micro econ ch 13

The demand curve faced by a monopolistically competitive firm:

Is more elastic than the monopolist’s demand curve

In the long run, the representative firm in monopolistic competition tends to have:

Excess capacity

Which industry would be best characterized as monopolistically competitive?

Web design consulting

A statement of coercion by one firm is:

A credible threat if it is believed by the other firm

Refer to the above table. In the first game

Introducing a new product is the dominant strategy for both firms

In competing with rivals, oligopolistic firms will tend to use:

Advertising because it is less easily duplicated than price cuts

Firms in an industry will not earn long-run economic profits if:

There is free entry and exit of firms in the industry

Which is true of pure competition but not of monopolistic competition?

Long-run equilibrium occurs at the minimum point on the ATC curve

Which constitutes an obstacle to collusion among oligopolists?

A large number of firms

A low concentration ratio means that:

Each firm accounts for a small market share of the industry

In which industry is monopolistic competition most likely to be found?

Retail trade

Monopolistically competitive firms are similar to monopolies in that they have:

Marginal revenues that are less than price

For which market model can we not assume a homogeneous product?

Monopolistic competition

A prediction from the kinked demand curve model of oligopoly is that, for an individual firm, small changes in:

Marginal cost will not lead to changes in price or output

In an oligopoly, producers’ agreements to restrict output tend to be unstable because each firm has an incentive to

Produce more than its output quota

On the above graph, if the oligopolist’s MC curve shifts from MC1 to MC2, the firm will charge:

The same price as before and sell the same amount of output; total revenue will remain the same

In the kinked demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to:

Not change their prices

Refer to the above table. In the second game:

Introducing a new product is the dominant strategy for both firms

In monopolistic competition, if a firm advertises and raises its product, it tends to:

Raise costs and increase demand for its product

The Herfindahl index is a measure of:

Market power in an industry

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:

Make no change in the level of output

Refer to the above graph of a representative firm in monopolistic competition. If curve (2) represents ATC and line (3) represents demand, then we can conclude that the industry:

Is in long-run equilibrium

Refer to the above graph. This monopolistically competitive firm is earning economic profits in the short run and:

Will earn only normal profits in the long run

Collusion among oligopolistic firms

Becomes more difficult if the firms all have different cost and demand curves

Monopolistic competition is characterized by firms

Producing differentiated products

Interindustry competition refers to the fact that:

In some markets the producers of a certain commodity might face competition from products of other industries

The long-run equilibrium position of the monopolistically competitive firm occurs at a point where average costs are:

Decreasing

Price leadership represents a situation where oligopolistic firms:

Tacitly collude

In the long run, a representative firm in a monopolistically competitive industry will end up:

Earning a normal profit, but not an economic profit

A potential negative effect of advertising for society is that it can:

Be self-canceling and contribute to economic inefficiency

The kinked demand model of oligopoly assumes that:

Rivals will ignore price increases but will match price cuts

The economic inefficiency in an oligopoly may be reduced by the following, except:

Aggressive advertising by rivals

In monopolistic competition, a firm has a limited degree of "price-making" ability. This means that the firm will:

Set price above marginal cost

Informal collusion to restrict output and increase prices is sometimes referred to as a:

Tacit understanding

Refer to the above graph for a monopolistically competitive firm. A successful advertising campaign by the firm will cause its demand curve to shift from:

A to B and become less elastic

Refer to the above table. If firm A chooses an international strategy while firm B chooses a national strategy, then the payoffs will be

$15 for firm A and $5 for firm B.

A unique feature of an oligopolistic industry is:

Mutual interdependence

Which statement about oligopoly is false?

Prices in oligopoly are predicted to fluctuate widely and frequently

Mutual interdependence means that each firm in an oligopoly:

Considers the reactions of its rivals when it determines its pricing policy

One shortcoming of the kinked demand curve model of oligopoly is that it does not explain:

How the current price gets determined

Refer to the above table. At the profit-maximizing level of output, marginal revenue is

$4

Refer to the above table. What output quantity will the monopolistically competitive firm produce to maximize profits?

5

The characteristic most closely associated with oligopoly is

A few large producers

Refer to the above table. In the first game:

Introducing a new product is the dominant strategy for both firms

Which statement concerning the kinked demand curve model of oligopoly is false?

It assumes when one oligopolist raises the price, all others will follow.

The strategy of establishing a price that prevents the entry of new firms is called:

Limit pricing

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:

Collusion

Informal collusion to restrict output and increase prices is sometimes referred to as a

Tacit understanding

In the long run, the economic profits for a monopolistically competitive firm will be:

The same as the profits for a purely competitive firm

A strategy that is better than any alternative strategy – regardless of what the other firm does – is called a:

Dominant strategy

Which would be a qualification to the view that oligopoly is allocatively and productively inefficient?

Oligopolies may purposely keep prices below short-run profit-maximizing levels to bolster barriers to entry

Monopolistic competitive firms are productively inefficient because production occurs where:

Average total cost is not at its lowest

Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will:

Attract other firms to enter the industry, causing the existing firms’ profits to shrink

Which of the following statements is true?

Games with a known ending date undermine reciprocity strategies.

A monopolistically competitive industry is like a purely competitive industry in that:

Neither industry has significant barriers to entry

Refer to the above graph. In the short run, this monopolistically competitive firm will set price at:

$65 and produce 35 units of output

In an oligopolistic market there is likely to be:
Neither allocative nor productive efficiency

Neither allocative nor productive efficiency

Which constitutes an obstacle to collusion among oligopolists?

A large number of firms

Refer to the above graph of the representative firm in monopolistic competition. Marginal revenue and marginal cost intersect at point:

a

Refer to the above tables. What output and price levels will maximize the firm’s profit in the short run?

4 units and $40

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 game in which one firm’s gain must equal the other firm’s loss is called a:
Zero-sum game

Zero-sum game

At long-run equilibrium in monopolistic competition, there is:

Neither allocative nor productive efficiency

The economic inefficiency in an oligopoly may be reduced by the following, except:

Aggressive advertising by rivals

One major problem with concentration ratios is that they fail to take into account:

The localized market for products

In some games, one firm may avoid taking advantage of another firm because it knows that the other firm can take advantage of it in subsequent games. This behavior is called:

Reciprocity

In the long run, a representative firm in a monopolistically competitive industry will end up:

Earning a normal profit, but not an economic profit