Quiz #6

Exhibit 10.1 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. The price that the monopolistic competitor will charge at the profit-maximizing level of output is _____ -$2. -$4. -$8. -$9. -$10.

$10.

Exhibit 10.4 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. If the firm is producing at a profit-maximizing level of output, its total revenue is _____ -$5,320. -$5,700. -$4,750. -$8,120. -$8,100.

$5,700.

What does each firm have to consider in the oligopolistic industry? -diminishing marginal returns -a rising long-run average cost curve -low barriers to entry -many competitors. -interdependence

*NOT* interdependence *or* many competitors Incorrect. An oligopoly is an industry dominated by just a few firms. Each firm considers the effect of its own actions on its competitors' behavior. See 10-2: Oligopoly *TRY idk*

Exhibit 10.1 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. The monopolistic competitor's profit-maximizing level of output is _____ -75 units. -100 units. -125 units. -150 units. -137.5 units.

125 units.

Which of the following industries best illustrates an undifferentiatedoligopoly? -automobiles -airlines -steel -breakfast cereals -beer

steel

The demand curve facing a firm is likely to be relatively elastic if _____ -the firm has few competing firms. -the firm sells more differentiated products. -there are many substitutes for its product. -the firm is a price maker. -the firm has control over the supply of a key resource.

there are many substitutes for its product.

In the short run, a monopolistically competitive firm continues to increase production _____ if it can at least cover its variable cost. as long as MR > AVC until MR = ATC as long as MC > MR until MR = AR until MR = MC

until MR = MC

An oligopoly consists of _____ -a few independent firms. -a few interdependent firms. -many interdependent firms. -many independent firms. -only one firm.

a few interdependent firms.

What is an industry dominated by just a few firms? -perfectly competitive -a monopoly -an oligopoly -monopolistic competition -a monopsony

an oligopoly

What is a differentiated oligopoly? -an oligopoly that sells products that differ across producers -an oligopoly that sells products that are the same across producers -an oligopoly that sells products that are similar across producers -an oligopoly that sells products to other producers -an oligopoly that buys products from other producers

an oligopoly that sells products that differ across producers

An oligopoly _____ -can be an industry dominated by many firms. -can be an industry dominated by one firm. -has to be differentiated. -has to be undifferentiated. -differentiated or undifferentiated.

differentiated or undifferentiated.

Monopolistically competitive firms ignore the effect of their decisions upon other firms in the industry because _____ -each firm is large relative to the market. -each firm is small relative to the market. -there are few sellers in the market. -there is only one seller in the market. -all firms follow the same pricing rule.

each firm is small relative to the market.

Firms in monopolistic competition and perfect competition typically _____ -are price takers. -produce identical products. -earn zero economic profit in the long run. -face a downward-sloping demand curve. -face a downward-sloping total revenue curve at all rates of output.

earn zero economic profit in the long run.

Which of the following is most likely produced in a monopolistically competitive market? -soybeans -automobiles -fast food -oil -wheat

fast food

When firms differentiate their products, they _____ -usually create barriers to entry into the market in which they operate. -always increase their profits. -always increase product prices. -frequently create artificial or superficial differences among products, thus raising production costs. -usually strain the physical capacity of their plants.

frequently create artificial or superficial differences among products, thus raising production costs.

A monopolistically competitive firm is producing at an output level where marginal revenue is greater than marginal cost. This firm should _____ quantity and _____ price to increase profit or reduce losses. -increase, increase -increase; decrease -decrease; increase -decrease; decrease -increase; not change

increase; decrease

Which of the following characteristics distinguishes oligopoly from other market structures? -a horizontal demand curve -a downward-sloping demand curve -the production of homogeneous products -the production of differentiated products -interdependence among firms in the industry

interdependence among firms in the industry

Monopolistically competitive firms do not achieve allocative efficiency in the long run because _____ marginal cost equals marginal revenue. marginal cost is greater than marginal revenue. marginal cost is less than marginal revenue. price is less than marginal cost. price is greater than marginal cost.

price is greater than marginal cost.

A profit-maximizing firm in monopolistic competition should shut down in the short run if _____ -marginal revenue is less than price. -price is more than average total cost. -price is less than average fixed cost. -price is less than average variable cost. -marginal revenue is equal to marginal cost.

price is less than average variable cost.

