Assignment #12 ( Chapter 14 & 15)
The diagram at right shows the structure of cost and demand facing a monopolistically competitive firm in the short run. The profit-maximizing output level is _____ units of output. (Enter your response as an integer.) The profit-maximizing price is $____. (Enter your response as an integer.) Total revenue is $_____ (Enter your response as an integer.) Total cost is $_____. (Enter your response as an integer.) Total profit or loss is $____ (Enter your response as an integer and include a negative sign where appropriate.) In the long run, firms will A. enter, shifting the demand facing the remaining firms to the left until the firms earn a normal profit. B. enter, shifting the demand facing the remaining firms to the left until the firms earn an economic profit. C. exit, shifting the demand facing the remaining firms to the right until the firms earn an economic profit. D. exit, shifting the demand facing the remaining firms to the right until the firms earn a normal profit.
15;13;195;225;-30 D. exit, shifting the demand facing the remaining firms to the right until the firms earn a normal profit.
The four-firm concentration ratio for this industry is ___. (Enter your response as an integer.) The Herfindahl-Hirschman Index (HHI) for this industry is ______. (Enter your response as an integer.) Would the Justice Department consider this industry as unconcentrated, moderately concentrated, or concentrated? A. Concentrated because the four-firm concentration ratio is over 60. B. Mildly concentrated because the HHI is under 2,000. C. Moderately concentrated because the HHI is below 1,800. D. Unconcentrated because the four-firm concentration ratio is under 90. Suppose firms Upper D comma Upper F comma and Upper G merge. The value of the HHI following this merger is ______. (Enter your response as an integer.) Would the Justice Department most likely challenge this merger? Why or why not? A. No, the HHI for this industry would have to be over 1,800 for the Justice Department to challenge the merger. B. Yes, according to antitrust laws, any time a merger raises the HHIlong dasheven by 50 pointslong dashit must be challenged. C. No, even though the merger increases the HHI, the industry is still considered unconcentrated. D. Yes, because the merger would increase the HHI by more than 100 points.
66; 1,436; 1,780 C. Moderately concentrated because the HHI is below 1,800 .D. Yes, because the merger would increase the HHI by more than 100 points.
A monopolistically competitive firm can minimize its losses by producing where ________ as long as ________. A. MR = MC; P > AVC B. P = ATC; P > MR C. P = MR; P > AFC D. P = MC; P > ATC
A. MR = MC; P > AVC
The restaurant industry is an example of a(n) ________ industry. A. monopolistically competitive B. oligopolistic C. monopolistic D. perfectly competitive
A. monopolistically competitive
There is easy entry into the ________ and ________ industries. A. perfectly competitive; monopolistically competitive B. monopolistic; perfectly competitive C. oligopolistic; monopolistic D. monopolistically competitive; oligopolistic
A. perfectly competitive; monopolistically competitive
If P > ATC, then a profit maximizing, monopolistically competitive firm earns ________ economic profits. A. positive B. zero C. negative D. either positive or negative
A. positive
A profit-maximizing monopolistically competitive firm will produce output where A. MR = MC. B. ATC is minimized. C. MC is minimized. D. MR is maximized.
A. MR = MC.
One thing oligopolists must do in order to determine their optimal strategy is A. anticipate the reaction of their rivals to their strategy. B. ignore the reaction of their customers to their strategy. C. anticipate the reaction of government to their strategy. D. ignore the reaction of their rivals to their strategy
A. anticipate the reaction of their rivals to their strategy.
The airline industry is an example of a(n) ________ industry. A. oligopolistic .B. perfectly competitive C. monopolistic D. monopolistically competitive
A. oligopolistic
Refer to the information provided in the table at right to answer the question that follows. Firm A's dominant strategy is A. to advertise. B. dependent on what Firm B does. C. to not advertise. D. indeterminate from this information, as no information is provided on Firm A?s risk preference.
A. to advertise.
The demand curve for the product or service produced by a monopolistic competitor A. is less elastic than both the demand curve faced by a monopolist and the demand curve faced by a perfectly competitive firm. B. is more elastic than the demand curve faced by a monopolist and less elastic than the demand curve faced by a perfectly competitive firm. C. is more elastic than both the demand curve faced by a monopolist and the demand curve faced by a perfectly competitive firm. D. is less elastic than the demand curve faced by a monopolist and more elastic than the demand curve faced by a perfectly competitive firm.
