Chapter 10 Practice MC

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1

Monopolistically competitive industries consist of

  1. one firm selling several products
  2. one firm selling one product
  3. many firms, all selling identical products
  4. many firms, each selling a slightly different product
  5. many firms, each selling a completely different product

Answer: D

2

Collusion among firms to raise price is rare in monopolistically competitive markets because

  1. there are too many firms
  2. there are too few firms
  3. there is only one firm
  4. products are homogeneous
  5. price leadership is used instead

Answer: A

3

A monopolistically competitive firm can raise price somewhat due to

  1. product differentiation
  2. barriers to entry
  3. product similarity
  4. its homogeneous product
  5. high tariffs

Answer: A

4

When firms in an industry produce differentiated products,

  1. long-run economic profit will always be zero
  2. short-run economic profit will always be positive
  3. the demand curves facing firms will always be perfectly elastic
  4. the demand curves facing firms will always be downward-sloping
  5. new firms will always have an incentive to enter the industry in the long run

Answer: D

5

In economics, products are considered "differentiated" only if

  1. they are physically or chemically different
  2. sellers decide that they are different
  3. buyers think that they are different
  4. the government determines that they are different
  5. they are produced by different firms

Answer: C

6

A monopolistic competitor's demand curve is

  1. perfectly elastic
  2. less elastic than a monopolist's or oligopolist's but more elastic than a perfect competitor's
  3. as elastic as an oligopolist's
  4. more elastic than a monopolist's or oligopolist's but less elastic than a perfect competitor's
  5. perfectly inelastic

Answer: D

7

The demand curve facing a firm will be more elastic,

  1. the fewer the number of competing firms
  2. the more differentiated the product
  3. the more substitutes there are for its product
  4. the greater the firm's ability to control price
  5. the larger the profit the firm can make

Answer: C

8
card image

In the short run, which of the following should the firm in Exhibit 10-4 do?

  1. Produce 10 units at a price of $36 per unit.
  2. Produce 10 units at a price of $24 per unit.
  3. Produce 10 units at a price of $40 per unit.
  4. Produce 15 units at a price of $32 per unit.
  5. We cannot determine what the firm should do without knowing its average variable cost.

Answer: C

9

Assume a monopolistically competitive firm is earning an economic profit. The marginal revenue from selling an additional unit is $30 and the marginal cost of producing that additional unit is $23. The firm should

  1. change neither its price nor its output level
  2. reduce its price and increase its output level
  3. increase its price and reduce its output level
  4. reduce both its price and its output level
  5. increase both its price and its output level

Answer: B

10

A monopolistically competitive firm is producing an output level at which marginal revenue is greater than marginal cost. This firm should __________ quantity and __________ price to increase profit or reduce losses.

  1. increase, increase
  2. increase; decrease
  3. decrease; increase
  4. decrease; decrease
  5. increase; not change

Answer: B

11

A monopolistically competitive firm is producing an output level at which marginal revenue is less than marginal cost. This firm should __________ quantity and __________ price to increase profit or reduce losses.

  1. increase, increase
  2. increase; decrease
  3. decrease; increase
  4. decrease; decrease
  5. increase; not change

Answer: C

12

A profit-maximizing firm in monopolistic competition should shut down in the short run

  1. if marginal revenue is less than price
  2. if price is always less than average total cost
  3. if price is always less than average fixed cost
  4. if price is always less than average variable cost
  5. under no circumstances

Answer: D

13

Monopolistic competition is similar to

  1. perfect competition because the firms face downward-sloping demand curves and can earn only a normal profit in the long run
  2. pure monopoly because the firms face downward-sloping demand curves and can earn only a normal profit in the long run
  3. perfect competition because the firms face downward-sloping demand curves and similar to pure monopoly in that the firms can earn only a normal profit in the long run
  4. pure monopoly because the firms face downward-sloping demand curves and similar to perfect competition in that the firms can earn only a normal profit in the long run
  5. pure monopoly because the firms face downward-sloping demand curves and can earn an economic profit in the long run

Answer: D

14

In the long run, a monopolistically competitive firm will

  1. produce a greater variety of goods than do firms in other market structures
  2. produce a greater output level than would a perfectly competitive firm
  3. produce where price equals average total cost
  4. earn an economic profit
  5. suffer a loss because of its advertising budget

Answer: C

15

Because of easy entry, monopolistically competitive firms will

  1. produce at the lowest average total cost
  2. charge a price equal to marginal cost
  3. earn no economic profit in the long run
  4. take advantage of all economies of scale
  5. earn no economic profit in the short run

Answer: C

16

In long-run equilibrium, a monopolistically competitive firm will produce

  1. at the minimum average cost
  2. at full capacity
  3. along the downward-sloping portion of its ATC curve
  4. along the upward-sloping portion of its ATC curve
  5. at the minimum of marginal cost

Answer: C

17

In the long run, the output of a monopolistically competitive firm

  1. exceeds that of an otherwise similar perfectly competitive firm
  2. is less than that of an otherwise similar perfectly competitive firm
  3. is at the point at which LRAC is minimized
  4. equals that of an otherwise similar perfectly competitive firm
  5. is less than that of an otherwise similar monopolist