In the long run, a monopolistically competitive firm will _____ -produce a greater variety of goods than firms in other market structures. -produce at a greater output level than a perfectly competitive firm. -produce where price equals long-run average cost (LAC) cost. -earn an economic profit. -suffer a loss because of its advertising budget.

produce where price equals long-run average cost (LAC) cost.

Which of the following is true of firms in monopolistic competition and perfect competition? -Firms face a horizontal demand curve. -Price exceeds marginal revenue. -Firms can enter and leave the industry with relative ease. -Price exceeds marginal cost. -Products are differentiated.

Firms can enter and leave the industry with relative ease.

Which of the following is inconsistent with the model of perfect competition? ease of entry into the industry ease of exit from the industry many buyers and sellers in the industry advertising of product differences in the industry a horizontal demand curve facing each firm in the industry

advertising of product differences in the industry

Oligopolists are more sensitive to the pricing and output policies of their rivals when _____ -all firms produce identical products. -their products are highly differentiated. -there is freedom of entry and exit. -there are barriers to entry. -there are many firms in the industry.

all firms produce identical products.

All of the following are examples of product differentiation, except one. Which of the following is the exception? developing a new video game or a computer program called "How to Teach Your New Dog Old Tricks" manufacturing a car that minimizes outside noise more than other cars do lowering the price of a good for a special sale Correct. Product differentiation is used by sellers in a monopolistically competitive market to differentiate their products from others by making them more attractive to a target population. See 10-1: Monopolistic Competition providing movies and special meals on airline flights making sodium-free, caffeine-free colas

lowering the price of a good for a special sale

Monopolistically competitive industries consist of _____ -one firm selling several products. -one firm selling one product. -many firms, all selling identical products. -many firms, each selling a slightly different product. -many firms, each selling a completely different product.

many firms, each selling a slightly different product.

A monopolistic competitor's demand curve is _____ -perfectly elastic. -less elastic than a monopolist's or oligopolist's but more elastic than a perfect competitor's demand curve. -as elastic as an oligopolist's demand curve. -more elastic than a monopolist's or oligopolist's but less elastic than a perfect competitor's demand curve. -perfectly inelastic.

more elastic than a monopolist's or oligopolist's but less elastic than a perfect competitor's demand curve.

Exhibit 10.1 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. The monopolistic competitor's total economic profit at the profit-maximizing level of output is _____ $0. $4. $600. $6. $750.

$750.

Exhibit 10.4 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. At the profit-maximizing output level, the total cost incurred by the firm is approximately _____ -$5,700. -$5,320. -$4,750. -$4,940. -$8,100.

*NOT* $5,700. Incorrect. At the profit-maximizing level of output, the total cost incurred by the firm is the average total cost faced by the firm times the quantity of the good sold at that cost. See 10-1: Monopolistic Competition *TRY $4,940*

Which of the following characteristics do firms in perfect competition have in common with firms in monopolistic competition? -Firms in both markets are price takers. -Firms in both markets produce homogeneous products. -Firms in both markets face competition from new entrants. -Firms in both markets face a horizontal demand curve. -Firms in both markets advertise their products.

*NOT* Firms in both markets produce homogeneous products. Incorrect. Short-run profits in both perfectly competitive markets and in monopolistically competitive markets attract competition from new firms in the long run. See 10-1: Monopolistic Competition *TRY Firms in both markets face competition from new entrants.*

What is an oligopoly? -an industry dominated by a few independent firms -an industry dominated by just a few firms -an industry dominated by many interdependent firms -an industry dominated by many independent firms -an industry dominated by only one firm

*NOT* an industry dominated by a few independent firms Incorrect. An oligopoly is an industry dominated by just a few firms. Each firm considers the effect of its own actions on its competitors' behavior. See 10-2: Oligopoly *TRY an industry dominated by just a few firms*

In long-run equilibrium, a monopolistically competitive firm will produce _____ -at its minimum average cost. -at full capacity. -along the downward-sloping portion of its long-run average cost curve (LAC). -along the upward-sloping portion of its LAC curve. -at the minimum point of its marginal cost curve.

