Question 1

Under oligopoly,a kinked-demand curve would explain why firms:

Accepted Answer

A)   avoid price wars.
B)   undertake new investment.
C)   have different levels of efficiency.
D)   are approximately the same size.

Question 2

Which assumption is part of the model of monopolistic competition?

Accepted Answer

A)   Firms make identical products.
B)   There is no collusion among firms.
C)   There are significant barriers to entry into the market.
D)   There are few buyers and sellers.

Question 3

An oligopolistic firm finds that marginal revenue can range from $10 to $25 at an output level of 2500 units.This information would suggest that the oligopolistic model for this industry is most likely one of:

Accepted Answer

A)   collusive pricing.
B)   price leadership.
C)   cost-plus pricing.
D)   kinked demand.

Question 4

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

Accepted Answer

A)   excess capacity.
B)   economic profits.
C)   limited product differentiation.
D)   a perfectly elastic demand curve.

Question 5

The monopolistically competitive seller's demand curve will become more elastic the:

Accepted Answer

A)   larger the number of competitors.
B)   greater the degree of product differentiation.
C)   more significant the barriers to entry.
D)   smaller the number of competitors.

Question 6

Why do oligopolists use product development and advertising?

Accepted Answer

A)   They are less easily duplicated than price cuts as a competitive strategy.
B)   They enhance the public good by providing information and new products.
C)   They contribute to productive and allocative efficiency in markets.
D)   They create conditions for mutual interdependence and support.

Question 7

Because monopolistically competitive firms cannot earn long-run economic profits,they do not have any degree of monopoly power.

Accepted Answer

A) True 
 B)False

Question 8

In the kinked-demand curve model,the firm's marginal revenue curve and demand curve are identical.

Accepted Answer

A) True 
 B)False

Question 9

Compared to a purely competitive firm in long-run equilibrium,the monopolistic competitor has a:

Accepted Answer

A)   lower price and lower output.
B)   higher price and lower output.
C)   higher price and higher output.
D)   price and output that may be higher or lower.

Question 10

If monopolistically competitive firms in an industry are making an economic profit,then:

Accepted Answer

A)   new firms will enter the industry and product demand will increase for the existing firms.
B)   firms will exit the industry and product demand will decrease for the firms that remain.
C)   firms will exit the industry and product demand will increase for the firms that remain.
D)   new firms will enter the industry and product demand will decrease for the existing firms.

Question 11

Answer the next question based on the following payoff matrix for a duopoly.The numbers indicate the profit in thousands of dollars for a high-price or a low-price strategy  Refer to the above payoff matrix.If both firms collude to maximize joint profits,the total profits for the two firms will be:

Accepted Answer

A)   $800,000.
B)   $1,200,000.
C)   $1,250,000.
D)   $1,400,000.

Question 12

Which would be most characteristic of oligopoly?

Accepted Answer

A)   Easy entry into the industry
B)   Many large producers
C)   Product standardization
D)   Mutual interdependence

Question 13

Mutual interdependence means that each firm in an oligopolistic industry:

Accepted Answer

A)   faces a perfectly inelastic demand for its product.
B)   considers the reactions of its rivals when it determines its price policy.
C)   makes a product identical to those produced by its rivals.
D)   makes a product similar but not identical to those produced by its rivals.

Question 14

In long-run equilibrium in a monopolistically competitive industry:

Accepted Answer

A)   P = minimum AC.
B)   P > minimum AC.
C)   P = MC.
D)   P < MC.

Question 15

Which is an example of a differentiated oligopoly?

Accepted Answer

A)   The beer industry
B)   The primary aluminum industry
C)   The polyester fiber industry
D)   The cement industry

Question 16

A major difference between pure competition and monopolistic competition is that under pure competition:

Accepted Answer

A)   individual firms have more elastic demand curves.
B)   the market demand curve is less elastic.
C)   there are a smaller number of producers.
D)   there are barriers to entry.

Question 17

In which market model is there mutual interdependence?

Accepted Answer

A)   Monopolistic competition
B)   Pure competition
C)   Pure monopoly
D)   Oligopoly

Question 18

Refer to the above graph.A monopolistically competitive firm was initially successful,but then its rivals started an advertising campaign that undercut its market position.This situation would cause the demand curve for the monopolistically competitive firm to shift from:

Accepted Answer

A)   A to B and become more elastic.
B)   A to B and become less elastic.
C)   B to A and become more elastic.
D)   B to A and become less elastic.

Question 19

Demand and marginal revenue curves are downward sloping for monopolistically competitive firms because:

Accepted Answer

A)   there is free entry and exit.
B)   product differentiation allows each firm some degree of monopoly power.
C)   there are a few large firms in the industry and each acts as a monopolist.
D)   mutual interdependence among all firms in the industry leads to collusion.

Question 20

The kinked-demand curve is based upon the assumption that an oligopolist's rivals will:

Accepted Answer

A)   ignore a price cut but follow a price increase.
B)   follow both a price cut and a price increase.
C)   ignore both a price cut and a price increase.
D)   follow a price cut,but ignore a price increase.

Exam 9: Monopolistic Competition and Oligopoly

The kinked-demand curve is based upon the assumption that an oligopolist's rivals will:

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A major difference between pure competition and monopolistic competition is that under pure competition:

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If monopolistically competitive firms in an industry are making an economic profit,then:

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In the kinked-demand curve model,the firm's marginal revenue curve and demand curve are identical.

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Compared to a purely competitive firm in long-run equilibrium,the monopolistic competitor has a:

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Under oligopoly,a kinked-demand curve would explain why firms:

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Mutual interdependence means that each firm in an oligopolistic industry:

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Answer the next question based on the following payoff matrix for a duopoly.The numbers indicate the profit in thousands of dollars for a high-price or a low-price strategy Refer to the above payoff matrix.If both firms collude to maximize joint profits,the total profits for the two firms will be:

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Which would be most characteristic of oligopoly?

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In which market model is there mutual interdependence?

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An oligopolistic firm finds that marginal revenue can range from $10 to $25 at an output level of 2500 units.This information would suggest that the oligopolistic model for this industry is most likely one of:

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Which assumption is part of the model of monopolistic competition?

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In long-run equilibrium in a monopolistically competitive industry:

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Which is an example of a differentiated oligopoly?

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

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The monopolistically competitive seller's demand curve will become more elastic the:

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Demand and marginal revenue curves are downward sloping for monopolistically competitive firms because:

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Why do oligopolists use product development and advertising?

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Refer to the above graph.A monopolistically competitive firm was initially successful,but then its rivals started an advertising campaign that undercut its market position.This situation would cause the demand curve for the monopolistically competitive firm to shift from:

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Because monopolistically competitive firms cannot earn long-run economic profits,they do not have any degree of monopoly power.

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