AP Microeconomics Unit 4 Practice MCQ

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: A Level: Easy E: 453-454 MI: 219-220 246. Game theory analysis of oligopolist behavior suggests that oligopolists will benefit from collusion.

True

: A Level: Easy E: 461-462 MI: 227-228 253. The positive view of advertising suggests that it contributes to economic efficiency in the economy.

True

: A Level: Moderate E: 445 MI: 211 231. Brand names and packaging are forms of product differentiation under monopolistic competition.

True

: A Level: Moderate E: 445-446 MI: 211-212 230. Monopolistic competitors have some control over the price of their products.

True

: A Level: Moderate E: 446-448 MI: 212-214 234. The demand curve of the monopolistic competitor is likely to be more elastic than the demand curve of the pure monopolist.

True

: A Level: Moderate E: 446-448 MI: 212-214 235. If a monopolistically competitive firm's optimal level of output occurs where P < AVC, it will shut down.

True

: A Level: Moderate E: 463-464 MI: 229-230 254. Oligopolies are neither allocatively nor productively efficient when compared with the standard set in pure competition.

True

2 OBJECTIVE: 2 Consider the following demand and cost information for a monopoly. Quantity Price Total Cost 0 $40 $10 1 $30 $15 2 $20 $25 3 $10 $40 4 $ 0 $60 12. The marginal revenue of the second unit is a. $10 b. $20 c. $30 d. $40

a $10

: G Topic: 3 Level: Easy E: 447 MI: 213 76. Refer to the above graph of the representative firm in monopolistic competition. Marginal revenue and marginal cost intersect at point: A) a. B) b. C) c. D) d.

: A Topic: 12 Level: Easy E: 400 MI: 165 204. Into which market structure is entry least difficult? A) pure monopoly B) monopolistic competition C) oligopoly D) regulated monopoly

: A Topic: 9 Level: Difficult E: 458 MI: 224 181. Which would make it easier to maintain an effective collusive agreement in a cartel? A) the emergence of a number of potential entrant firms B) a decrease in the elasticity of demand for the cartel's product C) an increase in the number of substitutes for products produced by the cartel D) a new method of pricing that makes it more difficult for firms in the cartel to determine the prices at which other cartel members are selling their product

: A Topic: 9 Level: Moderate E: 459-460 MI: 225-226 184. Which constitutes an obstacle to collusion among oligopolists? A) a standardized product C) prosperous economic conditions B) a large number of firms D) trademarks and copyrights

: A Topic: 9 Level: Moderate E: 460 MI: 226 186. The strategy of establishing a price that prevents the entry of new firms is called: A) a price war. B) limit pricing. C) price leadership. D) setting a profit maximizing price.

: G Topic: 12 Level: Moderate E: 413 MI: 179 218. Refer to the above graphs. Which shows the long-run conditions in pure competition? A) 1 B) 2 C) 3 D) 4

: G Topic: 2 Level: Difficult E: 446-448 MI: 212-214 20. Refer to the above graph. A monopolistically competitive firm was initially successful, but then its rivals started an advertising campaign that undercut its market position. This situation would cause the demand curve for the monopolistically competitive firm to shift from: A) A to B and become more elastic. C) B to A and become more elastic. B) A to B and become less elastic. D) B to A and become less elastic.

: G Topic: 8 Level: Difficult E: 456 MI: 222 167. Given the oligopolistic firm pictured above, what is the profit-maximizing price? A) P1 B) P2 C) P3 D) P4

: G Topic: 3 Level: Difficult E: 447 MI: 213 67. Refer to the above graph. It represents a monopolistically competitive firm in a constant-cost industry. In long-run equilibrium this firm will: A) continue to earn economic profits because it has monopolistic power to set its price. B) become a perfectly competitive firm because there are no significant barriers to entry. C) break even because average total cost (ATC) and marginal cost (MC) will increase as more firms enter the market. D) break even because its demand curve will fall and become more elastic as it loses sales to other firms entering the market.

: G Topic: 3 Level: Moderate E: 447 MI: 213 64. Refer to the above graphs. A short-run equilibrium that would produce losses for a monopolistically competitive firm would be represented by graph: A) A. B) B. C) C. D) D.

: G Topic: 3 Level: Moderate E: 447 MI: 213 75. Refer to the above graph of the representative firm in monopolistic competition. The intersection of marginal cost and average total cost is represented by point: A) a. B) b. C) c. D) d.

: G Topic: 3 Level: Moderate E: 447-448 MI: 213-214 33. Refer to the above graph. At the profit-maximizing level of short-run output, this monopolistically competitive firm will be making a profit of: A) $275. B) $350. C) $500. D) $525.

: G Topic: 4 Level: Difficult E: 449 MI: 215 96. Refer to the above graph. Assume that in long-run equilibrium a purely competitive firm has the same cost curves as that of the monopolistically competitive firm shown. It can be concluded that the: A) purely competitive firm would have lower profits. B) purely competitive firm would have higher profits. C) purely competitive producer would produce less at a higher ATC. D) monopolistically competitive producer would produce less at a higher ATC.

: G Topic: 4 Level: Difficult E: 449 MI: 215 97. Refer to the above graph. This monopolistically competitive firm is: A) suffering an economic loss. C) allocatively and productively efficient. B) earning an economic profit. D) neither allocatively nor productively efficient.

: T Topic: 12 Level: Moderate E: 427-428 MI: 193-194 222. Refer to the above table. The marginal revenue of the fourth unit of output is: A) $20. B) $75. C) $95. D) $155.

5 OBJECTIVE: 5 24. A monopolist that practices perfect price discrimination a. creates no deadweight loss. b. charges one group of buyers a higher price than another group, such as offering a student discount. c. produces the same monopoly level of output as when a single price is charged. d. charges some customers a price below marginal cost because costs are covered by the high-priced buyers.

a creates no deadweight loss.

2 OBJECTIVE: 2 10. If a monopolist has zero marginal costs it will produce a. the output at which total revenue is maximized. b. in the range in which marginal revenue is still increasing. c. at the point at which marginal revenue is at a maximum. d. in the range in which marginal revenue is negative.

a the output at which total revenue is maximized.

2 OBJECTIVE: 2 15. To maximize profit, the monopolist sets price at a. $40 b. $20 c. $0 d. $10

b $20

2 OBJECTIVE: 2 8. What is George's profit-maximizing price? a. $4 b. $3 c. $2 d. $1

b $3

4 OBJECTIVE: 4 22. The task of economic regulation is to a. protect monopoly profits. b. approximate the results of the competitive market. c. replace competition with government ownership. d. increase competition within the market.

b approximate the results of the competitive market.

1 OBJECTIVE: 1 3. Sizable economic profits can persist over time under monopoly if the monopolist a. produces that output where average total cost is at a maximum. b. is protected by barriers to entry. c. operates as a price taker rather than a price maker. d. realizes revenues that exceed variable costs.

b is protected by barriers to entry.

2 OBJECTIVE: 2 13. The marginal cost of the fourth unit is a. $60 b. $40 c. $20 d. $10

c $20

2 OBJECTIVE: 2 George has the following demand curve for selling vegemite: Price Quantity $5.00 1 $4.00 2 $3.00 3 $2.00 4 $1.00 5 George has marginal cost of $.50 per unit. 7. What is George's profit-maximizing level of output? a. 1 b. 2 c. 3 d. 4

c 3

4 OBJECTIVE: 4 21. The first major piece of antitrust legislation was the a. Clayton Act. b. Celler-Kefauver Act. c. Sherman Act. d. Robinson-Patman Act.

c Sherman Act.

4 OBJECTIVE: 4 20. Splitting up a monopoly is often justified on the grounds that a. consumers prefer dealing with small firms. b. small firms have lower costs. c. competition is inherently efficient. d. nationalization is a less-preferred option.

c competition is inherently efficient.

5 OBJECTIVE: 5 25. A monopolist's profits with price discrimination will be a. lower than if the firm charged a single, profit-maximizing price b. the same as if the firm charged a single, profit-maximizing price. c. higher than if the firm charged just one price because the firm will capture more consumer surplus. d. higher than if the firm charged a single price because the costs of selling the good will be lower.

c higher than if the firm charged just one price because the firm will capture more consumer surplus.

2 OBJECTIVE: 2 16. Suppose potatoes were produced in Canada by many, many firms in perfect competition. In Belgium, only one firm produces potatoes for the Belgium market. Suppose further that for the competitive firms and the monopoly minimum ATC is the same. We would expect that in Belgium the price of potatoes is __________ and __________ potatoes are produced and sold than in Canada. a. higher; more b. lower; more c. higher; fewer d. lower; fewer

c higher; fewer

Monopolies use their market leverage to a. charge prices that equal minimum average total cost. b. attain normal profits in the long run. c. restrict output and increase price. d. dump excess supplies of their product on the market.

c restrict output and increase price.

1 OBJECTIVE: 1 2. If government officials break a natural monopoly up into several smaller firms, then a. competition will force firms to attain economic profits rather than accounting profits. b. competition will force firms to produce surplus output, which drives up price. c. the average costs of production will increase. d. the average costs of production will decrease.

c the average costs of production will increase.

2 OBJECTIVE: 2 9. If a monopolist's marginal costs shift up by $1.00, then a. the monopoly price will rise by $1. b. the monopoly price will rise by more than $1. c. the monopoly price will rise by less than $1. d. there is no change in the monopoly price and profits fall.

c the monopoly price will rise by less than $1.

2 OBJECTIVE: 2 14. The maximum profit this monopolist can earn is a. $40 b. $30 c. $20 d. $15

d $15

1 OBJECTIVE: 1 6. If a monopolist can sell 7 units when the price is $3 and 8 units when the price is $2, then marginal revenue of selling the eighth unit is equal to a. $2. b. $3. c. $16. d. -$5.

d -$5

4 OBJECTIVE: 4 23. Which of the following is an example of price discrimination? a. Nabisco provides cents-off coupons for its products. b. Amtrak offers a lower price for weekend travel compared to weekday rates on the same routes. c. Hotel rates for AAA members are lower than for nonmembers. d. All of the above are correct.

d All of the above are correct.

1 REF: 1 28. What do economists call the business practice of selling the same good at difference prices to different customers? a. price discrimination b. colluding c. compensating differential d. oligopoly

2 REF: 2 26. Government continues to price-regulate many segments of the electricity industry, e.g., the transmission system and the distribution system. Assuming that there are no transaction costs, because of the price regulations on these segments of the industry a. the price of these services is lower than the market price would be and total surplus is higher than if no price-regulation existed. b. the price of these services is higher than the market price would be and total surplus is lower than if no price-regulation existed. c. the price of these services is higher than the market price would be and total surplus is higher than if no price-regulation existed. d. the price of these services is lower than the market price would be and total surplus is lower than if no price-regulation existed.