B. is more elastic than the demand curve faced by a monopolist and less elastic than the demand curve faced by a perfectly competitive firm.
An oligopolistic industry is characterized by A. one dominant firm in the industry. B. strategic behavior. C. having no market power. D. free entry and exit.
B. strategic behavior
According to the Five Forces Model, ________ are the five competitive forces that determine the level of competition and profitability in an industry. A. rivals, consumers, labor, weather, and government B. rivals, buyers, suppliers, substitutes, and potential entrants C. buyers, suppliers, government, foreign competition, and weather D. None of the above are correct.
B. rivals, buyers, suppliers, substitutes, and potential entrants
In San Francisco there are many retail clothing stores. Each store is slightly different from every other store. Retail clothing stores are an example of what market structure? A. oligopoly B. monopoly C. monopolistic competition D. perfect competition
C. monopolistic competition
Shown at right is a payoff matrix for a price-cutting decision by Audi and Mazda. A. Audi's dominant strategy is to not cut price, because $9 million is more than $7 million. B. Mazda's dominant strategy is to cut price, because $8 million is greater than $6 million and $10 million is greater than $7 million. C. Audi does not have a dominant strategy. D. Audi's dominant strategy is to cut price, because $7 million is more than $6 million and $9 million is more than $5 million. E. Mazda does not have a dominant strategy.
C. Audi does not have a dominant strategy.
In monopolistic competition, firms gain some degree of market power A. because price has no effect on the quantity they sell. B. by virtue of their size. C. by differentiating their products from those of other firms in the industry. D. because there are so few firms in the industry. E. because there are no close substitutes for their products.
C. by differentiating their products from those of other firms in the industry.
In some oligopolies, two firms find themselves in what is known as "the prisoners' dilemma," that is, A. only one has a dominant strategy which results in the other being worse off than it would be if they could collude. B. both have dominant strategies but they conflict so their actions cancel. C. each has a dominant strategy that results in both of them being worse off than they would be if they could collude. D. neither has a dominant strategy so both end up worse off than they would be if they could collude.
C. each has a dominant strategy that results in both of them being worse off than they would be if they could collude.
An oligopoly is defined to be an industry that A. sells a differentiated product. B. sells a homogeneous product. C. includes a few dominant firms, each of whose behavior depends on the behavior of the others. D. consists of many firms. E. consists of only a few firms.
C. includes a few dominant firms, each of whose behavior depends on the behavior of the others.
For a monopolistically competitive firm, A. price is equal to marginal revenue because the firm must lower the price for each additional unit it wants to sell. B. marginal revenue is less than the price because the firm can sell as much output as it chooses at the standardized market price. C. marginal revenue is less than the price because the firm must lower the price for each additional unit it wants to sell. D. price is equal to marginal revenue because the firm can sell as much output as it chooses at the standardized market price.
C. marginal revenue is less than the price because the firm must lower the price for each additional unit it wants to sell.
Refer to the information provided in the table at right to answer the question that follows. What is the Nash equilibrium in the game? A. (Advertise, Don't Advertise) B. (Don't Advertise, Don't Advertise) C. (Advertise, Advertise) D. (Don't Advertise, Advertise)
C. (Advertise, Advertise)
Monopolistic competition differs from perfect competition primarily because in A. perfect competition, firms can differentiate their products. B. monopolistic competition, there are relatively few barriers to entry. C. monopolistic competition, entry into the industry is blocked. D. monopolistic competition, firms can differentiate their products.
D. monopolistic competition, firms can differentiate their products.
Assume there are 20 firms in the industry for plasma TV manufacturers. Their market shares are as follows: 60%, 15%, 8%, 17 each with 1%. What is the value of the Herfindahl-Hirschman Index? A. 83 B. 3,825 C. 353 D. 3,906
D. 3,906
For a monopolistically competitive industry in long-run equilibrium, A. P = ATC. B. there are no profits or losses. C. MR = MC. D. All of the above are true.
D. All of the above are true.
Consider this statement: "The Beatles were once a monopolistically competitive firm that became a monopolist." Which of the following best explains the statement above? A. With success, the lack of available substitutes made the Beatles a monopoly. B. Initially, product differentiation made the Beatles a monopolistically competitive firm. C. Originally, the Beatles were one act of many that produced a similar, yet slightly different, product: music. D. All of the above.