Answer: B

18

One difference between perfect competition and monopolistic competition is that

  1. in perfect competition, firms cannot earn a long-run economic profit
  2. in perfect competition, firms take full advantage of economies of scale in long-run equilibrium; in monopolistic competition, firms do not
  3. only under perfect competition is there ease of entry and exit
  4. in monopolistic competition, the firm's demand curve is horizontal; in perfect competition, the firm's demand curve slopes downward
  5. in perfect competition, there are many firms; under monopolistic competition, there are few firms

Answer: B

19

Compared to a firm in perfect competition, the monopolistically competitive firm tends to

  1. produce less and charge a higher price
  2. produce less and charge a lower price
  3. produce more and charge a lower price
  4. produce more and charge a higher price
  5. produce the same quantity

Answer: A

20

Excess capacity typically occurs

  1. in the short run in perfect competition
  2. in the short run in monopolistic competition
  3. in long-run equilibrium in perfect competition
  4. in long-run equilibrium in monopolistic competition
  5. usually in markets experiencing an increase in demand

Answer: D

21

Monopolistically competitive firms do not achieve productive efficiency because

  1. entry of firms raises production costs in the long run
  2. barriers to entry allow profit to be earned in the long run
  3. price is greater than marginal cost at the profit maximizing output level
  4. profit is maximized at a quantity where average total cost is not minimized
  5. there is no threat of entry in the long run

Answer: D

22

Which of the following characteristics distinguishes oligopoly from other market structures?

  1. a horizontal demand curve
  2. a downward-sloping demand curve
  3. production of homogeneous outputs
  4. production of differentiated outputs
  5. interdependence among firms in the industry

Answer: E

23

Oligopolistic industries consist of

  1. a few independent firms
  2. a few interdependent firms
  3. many interdependent firms
  4. many independent firms
  5. a small monopoly

Answer: B

24

The defining characteristic of oligopoly is that each firm

  1. produces the same output as its rivals
  2. acts independently of its rivals
  3. is mutually interdependent
  4. is atomistic
  5. advertises how its products are different from its rivals' products

Answer: C

25

Collusion occurs when

  1. a firm chooses a level of output to maximize its own profit
  2. firms get together to maximize joint profits
  3. firms refuse to follow their price leaders
  4. firms petition their U.S. senators for favors
  5. two firms' price and output decisions come into conflict

Answer: B

26

If all six suppliers of cement to Metropolis all agree to establishes a price of $45 per ton, this would be

  1. a legal contract
  2. price discrimination
  3. cost-plus pricing
  4. a cartel
  5. beneficial to consumers

Answer: D

27

During certain periods in the past few decades, if one of the three major breakfast cereal producers in the United States announced a price increase, the other two announced a similar price increase. This is a good example of

  1. monopolistic competition
  2. a cartel
  3. a pure monopoly
  4. the kinked demand curve model of oligopoly
  5. the price leadership model of oligopoly

Answer: E

28

In the game theory model of oligopoly,

  1. firms will be successful in colluding to raise prices
  2. one firm raises its prices, and other firms follow suit
  3. firms will match other firms' price cuts but not their price increases
  4. firms may attempt to avoid the worst outcome but may achieve a less-than-optimal outcome
  5. firms never avoid the worst outcome

Answer: D

29

Game theory focuses on

  1. strategic behavior among interdependent firms
  2. professional athletic events
  3. competition between the players in board games
  4. competition between those in the political arena and those in the market place
  5. the interaction between firms in a competitive industry and those in a non-competitive industry

Answer: A

30

A prisoner's dilemma can be described as a situation in which

  1. a decision maker is uncertain about the potential punishment for something done in the past
  2. an individual decision maker finds it in his best interest to pursue a course of action that can lead to a less than desirable outcome for the group
  3. producers act so as to avoid maximizing profits because of government retaliation
  4. individual firms seeks to maximize their own profits with no regard for the group
  5. the summation of individual demand curves creates an inelastic demand curve facing the industry

Answer: B

31

The principal advantage of the game theory approach is that it allows us to

  1. take all possible information into consideration before developing a theory
  2. better understand why the firm in a competitive industry avoids games
  3. better understand how the government should regulate a natural monopoly
  4. better understand decision making when one person’s choices affect another person’s choices
  5. understand the relationship between the firm and the industry demand curves

Answer: D

32

The advantage of game theory is that it allows us to focus on the

  1. individual firm's incentives to cooperate or not
  2. relationship between the market and firm level demand curve
  3. costs and benefits
  4. government regulators and the firms in an industry
  5. models where there are no barriers to entry

Answer: A

33

If the leading canned soup company introduces dozens of new flavors in order to dominate shelf space, the company is most likely trying to create a barrier to entry by

  1. increasing the total investment needed to reach the minimum efficient size
  2. spending more on advertising than potential competitors can afford
  3. exploiting economies of scale
  4. crowding out the competition
  5. establishing an undifferentiated oligopoly

Answer: D