Microeconomics - chpt 10 - 2020

Which of the following best describes the prisoner's dilemma?

a game in which both players have a dominant strategy to cooperate with the other player a condition of the industry in which many firms compete to sell similar but differentiated products a game in which the gains from cooperation are larger than the rewards from pursuing self-interes (A) a condition of the industry that falls between the extremes of monopolistic and perfect competition

Which of the following best defines game theory?

a group of firms that collude to produce the monopoly output and sell at the monopoly price a branch of mathematics often used by economists that analyzes situations in which players must make decisions and then receive payoffs based on what decisions the other players make (A) a product that is perceived by consumers as distinctive in some way a state of the industry when a few large firms have all or most of the sales in an industry

Which of the following are characteristics of monopolistic competition?

a large number of firms in the industry All the other answers (A) a certain level of customer loyalty to each brand firms produce non-identical products

Which of the following best defines imperfect competition?

a market type where firms are price takers with no market power a market type which falls between the extremes of monopoly and perfect competition; firms have more influence over the price they charge than perfectly competitive firms, but not as much as a monopoly would (A) a situation where one market dominates the industry; like a monopoly, no other firm can enter the market because of high barriers to entry a situation where the market crumbles because a technology is no longer being used

Which of the following is not a characteristic of oligopoly?

a small number of firms dominating the market firms strategically choosing output and pricing a large number of competing firms selling non-identical products (A) high barriers to entry

Which of the following is not a valid way in which a firm can differentiate its products from the products of other firms?

altering intangible aspects, like service guarantees altering price (A) altering locations where the product is sold altering physical aspects, like product design

A group of firms that have a formal agreement to collude to produce the monopoly output and sell at the monopoly price is called a _______

cartel (A) corporations industry oligopolies

Which of the following goods does not have a high level of product differentiation?

clothing breakfast cereal electricity (A) automobiles

When firms informally act together to reduce output and keep prices high, they are engaging in _____________.

collusion (A) market strategy competition monopsony

While advocates of a market-oriented economy tend to argue that consumers benefit substantially when firms seek short-term profits by providing differentiated products, critics of market-oriented economies may argue that product differentiation (along with marketing and advertising) is _______________.

dishonest low quality socially wasteful (A) boring

How can parties who find themselves in a prisoner's dilemma situation avoid the undesired outcome and cooperate with each other?

find effective ways to penalize firms who do not cooperate (A) sign legally enforceable contracts setting out their mutual agreement to act like a monopoly one oligopoly can physically beat up another oligopoly by seeking alternatives to create pressure for members to keep output up and prices up

All of the following are potential effects of advertising for a firm except _______.

greater product distinction a more elastic demand curve (A) a greater quantity sold an ability to charge a higher price

Monopolistic competitors can make a ____________ in the short-run, but in the long run, ____________ will drive these firms toward ____________.

loss; exit; losses on their earnings profit or loss; exit; economic profits profit; entry; a price that lies at the very bottom of the AC curve profit or loss; entry and exit; a zero-profit outcome (A)

In the prisoners' dilemma scenario, what is the dominant strategy?

one prisoner confesses and one prisoner remains silent both prisoners confess to the crime (A) both prisoners remain silent none of the above are dominant strategies

One example of the pressures oligopolies can exert on one another is the kinked demand curve, in which competing oligopoly firms commit to ___________, but not ___________.

price cuts; price increases (A) price increases; price cuts interest rates; costs price; output level

In a monopolistically competitive market, the rule for maximizing profit is to set MR = MC, which means

price is lower than marginal revenue. price is equal to marginal revenue. price is equal to marginal cost. price is higher than marginal revenue. (A)

A monopolistically competitive industry does not display ____________ in either the short-run, when firms are making ____________, nor in the long-run, when firms are earning ____________.

productive and allocative efficiency; profits and losses; zero profits (A) productive efficiency; profits and losses; zero profits allocative efficiency; profits and losses; negative profits productive and allocative efficiency; profits and losses; negative profits

Which of the following is not a form of product differentiation?

supplier's costs (A) product design packaging and materials advertising and branding

In the framework of monopolistic competition, which of the following is not a possible outcome for a firm that runs a successful advertising campaign?

the ability of the firm to sell a greater quantity allocative efficiency (A) the ability of the firm to charge a higher price an increase in profits for the firm

All of the following are reasons that barriers to entry create oligopolies except:

the desire for product efficiency at the price of the purchase of one additional unit equal to marginal cost (A) a combination of economies of scale and market demand the government grants patents to two or three firms with differentiated products in the same market firms need to reach a certain minimum size before they are able to spend enough on advertising and marketing to create a recognizable brand name

A producer of a premium cereal brand can command a slightly higher price than that of a similar cereal from a competitor. This is because

the difference in prices is not significant. the two products are differentiated. All the other answers (A) consumers have a perception that the premium brand is "better".

If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,

the firm's perceived demand will shift to the left. each marginal unit adds profit by bringing in less revenue than its cost. the firm is now earning zero for profit. the firm should keep expanding production. (A)

If a monopolistically competitive firm or a monopolist increases their prices, then

the quantity demanded for the monopoly product falls to zero. decline in quantity demanded will be larger for the monopoly. the quantity demanded for the monopolistic competitor will fall to zero. decline in quantity demanded will be larger for the monopolistic competitor. (A)

The result of a prisoner's dilemma in a duopoly is often that even though Firm A and Firm B could make the highest combined profits by cooperating, _______________________.

the two firms may well end up in a situation where they each end up with lower profits (A) the two firms may well end up in a situation where more firms enter the market and their profits fall one of the firms will refuse to cooperate and exit the market instead the two firms will increase output resulting in both making higher profits

Monopolistically competitive firms are not productively efficient because

they charge more than competitive firms. they make zero economic profits. they differentiate their products. they produce below the quantity level at which average total cost is minimum. (A)

If monopolistically competitive firms face conditions, where there are free entry and exit similar to perfectly competitive firms, then

they will wish to cooperate to make decisions about what price to charge. they will be unable to earn higher-than-normal profits in the long run. (A) they will wish to cooperate to make decisions about what quantity to produce. they will be unable to earn higher-than-normal profits in the short run.

If a monopolistic competitor raises its price, it ____________ customers than a perfectly competitive firm, but ____________ customers compared to the number that a monopoly that raised its prices would.

will lose more; it will lose more will lose fewer; it will lose more (A) will lose fewer; it will lose as many will lose more; it will lose as many

What is the comparison between the elasticity of demand for a monopolist and the elasticity of demand for a monopolistic competitor?

Monopolists face a more elastic elasticity of demand than monopolistic competitors. Monopolists face a more inelastic elasticity of demand than monopolistic competitors. (A) The elasticity of demand for monopolists and monopolistic competitors depends on the industry not on the market type. All markets face perfectly elastic demand.

Suppose that a member firm in an oligopoly cartel faces a kinked demand curve. What will happen if the firm decides to raise its price?

The other oligopolists will immediately raise their prices even higher. The other oligopolists will not raise their prices. (A) The other oligopolists will immediately raise their prices to match. The other oligopolists will exit the cartel.

A monopolistically competitive industry displays productive and allocative efficiency in the short run and long run.

True