quiz 5

Assume that a pure monopolist and a purely competitive firm have the same unit costs. In this case, determine what is true with respect to (a) price, (b) output, and (c) profits. 1. PMonopoly > PCompetition 2. PMonopoly < PCompetition 3. PMonopoly = PCompetition 4. QMonopoly > QCompetition 5. QMonopoly < QCompetition 6. QMonopoly = QCompetition 7. ProfitMonopoly > ProfitCompetition 8. ProfitMonopoly < ProfitCompetition 9. ProfitMonopoly = ProfitCompetition a. Which of the combinations above are accurate?

1, 5, and 7

Which of the following are products or services of oligopolists that you regularly purchase or own? a. Refrigerators, bakery goods, and courier services b. Clothing stores, office supplies, and personal computers c. Automobiles, personal computers, and gasoline d. Ovens, refrigerators, and hair salon services

Automobiles, personal computers, and gasoline

What are the Nash equilibria in this​ game?

Both Firm A and Firm B charge a low price. Both Firm A and Firm B charge a high price.

Using the payoff matrix, and assuming no collusion between X and Y, what is the likely pricing outcome? a. Firm X will charge $40, and firm Y will charge $35. b. Both firms will set price at $40. c. Firm X will charge $35, and firm Y will charge $40. d. Both firms will set price at $35.

Both firms will set price at $35.

Suppose that the payouts at terminal B node change to (13,12) while everything else in the game stays the same. The new subgame perfect Nash equilibrium will consist of the two line segments: a. Don't build at BB followed by Don't build at HB2. b. Don't build at BB followed by Build at HB2. c. Build at BB followed by Build at HB1. d. Build at BB followed by Don't build at HB1.

Don't build at BB followed by Build at HB2.

The socially optimal price (P = MC) is socially optimal because: a. It reduces the monopolist's profit. b. It minimizes ATC. c. It achieves allocative efficiency. d. It yields a normal profit

It achieves allocative efficiency.

Does​ Firm A have a dominant strategy? The dominant strategy for Firm A is a high price. No, there is no dominant strategy for Firm A. The dominant strategy for Firm A is a low price.

No, there is no dominant strategy for Firm A.

Does​ Firm B have a dominant strategy? The dominant strategy for Firm B is a low price. No, there is no dominant strategy for Firm B. The dominant strategy for Firm B is a high price.

No, there is no dominant strategy for Firm B.

Shortcomings of the kinked-demand model include a. a lack of explanation for how the final price is set. b. the allowance for collusion. c. a lack of explanation for how the initial price is set. d. the allowance for price leadership.

a lack of explanation for how the initial price is set.

The demand curve faced by a purely monopolistic seller is a. downward sloping, whereas that facing the purely competitive firm is perfectly elastic. b. perfectly elastic, whereas that facing the purely competitive firm is perfectly inelastic. c. perfectly inelastic, whereas that facing the purely competitive firm is perfectly elastic. d. downward sloping, whereas that facing the purely competitive firm is perfectly inelastic.

a. downward sloping, whereas that facing the purely competitive firm is perfectly elastic.

. The pure (profit maximizing) monopolist's demand curve is not a. perfectly inelastic, because MR is negative when demand is inelastic, so MR = MC < 0. b. downward sloping, because MR is negative when demand is elastic, so MR = MC < 0. c. perfectly elastic, because the firm will still have some competitors even if they are not close. d. perfectly inelastic, because MR < MC when demand is inelastic, so the price would be falling.

a. perfectly inelastic, because MR is negative when demand is inelastic, so MR = MC < 0.

The demand curve facing a a. pure monopolist is perfectly inelastic, because a pure monopolist may choose any desired price and quantity combination. b. purely competitive firm is downsloping, because the purely competitive firm is faced by a normal downward-sloping industry demand curve. c. pure monopolist is downsloping, because the firm's supply is so small a part of the total industry supply that it cannot affect the price. d. purely competitive firm is perfectly elastic, because the purely competitive firm may sell all that it wishes at the equilibrium price.

d. purely competitive firm is perfectly elastic, because the purely competitive firm may sell all that it wishes at the equilibrium price.

The most common reason that oligopolies exist is a. diminishing marginal returns. b. there are a large number of firms. c. economies of scale. d. regulation.

economies of scale.

The kinked-demand curve explains price rigidity in oligopoly because a. firms agree to a given price. b. the firm's revenue will fall as the price falls. c. firms expect any change in price will lower revenue and profits. d. firms will not agree to a given price.

firms expect any change in price will lower revenue and profits.

Oligopoly differs from monopolistic competition in that oligopoly a. the firms have relatively easy entry. b. has many firms, whereas monopolistic competition has few firms. c. has few firms, whereas monopolistic competition has more firms. d. the firms are not mutually interdependent with regard to price.

has few firms, whereas monopolistic competition has more firms.

There might be a temptation to cheat on the collusive agreement because each firm could achieve a. lower costs. b. higher productivity. c. increased sales. d. higher profits

higher profits

Refer to the matrix above. Price collusion is mutually profitable because each firm would achieve a. increased sales. b. lower costs. c. higher productivity. d. higher profits.

higher profits.

Using the payoff matrix, X and Y are a. independent, because their profits depend on their own price. b. independent, because their profits depend on an agreed-upon price. c. interdependent, because their profits depend on an agreed-upon price. d. interdependent, because their profits depend not just on their own price but also on the other firm's price.

interdependent, because their profits depend not just on their own price but also on the other firm's price.

The kinked-demand curve for oligopolists assumes that rivals will a. match price cuts, but ignore price increases. b. neither match price cuts nor price increases. c. match price increases, but ignore price cuts. d. match price cuts and price increases.

match price cuts, but ignore price increases.

. Compared to pure monopoly and pure competition, monopolistically competitive industries a. might have economic profits, they will remain constant as competitors enter, and there will be productive efficiency. b. might have economic profits, they will diminish as competitors enter, and there will be productive inefficiency. c. will have economic profits, they will diminish constant as competitors enter, and there will be productive efficiency. d. will have economic profits, they will remain constant as competitors enter, and there will be productive efficiency.

might have economic profits, they will diminish as competitors enter, and there will be productive inefficiency.

There is a gap in the oligopolist's marginal-revenue curve because a. price rises abruptly. b. price drops abruptly. c. the cost of production changes abruptly. d. the slope of the demand curve changes abruptly.

the slope of the demand curve changes abruptly.

b. "In the long run, monopolistic competition leads to a monopolistic price but not to monopolistic profits." This statement is a. true, since P < MC, but the lack of available close substitutes pushes the price of the average firm up until it equals ATC. b. false, since P < MC, but the lack of available close substitutes pushes the price of the average firm up until it equals ATC. c. false, since P > MC, but the availability of close substitutes pushes the price of the average firm down until it equals ATC. d. true, since P > MC, but the availability of close substitutes pushes the price of the average firm down until it equals ATC.

true, since P > MC, but the availability of close substitutes pushes the price of the average firm down until it equals ATC.