*NOT* at full capacity. Incorrect. In the long run, the monopolistic competitor produces less than what is required to achieve the lowest possible average cost. See 10-1: Monopolistic Competition *TRY along the downward-sloping portion of its long-run average cost curve (LAC).*

One difference between perfect competition and monopolistic competition is that _____ -firms in perfect competition cannot earn a long-run economic profit, whereas firms in monopolistic competition can earn a long-run economic profit. -firms in perfect competition take full advantage of economies of scale in long-run equilibrium, whereas firms in monopolistic competition do not take advantage of economies of scale in long-run equilibrium. -firms in perfect competition can easily exit the market, whereas firms in monopolistic competition find it difficult to exit the market. -firms in perfect competition face a downward-sloping demand curve, whereas firms in monopolistic competition face a horizontal demand curve. -there are many firms in a perfectly competitive market, whereas there are a few firms in a monopolistically competitive market.

*NOT* firms in perfect competition face a downward-sloping demand curve, whereas firms in monopolistic term-41competition face a horizontal demand curve. Incorrect. One difference between perfect competition and monopolistic competition is that firms in monopolistic competition operate with excess capacity, whereas firms in perfect competition do not operate with excess capacity in the long run. See 10-1: Monopolistic Competition *TRY firms in perfect competition take full advantage of economies of scale in long-run equilibrium, whereas firms in monopolistic competition do not take advantage of economies of scale in long-run equilibrium.*

Exhibit 10.1 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. The monopolistic competitor is in _____ -long-run equilibrium because price equals average total cost. -long-run equilibrium because marginal cost equals marginal revenue. -long-run equilibrium because price exceeds marginal cost. -short-run equilibrium because it is earning a positive economic profit. -short-run equilibrium because price equals average total cost.

*NOT* long-run equilibrium because price equals average total cost. *or* short-run equilibrium because price equals average total cost. Incorrect. A monopolistically competitive firm earns economic profit in the short run if price exceeds average cost. See 10-1: Monopolistic Competition *TRY ONE OF THE SHORT RUNS*

Which of the following is true of the relationship between price and marginal cost under monopolistic competition? -Price equals marginal cost at all levels of output. -Price equals marginal cost only at the profit-maximizing quantity. -Price exceeds marginal cost at the profit-maximizing level of output. -Price is less than marginal cost at the profit-maximizing quantity. -Price is less than marginal cost at all levels of output.

Price exceeds marginal cost at the profit-maximizing level of output.

Economic analysis of product differentiation leads to all of the following conclusions, except one. Which of the following is the exception? -Product differentiation makes it harder for firms to collude. -Product differentiation makes price leadership harder to maintain. -Product differentiation sometimes contributes to wasteful allocation of resources. -Product differentiation must be based on real, substantive differences among products. -Product differentiation makes it easier for firms to liquidate assets.

Product differentiation must be based on real, substantive differences among products.

Which of the following is a unique feature of perfect competition? -An individual firm cannot earn economic profit in the long run. -It is easy for new firms to enter the industry. -The market demand curve slopes downward. -The demand curve facing an individual firm is perfectly elastic. -The firms in the industry produce differentiated products.

The demand curve facing an individual firm is perfectly elastic.

An oligopoly is characterized by _____ -a few firms that have control over market price. -many firms and some barriers to entry. -a large number of firms and no barriers to entry. -a single firm and no barriers to entry. -a single firm and significant barriers to entry.

a few firms that have control over market price.

What is an undifferentiated oligopoly? -an oligopoly that sells products that differ across producers -an oligopoly that sells products that are the same across producers -an oligopoly that sells products that are similar across producers -an oligopoly that sells products to other producers -an oligopoly that buys products from other producers

an oligopoly that sells products that are the same across producers

Monopolistically competitive firms _____ -are price takers. -are price makers. -produce homogeneous products. -face high barriers to entry. -act interdependently.

are price makers.

The term "monopolistic competition" _____ -is an alternate expression for monopoly. -is used to describe perfect competition that has strong entry barriers. -denotes an industry characterized by one seller of many differentiated products. -denotes an industry characterized by many sellers of homogeneous products. -denotes an industry characterized by many sellers of differentiated products.

denotes an industry characterized by many sellers of differentiated products.

If firms in an industry produce differentiated products, they are likely to _____ -earn zero economic profit in the long run. -earn positive economic profit in the short run. -face perfectly elastic demand curves. -face downward-sloping demand curves. -incur lower production costs.

face downward-sloping demand curves.

It is harder to explain the behavior of firms in an oligopoly than in other market structures because _____ -the firms act independently of each other in an oligopoly. -firms base their decisions on what their rivals do. -only differentiated products are produced by firms in an oligopoly. -only homogeneous products are produced by firms in an oligopoly. -the demand curve faced by a firm in an oligopoly can slope upward.

firms base their decisions on what their rivals do.