2 REF: 2 5. Consider the cost and revenue data from Dreher's Designer Shirt Company, a single-price monopolist. What is the marginal revenue from selling the 2nd shirt? a. $140 b. $150 c. $160 d. $170

3 REF: 2,5 21. Consider the cost and revenue data from Dreher's Designer Shirt Company, a perfect price discriminating monopolist. What are Dreher's Designer Shirt Company's fixed costs? a. $100 b. $150 c. $354 d. $654

3 REF: 2,5 24. For a long while, electricity producers were thought to be a classic example of a natural monopoly. People held this view because a. the average cost of producing units of electricity by one producer in a specific region was lower than if the same quantity were produced by two or more producers in the same region. b. the average cost of producing units of electricity by one producer in a specific region was higher than if the same quantity were produced by two or more produced in the same region. c. the marginal cost of producing units of electricity by one producer in a specific region was higher than if the same quantity were produced by two or more producers in the same region. d. electricity is a special non-excludable good that could never be sold in a competitive market.

: A Topic: 1 Level: Easy E: 445-446 MI: 211-212 6. Monopolistic competition is characterized by firms: A) producing differentiated products. C) producing at optimal productive efficiency. B) making economic profits in the long run. D) producing where price equals marginal cost.

: A Topic: 1 Level: Moderate E: 446, 452 MI: 212, 218 Status: New 15. Which industry would be considered to be monopolistically competitive? A) asphalt paving B) breakfast cereals C) vacuum cleaners D) small-arms ammunition

: A Topic: 10 Level: Moderate E: 461-462 MI: 227-228 192. Why do oligopolists use product development and advertising? A) They are less easily duplicated than price cuts as a competitive strategy. B) They enhance the public good by providing information and new products. C) They contribute to productive and allocative efficiency in markets. D) They create conditions for mutual interdependence and support.

: A Topic: 2 Level: Difficult E: 446-448 MI: 212-214 24. The downward-sloping demand curve of a monopolistic competitor: A) reflects product differentiation. B) becomes horizontal in the long run. C) indicates collusion among the members of the product group. D) ensures that the firm will produce at minimum average cost in the long run.

: A Topic: 2 Level: Difficult E: 446-448 MI: 212-214 25. The monopolistically competitive seller's demand curve will become more elastic the: A) larger the number of competitors. C) more significant the barriers to entry. B) greater the degree of product differentiation. D) smaller the number of competitors.

: A Topic: 2 Level: Moderate E: 446-448 MI: 212-214 28. A major difference between pure competition and monopolistic competition is that under pure competition: A) individual firms have more elastic demand curves. B) the market demand curve is less elastic. C) there is a smaller number of producers. D) there are barriers to entry.

: A Topic: 4 Level: Easy E: 449-450 MI: 215-216 85. In the long run, the representative firm in monopolistic competition tends to have: A) excess capacity. C) limited product differentiation. B) economic profits. D) a perfectly elastic demand curve.

: A Topic: 4 Level: Easy E: 449-450 MI: 215-216 86. Compared to pure competition, monopolistic competition: A) provides greater product differentiation at the cost of some excess capacity. B) offers less product differentiation but attains equal productive efficiency. C) provides greater product differentiation and achieves greater productive efficiency. D) offers less product differentiation and lower productive efficiency.

: A Topic: 4 Level: Moderate E: 449 MI: 215 90. The variety of products and product features which consumers may choose from in monopolistically competitive industries: A) at least partially offsets the economic inefficiencies of this market structure. B) leads to an optimal allocation of resources in the market structure. C) guarantees that firms produce at full-capacity output levels. D) makes the demand curves facing firms in these industries more elastic.

: A Topic: 5 Level: Easy E: 451 MI: 217 109. Which industry would be the best example of an oligopoly? A) steel B) beef C) fast food D) retail clothing

: A Topic: 5 Level: Moderate E: 451 MI: 217 107. Which is an example of a differentiated oligopoly? A) the beer industry C) the polyester fiber industry B) the primary aluminum industry D) the cement industry

: A Topic: 6 Level: Difficult E: 446, 452-453 MI: 212, 218-219 Status: New 127. In an oligopolistic industry, the four-firm concentration ratio would be: A) high, and the Herfindahl index would be high. B) high, and the Herfindahl index would be low. C) low, and the Herfindahl index would be high. D) low, and the Herfindahl index would be low.

: A Topic: 6 Level: Difficult E: 452-453 MI: 218-219 140. Which statement about concentration ratios is false? A) Concentration ratios are determined for national and for local markets. B) The definitions of industries can be arbitrary and may not account for interindustry competition. C) The degree of import competition is not taken into account in determining ratios. D) Ratios indicate nothing about market performance in industries.

: A Topic: 6 Level: Moderate E: 446, 452 MI: 212, 218 Status: New 126. Which industry would be considered to be oligopolistic based on the four-firm concentration ratio and the Herfindahl index data? A) beer B) signs C) metal stamping D) stone products

: A Topic: 7 Level: Moderate E: 453-454 MI: 219-220 143. In an oligopoly game, each player tries to: A) maximize its own profits. C) minimize the profits of its opponents. B) minimize the market shares of its opponents. D) maximize its own market share.

: A Topic: 7 Level: Moderate E: 453-454 MI: 219-220 144. In a duopoly, if one firm increases its price, then the other firm can: A) keep its price constant and thus increase its market share. B) keep its price constant and thus decrease its market share. C) increase its price and thus increase its market share. D) decrease its price and thus decrease its market share.

: A Topic: 8 Level: Difficult E: 455-456 MI: 221-222 160. In the kinked demand model of a noncollusive oligopoly, if one firm decreases its price, the most likely reaction of the other firms will be to: A) decrease their prices. B) increase their prices. C) not change their prices. D) fix prices.

: A Topic: 8 Level: Moderate E: 455-456 MI: 221-222 155. A major prediction of the kinked demand curve model is: A) price stability in oligopolies. B) price instability in oligopolies. C) stability of production costs in oligopolies. D) stable purchasing behavior by consumers over time.

: A Topic: 8 Level: Moderate E: 455-456 MI: 221-222 157. The kinked demand model of noncollusive oligopoly assumes that: A) rivals will ignore price increases and match price cuts. B) each firm is a least-cost producer of the product. C) marginal revenue is greater than marginal cost at the kink. D) demand is elastic throughout the range of production.

: A Topic: 9 Level: Moderate E: 459 MI: 225 176. The incentive to cheat is strong in a cartel because: A) each firm can increase its output and thus its profits by cutting price. B) the marginal revenue is greater than marginal cost at the profit-maximizing price set by the cartel. C) there is a significant lack of government regulation of cartels, especially those in worldwide production. D) the costs of production are the same for each firm, but the product demand differs.

: A Topic: 9 Level: Moderate E: 459 MI: 225 178. In imperfectly competitive industries, producers' agreements to restrict output tend to be unstable because each firm has an incentive to: A) produce more than its output quota. C) raise prices above the cooperative price. B) lower both its price and its output. D) establish competitive price and output levels.

: A Topic: 9 Level: Moderate E: 460 MI: 226 185. One of the leadership tactics used by a price leader in the price leadership model of oligopoly is: A) limit pricing. C) starting a price war with competitors. B) frequently changing prices. D) trying to hide price changes from competitors.

: G Topic: 12 Level: Moderate E: 407 MI: 173 219. Refer to the above graphs. Which shows a pure competitor earning economic profits in the short-run when output is set where MC = MR? A) 1 B) 2 C) 3 D) 4

: G Topic: 12 Level: Moderate E: 429-430 MI: 195-196 213. Refer to the above graph. It best represents cost and demand conditions for a(n): A) pure monopoly. B) purely competitive firm. C) monopolistically competitive firm in the long run. D) an oligopolistic firm under kinked-demand conditions.

: G Topic: 12 Level: Moderate E: 446-448 MI: 212-214 212. Refer to the above graph. It best represents cost and demand conditions for a: A) monopolistically competitive firm in the short-run equilibrium. B) monopolistically competitive firm in the long-run equilibrium. C) purely competitive firm in the short run. D) purely competitive firm in the long run.

: G Topic: 3 Level: Easy E: 447 MI: 213 46. Refer to the above graph of a representative firm in monopolistic competition. What does line 3 represent? A) demand B) marginal cost C) marginal revenue D) average total cost

: G Topic: 3 Level: Moderate E: 447 MI: 213 63. Refer to the above graphs. A short-run equilibrium that would produce profits for a monopolistically competitive firm would be represented by graph: A) A. B) B. C) C. D) D.

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214 53. Refer to the above table and information. At the profit-maximizing level of output, marginal revenue will be: A) $25 and marginal cost will be $15. C) $35 and marginal cost will be $30. B) $25 and marginal cost will be $25. D) $35 and marginal cost will be $35.

: T Topic: 7 Level: Moderate E: 453-454 MI: 219-220 150. Refer to the above payoff matrix. Assume that firm Y adopts a low-price strategy while firm X maintains a high-price strategy. Compared to the results from a high-price strategy for both firms, firm Y will now: A) gain $100,000 in profit and firm X will lose $150,000 in profit. B) gain $150,000 in profit and firm X will lose $100,000 in profit. C) gain $525,000 in profit and firm X will lose $275,000 in profit. D) lose $150,000 in profit and firm X will gain $150,000 in profit.

: T Topic: 7 Level: Moderate E: 453-454 MI: 219-220 151. Refer to the above payoff matrix. If both firms operate independently and do not collude, the most likely profit is: A) $400,000 for firm X and $400,000 for firm Y. C) $475,000 for firm X and $725,000 for firm Y. B) $725,000 for firm X and $475,000 for firm Y. D) $625,000 for firm X and $625,000 for firm Y.

: T Topic: 12 Level: Easy E: 402 MI: 168 224. The firm could be found operating within any of the following market conditions except: A) pure competition. B) monopolistic competition. C) oligopoly. D) monopoly.

A Consider This Questions

: A Topic: 1 Level: Moderate E: 446, 452-453 MI: 212, 218-219 Status: New 18. The following are the respective numbers for the four-firm concentration ratio and Herfindahl index in an industry. Which set of numbers would indicate that the industry was monopolistically competitive? A) 25 and 207 B) 76 and 2662 C) 77 and 1807 D) 89 and 2582

A Demand curve Use the following to answer questions 19-20:

: A Topic: 6 Level: Moderate E: 452 MI: 218 141. One major problem with concentration ratios is that they fail to take into account: A) the localized market for products. C) price leadership. B) excess capacity in production. D) mutual interdependence.

