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Week 7 Quiz Review
Test Description: This review covers the information from Chapter 9 on Oligopolies and Monopolistically Competitive firms. It should help prepare you for this week's quiz.
Instructions: Answer all questions to get your test result.
1) Members in a cartel have a strong incentive to cheat because
A
MR may be greater than MC at the profit-maximizing price set by the cartel.
B
Cartels are not regulated well by the government, especially world-wide cartels.
C
Each firm can increase their sales by dropping the price which increases their profits if they cheat.
D
They face the same costs of production but different demands for their products.
2) Cartels form because:
A
Each producer will gain a larger market share.
B
The elasticity of demand for the product will decrease if a cartel is formed.
C
It will decrease the costs of production
D
Joint profits can be maximized by a cartel.
3) If two oligopolistic firms facing similar cost and demand conditions collude successfully, the outcome is most like:
A
The pure monopoly model.
B
The kinked demand model.
C
The purely competitive model.
D
The price-leadership model.
4) One assumption of the kinked demand model is:
A
At the kink in the curve, marginal revenue will be greater than marginal cost.
B
Rivaling firms will ignore price increases and match price cuts.
C
Demand will be elastic throughout the range of production.
D
The firms will be the least-cost producers of the product.
5) If one firm in an oligopolistic industry decides to advertise to increase their market share, it is likely that the other firms in the oligopoly will:
A
Decrease advertising to prevent increase in cost.
B
Increase their price and their advertising to offset the additional cost.
C
Increase advertising to prevent lost profits.
D
Leave their advertising alone because it does not have a long term gain.
6) In an oligopoly game (also known as a payoff matrix), each player will try to:
A
Minimize their competitor's market share.
B
Maximize their own profits.
C
Minimize their competitor's profits.
D
Maximize their own market share.
7) Collusion is:
A
The practice of watching an industry leader for signals as to how to adjust output and market price.
B
The practice of working with another firm to increase joint profits.
C
The practice of working with another firm to decrease other firm's market share.
D
The practice of two industries competing for consumers.
8) When mutual interdependence is present, it means that:
A
Each firm must consider the reaction of their competitors when it determines its pricing policy.
B
The producers are producing similar but not identical products.
C
The firms are facing perfectly inelastic demand curves for their products.
D
The producers are producing identical products.
9) A characteristic of an oligopoly industry is:
A
Mutual interdependence.
B
Diminishing marginal returns.
C
The products produced are largely standardized.
D
Relatively free entry and exit.
10) In an oligopoly market:
A
Firms make economic profits.
B
There are a small number of firms.
C
All of the above.
D
Barriers to entry exist.
11) In the long run, firms in a monopolistically competitive industry:
A
Face a less elastic demand for their product than in the short run.
B
Produce at a point where marginal cost and price are equal.
C
Have a larger number of competitors than in the short run.
D
Earn normal profits, but not economic profits.
12) Let's assume that firms in a monopolistically competitive industry are earning economic profits.
A
Firms will expand production which will decrease excess capacity.
B
Firms will standardize their products to decrease competition.
C
New firms will enter because barriers to entry are low.
D
Firms will be more allocatively efficient.
13) When a firm has price making ability, it means that:
A
They will set price above marginal cost.
B
They will produce at the minimum point of average total cost.
C
They will always earn economic profits.
D
They will set price equal to marginal cost.
14) Let's assume that a monopolistically competitive firm in the short run is producing where average total cost is $10.50, price is $9.00, marginal revenue is $7.50 and marginal cost is $7.50. The firm is operating:
A
At an efficient level of output.
B
At a short run profit.
C
At a break-even output level.
D
At a short run loss.
15) In monopolistic competition, demand and marginal revenue are downward sloping because:
A
There is free entry and exit in the market.
B
There are only a few large firms in the industry and each acts like a monopolist.
C
The firms all produce a differentiated product which gives them a small amount of price setting ability.
D
The small number of firms that are all mutually interdependent leads to collusion.
16) Monopolistically competitive firms differentiate their products and advertise to:
A
Make price more of an issue with consumers.
B
Make price less of an issue with consumers.
C
Make the firm more productively efficient.
D
Make the firm more allocatively efficient.
17) A characteristic of monopolistic competition is:
A
Firms will produce differentiated products.
B
Firms will sustain economic profits in the long run.
C
Firms will produce at the optimal level of productive efficiency.
D
Firms will be allocatively efficient.
18) Monopolistic competition is like pure competition in that:
A
Both market structures have free entry and exit.
B
Firms in both structures face perfectly elastic demand curves.
C
Both market structures rely on advertising to increase the demand for their products.
D
Both market structures have standardized goods being produced.
19) Which would not be considered a method of product differentiation for a monopolistically competitive firm:
A
The use of brand names and trademarks.
B
Location and accessibility.
C
Promotions and product packaging.
D
Standardized hours of operation and operating procedures.
*select an answer for all questions
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