D. All of the above.
Refer to the information provided in the table at right to answer the question that follows. The Nash equilibrium in the game is ________. A. (Don't Raise Price, Raise Price) B. (Raise Price, Don't Raise Price) C. (Don't Raise Price, Don't Raise Price) D. Both (A) and (B) are correct.
D. Both (A) and (B) are correct
A cartel is A. an industry that consists of one large firm and several smaller ones. B. an industry that consist of several large firms and one or two smaller ones. C. a group of oligopolists who compete in price but not in quality. D. a group of oligopolists who make price and output decisions jointly.
D. a group of oligopolists who make price and output decisions jointly.
All of the following are key characteristics of a monopolistically competitive industry except A. a differentiated product. B. a large number of firms. C. the existence of close substitutes. D. a homogeneous product.
D. a homogeneous product.
Which of the following features distinguishes monopolistically competitive firms from monopolies and oligopolies? A. monopolistically competitive firms are price takers while monopolies and oligopolies are not. B. monopolistically competitive firms are not constrained by market demand while monopolies and oligopolies are. C. monopolistically competitive firms sell a homogeneous product while monopolies and oligopolies sell a differentiated product. D. monopolistically competitive firms cannot influence market price by virtue of their size alone while monopolies and oligopolies can.
D. monopolistically competitive firms cannot influence market price by virtue of their size alone while monopolies and oligopolies can.
Monopolistically competitive firms produce their economic profits protected by barriers to entry. This statement is A. not correct because monopolistically competitive industries have barriers to entry and therefore have no profits in the long run. B. not correct because monopolistically competitive industries benefit from government rules and therefore earn economic profits in the long run. C. not correct because monopolistically competitive industries produce a homogeneous product and therefore have no profits in the long run. D. not correct because monopolistically competitive industries have easy entry and exit and therefore have no profits in the long run. E. correct. Monopolistically competitive firms are efficient because in the long run, price falls to equal marginal cost. This statement is A. not correct because monopolistically competitive firms produce where price is greater than marginal cost and therefore are inefficient. B. not correct because monopolistically competitive firms produce where price equals marginal revenue and therefore are inefficient. C. not correct because monopolistically competitive firms produce where marginal revenue equals marginal cost and therefore are efficient. D. not correct because monopolistically competitive firms produce at lowest average cost and therefore are inefficient. E. correct.
D. not correct because monopolistically competitive industries have easy entry and exit and therefore have no profits in the long run. A. not correct because monopolistically competitive firms produce where price is greater than marginal cost and therefore are inefficient.
In a monopolistically competitive industry, at long-run equilibrium A. the bottom of the average total cost curve is below the marginal revenue curve. B. the marginal cost curve is tangent to the demand curve. C. all of the average total cost curve is above the demand curve. D. the average total cost curve is tangent to the demand curve. E. the bottom of the average total cost curve is below the demand curve.
D. the average total cost curve is tangent to the demand curve.
If all firms in an industry successfully engage in collusion, the resulting profit-maximizing price and output would be A. more than if the industry was a monopoly. B. more than if the industry was a competitive industry. C. the same as if the industry was a competitive industry. D. the same as if the industry was a monopoly.
D. the same as if the industry was a monopoly.
In a prisoners' dilemma, dominant strategies result in optimal outcomes.
False
In a prisoners' dilemma, no player has a dominant strategy. True False
False
In game theory, when all players are playing their best strategy given what their competitors are doing, the result is a Nash equilibrium. True False
True
Refer to the information provided in the table at right to answer the question that follows. Firm A does not have a dominant strategy. True False
True
A group of firms that gets together and jointly makes price and output decisions is called a cartel. A. True B. False Tacit collusion occurs when price- and quantity-fixing agreements are explicit. A. True B. False
True, False
One of the models of oligopoly behavior is called game theory. The key difference between it and other models is that in game theory, in planning its own actions, each firm A. tries to get a higher price than its rivals are charging. B. takes into account its rivals' reactions to its own price. C. tries to fool other firms into thinking it's going to raise its own price. D. tries to fool other firms into thinking it's going to reduce its own price.
takes into account its rivals' reactions to its own price.
Firm A does not have a dominant strategy.
true