Compared to regular grocery stores, convenience stores have _____ -higher prices and a limited selection of goods. -higher prices and a greater selection of goods. -lower prices and a limited selection of goods. -lower prices and a greater selection of goods. -equal prices and an equal selection of goods.

higher prices and a limited selection of goods.

All of the following are ways oligopolists differentiate their products except for _____ -physical qualities. -sales locations. -services offered with the product. -highly differentiated products. -the image of the product established in the consumer's mind.

highly differentiated products.

In the long run, the profit-maximizing output of a monopolistically competitive firm _____ -exceeds that of an otherwise similar perfectly competitive firm. -is less than that of an otherwise similar perfectly competitive firm. -occurs where average revenue equals marginal revenue. -equals that of an otherwise similar perfectly competitive firm. -is less than its profit-maximizing output in the short run.

is less than that of an otherwise similar perfectly competitive firm.

If a monopolistically competitive firm raises its price, it _____ -earns a higher economic profit. -loses some, but not all, of its customers. -shuts down. -has to pay higher taxes. -gains customers.

loses some, but not all, of its customers.

The automobile, breakfast cereal, and tobacco industries are examples of _____ -monopolistic competition. -oligopolies. -perfect competition. -monopolies. -monopsonies.

oligopolies.

Monopolistically competitive firms are unlikely to _____ -operate where price equals marginal cost. -charge a higher price than firms in perfect competition. -produce a smaller quantity than firms in perfect competition. -produce where price equals average total cost. -exit the industry when demand falls below long-run average costs.

operate where price equals marginal cost.

Monopolistic competition is different from perfect competition because monopolistic competitors _____ produce homogeneous products. are price takers. have high barriers to entry. produce differentiated products. Correct. Unlike firms in perfect competition, firms in monopolistic competition produce close but not identical products. See 10-1: Monopolistic Competition act interdependently.

produce differentiated products.

Compared to a firm in perfect competition, a monopolistically competitive firm tends to _____ -produce less and charge a higher price. -produce less and charge a lower price. -produce more and charge a lower price. -produce more and charge a higher price. -produce the same quantity.

produce less and charge a higher price.

Which of the following factors makes a monopolistically competitive firm a price maker? -product differentiation -barriers to entry -product similarity -homogeneity of products -high tariffs

product differentiation

Suppose a monopolistically competitive firm is earning an economic profit. The marginal revenue from selling an additional unit is $30, and the marginal cost of producing that additional unit is $23. The firm should _____ -change neither its price nor its output level. -reduce its price and increase its output level. -increase its price and reduce its output level. -reduce both its price and its output level. -increase both its price and its output level.

reduce its price and increase its output level.

If Ford raises the price of its automobiles, the demand curve for GM automobiles _____ -shifts to the left. -remains unaffected. -becomes more elastic. -shifts to the right. -becomes vertical.

shifts to the right.

The demand curve facing Imelda's Shoe Boutique, a monopolistically competitive firm, _____ -is horizontal because Imelda's supply is small relative to the market as a whole. -is horizontal because Imelda's supply is large relative to the market as a whole. -slopes downward because Imelda's supply is small relative to the market as a whole. -slopes downward because Imelda sells a differentiated product. -slopes downward because Imelda's products are identical to its rival's products.

slopes downward because Imelda sells a differentiated product.

Which of the following industries best illustrates a differentiatedoligopoly? -aluminum -oil -steel -soft drinks -copper

soft drinks

Which of the following industries is an example of an oligopoly? -fast food -steel -utilities -farming -retail fashion

steel

If there is an increase in the demand for restaurant meals in an economy in the short run, _____ -the losses incurred by each restaurant will increase. -the price charged by each restaurant will fall. -there will be an increase in the number of restaurants in the economy. -there will be a decrease in the number of restaurants in the economy. -the profit incurred by each restaurant will increase.

the profit incurred by each restaurant will increase

A common feature of monopolistic competition, pure monopoly, and perfect competition is that _____ -entry is free in each market structure. -producers in each market structure earn economic profit in the long run. -producers in each market structure sell differentiated products. -firms in these market structures act as price takers. -the profit-maximizing condition in each market is the same.

the profit-maximizing condition in each market is the same.

Collusion among firms to raise prices is rare in -monopolistically competitive markets because _____ -there are too many firms. -there are too few firms. -there is only one firm. -products are homogeneous. -there are price leaders.

there are too many firms.