A Game theory

: A Topic: 4 Level: Difficult E: 450 MI: 216 102. The stronger the product differentiation in monopolistic competition, the: A) less elastic the demand curve, and production will take place further to the left of minimum average costs. B) less elastic the demand curve, and production will take place further to the right of minimum average costs. C) more elastic the demand curve, and production will take place further to the left of minimum average costs. D) more elastic the demand curve, and production will take place further to the right of minimum average costs.

A Oligopoly: definition; characteristics

: A Topic: 8 Level: Easy E: 457 MI: 223 165. Under oligopoly, a kinked demand curve would explain why firms: A) avoid price wars. C) have different levels of efficiency. B) undertake new investment. D) are approximately the same size.

A Use the following to answer question 166:

: A Topic: 9 Level: Easy E: 458 MI: 224 172. 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: A) pure monopoly. C) monopolistic competition. B) regulated monopoly. D) an oligopoly with a kinked demand curve.

A Use the following to answer question 173:

: T Topic: 7 Level: Moderate E: 453-454 MI: 219-220 148. Refer to the above payoff matrix. If both firms operate independently and do not collude, the most likely profit is: A) $175 million for firm A and $175 million for firm B. B) $250 million for firm A and $250 million for firm B. C) $200 million for firm A and $325 million for firm B. D) $325 million for firm A and $200 million for firm B.

A Use the following to answer questions 149-151: Answer the next question(s) based on the following payoff matrix for a duopoly in which the numbers indicate the profit in thousands of dollars for a high-price or a low-price strategy.

: A Topic: 2 Level: Difficult E: 446-448 MI: 212-214 23. Demand and marginal revenue curves are downward sloping for monopolistically competitive firms because: A) there is free entry and exit. B) product differentiation allows each firm some degree of monopoly power. C) there are a few large firms in the industry and they each act as a monopolist. D) mutual interdependence among all firms in the industry leads to collusion.

1 REF: 5 29. During the holiday season, high end retailers frequently place a high price on merchandise on weekends and discount the price during the week. They do this because they believe that two groups of customers exist: shoppers with little free time and bargain hunters. Bargain hunter have time to shop around and frequently shop during the week. What do economists call the price strategy used by high end retailers? a. oligopoly b. price discrimination c. compensating differential d. in-kind transfers

2 REF: 2 11. Consider the cost and revenue data from Dreher's Designer Shirt Company, a single-price monopolist. What is the variable costs of production at the profit maximizing point? a. $100 b. $295 c. $600 d. $620

2 REF: 2 6. Consider the cost and revenue data from Dreher's Designer Shirt Company, a single-price monopolist. What is the marginal revenue from selling the 8th shirt? a. $10 b. $20 c. $40 d. $90

3 REF: 2 10. Consider the cost and revenue data from Dreher's Designer Shirt Company, a single-price monopolist. What are Dreher's Designer Shirt Company's fixed costs? a. $0 b. $100 c. $600 d. $745

3 REF: 2,5 20. Consider the cost and revenue data from Dreher's Designer Shirt Company, a perfect price discriminating monopolist. What is economic profit at the profit maximizing quantity? a. $325 b. $435 c. $565 d. $1000

: A Level: Moderate E: 454 MI: 220 225. The market structure in the local arts and crafts market example is: A) monopolistic. B) oligopolistic. C) purely competitive. D) monopolistically competitive.

: A Topic: 1 Level: Easy E: 445 MI: 21 5. Which assumption is part of the model of monopolistic competition? A) Firms make identical products. B) There is no collusion among firms. C) There are significant barriers to entry into the market. D) There are few buyers and sellers.

: A Topic: 1 Level: Easy E: 445 MI: 211 7. Which would be characteristic of monopolistic competition? A) a potential for price fixing through collusion C) mutual interdependence among the few firms B) relatively small market share for each firm D) product standardization

: A Topic: 1 Level: Moderate E: 445 MI: 211 10. One difference between monopolistic competition and pure competition is that: A) products can be standardized or differentiated in pure competition. B) there is some control over price in monopolistic competition. C) monopolistic competition has significant barriers to entry. D) firms differentiate their products in pure competition.

: A Topic: 10 Level: Easy E: 461-462 MI: 227-228 193. A positive effect of advertising for society is that it: A) increases market share for the dominant firm in the industry. B) provides useful information to reduce search cost for consumers. C) raises barriers to entry into the industry and protects existing firms. D) creates price leadership and gives firms guidance in dealing with rivals.

: A Topic: 10 Level: Moderate E: 461-462 MI: 227-228 190. In competing with rivals, oligopolistic firms will tend to use: A) price cuts because they do not add to costs like advertising. B) advertising because it is less easily duplicated than price cuts. C) collusion because it is a legal way to increase market share. D) price wars because they will increase the profits of firms.

: A Topic: 11 Level: Easy E: 463 MI: 229 197. Allocative and productive efficiency is achieved under the market structure of: A) oligopoly. B) pure competition. C) pure monopoly. D) monopolistic competition.

: A Topic: 11 Level: Moderate E: 463 MI: 229 198. In the long run an oligopoly: A) will produce less than a monopoly. B) may be able to earn positive economic profits. C) will always produce in the range of decreasing returns to scale. D) will produce on the portion of the demand curve where demand is price-inelastic.

: A Topic: 12 Level: Difficult E: 426-427 MI: 192-193 215. If a firm is somehow able to enter an industry previously monopolized by one firm, the demand curve for the firm already in the industry will: A) become steeper. B) shift to the left. C) shift to the right. D) remain the same, in spite of the entry of the other firm.

: A Topic: 12 Level: Easy E: 400 MI: 166 205. The market model that would characterize the production of most agricultural products would be: A) monopolistic competition. B) pure competition. C) pure monopoly. D) oligopoly.

: A Topic: 12 Level: Easy E: 400 MI: 166 206. In which market model are the conditions of entry the easiest? A) monopolistic competition B) pure competition C) pure monopoly D) oligopoly

: A Topic: 12 Level: Easy E: 400-401 MI: 166-167 202. In which market model is there no control over price? A) monopolistic competition B) pure competition C) pure monopoly D) oligopoly

: G Topic: 3 Level: Easy E: 447 MI: 213 78. Refer to the above graph of the representative firm in monopolistic competition. Demand is tangent to average total cost at point: A) a. B) b. C) c. D) d.

: A Topic: 3 Level: Difficult E: 447-448 MI: 213-214 35. 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: A) decrease the level of output. C) make no change in the level of output. B) increase the level of output. D) increase product price.

: A Topic: 3 Level: Difficult E: 448 MI: 214 30. A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating: A) with a profit in the short run. B) with a loss in the short run. C) at the break-even level of output in the short run. D) at an efficient level of output in the short run.

: A Topic: 3 Level: Easy E: 448 MI: 214 41. Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will: A) reduce the excess capacity in the industry as firms expand production. B) attract other firms to enter the industry because the barriers to entry are low. C) cause firms to standardize their product to limit the degree of competition. D) make the industry allocatively efficient as each firm seeks to maintain its profits.

: A Topic: 3 Level: Moderate E: 448-449 MI: 214-215 72. In long-run equilibrium in a monopolistically competitive industry: A) P = minimum AC. B) P > minimum AC. C) P = MC. D) P < MC.

: A Topic: 4 Level: Easy E: 449 MI: 215 94. Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor has a: A) lower price and lower output. C) higher price and higher output. B) higher price and lower output. D) price and output that may be higher or lower.

: A Topic: 5 Level: Difficult E: 451 MI: 217 113. A major distinction between a monopolistically competitive firm and an oligopolistic firm is that: A) one is a price taker and the other is a price maker. B) a recognized interdependence exists between firms in one industry but not in the other. C) one always produces differentiated products and the other always produces a homogeneous product. D) one necessarily faces a downward-sloping demand curve and the other a horizontal demand curve.

: A Topic: 5 Level: Moderate E: 451 MI: 217 104. The characteristic most closely associated with oligopoly is: A) easy entry into the industry. C) product standardization. B) a few large producers. D) no control over price.

: A Topic: 5 Level: Moderate E: 451 MI: 217 115. Mutual interdependence means that each firm in oligopolistic industry: A) faces a perfectly inelastic demand for its product. B) considers the reactions of its rivals when it determines its price policy. C) produces a product identical to the products produced by its rivals. D) produces a product similar but not identical to the products produced by its rivals.

: A Topic: 6 Level: Difficult E: 453 MI: 219 133. Industry X is dominated by four large firms that hold market shares of 30, 30, 20, and 20. The Herfindahl index for this industry is: A) 100. B) 2600. C) 3200. D) 4400.

: A Topic: 6 Level: Difficult E: 453 MI: 219 134. Industry Y is dominated by five large firms that hold market shares of 20, 20, 25, 25, and 10. The Herfindahl index for this industry is: A) 1560. B) 2150. C) 2340. D) 3500.

: A Topic: 6 Level: Moderate E: 452-453 MI: 218-219 130. Assume that an industry is significantly affected by import competition from foreign suppliers. Taking this factor into account, it would mean that: A) the Herfindahl index would be significantly higher in that industry because there are more firms in the industry. B) the industry is less concentrated than suggested by domestic concentration ratios. C) there is a high degree of interindustry competition. D) there is a low degree of interindustry competition.

: A Topic: 8 Level: Difficult E: 455-456 MI: 221-222 154. The principle underlying the kinked demand curve model of oligopoly is that the demand curve facing one firm is more elastic when other firms in the industry: A) match the firm's price changes. B) hold price constant when the firm changes its prices. C) hold quantities constant when the firm changes its prices. D) change prices in the opposite direction when the firm changes its prices.

: A Topic: 8 Level: Difficult E: 455-456 MI: 221-222 158. In the kinked demand model of noncollusive oligopoly, each firm thinks that the demand curve below the going price is: A) more elastic than the demand curve above the going price. B) less elastic than the demand curve above the going price. C) more elastic than the marginal revenue curve above the going price. D) less elastic than the marginal revenue curve above the going price.

: A Topic: 8 Level: Difficult E: 457 MI: 223 156. Which statement concerning the kinked demand curve model of oligopoly is false? A) It addresses the question of price "stickiness." B) It assumes when one oligopolist raises the price, all others follow. C) The portion of the demand curve above the "kink" is more elastic than the portion below. D) The firm's marginal costs can sometimes shift without changing the profit-maximizing price and output.

