Monopolistic Competition/ Oligopoly

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Compared with a perfectly competitive firm, a monopolistically competitive firm's demand curve is

. downward sloping.

Monopolistically competitive firms can earn profits in the long run by

Continually innovating to differentiate their product

Monopolistically competitive firms can earn profits in the long run by:

Continually innovating to differentiate their product.

The long run outcome of the monopolistically competitive firm:

None of these statements is true.

Abstraction is used in economics to

simplify reality so that it may be more easily understood.

The text argues that a result of monopolistic competition is

that consumers pay higher prices than in perfect competition in return for a greater variety of products.

A large difference between a monopolistically competitive firm and a monopoly is:

the ability for competition to enter the market in the long run.

Assuming the firm in the graph is producing Q1 and charging P3, it is likely showing the cost and revenue curves of a firm in

the long run, and economic profits are zero.

If a prisoner's dilemma game is repeated a finite number of times, the optimal strategy in the last period (assuming that all participants know this is the last period) is:

to confess.

In a single-period prisoner's dilemma game, the dominant strategy is

to confess.

In practice, monopolistically competitive markets are

very common.

A dominant strategy is:

when one strategy is always the best for a player to choose, regardless of what other players do.

Firms in a monopolistically competitive industry

will produce a greater variety of products than those in a purely competitive industry

A monopolistically competitive firm's demand curve slopes downward because a differentiated product gives the firm some ability to set prices

True

A monopolistically competitive firm's demand curve slopes downward because a differentiated product gives the firm some ability to set prices.

True

Actions that allow oligopoly firms to coordinate their pricing behavior are called facilitating practices.

True

If a cartel is successful, it will behave as a monopolist and maximize profit at the point at which MR = MC.

True

If a firm were to set its price by determining the average cost of an item and then adding some percentage markup to the cost, it would be practicing cost-plus pricing

True

Monopolistic competition is characterized by many firms selling differentiated products in a market with no barriers to entry or exit

True

Monopolistically and perfectly competitive firms are similar in that, in both markets, firms have long-run economic profits equal to zero.

True

Oligopolists, like monopolists, can arise for similar reasons, such as economies of scale or government regulations.

True

Suppose a monopolistically competitive firm is producing at the profit-maximizing output level and receiving a price that is sufficient to cover only its average variable cost. If average variable cost goes any higher, the firm should shut down

True

The monopolistically competitive firm will charge a price above that of a purely competitive firm and will produce less.

True

The number of firms in an oligopoly industry must be small enough that firms are interdependent in decision making.

True

An outcome in which all players choose the best strategy they can, given the choices of all other players, is called:

a Nash equilibrium.

An oligopoly with two firms is known as:

a duopoly.

In the long run, firms in a monopolistically competitive market operate at

a less-than-efficient scale.

A Nash equilibrium is

an outcome in which all players choose the best strategy they can, given the choices of all other players.

In monopolistic competition, firms

attempt to differentiate their products through advertising or trivial product changes.

Spending a lot on advertising

can act as a credible signal to consumers of high-quality products.

The act of firms working together to make decisions about price and quantity is called

collusion.

If a firm's demand curve in a monopolistically competitive market is shifting left

competition is likely entering with similar products.

Monopolistically competitive firms have an incentive to

create products that have a unique feature that makes it difficult to substitute

Monopolistically competitive firms have an incentive to

create products that have a unique feature that makes it difficult to substitute.

The long run outcome of the monopolistically competitive firm

creates welfare loss.

According to the graph shown, area B represents

deadweight loss.

If the firm in the given graph were to produce Q1 and charge P3, the area B would represent

deadweight loss.

The demand curve facing a monopolistically competitive firm is

downward sloping.

Monopolistic competition is similar to monopoly in that

each firm faces a downward-sloping demand curve.

A cartel agreement is inherently unstable because

each participant can increase its profits by violating the agreement.

A monopolistically competitive firm cannot

earn a positive profit in the long run.

Innovation creates the opportunity to

earn positive economic profits.

In the long run, a profit-maximizing monopolistically competitive firm sells at a price that is

equal to average total cost, but higher than marginal cost

In the long run, a profit-maximizing monopolistically competitive firm sells at a price that is:

equal to average total cost, but higher than marginal cost.

An economic cost associated with monopolistic competition in the long run is:

excess capacity.

Actions that allow oligopoly firms to coordinate their pricing behavior without explicit collusion are called

facilitating practices.

In practice, oligopolistic markets are

fairly common.

If a monopolistically competitive firm's demand curve is shifting left, it will stop shifting only when:

firms stop entering the industry

In a monopolistically competitive market, if economic profits exist in the short run

firms will enter in the long run, resulting in a reduction in the demand facing each existing firm.

If economic losses exist in a monopolistically competitive market,

firms will exit the market and existing firms' demand curves will increase.

One prediction of the model of monopolistic competition is that

firms will have an incentive to locate near each other in order to minimize total travel costs for consumers.

One way for firms to analyze their choices in an oligopoly is by using

game theory.

Standardized products can appear:

in perfectly competitive and oligopoly markets.

For an oligopoly, when the quantity effect outweighs the price effect, the typical firm may find it optimal to

increase output.

In a certain monopolistically competitive market that is characterized by high prices and equally high-quality merchandise, if a firm's competitors begin to successfully introduce new products that cut into the firm's market share, the firm's best counterstrategy is to

introduce its own new products in order to meet competitors head on.

In the prisoners' dilemma game, the dominant strategy for each player

is to confess.

Competition between oligopolists drives

price and profits down to below the monopoly level.

Which of the following characteristics is unique to oligopoly markets?

recognized mutual interdependence.

In monopolistically competitive markets, advertising by firms is used

All of the above

In a monopolistically competitive industry, firms are expected to attempt to

All of the above are correct

In a monopolistically competitive industry, firms are expected to attempt to

All of the above are correct.

Cartels