self quiz - 3

A market which firms can enter if they choose and exit without losing money invested is _____.

contestable

A monopolistically competitive firm in the long run will _____.

have a demand curve tangent to its AC

The excess capacity theorem implies that _____.

monopolistic competition wastes some of society's resources but the elimination of this waste does not necessarily benefit consumers.

According to the kinked demand model, an oligopolist may face

more elastic demand if she raises her price than if she lowers her price.

A firm now produces its sales-maximizing level of output. If the firm increased its output by one unit, its marginal revenue would become _____.

negative

Monopolistic competition is common in _____.

retail selling

The kinked demand curve model is based on the assumption that rival firms will match a price cut but ignore a price increase.

true

Oligopolists use advertising as a way of differentiating their products.

true

Table 1 shows the payoff matrix of firm A for 4 different strategies, A1, A2, A3, and A4, and the potential retaliatory responses of firm B (B1, B2, B3, B4). If firm A uses the maximin criterion, which strategy will it choose?

A3

Which of the following attitudes will be held by a typical firm in a typical cartel?

If I alone cheat, I'm better off; if everyone else cheats, I'm worse off.

All four types of market forms have firms that maximize profit by setting _____.

MR=MC

In the cigarette industry either R.J. Reynolds or Phillip Morris, for a time, raised prices twice a year by about 50 cents per carton. The other firms in the industry raised their prices by the same amount. Economists call this _____.

Price leadership

Oligopoly occurs when _____.

a few firms dominate a single market

A monopolistic competitor can expect to earn economic profit in the long run.

false

Firms in a perfectly contestable market will earn higher profits than firms that are not perfectly contestable.

false

Monopolistic competition differs from perfect competition only in the number of firms participating in the market.

false

The excess capacity theorem states that society would clearly benefit from a reduction in the number of monopolistic competitors.

false

The maximin criterion seeks to minimize the maximum payoffs in order to win.

false

The demand curve for a monopolistic competitor slopes downward because _____.

there are close but not perfect substitutes for the product

Firms that maximize sales always produce more than profit-maximizing firms.

true