: A Topic: 8 Level: Difficult E: 457 MI: 223 164. One shortcoming of the kinked demand curve model of oligopoly is that it does not explain: A) why the marginal revenue curve is kinked. C) what the level of profits is for the firm. B) how the going price gets determined. D) why the firm is a least-cost producer.

: G Topic: 2 Level: Difficult E: 446-448 MI: 212-214 19. Refer to the above graph. A successful advertising campaign by a monopolistically competitive firm will cause the demand curve to shift from: A) A to B and become more elastic. C) B to A and become more elastic. B) A to B and become less elastic. D) B to A and become less elastic.

: G Topic: 3 Level: Difficult E: 447 MI: 213 65. Refer to the above graphs. The long-run equilibrium for a monopolistically competitive firm is represented by graph: A) A. B) B. C) C. D) D.

: G Topic: 3 Level: Easy E: 447 MI: 213 44. Refer to the above graph of a representative firm in monopolistic competition. What does line 1 represent? A) demand B) marginal cost C) marginal revenue D) average total cost

: G Topic: 3 Level: Easy E: 447-448 MI: 213-214 34. Refer to the above graph. This monopolistically competitive firm is: A) making economic profit in the long run. C) earning only normal profit in the long run. B) making economic profit in the short run. D) earning only normal profit in the short run.

: G Topic: 3 Level: Moderate E: 447-448 MI: 213-214 32. Refer to the above graph. In the short run, this monopolistically competitive firm will set price at: A) $65 and produce 45 units of output. C) $50 and produce 35 units of output. B) $65 and produce 35 units of output. D) $50 and produce 50 units of output.

: T Topic: 3 Level: Difficult E: 447-448 MI: 213-214 51. Refer to the above data. Suppose that entry of firms into the industry changes this firm's demand schedule from columns 1 and 3 to columns 2 and 3. Economic profit will: A) decrease to $25. B) decrease to $35. C) decrease to $70. D) decrease to zero.

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214 48. Refer to the above data. If columns 1 and 3 are this firm's demand schedule, the profit-maximizing level of output will be: A) 3 units. B) 4 units. C) 5 units. D) 6 units.

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214 55. Refer to the above table and information. At what output and price levels will the firm produce in the short run? A) 3 units and $45 B) 4 units and $40 C) 5 units and $35 D) 6 units and $30

: T Topic: 7 Level: Easy E: 453-454 MI: 219-220 149. Refer to the above payoff matrix. If both firms collude to maximize joint profits, the total profits for the two firms will be: A) $1,200,000. B) $1,250,000. C) $1,400,000. D) $1,500,000.

: A Topic: 5 Level: Moderate E: 451 MI: 217 121. Which statement about oligopoly is false? A) Oligopolistic firms recognize their interdependence. B) Prices in oligopoly are predicted to fluctuate widely and frequently. C) A few firms play an important role in the sale of an identical or differentiated product. D) There is no single predicted pattern of action and reaction for oligopolists, because one firm's behavior is a function of what its rivals do.

B Concentration ratio; Herfindahl Index

: A Topic: 10 Level: Easy E: 462-463 MI: 228-229 195. What is a potential negative effect of advertising? A) It provides important information to consumers. B) It promotes monopoly power in industry. C) It contributes to allocative and productive efficiency. D) It lowers search costs in product purchases.

B Efficiency aspects

: A Topic: 3 Level: Easy E: 448-449 MI: 214-215 79. A characteristic of monopolistically competitive industries is that: A) there is product differentiation but only limited advertising of products by the representative firm. B) the entry and exit of firms causes the representative firm to break even in the long run. C) the representative firm is not very responsive to changes in consumer demand. D) the representative firm produces at that level of output where marginal cost equals minimum average total cost.

B Efficiency aspects

: A Topic: 7 Level: Moderate E: 453-454 MI: 219-220 152. Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will: A) pursue a strategy to reduce advertising expenditures to maintain profits. B) decide to increase advertising expenditures even if it means a reduction in profits. C) make no changes in advertising expenditures because advertising is effective in the short run, but not the long run. D) increase the price of the product to improve profits and then increase advertising expenditures.

B Kinked-demand curve model

: A Topic: 12 Level: Difficult E: 404-406 MI: 170-172 210. If a firm finds that its marginal cost exceeds its marginal revenue, the maximum profit rule requires the firm to: A) increase its output in both pure and imperfect competition. B) decrease its output in both pure and imperfect competition. C) decrease its output in imperfect, but not necessarily in pure, competition. D) increase its output in pure, but not necessarily in imperfect, competition.

B Use the following to answer questions 211-214:

: A Topic: 3 Level: Difficult E: 447-448 MI: 213-214 43. The marginal cost curve intersects the average total cost curve in monopolistic competition: A) at the market price. C) to the left of the minimum average total cost. B) at the minimum average total cost. D) to the right of the minimum average total cost.

B Use the following to answer questions 44-47:

: T Topic: 3 Level: Difficult E: 447-448 MI: 213-214 52. Refer to the above data. In the long run, the number of firms in this monopolistic competitive industry will most likely: A) decrease because there are economic losses. B) increase because there are economic profits. C) stay the same because there is normal profit but no economic profit. D) Cannot be determined from the information.

B Use the following to answer questions 53-56: Assume that the short-run cost and demand data given in the table below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion.

: A Topic: 3 Level: Moderate E: 448 MI: 214 62. Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to: A) shift to the left. B) shift to the right. C) become more elastic. D) remain the same since entering firms serve other customers in the market.

B Use the following to answer questions 63-66:

2 REF: 1,4 25. After the patent runs out on a brand name drug, generic drugs, which have the same effect as the branded drug, enter the market. Because of this a. the price increases and total surplus decreases. b. the price decreases and total surplus decreases. c. the price decreases and total surplus increases. d. the price increases and total surplus increases.

2 REF: 2 2. Consider the cost and revenue data from Dreher's Designer Shirt Company, a single-price monopolist. What is the marginal cost of the 8th shirt? a. $50 b. $60 c. $90 d. $110

2 REF: 2 4. Consider the cost and revenue data from Dreher's Designer Shirt Company, a single-price monopolist. What is the total revenue from selling 8 shirts? a. $90 b. $695 c. $720 d. $800

2 REF: 2 7. Consider the cost and revenue data from Dreher's Designer Shirt Company, a single-price monopolist. What is the average revenue when 7 shirts are sold? a. $40 b. $90 c. $100 d. $700

2 REF: 5 16. Consider the cost and revenue data from Dreher's Designer Shirt Company, a perfect price discriminating monopolist. What is the total revenue when 3 shirts are sold? a. $140 b. $420 c. $450 d. $520

2 REF: 5 30. The social cost of a single-priced monopoly is equal to its a. economic profit. b. fixed cost. c. dead weight loss. d. variable cost.

3 REF: 2 12. Consider the cost and revenue data from Dreher's Designer Shirt Company, a single-price monopolist. Suppose Drehers' fixed cost of production are now $500. Because of the higher fixed costs, in the short run a. the company shuts down. b. the company exits the industry. c. the company stays open because their economic loss is lower than it would be if they shut down. d. the company's economic profits are lower, but still positive.

3 REF: 2 13. Consider the cost and revenue data from Dreher's Designer Shirt Company, a single-price monopolist. Suppose Drehers' fixed cost of production are now $700. Because of the higher fixed costs, in the short run, a. the company shuts down. b. the company exits the industry. c. the company stays open because their economic loss is lower than it would be if they shut down. d. the company's economic profits are lower, but still positive.

3 REF: 2 8. Consider the cost and revenue data from Dreher's Designer Shirt Company, a single-price monopolist. What quantity maximizes economic profit? a. 3 b. 5 c. 6 d. 7

3 REF: 2 9. Consider the cost and revenue data from Dreher's Designer Shirt Company, a single-price monopolist. What is the economic profit at the profit maximizing quantity? a. $100 b. $245 c. $265 d. $395

3 REF: 2,5 23. Consider the cost and revenue data from Dreher's Designer Shirt Company, a perfect price discriminating monopolist. Suppose Drehers' fixed cost of production are now $700. Because of the higher fixed costs, in the short run, a. the company shuts down. b. the company exits the industry. c. the company stays open because their economic loss is lower than it would be if they shut down. d. the company's economic profits are lower, but still positive.

3 REF: 5 17. Consider the cost and revenue data from Dreher's Designer Shirt Company, a perfect price discriminating monopolist. What is the total revenue when 7 shirts are sold? a. $650 b. $700 c. $910 d. $1100

: A Level: Moderate E: 462-4631 MI: 228-229 227. The U.S. beer industry: A) sells a growing proportion of its product for consumption in bars and taverns. B) was made more competitive by technological advances such as faster bottling lines. C) was formerly a monopolistically competitive industry, but today it is an oligopoly. D) has experienced rapid growth in the number of independent brewers over the past forty years.

: A Topic: 1 Level: Difficult E: 446 MI: 212 4. A monopolistically competitive industry is like a purely competitive industry in that: A) each industry produces a standardized product. B) nonprice competition is a feature in both industries. C) neither industry has significant barriers to entry. D) firms in both industries face a horizontal demand curve.

: A Topic: 1 Level: Easy E: 446 MI: 212 8. In which industry is monopolistic competition most likely to be found? A) utilities B) agriculture C) retail trade D) mining

: A Topic: 1 Level: Moderate E: 445-446 MI: 211-212 12. Which market model is characterized by many firms, differentiated products, and relatively easy entry? A) pure competition B) pure monopoly C) monopolistic competition D) oligopoly

: A Topic: 1 Level: Moderate E: 445-446 MI: 211-212 13. Which set best describes the basic features of monopolistic competition? A) easy entry, few firms, and standardized products B) barriers to entry, few firms, and differentiated products C) easy entry, many firms, and differentiated products D) barriers to entry, many firms, and standardized products

: A Topic: 1 Level: Moderate E: 446, 452 MI: 212, 218 Status: New 16. Which industry would be considered to be monopolistically competitive? A) electronic computers B) electric light bulbs C) women's dresses D) men's slacks and jeans

: A Topic: 10 Level: Easy E: 462-463 MI: 228-229 191. A potential negative effect of advertising for society is that it can: A) be the major cause of price wars among firms in the industry. B) reduce mutual interdependence and increase competition. C) be self-canceling and contribute to economic inefficiency. D) lower barriers to entry and undermine profits in the industry.

: A Topic: 12 Level: Moderate E: 400 MI: 166 207. Regulated utilities such as telephone, electric, or gas companies would be best described by which market model? A) monopolistic competition B) pure competition C) pure monopoly D) oligopoly

: A Topic: 2 Level: Difficult E: 446-448 MI: 212-214 26. The demand curve faced by a monopolistically competitive firm is: A) vertical. B) horizontal. C) highly elastic. D) highly inelastic.

