ECON ch. 13

A monopolistically competitive market is characterized by: a. many firms, product differentiation, and easy entry in the long run. b. many firms, product differentiation, and barriers to entry. c. several large dominant firms, product differentiation, and easy entry in the long run. d. several large dominant firms, identical outputs, and barriers to entry.

a

A market characterized by many firms, product differentiation, and easy entry in the long run is: a. perfectly competitive. b. monopolistically competitive. c. a monopoly. d. an oligopoly.

b

A group of firms in an industry that band together and agree to charge a common price and set output quotas is referred to as: a. a duopoly. b. a contestable market. c. a cartel. d. an oligopoly.

c

A monopolistically competitive firm: a. produces where P > ATC in the long run. b. earns positive economic profits in the long run. c. produces where MR = MC to maximize profit. d. all of the above are true

c

An entrepreneur who is thinking about starting a new company selling ketchup will likely have a hard time overcoming: a. the high cost of producing this product. b. the contestable market. c. the economies of being established. d. cartel agreements.

c

A market that is made up of a few large firms that engage in strategic behavior is: a. perfectly competitive. b. monopolistically competitive. c. monopolistically competitive. d. an oligopoly.

d

Behavior in which a dominant firm's pricing strategy is followed by other firms in the industry is called: a. price leadership. b. cartel membership. c. contestable. d. rent-seeking.

a

The demand curves of firms in monopolistically competitive markets are relatively elastic compared to market demand due to: a. the existence of close substitutes. b. the existence of perfect substitutes. c. the fact that no substitutes exist. d. unpredictable consumers.

a

The monopolistically competitive firm represented in the graph is in: (13.1) a. long-run equilibrium since it is earning zero profit. b. short-run equilibrium since it is earning zero profit. c. short-run equilibrium, but not long-run equilibrium since it is earning positive economic profit. d. long-run equilibrium, but not short-run equilibrium since it is earning positive economic profit.

a

To be successful in increasing the price of their product, members of a cartel must: a. restrict market output. b. encourage new firms to enter the market. c. significantly increase market output. d. find ways to lower costs of production.

a

Based on this payoff matrix, if Firm A and Firm B are able to collude, they will: (13.2) a. maximize joint profit by setting a low price. b. maximize joint profit by setting a high price. c. produce the most efficient level of industry output. d. always make the opposite decision of the rival firm.

b

Game Theory suggests that competing firms in an oligopolistic industry may be: a. too quick to raise prices because they fail to anticipate that rivals may gain market shares. b. reluctant to change prices because they anticipate that rivals will match price cuts but ignore price increases. c. reluctant to change prices because they anticipate that rivals will ignore price cuts but match price increases. d. too quick to cut prices because they fail to anticipate that rivals may also cut their prices.

b

Hairstylists operate in a(n) _ market. a. perfectly competitive b. monopolistically competitive c. oligopolistic d. monopolistic

b

If a monopolistically competitive firm is earning positive economic profits in the short-run, then: a. these profits will persist in the long-run because of the firm's limited monopoly power. b. these profits will be eliminated in the long-run as new firms enter the industry. c. its output will increase in the long-run. d. price will be driven down to minimum average total cost in the long-run.

b

If firms in an oligopoly market are able to collude, then: a. the market price and output will be very close to the price and output that would prevail under competitive conditions. b. the market price is likely to be higher and the output is likely to be lower than they would be if firms could not collude. c. all firms in the market will increase output in order to increase profit. d. they are not attempting to maximize profit.

b

Monopolistically competitive firms: a. persistently earn positive economic profits in both the short run and the long run. b. may earn either profits or losses in the short run, but tend to earn zero economic profits in the long run. c. tend to incur persistent losses in both the short run and the long run. d. earn zero economic profits in the short run but incur losses in the long run.

b

Suppose Firm A must decide whether to charge a low price or a high price without knowing what Firm B will do. In the Nash equilibrium based on this payoff matrix, Firm A will set a _ price based on the analysis of the payoff matrix, which indicates that Firm B will set a _ price. (13.2) a. high; high b. low; low c. low; high d. high; low

b

The Herfindahl-Hirschman Index is a measure of industry concentration that is calculated by: a. summing the market shares of the four largest firms in the industry. b. summing the squares of the market shares of each firm in the industry. c. summing the market shares of all of the firms in the industry. d. dividing the market share of the largest firm by the market share of the smallest firm.

b

The Price Leadership model leads to the prediction that: a. only one firm will be able to survive the forces of competition, resulting in a monopoly. b. a single firm may dominate an oligopoly market, so other firms simply set their product price equal to the price set by the dominant firm to avoid retaliation from the dominant firm. c. the firms in an oligopoly industry will engage in an endless series of price wars. d. the firms in an oligopoly market will join together to form a cartel, each agreeing to limit production in order to get a higher price for their product.

b

The deadweight loss represented in the graph is approximately equal to: (13.1) a. $0. b. $214.50. c. $429. d. $2,028.

b

The monopolistically competitive firm represented in the graph maximizes profit by producing _ units of output; the efficient level of output for this firm is _ units. (13.1) a. 520; 520 b. 520; 630 c. 630; 520 d. 630; 630

b

The typical firm in a monopolistically competitive industry earns zero economic profit in the long run because: a. high barriers to entry exist. b. there are no barriers to prevent the entry of new firms with similar products. c. it produces an output for which there are no close substitutes. d. short-run losses usually turn into profits in the long run.

b

Which of the following best represents an example of an oligopoly? a. pizza delivery b. automobiles c. strawberries d. a patented prescription drug

b

Firms in a monopolistically competitive market are similar to a monopoly firm in that firms in both market structures: a. have no control over the price charged. b. set price equal to marginal cost. c. maximize profit by producing the quantity where marginal revenue equals marginal cost. d. maintain barriers to entry to prevent new firms from entering the market.

c

Industry profit is likely to be lowest in an industry that: a. has a clear price leader who is followed by all of the other firms. b. adheres to a cartel agreement. c. is a contestable market. d. has significant barriers to entry.

c

Monopolistically competitive firms have some market power because of: a. economies of scale. b. barriers to entry. c. product differentiation. d. industry domination.

c

The characteristic that distinguishes oligopoly from other market structures is: a. government regulation. b. easy entry and exit. c. interdependence (strategic behavior) among firms in pricing and output decisions. d. cost-minimizing behavior.

c

All of the following markets fit the characteristics of an oligopoly except: a. Breakfast cereals b. Cell phones c. Automobiles d. Fresh fruit

d

Game theory helps explain: a. why firms in oligopoly markets are revenue-maximizers, not profit-maximizers. b. why firms don't advertise if they operate in oligopoly markets. c. hiring behavior in professional sports. d. the strategic behavior of firms in oligopoly markets.

d

The percentage of total industry output accounted for by the largest firms in an industry is called the: a. elasticity coefficient. b. Herfindahl index. c. market indicator. d. concentration ratio.

d