Weekly Quiz 10

19. A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following? a. average revenue exceeds marginal revenue b. marginal revenue exceeds average revenue c. average revenue is equal to marginal revenue d. revenue is always maximized along with profit

a. average revenue exceeds marginal revenue

55. In general, game theory is the study of a. how people behave in strategic situations. b. how people behave when the possible actions of other people are irrelevant. c. oligopolistic markets. d. all types of markets, including competitive markets, monopolistic markets, and oligopolistic markets.

a. how people behave in strategic situations

18. The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at which a. marginal revenue is equal to marginal cost. b. average total cost is equal to marginal revenue. c. average total cost is equal to price. d. average revenue exceeds average total cost.

a. marginal revenue is equal to marginal cost

47. Which of these types of firms can earn a positive economic profit in the long run? a. monopolies, but not competitive firms or monopolistically competitive firms b. monopolies and monopolistically competitive firms, but not competitive firms c. monopolies, monopolistically competitive firms, and competitive firms d. No firms earn positive economic profit in the long run. Entry will reduce all firms' economic profit to zero in the long run.

a. monopolies, but no competitive firms or monopolistically competitive firms

16. For a monopolistically competitive firm, at the profit-maximizing quantity of output, a. price exceeds marginal cost. b. marginal revenue exceeds marginal cost. c. marginal cost exceeds average revenue. d. price equals marginal revenue.

a. price exceeds marginal cost

7. An oligopoly is a market in which a. there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market. b. firms are price takers. c. the actions of one seller in the market have no impact on the other sellers' profits. d. there are many price-taking firms, each offering a product similar or identical to the products offered by other firms in the market.

a. there are only a few sellers, each offering a product similar or identical to products offered by other firms in the market

11. Monopolistically competitive markets differ from perfectly competitive markets due to (i) the number of sellers. (ii) the barriers to entry. (iii) the product differentiation among the sellers. a. (i) only b. (iii) only c. (i) and (iii) only d. (ii) and (iii) only

b. (iii) only

74. The theory of oligopoly provides another reason that free trade can benefit all countries because a. increased competition leads to larger deadweight losses. b. as the number of firms within a given market increases, the price of the good decreases. c. as the number of firms within a given market increases, the profit of each firm increases. d. All of the above are correct.

b. as the number of firms within a given market increases, the price of the good decreases

8. One key difference between an oligopoly market and a competitive market is that oligopolistic firms a. are price takers while competitive firms are not. b. can affect the profit of other firms in the market by the choices they make while firms in competitive markets do not affect each other by the choices they make. c. sell completely unrelated products while competitive firms do not. d. sell their product at a price equal to marginal cost while competitive firms do not.

b. can affect the profit of other firms in the market by the choices they make while firms in the competitive markets do not affect each other by the choices they make

2. Which of the following pairs illustrates the two extreme examples of market structures? a. competition and oligopoly b. competition and monopoly c. monopoly and monopolistic competition d. oligopoly and monopolistic competition

b. competition and monopoly

1. A typical firm in the US economy would be classified as a. perfectly competitive. b. imperfectly competitive. c. a duopolist. d. an oligopolist.

b. imperfectly competitive

72. To increase their individual profits, members of a cartel have an incentive to a. charge a higher price than the other members of the cartel. b. increase production above the level agreed upon. c. ignore the choices made by the other firms and act as a monopolist. d. charge the same price a monopolist would charge.

b. increase production above the level agreed upon

49. Monopolistic competition is an inefficient market structure because a. marginal revenue equals marginal cost. b. it has a deadweight loss, just as monopoly does. c. long-run profits are zero due to free entry. d. All of the above are correct.

b. it has a deadweight loss, just as monopoly does

48. The deadweight loss that is associated with a monopolistically competitive market is a result of a. price falling short of marginal cost in order to increase market share. b. price exceeding marginal cost. c. the firm operating in a regulated industry. d. excessive advertising costs.

b. price exceeding marginal cost

90. The primary purpose of antitrust legislation is to a. protect small businesses. b. protect the competitiveness of U.S. markets. c. protect the prices of American-made products. d. ensure firms earn only a fair profit.

b. protect the competitiveness of U.S. markets

46. Long-run profit earned by a monopolistically competitive firm is driven to the competitive level due to a(n) a. change in the technology that the firm utilizes. b. shift of its demand curve. c. shift of its supply curve. d. increase in the firm's average cost of production.

b. shift of its demand curve

68. Which of these situations produces the largest profits for oligopolists? a. The firms reach a Nash equilibrium. b. The firms reach the monopoly outcome. c. The firms reach the competitive outcome. d. The firms produce a quantity of output that lies between the competitive outcome and the monopoly outcome.