: A Topic: 2 Level: Difficult E: 446-448 MI: 212-214 27. The demand curve faced by a monopolistically competitive firm: A) is more elastic than the monopolist's demand curve. B) is less elastic than the monopolist's demand curve. C) will shift outward as new firms enter the industry. D) is more elastic than the demand curve faced by the purely competitive firm.

: A Topic: 2 Level: Moderate E: 446-448 MI: 212-214 22. The demand curve for a monopolistically competitive firm has a: A) positive slope and the marginal revenue curve has a negative slope. B) positive slope and the marginal revenue curve has a positive slope. C) negative slope and the marginal revenue curve has a negative slope. D) negative slope and the marginal revenue curve has a positive slope.

: A Topic: 3 Level: Easy E: 448-449 MI: 214-215 60. In the long run, the profits for a monopolistic competitor (in terms of a return on its investment) will be: A) the same as the profits for a monopolist. B) slightly less than the profits of a monopolist. C) the same as the profits for a purely competitive firm. D) slightly more than the profits of a purely competitive firm.

: A Topic: 3 Level: Easy E: 448-449 MI: 214-215 61. Firms in an industry will not earn long-run economic profits if: A) fixed costs are zero. B) the number of firms in the industry is fixed. C) there is free entry and exit of firms in the industry. D) production costs for a given level of output are minimized.

: A Topic: 3 Level: Moderate E: 447 MI: 213 69. The long-run equilibrium position of the monopolistically competitive firm is where average costs are: A) constant. B) increasing. C) decreasing. D) at their minimum point.

: A Topic: 3 Level: Moderate E: 447-448 MI: 213-214 40. In monopolistic competition, a firm has a limited degree of "price-making" ability. This means that the firm will: A) always earn an economic profit. C) set price above marginal cost. B) set price equal to marginal cost. D) produce at minimum average total cost.

: A Topic: 3 Level: Moderate E: 448-449 MI: 214-215 58. Were a monopolistically competitive industry in long-run equilibrium, a firm in that industry might be able to increase its economic profits by: A) decreasing the price of its product. C) increasing the demand for its product. B) increasing the price of its product. D) decreasing the production of its product.

: A Topic: 3 Level: Moderate E: 448-449 MI: 214-215 59. In the short run, the monopolistically competitive firm will experience: A) an economic profit, and also one in the long run. B) a normal profit, but in the long run only an economic profit. C) economic profits and losses, but in the long run only a normal profit. D) economic profits and losses, but in the long run only an economic profit.

: A Topic: 4 Level: Difficult E: 449 MI: 215 89. The economic inefficiency of monopolistic competition means that: A) industries tend to evolve into oligopolies rather than become more competitive. B) industries spend money on advertising and sales promotion. C) producers produce at an output short of, and charge a price greater than, minimum average total cost. D) firms do not maximize profits at the MC equals MR output.

: A Topic: 2 Level: Moderate E: 446-448 MI: 212-214 21. Monopolistically competitive firms have a: A) horizontal demand curve. C) perfectly elastic demand curve. B) perfectly inelastic demand curve. D) downward-sloping demand curve.

: A Topic: 4 Level: Easy E: 449 MI: 215 84. Monopolistic competitive firms are productively inefficient because production occurs where: A) marginal cost is greater than marginal revenue. B) marginal cost is less than marginal revenue. C) average total cost is greater than the minimum average total cost. D) average total cost is less than the difference between average total cost and average variable cost.

: A Topic: 4 Level: Easy E: 449-450 MI: 215-216 92. When the excess capacity problem under monopolistic competition becomes greater, there will be: A) a narrower range of consumer choice. C) a wider range of consumer choice. B) fewer advertisements and promotions. D) more entry by firms into the market.

: A Topic: 4 Level: Easy E: 450 MI: 216 101. Which is not a common form of nonprice competition in monopolistic competition? A) customer services such as liberal guarantee and repair policies B) advertising featuring brand names C) cash rebates and discount coupons D) annual design and model changes

: A Topic: 4 Level: Moderate E: 449 MI: 215 93. One prediction about monopolistic competition is that firms: A) operate at minimum average total cost in the long run. B) will not engage in brand advertising. C) will be inefficient in the long run. D) must make economic profits in the short run.

: A Topic: 4 Level: Moderate E: 449-450 MI: 215-216 80. Monopolistic competition is characterized by excess capacity because: A) firms are always profitable in the long run. B) firms charge a price that is less than marginal cost. C) firms produce at an output level less than the least-cost output. D) the demand for a product is perfectly elastic in this type of industry.

: A Topic: 5 Level: Easy E: 451 MI: 217 106. Which product is produced in an industry that best illustrates the concept of homogeneous oligopoly? A) television receivers B) cigarettes C) copper D) cars

: A Topic: 6 Level: Difficult E: 453 MI: 219 135. The Herfindahl index for an industry is 2550. Which of the following sets of market shares and industry with four firms would produce such an index? A) 20, 20, 30, and 30 B) 25, 25, 25, and 25 C) 20, 25, 25, and 30 D) 10, 20, 30, and 40

: A Topic: 6 Level: Easy E: 452 MI: 218 123. A low concentration ratio means that: A) there is a low probability of entering the industry. B) there is a low probability of success in the industry. C) each firm accounts for a small market share of the industry. D) each firm accounts for a large market share of the industry.

: A Topic: 6 Level: Moderate E: 452 MI: 218 132. You are told that the four-firm concentration ratio in an industry is 20. Based on this information you can conclude that the industry is: A) concentrated because each firm has 20 percent of industry sales. B) concentrated because the four largest firms account for 80 percent of the industry sales. C) not concentrated because the four largest firms account for 20 percent of industry sales. D) not concentrated because each firm only accounts for 5 percent of industry sales.

: A Topic: 6 Level: Moderate E: 453 MI: 219 137. Industry A is composed of four large firms that hold market shares of 60, 20, 10, and 10. The Herfindahl index for this industry is: A) 1800. B) 3800. C) 4200. D) 5500.

: A Topic: 8 Level: Difficult E: 455-456 MI: 221-222 161. In the kinked demand model, there will be a vertical break in the firm's: A) demand curve. B) marginal cost curve. C) marginal revenue curve. D) average total cost curve.

: A Topic: 8 Level: Easy E: 455-456 MI: 221-222 159. In the kinked demand model of noncollusive oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to: A) decrease their prices. B) increase their prices. C) not change their prices. D) fix prices.

: A Topic: 9 Level: Difficult E: 458 MI: 224 171. If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models? A) the kinked demand curve model of oligopoly C) the pure monopoly model B) the price-leadership model of oligopoly D) the monopolistic competition model

: A Topic: 9 Level: Moderate E: 458 MI: 224 182. The Organization of Petroleum Exporting Countries (OPEC) behaves in many ways like an international cartel. If the cartel were to hire a consulting firm to monitor the production rates of member countries, the economic reason for this monitoring is to: A) make sure that each member country is producing at an output level at which price equals marginal cost. B) make sure all the member countries produce at least their quotas so that there will be no oil shortage. C) detect those member countries which are depressing prices by producing more than their assigned quotas. D) make sure that the marginal revenue for the last barrel of oil sold by each member country is less than its price.

: A Topic: 9 Level: Moderate E: 460 MI: 226 175. To be successful, collusion requires that oligopolists be able to: A) increase prices to their highest level. B) increase the ease of entry for new producers. C) increase legal obstacles that protect market power. D) keep the domestic economy from experiencing high inflation.

: A Topic: 9 Level: Moderate E: 460 MI: 226 187. If a particular bank regularly announces changes in its interest rate schedules before its competitors, which then set rates very close to those announced by that bank, this could be described as: A) markup pricing. B) predatory pricing. C) price leadership. D) explicit price collusion.

: A Topic: 9 Level: Moderate E: 460 MI: 226 188. An oligopolistic price leader increases the price of its product. If all other firms follow the leader's example, the price leader will: A) decrease its price. C) maintain its new price. B) increase its price. D) increase its quantity of output.

: D Topic: 1 Level: Easy E: 445 MI: 211 2. A major characteristic of monopolistic competition is: A) mutual interdependence. B) a high degree of collusion among firms. C) a relatively large number of firms selling the product. D) relatively easy entry into an industry, but a relatively difficult exit from the industry.

: D Topic: 5 Level: Easy E: 451 MI: 217 103. In an oligopolistic market there are: A) many buyers. B) few buyers. C) few sellers. D) many sellers.

: D Topic: 5 Level: Moderate E: 451 MI: 217 116. Mutual interdependence means that: A) product differentiation exists, that is, firms produce close substitutes, but not identical products. B) each seller faces a completely inelastic demand curve. C) each firm must consider the possible reactions of rivals when establishing price policy. D) when a pure monopolist chooses a price, it also necessarily chooses some specific level of output.

: D Topic: 9 Level: Easy E: 459 MI: 225 183. Informal collusion to restrict output and increase prices is sometimes referred to as a: A) merger. B) cartel. C) tacit understanding. D) kinked demand curve model.

: F Topic: 1 Level: Moderate E: 445-446 MI: 211-212 14. The goal of product differentiation and advertising in monopolistic competition is to make: A) the firm allocatively efficient even if it is not productively efficient. B) the firm productively efficient even if it is not allocatively efficient. C) price less of a factor and product differences more of a factor in consumer purchases. D) price more of a factor and product differences less of a factor in consumer purchases.

: F Topic: 5 Level: Easy E: 451 MI: 217 108. The primary lead industry in the United States would be described by an economist as: A) pure monopoly. B) pure competition. C) oligopoly. D) monopolistic competition.

: F Topic: 5 Level: Easy E: 451 MI: 217 119. The primary copper industry in the United States would be an example of a: A) duopoly. B) noncollusive oligopoly. C) homogeneous oligopoly. D) differentiated oligopoly.

: G Topic: 12 Level: Moderate E: 429-430, 446-448 MI: 195-196, 212-214 211. Refer to the above graph. A profit-maximizing pure monopoly or monopolistically competitive firm will set its price where: A) MC = ATC. B) ATC = MR. C) MC = MR. D) ATC = D.

: G Topic: 12 Level: Moderate E: 430 MI: 196 220. Refer to the above graphs. Which shows the long-run or short-run conditions for a pure monopoly earning economic profits when output is set where MC = MR? A) 1 B) 2 C) 3 D) 4

: G Topic: 3 Level: Difficult E: 447 MI: 213 68. Refer to the above graph. It represents a monopolistically competitive firm in a constant-cost industry. The firm: A) will produce less than Q0. C) is earning an economic profit at Q0. B) will produce more than Q0. D) is suffering an economic loss at Q0.

