Assignment 9

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Question 1 (1 point)

Which of the following is not a characteristic of firms in a monopolistically competitive market?

Ease of entry and exit
Differentiated products
Existence of large economies of scale
Nonprice competition
Advertising

Question 2 (1 point)

Anytime firms in monopolistic competition are earning above-normal profit,

they can maintain those levels indefinitely
their cost structure automatically shifts up, eliminating the additional profit
new firms have no incentive to enter the market
new firms have incentive to enter the market, but are legally barred from doing so
new firms enter the market, and entry continues until firms are earning normal profit

Question 3 (1 point)

Consider the monopolistically competitive firm described in the figure above. The profit-maximizing output level and price are, respectively,

J and B
N and P
L and D
F and E
F and A

Question 4 (1 point)

A monopolistically competitive firm cannot

earn economic profits in the short run
earn a normal profit in the long run
incur losses in the short run
earn a positive profit in the long run
earn zero profits in the short run

Question 5 (1 point)

If the figure above shows a monopolistically competitive firm, then

P < ATC at the profit-maximizing level of output
in the long run, the demand curve for the individual firm will increase
the firm is earning economic losses
in the long run, firms will exit the market
All of these

Question 6 (1 point)

The economic efficiency that does not occur in monopolistic competition is due to which of the following?

Consumer desires
Competition
The firm's inability to restrict quantity and increase price
The production of identical products
Zero economic profits

Question 7 (1 point)

The text argues that a result of monopolistic competition is

consumers pay higher prices than in perfect competition in return for a greater variety of products
zero economic profits in the short run
firms are economically efficient
from a social viewpoint, monopolistic competition is better than perfect competition
None of these

Question 8 (1 point)

A firm using advertising differs from a firm not using advertising in that the firm using advertising

will always obtain lower ATC
may find that advertising results in higher ATC
will have a demand curve that must shift to the right
will always be able to obtain an increase in output
will give complete and accurate information to consumers

Question 9 (1 point)

Which of the following is not an example of non-price competition?

Mountain Dew sells "Livewire" orange soda in the summer of 2003
Kelloggs introduces Froot Loops with LemonBerry Swirls
Honda produces a hybrid version of its Civic
Nissan lowers the interest rate charged for new automobile financing
Sterling Planet provides consumers the opportunity to purchase renewable electricity in upstate New York

Question 10 (1 point)

Because consumers often possess incomplete information in markets,

guarantees can help to increase consumer confidence in a product
brand names provide valuable information to consumers about the quality of products
gaining information about products itself may be costly
firms often provide information through marketing
All of these

Question 11 (1 point)

What characteristic is unique to oligopolistic firms?

Interdependence of firms
Economic profits can exist in the short run
Economic profits can exist in the long run
Barriers to entry in the market
Homogeneous products

Question 12 (1 point)

Strategic behavior occurs in a market when

the market is a monopoly
what is best for A depends on what B does and vice versa
the market is perfectly competitive
there are many firms with differentiated products
All of these

Question 13 (1 point)

Which of the following statements about the figure above is not true?

With MC₃ the profit-maximizing output is Q₁
This diagram assumes that a change in price will be followed by a decrease in total revenue
An increase of price above P₁ will immediately be followed by all competitors
With MC₁ the profit-maximizing output is Q₂
The price of this product is likely to be stable around P₁

Question 14 (1 point)

Which of the following is an example of a prisoner's dilemma?

Suburban housewives buying SUVs to feel safer, although they would be just as safe if everybody agreed to drive smaller cars
Cartel cheating
The Cold War arms race between the Soviet Union and the United States
Negative political advertising campaigns
All of these

Question 15 (1 point)

A price-leadership oligopoly is one where

a dominant firm in the market sets the price and other firms follow
small market participants have a strong influence over price
there is a large kink in the demand curve
a prisoner's dilemma exists
all firms face downward-sloping demand curves

Question 16 (1 point)

When firms in an industry jointly make pricing and output decisions, they are

regulating
arbitrating
colluding
trying to irritate the government
dumping

Question 17 (1 point)

A cartel will be more stable as

barriers to entry in the market decline
the number of firms increases
the product becomes more differentiated
the ability of the cartel to enforce agreements increases
All of these

Question 18 (1 point)

When firms use cost-plus pricing in a market,

each firm will never maximize profit
prices of different firms will diverge wildly
each firm determines its price based on other firms' costs
each will only sell to its most-favored customer
it may appear as though firms are colluding in price when they actually are not

Question 19 (1 point)

In which market structure model does entry and exit of firms drive long run economic profits to zero?

Monopolistic competition only
Both perfect competition and monopolistic competition
Oligopoly only
Monopoly only
Perfect competition only

Question 20 (1 point)

In which market structure model is product differentiation a significant feature?

In monopoly
In oligopoly
In perfect competition
In both perfect competition and monopolistic competition
In monopolistic competition

Question 1 (5.00 points)

List and briefly explain four of the theories of oligopolistic behavior.

Question 2 (5.00 points)

Why might some people claim that the breakfast cereal industry is monopolistically competitive but the automobile industry is an oligopoly? In both cases, about eight to ten firms dominate the industry.

Copyright 2008, by the Contributing Authors. Cite/attribute Resource. admin. (2006, July 03). Assignment 9. Retrieved August 30, 2008, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/Economics/Introduction_to_Microeconomics/assignment9.htm. This work is licensed under a Creative Commons License.

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