b. the firms reach the monopoly outcome

77. In the prisoners' dilemma game with Bonnie and Clyde as the players, the likely outcome is one a. in which neither Bonnie nor Clyde confesses. b. in which both Bonnie and Clyde confess. c. that involves neither Bonnie nor Clyde pursuing a dominant strategy. d. that is ideal in terms of Bonnie's self-interest and in terms of Clyde's self-interest.

b.in which both Bonnie and Clyde confess

70. When an oligopoly market reaches a Nash equilibrium, a. the market price will be different for each firm. b. the firms will not have behaved as profit maximizers. c. a firm will have chosen its best strategy, given the strategies chosen by other firms in the market. d. a firm will not take into account the strategies of competing firms.

c. a firm will have chosen is best strategy, given the strategies chosen by other firms in the market

67. To be successful, a cartel must a. find a way to encourage members to produce more than they would otherwise produce. b. agree on the total level of production for the cartel, but they need not agree on the amount produced by each member. c. agree on the total level of production and on the amount produced by each member. d. agree on the prices charged by each member, but they need not agree on amounts produced.

c. agree on the total level of production and on the amount produced by each member

89. A law that encourages market competition by prohibiting firms from gaining or exercising excessive market power is a. a patent. b. impossible to enforce. c. an antitrust law. d. an externality law.

c. an antitrust law

59. As a group, oligopolists would always be better off if they would act collectively a. as if they were each seeking to maximize their own individual profits. b. in a manner that would prohibit collusive agreements. c. as a single monopolist. d. as a single perfectly competitive firm.

c. as a single monopolist

91. To move the allocation of resources closer to the social optimum, policymakers should typically try to induce firms in an oligopoly to a. collude with each other. b. form various degrees of cartels. c. compete rather than cooperate with each other. d. cooperate rather than compete with each other.

c. compete rather than cooperate with each other

53. Defenders of advertising a. concede that advertising increases firms' market power. b. concede that advertising makes entry by new firms more difficult. c. contend that firms use advertising to provide useful information to consumers. d. All of the above are correct.

c. contend that firms use advertising to provide useful information to consumers

44. As new firms enter a monopolistically competitive market, profits of existing firms a. rise, and product diversity in the market increases. b. rise, and product diversity in the market decreases. c. decline, and product diversity in the market increases. d. decline, and product diversity in the market decreases.

c. decline, and product diversity in the market increases

56. In an oligopoly, each firm knows that its profits a. depend only on how much output it produces. b. depend only on how much output its rival firms produce. c. depend on both how much output it produces and how much output its rival firms produce. d. will be zero in the long run because of free entry.

c. depend on both how much output it produces and how much output its rival firms produce

57. An agreement between two duopolists to function as a monopolist usually breaks down because a. they cannot agree on the price that a monopolist would charge. b. they cannot agree on the output that a monopolist would produce. c. each duopolist wants a larger share of the market to capture more profit. d. each duopolist wants to charge a higher price than the monopoly price.

c. each duopolist wants a larger share of the market to capture more profit

6. An oligopoly a. has a concentration ratio of less than 50 percent. b. is a price taker. c. is a type of imperfectly competitive market. d. has many firms rather than just one firm or a few firms.

c. is a type of imperfectly competitive market

66. Assuming that oligopolists do not have the opportunity to collude, once they have reached the Nash equilibrium, it a. is always in their best interest to supply more to the market. b. is always in their best interest to supply less to the market. c. is always in their best interest to leave their quantities supplied unchanged. d. may be in their best interest to do any of the above, depending on market conditions.

c. is always in their best interest to leave their quantities supplied unchanged

9. A market structure in which there are many firms selling products that are similar but not identical is known as a. oligopoly. b. monopoly. c. monopolistic competition. d. perfect competition.

c. monopolistic competition

4. Which of the following statements is not correct? a. Monopolistic competition is similar to monopoly because in each market structure the firm can charge a price above marginal costs. b. Monopolistic competition is similar to perfect competition because both market structures are characterized by free entry. c. Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry. d. Monopolistic competition is similar to perfect competition because both market structures are characterized by many sellers.

c. monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry

58. If a certain market were a monopoly, then the monopolist would maximize its profit by producing 4,000 units of output. If, instead, that market were a duopoly, then which of the following outcomes would be most likely if the duopolists successfully collude? a. Each duopolist produces 4,000 units of output. b. Each duopolist produces 1,500 units of output. c. One duopolist produces 2,400 units of output and the other produces 1,600 units of output. d. One duopolist produces 3,000 units of output and the other produces 1,500 units of output.

c. one duopolist produces 2,400 units of output and the other produces 1,600 units of output