: G Topic: 3 Level: Easy E: 447 MI: 213 77. Refer to the above graph of the representative firm in monopolistic competition. Point c is the intersection of the: A) marginal cost and marginal revenue curves. C) marginal cost and demand curves. B) marginal cost and average total cost curves. D) average total cost and demand curves.

: G Topic: 4 Level: Difficult E: 449 MI: 215 Status: New 82. Refer to the above graph of the representative firm in monopolistic competition. Excess capacity for this firm would be illustrated by: A) D - 0. B) E - C. C) E - D. D) D - C.

: G Topic: 4 Level: Easy E: 445 MI: 215 Status: New 83. Refer to the above graph of the representative firm in monopolistic competition. The long-run equilibrium price and output for this firm will be: A) A and C. B) B and D. C) A and D. D) B and C.

: G Topic: 9 Level: Difficult E: 458-459 MI: 224-225 173. The above graph shows the demand and cost curves faced by an individual member of a cartel. The cartel sets a joint profit-maximizing price of P1 and assigns a production quota of Q1 for this firm. If the firm believes it could cheat without getting caught, what would be its profit-maximizing price and quantity? (Assume that the firm cannot practice price discrimination.) A) P > P1, Q < Q1 B) P1, Q1 C) P2, Q2 D) P < P2, Q > Q2

: T Topic: 12 Level: Moderate E: 427-428 MI: 193-194 223. Refer to the above table. The marginal revenue of the third unit is: A) $75 and average revenue is $75. C) $125 and average revenue is $25. B) $125 and average revenue is $75. D) $25 and average revenue is $25.

: T Topic: 3 Level: Difficult E: 447-448 MI: 213-214 38. Refer to the above table. What will be the economic profit or loss for this monopolistic competitor at the profit-maximizing level of output? A) -$15 B) +$10 C) +$20 D) +$27

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214 37. Refer to the above table. What output will the profit-maximizing monopolistic competitor produce? A) 3 B) 4 C) 5 D) 6

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214 39. Refer to the above table. At the profit-maximizing level of output, marginal revenue will be: A) $1 and marginal cost will be $40. C) $4 and marginal cost will be $4. B) $60 and marginal cost will be $40. D) $6 and marginal cost will be $4.

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214 49. Refer to the above data. If columns 1 and 3 are this firm's demand schedule, the profit-maximizing price will be: A) $30. B) $35. C) $40. D) $45.

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214 54. Refer to the above table and information. At a price of $45, marginal revenue will be: A) $15 and marginal cost will be $20. C) $35 and marginal cost will be $10. B) $25 and marginal cost will be $15. D) $45 and marginal cost will be $5.

: T Topic: 3 Level: Moderate E: 447-448 MI: 213-214 56. Refer to the above table and information. What will total profits be at the profit-maximizing output and price? A) $65 B) $85 C) $90 D) $110

: T Topic: 7 Level: Difficult E: 453-454 MI: 219-220 147. Refer to the above payoff matrix. Assume that firm B adopts a low-price strategy while firm A maintains a high-price strategy. Compared to the results from a high-price strategy for both firms, firm B will now: A) lose $75 million in profit and firm A will gain $50 million in profit. B) gain $50 million in profit and firm A will lose $50 million in profit. C) gain $75 million in profit and firm A will lose $50 million in profit. D) gain $50 million in profit and firm A will lose $75 million in profit.

: T Topic: 7 Level: Moderate E: 453-454 MI: 219-220 146. Refer to the above payoff matrix. If both firms collude to maximize joint profits, the total profits for the two firms will be: A) $350 million. B) $400 million. C) $500 million. D) $525 million.

: A Level: Moderate E: 454 MI: 220 226. In an oligopoly for craft products in a small town, if one firm adopts a new product mix that is attractive to customers, the other businesses are most likely to: A) collude to raise prices. C) adopt the competitor's strategy. B) collude to lower prices. D) ignore the competitor's strategy.

C Last Word Questions

: A Topic: 2 Level: Difficult E: 446-448 MI: 212-214 29. Which would make an individual firm's demand curve less elastic? A) the purchase of more efficient machinery B) a reduction in the price of the firm's product C) increased brand loyalty toward the firm's product D) a reduction in advertising expenditures by the firm

C Price-output behavior

: A Topic: 11 Level: Moderate E: 464 MI: 230 200. Which would be a qualification to the view that oligopoly is allocatively and productively inefficient? A) Less foreign competition has stimulated more price competition in oligopolies. B) Oligopolies are less technologically competitive so they lose market share. C) Oligopolies may purposely keep prices below short-run profit-maximizing levels to bolster barriers to entry. D) The more collusive practices of oligopolies lead to more profit-sharing among firms in the industry.

C Review of four structures

: A Level: Easy E: 462-463 MI: 228-229 228. Which factor has most contributed to the increased concentration in the U.S. beer industry? A) increased demand for strong beers C) economies of scale in production B) new technology for filling beer kegs D) increased demand for soft drinks

C True/False Questions

: G Topic: 8 Level: Moderate E: 456 MI: 222 166. On the above graph, if the oligopolist's MC curve shifts from MC1 to MC2, the firm will charge: A) a higher price and total revenue will increase. B) the same price and sell more output; total revenue will increase. C) the same price and sell the same amount of output; total revenue will remain the same. D) a higher price and sell less output; it can't be determined whether total revenue will increase.

C Use the following to answer question 167:

: A Topic: 12 Level: Moderate E: 417-418 MI: 183-184 216. A profit-maximizing firm is observed in the short run operating at P > MC. This firm cannot be a(n): A) monopolist. B) oligopolist. C) purely competitive firm. D) monopolistically competitive firm.

C Use the following to answer questions 217-221:

: G Topic: 3 Level: Moderate E: 447 MI: 213 47. Refer to the above graph of a representative firm in monopolistic competition. What does line 4 represent? A) demand B) marginal cost C) marginal revenue D) average total cost

C Use the following to answer questions 48-52: Answer the next question(s) on the basis of the following demand and cost data for a specific firm.

: G Topic: 3 Level: Moderate E: 447 MI: 213 66. Refer to the above graphs. Which graph would not be a possible depiction of short-run or long-run outcomes for a monopolistically competitive firm? A) A B) B C) C D) D

C Use the following to answer questions 67-68:

: A Topic: 3 Level: Moderate E: 448-449 MI: 214-215 74. For the representative firm in monopolistic competition, there will tend to be economic profits: A) in the short run and long run. B) and losses in the short run and long run. C) or losses in the short run, but the firm will break even in the long run. D) or losses in the short run, but the firm will make economic profits in the long run.

C Use the following to answer questions 75-78:

: A Topic: 4 Level: Moderate E: 449 MI: 215 95. Which statement is true? A) Monopoly will result in a higher price and a larger output than pure competition. B) Monopoly will result in a higher price and a larger output than monopolistic competition. C) Pure competition will result in a lower price and a higher output than monopolistic competition. D) Monopolistic competition will result in a lower price and a lower output than pure competition.

C Use the following to answer questions 96-97:

2 REF: 2 3. Consider the cost and revenue data from Dreher's Designer Shirt Company, a single-price monopolist. What is the total revenue from selling 6 shirts? a. $100 b. $600 c. $625 d. $660

2 REF: 5 15. Consider the cost and revenue data from Dreher's Designer Shirt Company, a perfect price discriminating monopolist. What is the marginal revenue from selling the 8th shirt? a. $20 b. $40 c. $80 d. $90

2 REF: 5 19. Consider the cost and revenue data from Dreher's Designer Shirt Company, a perfect price discriminating monopolist. What is the quantity that maximizes economic profit? a. 5 b. 6 c. 7 d. 8

2 REF: 5 22. Consider the cost and revenue data from Dreher's Designer Shirt Company, a perfect price discriminating monopolist. Suppose Drehers' fixed cost of production are now $500. Because of the higher fixed costs a. the company shuts down. b. the company exits the industry. c. the company stays open because their economic loss is lower than it would be if they shut down. d. the company's economic profits are lower, but still positive.

3 REF: 1, 4 27. A firm that is the sole seller of a product without close substitutes is a. perfectly competitive. b. monopolistically competitive. c. an oligopolist d. a monopolist

3 REF: 2 Table 15-2: Dreher's Designer Shirt Company, a perfect price discriminating monopolist COSTS REVENUES Quantity Produced Total Cost Marginal Cost Quantity Demanded Price Total Revenue Marginal Revenue 0 units $100 -- 0 units $170 per unit -- 1 140 1 160 2 184 2 150 3 230 3 140 4 280 4 130 5 335 5 120 6 395 6 110 7 475 7 100 8 565 8 90 14. Consider the cost and revenue data from Dreher's Designer Shirt Company, a perfect price discriminating monopolist. What is the marginal revenue from selling the 5th shirt? a. $90 b. $100 c. $110 d. $120

3 REF: 5 18. Consider the cost and revenue data from Dreher's Designer Shirt Company, a perfect price discriminating monopolist. What is the average revenue when 7 shirts are sold? a. $90 b. $100 c. $110 d. $130

: A Topic: 1 Level: Easy E: 446 MI: 212 11. An example of a monopolistically competitive industry would be: A) steel. B) soybeans. C) electricity. D) retail clothing.

: A Topic: 1 Level: Easy E: 446 MI: 212 9. A feature of monopolistic competition is: A) many (thousands) of buyers and sellers. C) considerable control over price. B) homogeneous or standardized products. D) nonprice competition.

: A Topic: 1 Level: Moderate E: 445 MI: 211 1. Which is a characteristic of monopolistic competition? A) standardized product C) absence of nonprice competition B) a relatively small number of firms D) relatively easy entry

: A Topic: 1 Level: Moderate E: 445 MI: 211 3. Which is not a form of product differentiation for the monopolistically competitive firm? A) brand names and trademarks C) location and accessibility B) promotion and packaging D) standard hours and procedures

: A Topic: 1 Level: Moderate E: 446, 452-453 MI: 212, 218-219 Status: New 17. In a monopolisitically competitive industry, the four-firm concentration ratio would be: A) high, and the Herfindahl index would be high. B) high, and the Herfindahl index would be low. C) low, and the Herfindahl index would be high. D) low, and the Herfindahl index would be low.

