Question 1

A monopolistically competitive firm is producing an output level where marginal revenue is greater than marginal cost.What should this firm do to increase its profit or reduce its losses?

Accepted Answer

A)   The firm should raise its price.
B)   The firm should decrease its fixed costs.
C)   The firm should increase its implicit costs.
D)   The firm should lower its price.E) All of the above
F) C) and D)

Question 2

What do Sony,Microsoft and Nintendo have in common?

Accepted Answer

A)   Each achieved a dominant position in its industry because it owned a key input in the production of its product.
B)   The industry in which each firm competes is an oligopoly because of government-imposed barriers to entry.
C)   Each company was founded in the same state.
D)   The profitability of each firm depends on its interactions with other firms.E) B) and C)
F) A) and B)

Question 3

A patent is an example of

Accepted Answer

A)   how ownership of a key input creates a barrier to entry.
B)   a government-imposed barrier to entry.
C)   occupational licensing.
D)   how market failure can lead to oligopoly.E) None of the above
F) C) and D)

Question 4

Prisoner's dilemma games imply that cooperative behaviour between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real-world results?

Accepted Answer

A)   Prisoner's dilemma games do not permit people or firms to renege on agreements, which often occurs in real-world situations.
B)   The prisoner's dilemma does not apply to most business situations that are repeated over and over.
C)   Prisoner's dilemma games predict the behaviour of people and firms that engage in illegal activity; most people and firms do not resort to illegal activity.
D)   Most real-world situations involve more than two people or firms; the prisoner's dilemma is only applicable to situations that involve two parties.E) None of the above
F) A) and B)

Question 5

If marginal revenue is negative,then the revenue lost from receiving a lower price on all the units that could have been sold at the original price is smaller than the additional revenue from selling one more unit of the good.

Accepted Answer

A) True 
 B)False

Question 6

An oligopolist's demand curve is

Accepted Answer

A)   identical to that of a perfectly competitive firm.
B)   identical to that of a monopolistically competitive firm.
C)   vertical on a price-quantity diagram.
D)   unknown because a response of firms to price changes by rivals is uncertain.E) None of the above
F) B) and C)

Question 7

What is the dominant strategy in a second-price auction?

Accepted Answer

A)   Bidding below one's true value.
B)   Bidding above one's true value.
C)   Bidding one's true value.
D)   There is no dominant strategy.E) A) and B)
F) A) and C)

Question 8

All of the following are examples of oligopolistic markets except

Accepted Answer

A)   the broadcasting industry
B)   aircraft manufacture
C)   university bookstores
D)   seafood restaurant chainsE) All of the above
F) C) and D)

Question 9

Which of the following is true for a monopolistically competitive firm in long-run equilibrium?

Accepted Answer

A)   P = ATC and MR = MC.
B)   P = ATC and P = MC.
C)   P > ATC and P > MR.
D)   P > MR and MC = ATC.E) None of the above
F) A) and B)

Question 10

What is the prisoners' dilemma?

Accepted Answer

A)   A game that involves no dominant strategies.
B)   A game in which prisoners are stumped because they cannot communicate with each other.
C)   A game in which players act in rational, self-interested ways that leave everyone worse off.
D)   A game in which players collude to outfox the authorities.E) B) and D)
F) A) and B)

Question 11

Excess capacity is a characteristic of monopolistically competitive firms.What does excess capacity mean?

Accepted Answer

A)   It means that firms do not produce the output level that corresponds to the minimum point on their average total cost curves.
B)   It means that firms hire more than the minimum number of workers needed to produce the profit-maximising level of output.
C)   It means that firms produce with inefficient combinations of resources.
D)   It means that firms build plants that are not large enough to achieve minimum efficient scale.E) B) and C)
F) All of the above

Question 12

Economists agree that a monopolistically competitive market structure

Accepted Answer

A)   lowers consumer utility because consumers pay a price higher than the marginal cost of production.
B)   is detrimental to society because it leads to a waste of scarce resources.
C)   benefits consumers because firms produce products that appeal to a wide range of consumer tastes.
D)   can eliminate any excess capacity if all firms in the industry devote more funds to differentiating their products.E) B) and D)
F) B) and C)

Question 13

In the long-run equilibrium,a monopolistically competitive firm earning normal profit produces the allocatively efficient output level.

