Chapter 10 Monopolistic Competition and Oligopoly - Micro Econ

In order from the most to the least competitive market structure is the perfectly competitive, monopolistically competitive, monopolist and then the oligopolistic market structure. True or False

False

In the short run, the monopolistic competitive firm will charge a price equal to marginal cost. True or False

False

Cartels are generally legal in the United States. True or False

Flase

A cartel is an agreement among firms to divide output of a product among members. True or False

True

A major cartel problem is that member firms cheat by attempting to steal customers from one another. True or False

True

In a monopolistic competitive industry, short-run economic profit encourages entry of new firms until there are no economic profits in the long-run. True or False

True

A monopolistically competitive market is characterized by: a. many small sellers selling a differentiated product. b. a single seller of a product that has few suitable substitutes. c. very strong barriers to entry. d. mutual interdependence in pricing decisions.

a. many small sellers selling a differentiated product.

As represented in Exhibit 1, the maximum long-run economic profit earned by this monopolistic competitive firm is: a. zero. b. $10 per week. c. $4,000 per week. d. $40,000 per week

a. zero.

As presented in Exhibit 1, the long-run profit-maximizing output for the monopolistic competitive firm is: a. zero units per week. b. 200 units per week. c. 400 units per week. d. 600 units per week. e. 800 units per week.

c. 400 units per week.

Supporters of advertising claim that it: a. promotes the public interest. b. is a barrier to entry. c. allows new competitors a chance to gain market share. d. All of the answers above are correct.

c. allows new competitors a chance to gain market share.

If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 1, we would expect that in the long run: a. a number of new firms will enter the industry. b. some firms will leave the industry. c. firms in the industry earn zero economic profits. d. all firms will leave the industry.

c. firms in the industry earn zero economic profits.

Game theory is useful for analysis in _________________ and for describing pricing among firms that are _________________. a. monopoly; merging b. perfect competition; regulated c. oligopoly; interdependent d. monopolistic competition; independent

c. oligopoly; interdependent

A (an) ____________________ is a formal agreement among firms to set prices and output quotas. The goal is to maximize profits, but firms have an incentive to cheat.

cartel

To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 1 will charge a price per unit of: a. zero. b. $10 c. $20. d. $30 . e. $40.

d. $30

Which of the following is true about advertising by a firm? a. It is not always successful in increasing demand for a firm's product. b. It can increase demand and make demand more inelastic. c. It may reduce per unit costs of production when economies of scale exist. d. All of the answers above are correct.

d. All of the answers above are correct

A cartel: a. is a group of firms formally agreeing to control the price and the output of a product. b. has as its primary goal to reap monopoly profits by replacing competition with cooperation. c. is illegal in the United States, but not in other nations. d. All of the answers above are correct.

d. All of the answers above are correct.

A monopolistically competitive firm will: a. maximize profits by producing where MR = MC. b. not likely earn an economic profit in the long run. c. shut down if price is less than average variable cost. d. All of the answers above are correct.

d. All of the answers above are correct.

. Which of the following is an outcome of advertising for a monopolistically competitive firm? a. Long-run average costs shift downward. b. The firm's demand curve becomes flatter and shifts inward. c. The firm's demand curve keeps the same slope and shifts inward. d. Long-run average costs shift upward.

d. Long-run average costs shift upward.

The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will: a. produce the output level at which price equals long-run marginal cost. b. operate at minimum long-run average cost. c. overutilize its insufficient capacity. d. produce the output level at which price equals long-run average cost.

d. produce the output level at which price equals long-run average cost

A monopolistic competitive firm is inefficient because the firm: a. earns positive economic profit in the long run. b. is producing at an output corresponding to the condition that marginal cost equals price. c. is not maximizing its profit. d. produces an output where average total cost is not minimum

d. produces an output where average total cost is not minimum

Critics of advertising argue that it: a. lowers price by increasing competition. b. results in more variety of products. c. establishes brand loyalty, which promotes competition. d. serves as a barrier to entry for new firms.

d. serves as a barrier to entry for new firms.

A kink in the demand curve facing an oligopolist is caused by: a. the belief that competitors will follow price increases but not match price decreases. b. excessive advertising. c. rapidly rising marginal revenues. d. the assumption that competitors will follow price reductions but not price increases.

d. the assumption that competitors will follow price reductions but not price increases.

An oligopoly is a market structure in which: a. one firm has 100 percent of a market. b. there are many small firms. c. there are many firms with no control over price. d. there are few firms selling either a homogeneous or differentiated product.

d. there are few firms selling either a homogeneous or differentiated product.

Which of the following is a characteristic of the monopolistic competition market structure? a. Many firms and a homogeneous product. b. Few firms and differentiated products. c. Few firms and similar products. d. Few firms and a homogeneous product. e. Many firms and differentiated products.

e. Many firms and differentiated products.

A monopolistic competitive firm in the long run sets price equal to the minimum point on the long-run average cost curve. True or False

false

The strategic moves and countermoves of rival firms can be explained using _____________________________.

game theory

A (an) ________________________faces an oligopolist that assumes rivals will match a price decrease, but ignores a price increase.

kinked demand curve

___________________________ is a market structure characterized by (1) many small sellers, (2) a differentiated product, and (3) easy entry and exit.

monopolistic competition

Advertising, packaging, product development, better quality, and better service are examples of . _______________________

nonprice competition

________________________________ is a market structure characterized by (1) few sellers, (2) a homogeneous or differentiated product, and (3) difficult entry.

oligopoly

The process of creating real or apparent differences between goods and services is called _____________________

product differentiation

In an oligopoly, the outcome is uncertain because price and output decisions depend on the response of rivals. True or False

true

In the long run, marginal cost must equal marginal revenue for a monopolistic competitive firm, but not at the minimum point of the long-run average cost curve. True or False

true