: A Topic: 10 Level: Easy E: 461-462 MI: 227-228 194. What is a positive effect of advertising? A) It reduces economic efficiency in the economy. B) It promotes economic concentration in industry. C) It is designed to persuade rather than inform consumers. D) It provides information for reducing search costs.

: A Topic: 11 Level: Moderate E: 463-464 MI: 229-230 196. In an oligopolistic market there is likely to be: A) little consideration of the actions of rival firms. C) homogeneous but not differentiated products. B) price taking behavior on the part of firms. D) neither allocative nor productive efficiency.

: A Topic: 11 Level: Moderate E: 463-464 MI: 229-230 199. Which would describe how many economists would view efficiency in oligopoly? A) P > MC and P = minimum ATC. C) P = MC and P = minimum ATC. B) P = MC and P > minimum ATC. D) P > MC and P > minimum ATC.

: A Topic: 12 Level: Difficult E: 402 MI: 168 209. At a given output, a firm's marginal cost is $4, marginal revenue is $4, average revenue is $6, and average cost is $5. The firm could be operating in any of the following markets except: A) monopoly. B) oligopoly. C) monopolistic competition. D) pure competition.

: A Topic: 12 Level: Easy E: 400 MI: 166 201. In which market model are there few competitors? A) monopolistic competition B) pure competition C) pure monopoly D) oligopoly

: A Topic: 12 Level: Easy E: 400 MI: 166 203. In which set of market models are there the most significant barriers to entry? A) monopolistic competition and pure competition C) oligopoly and monopolistic competition B) monopolistic competition and pure monopoly D) oligopoly and pure monopoly

: A Topic: 12 Level: Moderate E: 400 MI: 166 208. An industry has five firms that produce the total output. This industry would best be described as being: A) monopolistically competitive. B) pure competition. C) a pure monopoly. D) oligopolistic.

: A Topic: 3 Level: Difficult E: 447-448 MI: 213-214 70. Which is not true for a monopolistically competitive industry? A) Firms tend to operate with excess capacity. B) Each firm faces a downward-sloping demand curve. C) These firms earn zero economic profits in the long run. D) The portion of the marginal-cost curve above the average-variable-cost curve is the short-run supply curve for the firm.

: A Topic: 3 Level: Difficult E: 447-449 MI: 213-215 71. Which statement concerning monopolistic competition is false? A) In the long run P = AC > MC. B) Firms may experience losses in the short run. C) Firms differentiate their products, but the products are relatively substitutable. D) Firms may experience positive economic profits in the long run as barriers to entry are significant.

: A Topic: 3 Level: Difficult E: 448-449 MI: 214-215 73. In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry will produce the quantity of output where: A) AC = P, MR = MC = P. C) AC < P, MR + MC < P. B) AC < P, MR = MC = P. D) AC = P, MR = MC < P.

: A Topic: 3 Level: Easy E: 448 MI: 214 42. If monopolistically competitive firms in an industry are making an economic profit, then: A) new firms will enter the industry and product demand will increase for the existing firms. B) firms will exit the industry and product demand will decrease for the firms that remain. C) firms will exit the industry and product demand will increase for the firms that remain. D) new firms will enter the industry and product demand will decrease for the existing firms.

: A Topic: 3 Level: Moderate E: 448-449 MI: 214-215 57. In the long run, a representative firm in a monopolistically competitive industry will typically: A) have an elasticity of demand that will be less than it was in the short run. B) have a larger number of competitors than it will in the short run. C) produce a level of output at which marginal cost and price are equal. D) earn a normal profit, but not an economic profit.

: A Topic: 4 Level: Difficult E: 449 MI: 215 91. In long-run equilibrium, a monopolistically competitive firm achieves: A) productive and allocative efficiency. B) productive efficiency but not allocative efficiency. C) allocative efficiency but not productive efficiency. D) neither allocative efficiency nor productive efficiency.

: A Topic: 4 Level: Difficult E: 449 MI: 215 98. Which statement concerning monopolistic competition is false? A) Long-run equilibrium under monopolistic competition is achieved where economic profits are zero. B) Monopolistic competition is likely to result in a greater variety of product brands than pure competition. C) The monopolistic competitive demand curve is more elastic than the demand curve facing a monopolistic firm. D) Monopolistic competition does not lead to any economic inefficiency, since firms in this industry cannot sustain economic profits.

: A Topic: 4 Level: Easy E: 449 MI: 215 100. Given identical costs, the long-run equilibrium of a purely competitive firm differs from that of a monopolistically competitive firm in that: A) price and output are both greater under pure competition. B) price is greater, but quantity is the same, under pure competition. C) both price and quantity are lower under pure competition. D) price is lower, but quantity is greater, under pure competition.

: A Topic: 4 Level: Easy E: 449-450 MI: 215-216 87. In monopolistic competition, we usually observe: A) significant diseconomies of scale. B) more reliance on misleading advertising than in monopoly or oligopoly. C) slower rates of technological advance and product development due to higher advertising costs. D) a large number of firms, each operating with excess capacity.

: A Topic: 4 Level: Moderate E: 449 MI: 215 88. In monopolistic competition, there is: A) allocative efficiency. C) both allocative and productive efficiency. B) productive efficiency. D) neither allocative nor productive efficiency.

: A Topic: 4 Level: Moderate E: 449 MI: 215 99. Which is true of pure competition but not of monopolistic competition? A) There are barriers to entry. B) Long-run economic profits are zero. C) There are a large number of firms in the market. D) Long-run equilibrium occurs at the minimum point on the ATC curve.

: A Topic: 5 Level: Difficult E: 451 MI: 217 112. Which is a likely characteristic of a differentiated oligopolistic market? A) There are minimal barriers to entry. B) The market demand curve is inelastic. C) There is minimal advertising expenditure. D) Price and output decisions of firms are interdependent.

: A Topic: 5 Level: Easy E: 451 MI: 217 105. The U.S. primary steel industry is best described as a(n): A) cartel. B) monopoly. C) differentiated oligopoly. D) homogeneous oligopoly.

: A Topic: 5 Level: Easy E: 451 MI: 217 114. Which would be most characteristic of oligopoly? A) easy entry into the industry C) product standardization B) many large producers D) mutual interdependence

: A Topic: 5 Level: Easy E: 451 MI: 217 117. In which market model is there mutual interdependence? A) monopolistic competition B) pure competition C) pure monopoly D) oligopoly

: A Topic: 5 Level: Moderate E: 451 MI: 217 110. An oligopolistic market is consistent with: A) all firms making economic profits. C) the existence of barriers to entry. B) a small number of firms in the industry. D) all of the above.

: A Topic: 5 Level: Moderate E: 451 MI: 217 111. A unique feature of an oligopolistic industry is: A) low barriers to entry. C) diminishing marginal returns. B) standardized products. D) mutual interdependence.

: A Topic: 5 Level: Moderate E: 451 MI: 217 120. Which cannot be a characteristic of an oligopolistic industry? A) differentiated products C) significant barriers to entry B) a large number of consumers D) a perfectly elastic firm demand curve

: A Topic: 6 Level: Difficult E: 453 MI: 219 124. The larger the Herfindahl index, the: A) less the degree of import competition in an industry. B) greater the degree of import competition in an industry. C) less the degree of market power in an industry. D) greater the degree of market power in an industry.

: A Topic: 6 Level: Difficult E: 453 MI: 219 136. 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? A) 10, 30, 30, and 30 B) 15, 25, 25, and 35 C) 5, 25, 30, and 40 D) 15, 20, 30, and 35

: A Topic: 6 Level: Easy E: 446, 452 MI: 212, 218 Status: New 125. Which industry would be considered to be oligopolistic based on the four-firm concentration ratio and the Herfindahl index data? A) textile bags B) bolts, nuts, and rivets C) ready mix concrete D) glass containers

: A Topic: 6 Level: Easy E: 446, 452-453 MI: 212, 218-219 Status: New 128. The following are the respective numbers for the four-firm concentration ratio and Herfindahl index in an industry. Which set of numbers would indicate that the industry is oligopolistic? A) 10 and 50 B) 24 and 263 C) 25 and 207 D) 77 and 1807

: A Topic: 6 Level: Easy E: 451-452 MI: 217-218 138. Which has not contributed to the development of oligopolies in the U.S. economy? A) mergers B) patents C) economies of scale D) interindustry competition

: A Topic: 6 Level: Easy E: 452 MI: 218 122. A high concentration ratio indicates that: A) the industry is not profitable. B) the industry is highly competitive. C) many firms produce most of the output in an industry. D) few firms produce most of the output in an industry.

: A Topic: 6 Level: Moderate E: 453 MI: 219 129. The increased use of plastic bags instead of paper bags in grocery stores and retail shops is an example of: A) overt collusion. B) covert collusion. C) import competition. D) interindustry competition.

: A Topic: 8 Level: Difficult E: 455-456 MI: 221-222 153. If an oligopolist's demand curve has a "kink" in it, then: A) the oligopolist's marginal cost curve has a break in it. B) the oligopolist need not fear entry into the industry by new firms. C) the oligopolist's competitors will not react to its price changes, either up or down. D) over some interval, a change in the oligopolist's marginal cost will not cause a change in the oligopolist's profit-maximizing price.

: A Topic: 8 Level: Difficult E: 455-456 MI: 221-222 162. If output is set at the kink of the kinked demand model, then there: A) is a strong incentive for rivals to decrease prices. B) is a strong incentive for rivals to increase prices. C) is one price at which marginal revenue equals marginal cost. D) are several prices at which marginal revenue equals marginal cost.

: A Topic: 8 Level: Difficult E: 457 MI: 223 163. A prediction from the kinked demand curve model of noncollusive oligopoly is that for an individual firm small changes in: A) demand will lead to changes in price or output. B) marginal revenue will lead to changes in price and output. C) marginal cost will lead to changes in price and output. D) marginal cost will not lead to changes in price or output.

: A Topic: 8 Level: Easy E: 455-456 MI: 221-222 168. The kinked demand curve is based upon the assumption that an oligopolist's rivals will: A) ignore a price cut, but follow a price increase. C) ignore both a price cut and a price increase. B) follow both a price cut and a price increase. D) follow a price cut, but ignore a price increase.

: A Topic: 9 Level: Easy E: 458 MI: 224 174. A major reason that firms form a cartel is to: A) reduce the elasticity of demand for the product. C) minimize the costs of production. B) enlarge the market share for each producer. D) maximize joint profits.

: A Topic: 9 Level: Easy E: 458 MI: 224 179. Which will make it easier for a cartel to operate effectively over time? A) Demand for the cartel's product decreases. B) Demand for the cartel's product becomes more elastic. C) The number of substitutes for the cartel's product increases. D) Each member firm observes the pricing and output decisions of other firms in the cartel.