75. If a market is a duopoly and additional firms enter and do not cooperate, then a. price and quantity fall. b. price and quantity rise. c. price falls and quantity rises. d. price rises and quantity falls.

c. price falls and quantity rises

45. As firms exit a monopolistically competitive market, profits of remaining firms a. decline, and product diversity in the market decreases. b. decline, and product diversity in the market increases. c. rise, and product diversity in the market decreases. d. rise, and product diversity in the market increases.

c. rise, and product diversity in the market decreases

15. Each firm in a monopolistically competitive industry faces a downward-sloping demand curve because a. there are many other sellers in the market. b. there are very few other sellers in the market. c. the firm's product is different from those offered by other firms in the market. d. the firm faces the threat of entry into the market by new firms.

c. the firm's product is different from those offered by other firms in the market

5. In a market that is characterized by imperfect competition, a. firms are price takers. b. there are always a large number of firms. c. there are at least a few firms that compete with one another. d. the actions of one firm in the market never have any impact on the other firms' profits.

c. there are at least a few firms that compete with one another

71. Cartels are difficult to maintain because a. antitrust laws are difficult to enforce. b. cartel agreements are conducive to monopoly outcomes. c. there is always tension between cooperation and self-interest in a cartel. d. firms pay little attention to the decisions made by other firms.

c. there is always tension between cooperation and self-interest in a cartel

10. Monopolistic competition is characterized by which of the following attributes? (i) free entry (ii) product differentiation (iii) many sellers a. (i) and (iii) only b. (i) and (ii) only c. (ii) and (iii) only d. (i), (ii), and (iii)

d. (i), (ii), and (iii)

69. A situation in which firms choose their best strategy given the strategies chosen by the other firms in the market is called a. a competitive equilibrium. b. an open-market solution. c. a socially-optimal solution. d. a Nash equilibrium.

d. a Nash equilibrium

51. Advertising a. provides information about products, including prices and seller locations. b. has been proven to increase competition and reduce prices compared to markets without advertising. c. signals quality to consumers, because advertising is expensive. d. All of the above are correct.

d. all of the above are correct

52. Critics of advertising argue that advertising a. creates desires that otherwise might not exist. b. hinders competition. c. often fails to convey substantive information. d. All of the above are correct.

d. all of the above are correct

76. In the prisoners' dilemma game, self-interest leads a. each prisoner to confess. b. to a breakdown of any agreement that the prisoners might have made before being questioned. c. to an outcome that is not particularly good for either prisoner. d. All of the above are correct.

d. all of the above are correct

50. Some firms have an incentive to advertise because they sell a a. homogeneous product and charge a price equal to marginal cost. b. homogeneous product and charge a price above marginal cost. c. differentiated product and charge a price equal to marginal cost. d. differentiated product and charge a price above marginal cost.

d. differentiated product and charge a price above marginal cost

12. In both perfect competition and monopolistic competition, each firm a. has some monopoly power. b. sells a product that is at least slightly different from those of other firms. c. faces a downward-sloping demand curve. d. has many competitors.

d. has many competitors

3. The two types of imperfectly competitive markets are a. markets with advertising and markets with price competition. b. public goods and common resources. c. oligopoly and monopoly. d. monopolistic competition and oligopoly.

d. monopolistic competition and oligopoly

73. Oligopolies would like to act like a a. duopoly, but self-interest often drives them closer to the perfectly competitive outcome. b. competitive firm, but self-interest often drives them closer to the duopoly outcome. c. monopoly, but self-interest often drives them to charge a higher price than would be charged by a monopoly. d. monopoly, but self-interest often drives them closer to the perfectly competitive outcome.

d. monopoly, but self-interest often drives them closer to the perfectly competitive outcome

92. The story of the prisoners' dilemma shows why a. predatory pricing is clearly not in society's best interest. b. economists are unanimous in condemning resale price maintenance, since it inevitably reduces competition. c. oligopolies can fail to act independently, even when independent decision-making is in their best interest. d. oligopolies can fail to cooperate, even when cooperation is in their best interest.

d. oligopolies can fail to cooperate, even when cooperation is in their best interest.

17. A monopolistically competitive firm chooses a. the quantity of output to produce, but the market determines price. b. the price, but competition in the market determines the quantity. c. price, but output is determined by a cartel production quota. d. the quantity of output to produce and the price at which it will sell its output.

d. the quantity of output to produce and price at which it will sell its output

54. Which of the following statements about oligopolies is not correct? a. An oligopolistic market has only a few sellers. b. The actions of any one seller can have a large impact on the profits of all other sellers. c. Oligopolistic firms are interdependent in a way that competitive firms are not. d. Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal revenues.

d. unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal revenues