Question 1

A picture frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. From this we can tell:

Accepted Answer

A)   this firm is making a normal profit.
B)   other picture-frame companies will want to exit the market.
C)   there are no other picture-frame companies in the area.
D)   economic profits are $1500.
E)   total profits are being maximised.

Question 2

A kinked demand curve reflects a tendency on the part of an oligopolist to do which of the following?

Accepted Answer

A)   Follow price increases but not price reductions.
B)   Follow price reductions but not price increases.
C)   Be unconcerned with rivals' behaviour.
D)   None of the above.

Question 3

Both homogeneous and differentiated product can be found in which market?

Accepted Answer

A)   Perfect competition.
B)   Oligopoly.
C)   Monopolistic competition.
D)   Monopoly.

Question 4

A major characteristic of the theory of oligopoly is:

Accepted Answer

A)   that there are no real-world examples.
B)   that the firms are interdependent in their decisions.
C)   that, in reality, few oligopolies survive more than 10 years.
D)   that the firms are independent in their decisions.

Question 5

A monopolistically competitive market is characterised by:

Accepted Answer

A)   many firms and consumers with differentiated products.
B)   a single seller of a product that has few suitable substitutes.
C)   very strong barriers to entry.
D)   mutual interdependence in pricing decisions.

Question 6

Narrbegin Exhibit 9.1 A monopolistic competitive firm  
-As presented in Exhibit 9.1, the short-run profit per unit of output for the monopolistically competitive firm is:

Accepted Answer

A)   zero.
B)   $5.
C)   $10.
D)   $15.

Question 7

The short-run equilibrium for a monopolistically competitive firm is at P = $28.47, ATC = $22.13 and MC = MR = $17.47. Which of the following is true?

Accepted Answer

A)   Per-unit profit is $11.
B)   Additional firms will be attracted into the industry.
C)   The firm could raise price and increase profits.
D)   The firm could lower price and increase profits. B

Question 8

In monopolistic competition, profit:

Accepted Answer

A)   is proof that advertising works.
B)   motivates existing firms to increase prices.
C)   signals for new firms to enter.
D)   provides a motive for existing firms to decrease prices. C

Question 9

It is difficult to talk conclusively about the allocation of resources in an oligopoly because:

Accepted Answer

A)   entry is impossible in oligopolies.
B)   both price and output can be higher in oligopolies than in perfect competition.
C)   the level of competition varies greatly in oligopolistic markets.
D)   non-price competition is rare in an oligopoly.

Question 10

The oligopoly market structure does not have which of the following characteristics?

Accepted Answer

A)   Few sellers.
B)   Homogeneous product.
C)   Differentiated product.
D)   Many small sellers.

Question 11

Mutual interdependence means that:

Accepted Answer

A)   firms always work together in an oligopoly.
B)   firms need the help of other firms to make an economic profit.
C)   firms in an oligopoly must consider the actions of the other firms when making strategic decisions.
D)   collusion always occurs in an oligopoly. C

Question 12

Compared to monopoly, the market results with monopolistic competition are usually expected to be:

Accepted Answer

A)   worse because consumers get fewer choices.
B)   worse because consumers pay a higher price.
C)   the same.
D)   better because consumers pay a lower price.

Question 13

Oligopoly is a market structure characterised by:

Accepted Answer

A)   barriers to enter and mutual interdependence.
B)   barriers to exit and independent pricing decisions.
C)   lack of control over prices.
D)   a differentiated product and independent decisions.

Question 14

Costume jewellery is produced in a monopolistically competitive market. One producer finds that MR = MC = $3 when output is 700 necklaces. An economist studying this information can conclude that:

Accepted Answer

A)   the producer is charging a price of $3.
B)   economic profit is $2100.
C)   the producer charges a price greater than $3.
D)   new firms will want to enter.

Question 15

Firms in monopolistic competition are price takers.

Accepted Answer

A) True 
 B)False

Question 16

The model of monopolistic competition is:

Accepted Answer

A)   a combination of monopoly and competition.
B)   the same as a model of monopoly.
C)   the same as a model of perfect competition.
D)   unlike other models.

Question 17

The monopolistic competition market structure is characterised by:

Accepted Answer

A)   many small firms and an easy market entry and exit.
B)   many firms and consumers with differentiated products.
C)   many small firms and a homogeneous product.
D)   few firms and a homogeneous product.

Question 18

A kinked demand curve is perceived by the firm as being:

Accepted Answer

A)   more elastic to the right of the kink.
B)   more inelastic to the right of the kink.
C)   more inelastic to the left of the kink.
D)   present when there is a monopoly.

Question 19

Product differentiation:

Accepted Answer

A)   refers to the attempt by firms to make their products look like those of the other firms in the industry.
B)   refers to the attempt by firms to make essentially substitutable products look different in the minds of the consumers.
C)   refers to the advantage big firms have in research and development.
D)   is a common characteristic of a perfectly competitive market structure.

Question 20

In the long run in monopolistic competition:

Accepted Answer

A)   economic profits are zero.
B)   P = MC.
C)   P = minimum ATC.
D)   firms have an incentive to leave.

Exam 10: Monopolistic Competition and Oligopoly

A picture frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. From this we can tell:

Correct AnswerverifiedShow Answer

A kinked demand curve reflects a tendency on the part of an oligopolist to do which of the following?

Correct AnswerverifiedShow Answer

Both homogeneous and differentiated product can be found in which market?

Correct AnswerverifiedShow Answer

A major characteristic of the theory of oligopoly is:

Correct AnswerverifiedShow Answer

A monopolistically competitive market is characterised by:

Correct AnswerverifiedShow Answer

Narrbegin Exhibit 9.1 A monopolistic competitive firm -As presented in Exhibit 9.1, the short-run profit per unit of output for the monopolistically competitive firm is:

Correct AnswerverifiedShow Answer

The short-run equilibrium for a monopolistically competitive firm is at P = $28.47, ATC = $22.13 and MC = MR = $17.47. Which of the following is true?

Correct AnswerverifiedB

In monopolistic competition, profit:

Correct AnswerverifiedC

It is difficult to talk conclusively about the allocation of resources in an oligopoly because:

Correct AnswerverifiedShow Answer

The oligopoly market structure does not have which of the following characteristics?

Correct AnswerverifiedShow Answer

Mutual interdependence means that:

Correct AnswerverifiedC

Compared to monopoly, the market results with monopolistic competition are usually expected to be:

Correct AnswerverifiedShow Answer

Oligopoly is a market structure characterised by:

Correct AnswerverifiedShow Answer

Costume jewellery is produced in a monopolistically competitive market. One producer finds that MR = MC = $3 when output is 700 necklaces. An economist studying this information can conclude that:

Correct AnswerverifiedShow Answer

Firms in monopolistic competition are price takers.

Correct AnswerverifiedShow Answer

The model of monopolistic competition is:

Correct AnswerverifiedShow Answer

The monopolistic competition market structure is characterised by:

Correct AnswerverifiedShow Answer

A kinked demand curve is perceived by the firm as being:

Correct AnswerverifiedShow Answer

Product differentiation:

Correct AnswerverifiedShow Answer

In the long run in monopolistic competition:

Correct AnswerverifiedShow Answer

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C

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