: A Topic: 9 Level: Easy E: 459 MI: 225 177. A cartel is formed among the major firms in an industry that maximizes joint profits of the firms. Each firm: A) will operate at the level of output associated with the kink in the demand curve. B) will be protected from the economic effects of a recession. C) has a perfectly elastic demand for its product. D) has the incentive to cheat by cutting its price.

: A Topic: 9 Level: Moderate E: 457-459 MI: 223-225 170. Collusive control over price may permit oligopolists to: A) use new technology, achieve economies of scale, and get government subsidies. B) achieve economies of scale, reduce costs, and prevent price cheating. C) increase product demand, increase product supply, and lower cost. D) reduce uncertainty, increase profits, and possibly limit entry of new firms.

: A Topic: 9 Level: Moderate E: 459 MI: 225 180. Other things being equal, a firm in a cartel will most likely cheat on a price-fixing agreement by: A) increasing price and restricting its output. B) organizing promotions of the product. C) secretly increasing sales to a large number of small customers. D) secretly lowering price and increasing sales to a few customers.

: D Topic: 6 Level: Easy E: 452 MI: 218 139. Interindustry competition refers to the fact that: A) oligopolistic producers establish a common price for their products. B) products are identical in a purely competitive industry. C) firms which sell a product at one stage of production buy materials and parts from other firms at prior stages of production. D) in some markets the producers of a certain commodity might face competition from products of other industries.

: D Topic: 6 Level: Moderate E: 453 MI: 219 131. The Herfindahl index is a measure of: A) profitability in an industry. C) kinked demand in an industry. B) the price level in an industry. D) market power in an industry.

: D Topic: 7 Level: Easy E: 454 MI: 220 142. When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of: A) interindustry competition. B) limit pricing. C) price leadership. D) collusion.

: F Topic: 5 Level: Easy E: 451 MI: 217 118. The cigarette industry in the United States would be an example of a: A) duopoly. B) noncollusive oligopoly. C) homogeneous oligopoly. D) differentiated oligopoly.

: G Topic: 12 Level: Difficult E: 429-430, 446-448 MI: 195-196, 212-214 214. Refer to the above graph. It could represent all of the following except a(n): A) oligopolist in short-run equilibrium. B) pure monopolist in short-run equilibrium. C) pure monopolist in long-run equilibrium. D) monopolistic competitor with free entry in long-run equilibrium.

: G Topic: 12 Level: Moderate E: 447 MI: 213 217. Refer to the above graphs. Which shows the long-run equilibrium for a typical monopolistically competitive firm? A) 1 B) 2 C) 3 D) 4

: G Topic: 3 Level: Difficult E: 447 MI: 213 45. Refer to the above graph of a representative firm in monopolistic competition. What does line 2 represent? A) demand B) marginal cost C) marginal revenue D) average total cost

: T Topic: 3 Level: Difficult E: 447-448 MI: 213-214 50. Refer to the above data. If columns 1 and 3 are this firm's demand schedule, economic profit will be: A) $60. B) $70. C) $80. D) $90.

Consider the cost and revenue data from Dreher's Designer Shirt Company, a single-price monopolist. What is the marginal cost of the 6th shirt? a. $44 b. $46 c. $55 d. $60

: A Topic: 9 Level: Difficult E: 459-460 MI: 225-226 189. Price leadership represents a situation where oligopolistic firms: A) reduce their reliance on nonprice competition. C) face a kinked demand curve. B) conspire to form a cartel. D) tacitly collude.

D Advertising

: A Topic: 8 Level: Moderate E: 455-456 MI: 221-222 169. An oligopolistic firm finds that marginal revenue can range from $10 to $25 at an output level of 2,500 units. This information would suggest that the oligopolistic model for this industry is most likely one of: A) collusive pricing. B) price leadership. C) cost-plus pricing. D) kinked demand.

D Collusion; cartels; price leadership

: A Topic: 7 Level: Easy E: 453-454 MI: 219-220 145. What are the payoffs in the typical duopoly game? A) increased economies of scale B) increased barriers to entry C) market share D) profits

D Use the following to answer questions 146-148: Answer the next question(s) based on the following payoff matrix for a duopoly in which the numbers indicate the profit in millions of dollars for a high-price or a low-price strategy.

: G Topic: 12 Level: Moderate E: 430, 447 MI: 196, 213 221. Refer to the above graphs. Which type of firms above would be expected to engage in advertising? A) 1 and 2 B) 1 and 4 C) 2 and 3 D) 3 and 4

D Use the following to answer questions 222-224: The data show the relationship between output and total revenue for a firm.

: A Topic: 3 Level: Moderate E: 448 MI: 214 31. A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50. To maximize profits: A) the firm should continue to produce this quantity. B) the firm should increase output and decrease price. C) the firm should decrease output and increase price. D) it is unclear what the firm should do without knowing marginal revenue.

D Use the following to answer questions 32-34: The graph depicts a monopolistically competitive firm.

: A Topic: 3 Level: Moderate E: 447-448 MI: 213-214 36. 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: A) reduce product price. C) decrease the level of output. B) increase the level of output. D) make no change in the level of output.

D Use the following to answer questions 37-39: Answer the next question(s) based on the demand and cost schedules for a monopolistic competitor given in the table below.

: A Topic: 4 Level: Difficult E: 449 MI: 215 81. In monopolistic competition there is an underallocation of resources at the profit-maximizing level of output, which means that: A) minimum ATC is less than MC. C) price is greater than minimum ATC. B) minimum ATC is less than MR. D) price is greater than MC.

D Use the following to answer questions 82-83:

: A Level: Difficult E: 449 MI: 215 240. In long-run equilibrium, a monopolistically competitive firm achieves optimal productive efficiency but not optimal allocative efficiency.

False

: A Level: Difficult E: 458 MI: 224 250. A cartel of ten firms that controls 100 percent of the output in a market and faces the same cost schedules that a monopolist would in the market will have to set a price somewhat lower than the monopoly price for its product.

False

: A Level: Difficult E: 463-464 MI: 229-230 255. Allocative efficiency, but not productive efficiency, is achieved in oligopolistic markets.

False

: A Level: Easy E: 446-448 MI: 212-214 236. Because monopolistically competitive firms cannot earn long-run economic profits, they do not have any degree of monopoly power.

False

: A Level: Easy E: 451 MI: 217 244. Patents and copyrights were established by the government to reduce oligopoly and monopoly power.

False

: A Level: Easy E: 451 MI: 217 247. Prices in oligopolistic industries are predicted to fluctuate widely and frequently compared to other market structures.

False

: A Level: Moderate E: 445 MI: 211 229. Monopolistically competitive firms exist due to high barriers to entry.

False

: A Level: Moderate E: 446-448 MI: 212-214 238. In the long run, typical firms that are monopolistically competitive earn economic profits.

False

: A Level: Moderate E: 446-448 MI: 212-214 242. Pure competition results in a lower price but identical output level compared to those in monopolistic competition.

False

: A Level: Moderate E: 449 MI: 215 239. Monopolistically competitive firms must produce where there is an optimal allocation of resources because the firms do not present significant barriers to entry to potential competitors.

False

: A Level: Moderate E: 452-453 MI: 218-219 245. Concentration ratios include adjustments for foreign competition in measuring concentration in an industry.

False

: A Level: Moderate E: 458 MI: 224 251. OPEC is a classic example of a kinked demand curve oligopoly.

False

: A Level: Moderate E: 459 MI: 225 252. A firm in a cartel typically cheats on its collusive agreement by raising its price and restricting output more than it agreed to with other cartel members.

False

: A Level: Difficult E: 446-448 MI: 212-214 232. The demand curve faced by a monopolistically competitive firm is more elastic than the monopolist's demand curve.

True

: A Level: Difficult E: 446-448 MI: 212-214 237. In long-run equilibrium, a monopolistically competitive firm will produce where P > MR = MC > minimum ATC.

True

: A Level: Difficult E: 448 MI: 214 233. The larger the number of firms in an industry and the less the extent of product differentiation, the greater will be the elasticity of the individual seller's demand curve.

True

: A Level: Difficult E: 456 MI: 222 248. An oligopolist producing where MR > MC should lower its price and increase output to maximize its profits.

True

: A Level: Difficult E: 457 MI: 223 249. If an oligopolist's competitors follow its price cuts but ignore its price increases, the oligopolist will face a "gap" in its marginal revenue schedule.

True

: A Level: Easy E: 446 MI: 212 241. Annual design and model changes are a form of nonprice competition.

True

: A Level: Easy E: 451 MI: 217 243. The steel industry is an example of a homogeneous oligopoly.

True

2 OBJECTIVE: 2 17. "Monopolists do not worry about efficient production and cost saving since they can just pass along any increase in costs to their consumers." This statement is a. false; price increases will mean fewer sales, and lower costs will mean higher profits (or smaller losses). b. true; this is the primary reason why economists believe that monopolies result in economic inefficiency. c. false; the monopolist is a price taker. d. true; consumers in a monopoly market have no substitutes to turn to when the monopolist raises prices.

a false; price increases will mean fewer sales, and lower costs will mean higher profits (or smaller losses).

1 OBJECTIVE: 1 5. Patents grant a. permanent monopoly status to creators of scientific inventions. b. permanent monopoly status to creators of any intellectual property. c. temporary monopoly status to creators of scientific inventions. d. temporary monopoly status to creators of any intellectual property.

c temporary monopoly status to creators of scientific inventions.

2 OBJECTIVE: 2 11. The supply curve for the monopolist a. is horizontal. b. is vertical. c. is a 45-degree line. d. does not exist.

d does not exist.

3 OBJECTIVE: 3 18. Many economists criticize monopolists because they produce at output levels that are not efficient. That is to say, monopolists a. charge too high a price. b. don't innovate. c. produce a large quantity of waste. d. have no incentive to produce at their minimum ATC.

d have no incentive to produce at their minimum ATC.

3 OBJECTIVE: 3 19. Concerning public utilities, the stated reason for resorting to regulation of a monopoly, rather than promoting competition through antitrust, is that the industry in question is believed to be a a. profit-maximizing monopoly. b. producer of externalities. c. revenue-maximizing monopoly. d. natural monopoly.

d natural monopoly.

1 OBJECTIVE: 1 4. Most markets are not monopolies in the real world because a. firms usually face downward-sloping demand curves. b. supply curves slope upward. c. price is usually set equal to marginal cost by firms. d. there are reasonable substitutes for most goods.

AP Microeconomics Unit 4 Practice MCQ

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