Econ Test 3

if an industry evolves from monopolistic competition to oligopoly, we would expect

the four-firm concentration ratio to increase

Which of the following is correct

the greater the degree of product variation, the greater is the excess capacity problem

Monopolistically competitive sellers produce efficiently because they realize only normal profits in the long run

false

mutual interdependence means that oligopolistic producers rely on price competition in determining their shares of the total market for their product

false

A simultaneous game is said to exist when

firms choose their strategies at the same time as their rivals

in long-run equilibrium monopolistic competition entails

an under allocation of resources

The Herfindahl Index for an industry is 2750. which of the following sets of market shares and industry with four firms would produce such an index

15, 20, 30, 35

Assume six firms comprising an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl Index for this industry

2,200

Suppose that firms in this industry split up such that there were 100 firms, each with a one percent market share. The four-firm concentration ratio and the Herfindahl Index respectively would be

4 percent and 16

Which is a likely characteristic of a differentiated oligopolistic market

Price and output decisions of firms are interdependent

A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from

a relatively large number of firms and the monopolistic element from product differentiation

dominant strategy in game theory is

an option that is better than any alternative option regardless of what the other firm does

which of the following best describes a Nash equilibrium

an outcome which both competitors see as optimal, given the strategy of their rivals

in the prisoner's dilemma cash each player ideally is best off if

both prisoners deny

The long run equilibrium position of the monopolistically competitive firm is where average costs are

decreasing

The price elasticity of a monopolistically competitive firm's demand curve varies

directly with the number of competitors, but inversely with the degree of product differentiation

in the long run, the representative firm in monopolistic competition tends to have

excess capacity

Industries X and Y both have four-firm concentration ratios of 65 percent, but the Herfindahl index for X is 1,500 while that for Y is 2,000. These data suggest

greater market power in Y than in X

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should

increase the level of output

Which would make an individual firm's demand curve less elastic

increased brand loyalty toward the firm's product

advertising can impede economic efficiency when it

increases entry barriers

Were a monopolistically competitive industry in long-run equilibrium, a firm in that industry might be able to increase its economic profits by

increasing the demand for its product

Aluminum competes with copper in the market for power transmission lines. This illustrates

interindustry competition

Monopolistic competition is characterized by a

large number of firms and low entry barriers

Suppose firms in a collusive oligopoly decide to establish their prices at a level which discourages new rivals from entering the industry. this is called

limit pricing

the strategy of establishing a price that prevents the entry of new firms is called

limit pricing

the more elastic a monopolistic competitor's long-run demand curve, the

lower its average total cost at its equilibrium level of output

A monopolistically competitive firm is operating at a short-run level of output where price is $21, average total cost is $15, marginal cost is $13, and marginal revenue is $13. In the short run this firm should

make no change in the level of output

When a monopolistically competitive firm is in long-run equilibrium

marginal revenue equals marginal cost and price equals average total cost

Monopolistically competitive firms

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

If a product such as cement or brick is costly to ship, and therefore markets are very localized the national concentration ratio for that industry

may understate the degree of monopoly

If the several oligopolistic firms which compromise an industry behave collusively, the resulting price and output will most likely resemble those of

monopoly

Suppose a few powerful firms control all production in an industry and face identical demand and cost schedules. If they successfully collude and maximize joint profits, then price, output, and profit levels in the industry will be the same as those in

monopoly

The demand curve of a monopolistically competitive producer is

more elastic than that of a monopolist, but less elastic than that of a perfectly competitive seller

"Mutual Interdependence" means that each oligopolistic firms

must consider the reactions of its rivals when it determines it price policy

in an oligopolistic market there is likely to be

neither allocative nor productive efficiency

Economic analysis of a monopolistically competitive industry is more complicated than that of perfect competition because

of product differentiation and consequent product promotion activities

OPEC was able to greatly increase its total revenue by increasing prices in the 1970s because

the demand for oil was inelastic

an industry producing a homogeneous product whose four-firm concentration ratio is 76 percent is an example of

oligopoly

The goal of product differentiation and advertising in monopolistic competition is to make

price less of a factor and product differences more of a factor in consumer purchases

The economic inefficiency of monopolistic competition means that

producers produce at an output short of, and charge a price greater than, minimum average total cost

differentiated oligopoly exists where a small number of firms are

producing good s which differ in terms of quality and design

Collusive control over price may permit oligopolists to

reduce uncertainty, increase profits, and possibly limit entry of new firms

In a sequential game with two firms, the first mover into a new market

runs the risk that the untested new market will not provide enough customers

If some firms leave a monopolistically competitive industry, the demand curves of the remaining firms will:

shift to the right

game theory can be used to demonstrate

that oligopolistic firms are mutually interdependent that independent pricing will lead to low-price policies that oligopolists can increase their profits through collusion

If you sum the squares of the market shares of each firm in an industry (as measured by per scent of industry sales) you are calculating

the Herfindahl index

Monopolistic competitors have some control over the price of their products

true

The demand curve of a monopolistically competitive producer is less elastic than that of a perfectly competitive producer

true

advertisings have both positive and negative effects

true

generally speaking, the larger number of firms in an oligopolistic industry, the more difficult it is for those firms to behave collusively

true

in a zero-sum game, the gains by one player will be exactly offset by the losses of the other

true

the economic profits earned by monopolistically competitive sellers are zero in the long run

true

the larger the number of firms and the less pronounced the degree of product differentiation, the greater will be the elasticity of a monopolistically competitive seller's demand curve

true

In the long run new firms will enter a monopolistically competitive industry

until economic profits are zero