1. If a monopolistically competitive firm is in long-run equilibrium and average cost equals $150, then the market price must be $150.

Select one:

True

False

2. Which of the following is a unique feature of perfect competition?

Select one:

a.

The individual firm cannot earn economic profit in the long run.

b.

It is easy for new firms to enter the industry.

c.

The market demand curve slopes downward.

d.

The demand curve facing an individual firm is perfectly elastic.

e.

The firms in the industry produce a homogeneous product.

3. It is harder to explain the behavior of firms in an oligopoly than in other market structures because:

Select one:

a.

the firms act independently of each other in an oligopoly.

b.

firms base their decisions on what their rivals do.

c.

only differentiated products are produced by firms in an oligopoly.

d.

only homogeneous products are produced by firms in an oligopoly.

e.

the demand curve faced by a firm in an oligopoly can slope upward.

4. Due to the ease of entry of new firms into monopolistically competitive markets in the long run, existing firms in these markets:

Select one:

a.

produce at the lowest average total cost.

b.

charge a price equal to marginal cost.

c.

earn no economic profit in the long run.

d.

take advantage of economies of scope.

e.

earn no economic profit in the short run.

5. In a coordination game, a Nash equilibrium occurs when:

Select one:

a.

each player ignores the strategy of the other player.

b.

each player chooses no strategy, but maintains the status quo.

c.

each player chooses the same strategy.

d.

one player can improve the outcome by changing his strategy.

e.

each player chooses different strategies.

6. An oligopoly consists of:

Select one:

a.

a few independent firms.

b.

a few interdependent firms.

c.

many interdependent firms.

d.

many independent firms.

e.

only one firm.

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

Select one:

a.

increase, increase

b.

increase; decrease

c.

decrease; increase

d.

decrease; decrease

e.

increase; not change

8. Which of the following characteristics does perfect competition share with monopolistic competition?

Select one:

a.

Price-taking firms

b.

Zero long-run economic profit

c.

Homogeneous products

d.

Strong barriers to entry

e.

Economies of scale in production

9. Game theory provides us with a general approach to understanding the behavior of firms when their choices are interdependent.

Select one:

True

False

10. If a firm in an industry achieves the minimum efficient scale at a low cost, then:

Select one:

a.

competition in the industry is likely to decrease.

b.

competition in the industry is likely to increase.

c.

the price charged by the firm is likely to be high.

d.

the demand for the firm's product is likely to be less.

e.

the profit earned by the firm is likely to be high.

11. When there are barriers to entry, a profit-maximizing firm already in the industry can charge any price it wants, even in the long run.

Select one:

True

False

12. Economic analysis of product differentiation leads to all of the following conclusions except one. Which is the exception?

Select one:

a.

Product differentiation makes it harder for firms to collude.

b.

Product differentiation makes price leadership harder to maintain.

c.

Product differentiation sometimes contributes to wasteful allocation of resources.

d.

Product differentiation must be based on real, substantive differences among products.

e.

Product differentiation makes it easier for firms to liquidate assets.

13. If Ford raises the price of its automobiles, the demand curve for GM automobiles:

Select one:

a.

shifts to the left.

b.

remains unaffected.

c.

becomes more elastic.

d.

shifts to the right.

e.

becomes vertical.

14. Figure 10.5 shows the demand, marginal revenue, and cost curves for a monopolistically competitive firm. The profit-maximizing (or loss-minimizing) output for the firm is _____.

Select one:

a.

0 units

b.

700 units

c.

1,000 units

d.

more than 700 units and less than 1,000 units

e.

more than 1,000 units

15. Table 10.1 shows the output, price, and total cost for a monopolistic competitor. The profit-maximizing output for the monopolistic competitor is _____.

Table 10.1.

Q

P

TC

1

$27

$10

2

24

17

3

21

32

4

18

47

5

15

67

Select one:

a.

0 units

b.

1 unit

c.

3 units

d.

5 units

e.

2 units

16. Monopolistically competitive industries consist of:

Select one:

a.

one firm selling several products.

b.

one firm selling one product.

c.

many firms, all selling identical products.

d.

many firms, each selling a slightly different product.

e.

many firms, each selling a completely different product.

17. Zara is the largest fashion retailer in Europe. Which of the following isnotlikely to be a barrier to entry into the apparel industry that protects Zara's market power?

Select one:

a.

The development of a new item within two weeks, as opposed to an industry average of nine months

b.

