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