Question 1

Oligopolies are mutually interdependent because an action by one firm may cause a reaction on the part of other firms.

Accepted Answer

A) True 
 B)False

Question 2

Suppose an oil cartel has an agreement to restrict members' production in order to maintain a price of $40 per barrel.A single cartel member may want to cheat and exceed its quota so that it can:

Accepted Answer

A)  reduce its costs.
B)  charge higher prices.
C)  make demand more inelastic.
D)  earn a bigger profit.
E)  become a monopolist.F) B) and D)
G) None of the above

Question 3

A characteristic of monopolistic competition is that:

Accepted Answer

A)  there are many large firms in the industry.
B)  firms produce a homogeneous product.
C)  there are few firms in the industry.
D)  firms are price makers.E) A) and D)
F) All of the above

Question 4

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.
E)  this producer should produce more than 700 necklaces.F) A) and E)
G) None of the above

Question 5

Which of the following statements is always true with respect to oligopolists?

Accepted Answer

A)  They react slowly to actions taken by other firms.
B)  They lower prices together.
C)  They raise prices together.
D)  They know with certainty what the other firms will do.
E)  They take into consideration how other firms might react.F) C) and D)
G) A) and D) E

Question 6

Pricing and output determination under an oligopoly is more complicated than pricing and output determinations in other industries.The primary reason for the complication is the:

Accepted Answer

A)  small number of firms.
B)  brand loyalty of consumers.
C)  powerful effect of advertising.
D)  variability of concentration ratios.
E)  mutual interdependence of firms.F) All of the above
G) A) and D)

Question 7

An increase in marginal cost that remains within the gap of the marginal revenue curve of a kinked demand oligopolist will:

Accepted Answer

A)  keep price and output the same.
B)  raise price and decrease output.
C)  lower price and increase output.
D)  raise price and raise output.
E)  lower price and lower output.F) A) and D)
G) B) and E)

Question 8

A monopolistically competitive market is characterised by:

Accepted Answer

A)  many small sellers selling a differentiated product.
B)  a single seller of a product that has few suitable substitutes.
C)  very strong barriers to entry.
D)  mutual interdependence in pricing decisions.E) A) and B)
F) C) and D)

Question 9

In the long run,the economic profits of Hoot's Chicken'n'Ribs,a monopolistic competitor,are:

Accepted Answer

A)  not eliminated, because competition is not perfect.
B)  not eliminated, because the demand curve slopes downward.
C)  eliminated due to firms entering the industry.
D)  eliminated due to firms leaving the industry.
E)  not eliminated, because firms cannot enter the industry.F) A) and D)
G) A) and C)

Question 10

In monopolistic competition,ease of entry and exit means:

Accepted Answer

A)  it is easy to make a profit.
B)  it is free.
C)  eventually the industry resembles a perfectly competitive market.
D)  there are no extraordinary barriers to entry as there are in monopoly.E) B) and D)
F) None of the above

Question 11

Which of the following statements is true:

Accepted Answer

A)  The analysis of monopolistic competition in the short run is the same as monopoly.
B)  The analysis of monopolistic competition in the short run is like monopoly but with entry and exit in the long run.
C)  Monopolistically competitive firms produce more than competitive firms.
D)  Monopolistically competitive firms charge prices lower than competitive firms.E) C) and D)
F) A) and C) B

Question 12

A monopolistically competitive firm is a resource misallocator because:

Accepted Answer

A)  the firm is not maximising its profit.
B)  the firm is producing too little output at inflated prices.
C)  the firm earns positive economic profit in the long run.
D)  the firm passes the standard efficiency test.E) A) and B)
F) A) and C)

Question 13

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.E) None of the above
F) B) and C)

Question 14

Monopolistic competition involves many firms producing homogeneous product.

Accepted Answer

A) True 
 B)False

Question 15

Homogeneous product and a large number of sellers are all characteristics of:

Accepted Answer

A)  oligopolies.
B)  monopolistic competition.
C)  monopolies.
D)  perfect competition.E) C) and D)
F) B) and C)

Question 16

The key difference(s) between perfect competition and monopolistic competition is:

Accepted Answer

A)  that a monopolistically competitive firm is a price taker, whereas a perfectly competitive firm is a price maker.
B)  that a monopolistically competitive firm is a price maker, the same as a perfectly competitive firm is a price maker.
C)  that a monopolistically competitive firm can raise its price and still retain some customers.
D)  that if a monopolistically competitive firm raises its price it will lose all customers..E) B) and D)
F) B) and C)

Question 17

Cartel members have an incentive to cheat on the cartel because:

Accepted Answer

A)  the cartel does not maximise profits.
B)  the cartel price is the competitive price.
C)  each member's output quota is too high.
D)  each members MR is not equal to the cartel's MC.
E)  the industry profit would be higher under competitive conditions.F) A) and E)
G) A) and D)

Question 18

It is more difficult to evaluate oligopoly than other market structures because:

Accepted Answer

A)  it was not studied long enough.
B)  an oligopolist can only set the price but not the quantity of their product.
C)  an oligopolist can change the fixed inputs in the short run.
D)  an oligopolist can behave like a competitor and like a monopoly.E) None of the above
F) All of the above

Question 19

Monopolistic competition has the following characteristics:

Accepted Answer

A)  one large buyer.
B)  many small sellers.
C)  a homogeneous product.
D)  difficult entry and exit.E) C) and D)
F) All of the above B

Question 20

The oligopoly market can be examined by using:

Accepted Answer

A)  game theory.
B)  competitive market models.
C)  monopoly models.
D)  only monopoly but not competitive models.E) None of the above
F) A) and B)

Exam 9: Monopolistic competition and oligopoly

Oligopolies are mutually interdependent because an action by one firm may cause a reaction on the part of other firms.

Correct AnswerverifiedShow Answer

Suppose an oil cartel has an agreement to restrict members' production in order to maintain a price of $40 per barrel.A single cartel member may want to cheat and exceed its quota so that it can:

Correct AnswerverifiedShow Answer

A characteristic of monopolistic competition is that:

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

Which of the following statements is always true with respect to oligopolists?

Correct AnswerverifiedE

Pricing and output determination under an oligopoly is more complicated than pricing and output determinations in other industries.The primary reason for the complication is the:

Correct AnswerverifiedShow Answer

An increase in marginal cost that remains within the gap of the marginal revenue curve of a kinked demand oligopolist will:

Correct AnswerverifiedShow Answer

A monopolistically competitive market is characterised by:

Correct AnswerverifiedShow Answer

In the long run,the economic profits of Hoot's Chicken'n'Ribs,a monopolistic competitor,are:

Correct AnswerverifiedShow Answer

In monopolistic competition,ease of entry and exit means:

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Which of the following statements is true:

Correct AnswerverifiedB

A monopolistically competitive firm is a resource misallocator because:

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Mutual interdependence means that:

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Monopolistic competition involves many firms producing homogeneous product.

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Homogeneous product and a large number of sellers are all characteristics of:

Correct AnswerverifiedShow Answer

The key difference(s) between perfect competition and monopolistic competition is:

Correct AnswerverifiedShow Answer

Cartel members have an incentive to cheat on the cartel because:

Correct AnswerverifiedShow Answer

It is more difficult to evaluate oligopoly than other market structures because:

Correct AnswerverifiedShow Answer

Monopolistic competition has the following characteristics:

Correct AnswerverifiedB

The oligopoly market can be examined by using:

Correct AnswerverifiedShow Answer

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E

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B

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B

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