Accepted Answer

A) True 
 B)False

Question 14

Figure 9-17 
-Refer to Figure 9-17.In the long run,why will the firm produce Qf units and not Qg units,which has a lower average cost of production?

Accepted Answer

A)   Although its average cost of production is lower when the firm produces Qg units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss.
B)   At Qg, average cost exceeds marginal cost so the firm will actually incur a loss.
C)   At Qg, marginal revenue is less than average revenue, which will result in a loss for the firm.
D)   The firm's goal is to charge a high price and make a small profit rather than charge a low price and make no profit.E) A) and C)
F) A) and B)

Question 15

An example of a barrier to entry is

Accepted Answer

A)   product differentiation.
B)   high profits.
C)   superior technological knowledge.
D)   increasing marginal costsE) None of the above
F) A) and B)

Question 16

In the long-run equilibrium,both the perfectly competitive firm and the monopolistically competitive firm produce the output at which MR = MC and charge a price equal to the average total cost of production.

Accepted Answer

A) True 
 B)False

Question 17

Table 9-1
 
-Refer to Table 9-1.What is the marginal revenue of the 3rd unit?

Accepted Answer

A)   $6.50
B)   $5.50
C)   $1.83
D)   $0.50E) None of the above
F) All of the above

Question 18

When a firm faces a downward-sloping demand curve,marginal revenue

Accepted Answer

A)   must exceed price because the price effect outweighs the output effect.
B)   is less than price because a firm must lower its price to sell more.
C)   equals price because the firm sells a standardised product.
D)   must exceed price because the output effect outweighs the price effect.E) C) and D)
F) A) and B)

Question 19

Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6000 units of output.In this case,this industry would be

Accepted Answer

A)   perfectly competitive if the market quantity demanded is 20 000 units.
B)   monopolistically competitive if the market quantity demanded is 12 000 units.
C)   an oligopoly if the market quantity demanded is 18 000 units.
D)   an oligopoly if the four-firm concentration ratio is more than 10 per cent.E) None of the above
F) B) and C)

Question 20

Figure 9-3 
-Refer to Figure 9-3.What is the marginal revenue of the 6th unit of output?

Accepted Answer

A)   $4
B)   $5
C)   $9
D)   $54E) A) and D)
F) A) and C)

Exam 9: Firms in Perfectly Competitive Markets

When a firm faces a downward-sloping demand curve,marginal revenue

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Figure 9-17 -Refer to Figure 9-17.In the long run,why will the firm produce Qf units and not Qg units,which has a lower average cost of production?

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Excess capacity is a characteristic of monopolistically competitive firms.What does excess capacity mean?

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Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6000 units of output.In this case,this industry would be

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What do Sony,Microsoft and Nintendo have in common?

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An example of a barrier to entry is

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What is the prisoners' dilemma?

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A monopolistically competitive firm is producing an output level where marginal revenue is greater than marginal cost.What should this firm do to increase its profit or reduce its losses?

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Which of the following is true for a monopolistically competitive firm in long-run equilibrium?

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Economists agree that a monopolistically competitive market structure

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A patent is an example of

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In the long-run equilibrium,both the perfectly competitive firm and the monopolistically competitive firm produce the output at which MR = MC and charge a price equal to the average total cost of production.

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If marginal revenue is negative,then the revenue lost from receiving a lower price on all the units that could have been sold at the original price is smaller than the additional revenue from selling one more unit of the good.

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An oligopolist's demand curve is

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All of the following are examples of oligopolistic markets except

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Figure 9-3 -Refer to Figure 9-3.What is the marginal revenue of the 6th unit of output?

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What is the dominant strategy in a second-price auction?

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In the long-run equilibrium,a monopolistically competitive firm earning normal profit produces the allocatively efficient output level.

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Table 9-1 -Refer to Table 9-1.What is the marginal revenue of the 3rd unit?

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Prisoner's dilemma games imply that cooperative behaviour between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real-world results?

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