Chapter 11 Test Questions

A breakdown in price leadership leading to successive rounds of price cuts is known as:

a price war

Nonprice competition refers to:

advertising, product promotion, and changes in the real or perceived characteristics of a product.

OPEC provides an example of:

an international cartel.

Which of the following is the best example of oligopoly?

automobile manufacturing

The kinked-demand curve of an oligopolist is based on the assumption that:

competitors will follow a price cut but ignore a price increase.

The study of how people (or firms) behave in strategic situations is called:

game theory.

The restaurant, legal assistance, and clothing industries are each illustrations of:

monopolistic competition.

Under monopolistic competition entry to the industry is:

more difficult than under pure competition but not nearly as difficult as under pure monopoly.

Which of the following is a unique feature of oligopoly?

mutual interdependence

In the United States cartels are:

n violation of the antitrust laws.

In which of these continuum's of degrees of competition (highest to lowest) is oligopoly properly placed?

pure competition, monopolistic competition, oligopoly, pure monopoly

. Long-run equilibrium for a monopolistically competitive firm where economic profits are zero results from:

relatively easy entry.

The monopolistically competitive seller maximizes profit by producing at the point where:

marginal revenue equals marginal cost.

Monopolistically competitive firms:

may realize either profits or losses in the short run, but realize normal profits in the long run.

Monopolistic competition is characterized by a:

large number of firms and low entry barriers

Which of the following statements is correct?

In the long run purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits.

When a monopolistically competitive firm is in long-run equilibrium:

P = MC = ATC

The term oligopoly indicates:

a few firms producing either a differentiated or a homogeneous product.

Monopolistic competition resembles pure competition because:

barriers to entry are either weak or nonexistent.

Cartels are difficult to maintain in the long run because:

individual members may find it profitable to cheat on agreements

Game theory:

is the analysis of how people (or firms) behave in strategic situations.