories, analysis, reporting, and markets LOC: Oligopoly
Monopolistic Competition in the Long Run 44. Cecilia's Cafe is a monopolistic competitor. If Cecilia's is currently producing at the output level at which her average total cost is minimized and the cafe is earning an economic profit, then, in the long run, output will a. decline and average total cost will increase b. decline and average total cost will decrease c. remain unchanged as Cecilia's strives to minimize costs d. increase and average total cost will be greater e. increase and average total cost will be smaller
A PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 35. The monopolistically competitive firm shown in Figure 11-4 a. achieves a break-even outcome as its best alternative b. earns an economic profit in the long run c. suffers an economic loss in the long run d. shuts down since it suffers an economic loss e. produces at the minimum point of its LRATC curve
A PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
Monopolistic Competition in the Short Run 37. Consider the typical monopolistically competitive firm whose demand curve and cost structure is illustrated in Figure 11-5. Which of the following statements is correct in the long run? a. Some firms will exit this market, and the demand curves facing the remaining firms will shift rightward. b. Some firms will exit this market, and the demand curves facing the remaining firms will shift leftward. c. Firms will enter this market, and the demand curves facing the remaining firms will shift rightward. d. Firms will enter this market, and the demand curves facing the remaining firms will shift leftward. e. Firms will enter this market, but the demand curves facing the remaining firms will not change
A PTS: 1 DIF: 2 NAT: Financial theories, analysis, reporting, and markets LOC: Monopolistic competition
