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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?
  1. Ease of entry and exit
  2. Differentiated products
  3. Existence of large economies of scale
  4. Nonprice competition
  5. Advertising
Question 2 (1 point)
Anytime firms in monopolistic competition are earning above-normal profit,
  1. they can maintain those levels indefinitely
  2. their cost structure automatically shifts up, eliminating the additional profit
  3. new firms have no incentive to enter the market
  4. new firms have incentive to enter the market, but are legally barred from doing so
  5. new firms enter the market, and entry continues until firms are earning normal profit
Question 3 (1 point)
Maximize Profit
Consider the monopolistically competitive firm described in the figure above. The profit-maximizing output level and price are, respectively,
  1. J and B
  2. N and P
  3. L and D
  4. F and E
  5. F and A
Question 4 (1 point)
A monopolistically competitive firm cannot
  1. earn economic profits in the short run
  2. earn a normal profit in the long run
  3. incur losses in the short run
  4. earn a positive profit in the long run
  5. earn zero profits in the short run
Question 5 (1 point)
Monopolistic Competition
If the figure above shows a monopolistically competitive firm, then
  1. P < ATC at the profit-maximizing level of output
  2. in the long run, the demand curve for the individual firm will increase
  3. the firm is earning economic losses
  4. in the long run, firms will exit the market
  5. All of these
Question 6 (1 point)
The economic efficiency that does not occur in monopolistic competition is due to which of the following?
  1. Consumer desires
  2. Competition
  3. The firm's inability to restrict quantity and increase price
  4. The production of identical products
  5. Zero economic profits
Question 7 (1 point)
The text argues that a result of monopolistic competition is
  1. consumers pay higher prices than in perfect competition in return for a greater variety of products
  2. zero economic profits in the short run
  3. firms are economically efficient
  4. from a social viewpoint, monopolistic competition is better than perfect competition
  5. None of these
Question 8 (1 point)
A firm using advertising differs from a firm not using advertising in that the firm using advertising
  1. will always obtain lower ATC
  2. may find that advertising results in higher ATC
  3. will have a demand curve that must shift to the right
  4. will always be able to obtain an increase in output
  5. will give complete and accurate information to consumers
Question 9 (1 point)
Which of the following is not an example of non-price competition?
  1. Mountain Dew sells "Livewire" orange soda in the summer of 2003
  2. Kelloggs introduces Froot Loops with LemonBerry Swirls
  3. Honda produces a hybrid version of its Civic
  4. Nissan lowers the interest rate charged for new automobile financing
  5. 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,
  1. guarantees can help to increase consumer confidence in a product
  2. brand names provide valuable information to consumers about the quality of products
  3. gaining information about products itself may be costly
  4. firms often provide information through marketing
  5. All of these
Question 11 (1 point)
What characteristic is unique to oligopolistic firms?
  1. Interdependence of firms
  2. Economic profits can exist in the short run
  3. Economic profits can exist in the long run
  4. Barriers to entry in the market
  5. Homogeneous products
Question 12 (1 point)
Strategic behavior occurs in a market when
  1. the market is a monopoly
  2. what is best for A depends on what B does and vice versa
  3. the market is perfectly competitive
  4. there are many firms with differentiated products
  5. All of these
Question 13 (1 point)
Price vs Quantity
Which of the following statements about the figure above is not true?
  1. With MC 3 the profit-maximizing output is Q 1
  2. This diagram assumes that a change in price will be followed by a decrease in total revenue
  3. An increase of price above P 1 will immediately be followed by all competitors
  4. With MC 1 the profit-maximizing output is Q 2
  5. The price of this product is likely to be stable around P 1
Question 14 (1 point)
Which of the following is an example of a prisoner's dilemma?
  1. Suburban housewives buying SUVs to feel safer, although they would be just as safe if everybody agreed to drive smaller cars
  2. Cartel cheating
  3. The Cold War arms race between the Soviet Union and the United States
  4. Negative political advertising campaigns
  5. All of these
Question 15 (1 point)
A price-leadership oligopoly is one where
  1. a dominant firm in the market sets the price and other firms follow
  2. small market participants have a strong influence over price
  3. there is a large kink in the demand curve
  4. a prisoner's dilemma exists
  5. all firms face downward-sloping demand curves
Question 16 (1 point)
When firms in an industry jointly make pricing and output decisions, they are
  1. regulating
  2. arbitrating
  3. colluding
  4. trying to irritate the government
  5. dumping
Question 17 (1 point)
A cartel will be more stable as
  1. barriers to entry in the market decline
  2. the number of firms increases
  3. the product becomes more differentiated
  4. the ability of the cartel to enforce agreements increases
  5. All of these
Question 18 (1 point)
When firms use cost-plus pricing in a market,
  1. each firm will never maximize profit
  2. prices of different firms will diverge wildly
  3. each firm determines its price based on other firms' costs
  4. each will only sell to its most-favored customer
  5. 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?
  1. Monopolistic competition only
  2. Both perfect competition and monopolistic competition
  3. Oligopoly only
  4. Monopoly only
  5. Perfect competition only
Question 20 (1 point)
In which market structure model is product differentiation a significant feature?
  1. In monopoly
  2. In oligopoly
  3. In perfect competition
  4. In both perfect competition and monopolistic competition
  5. 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. (2009, January 27). Assignment 9. Retrieved January 07, 2011, from Free Online Course Materials — USU OpenCourseWare Web site: This work is licensed under a Creative Commons License Creative Commons License