The availability of 10,000 new designs a year

c.

A well-established brand name

d.

Low expenditure on advertising

e.

The distribution of new fashions more frequently compared to other firms in the industry

18. The automobile industry is an example of a(n):

Select one:

a.

monopolistically competitive market because firms in the automobile industry face an upward-sloping demand curve.

b.

monopolistically competitive market because it experiences economies of scale.

c.

monopolistically competitive market for legal reasons.

d.

an oligopoly because each firm must produce a large amount of output before it can achieve low average costs.

e.

an oligopoly for legal reasons.

19. The tit-for-tat strategy implies that firms:

Select one:

a.

will ignore the strategy of the dominant firm if it involves decreases in prices.

b.

will follow the lead of the dominant firm in making pricing decisions.

c.

will change the price of their products whenever fixed cost changes.

d.

cooperate on the first round and then follow the competitor's reactions in the second round.

e.

will change the price of their products only if demand changes.

20. Monopolistically competitive firms ignore the effect of their decisions upon other firms in the industry because:

Select one:

a.

each firm is large relative to the market.

b.

each firm is small relative to the market.

c.

there are few sellers in the market.

d.

there is only one seller in the market.

e.

all firms follow the same pricing rule.

21. Table 10.1 shows the output, price, and total cost for a monopolistic competitor. At the profit-maximizing output, the monopolistically competitive firm is in:

Table 10.1.

Q

P

TC

1

$27

$10

2

24

17

3

21

32

4

18

47

5

15

67

Select one:

a.

long-run equilibrium and price equals average total cost.

b.

long-run equilibrium and price is less than average total cost.

c.

short-run equilibrium and price is greater than average total cost.

d.

short-run equilibrium and incurs an economic loss.

e.

short-run equilibrium and there is zero economic profit.

22. One difference between perfect competition and monopolistic competition is that:

Select one:

a.

firms in perfect competition cannot earn a long-run economic profit, whereas firms in monopolistic competition can earn a long-run economic profit.

b.

firms in perfect competition take full advantage of economies of scale in long-run equilibrium, whereas firms in monopolistic competition do not take advantage of economies of scale in long-run equilibrium.

c.

firms in perfect competition can easily exit the market, whereas firms in monopolistic competition find it difficult to exit the market.

d.

firms in perfect competition face a downward-sloping demand curve, whereas firms in monopolistic competition face a horizontal demand curve.

e.

there are many firms in a perfectly competitive market, whereas there are a few firms in a monopolistically competitive market.

23. The dominant-strategy equilibrium in a game implies that each firm:

Select one:

a.

ignores the reactions of competitors.

b.

colludes with competitors to maximize industry profits.

c.

ignores the decisions of the other firms.

d.

takes all potential bits of information into consideration before making a decision.

e.

selects the optimal solution to a game.

24. Collusion among firms to raise prices is rare in monopolistically competitive markets because:

Select one:

a.

there are too many firms.

b.

there are too few firms.

c.

there is only one firm.

d.

products are homogeneous.

e.

there are price leaders.

25. If firms in an industry produce differentiated products, they are likely to:

Select one:

a.

earn zero economic profit in the long run.

b.

earn positive economic profit in the short run.

c.

face perfectly elastic demand curves.

d.

face downward-sloping demand curves.

e.

incur lower production costs.

26. A firm experiences economies of scale if:

Select one:

a.

average cost declines as output increases.

b.

marginal cost declines as output increases.

c.

total cost increases as output increases.

d.

average returns decline as output increases.

e.

marginal revenue increases as output increases.

27. If oligopolists engaged in some sort of collusion, industry output would be _____ and the price would be _____ than under perfect competition.

Select one:

a.

smaller; lower

b.

smaller; higher

c.

smaller; no different

d.

greater; lower

e.

greater; higher

28. An oligopoly is characterized by:

Select one:

a.

a few firms, which have control over market price.

b.

many firms and some barriers to entry.

c.

a large number of firms and no barriers to entry.

d.

a single firm and no barriers to entry.

e.

a single firm and significant barriers to entry.

29. The demand curve facing a firm is likely to be relatively elastic if:

Select one:

a.

the firm has few competing firms.

b.

the firm sells more differentiated products.

c.

there are many substitutes for its product.

d.

the firm is a price maker.

e.

the firm has control over the supply of a key resource.

30. A payoff matrix is a table listing the expected economic profit resulting from different possible strategies.

Select one:

True

False