Week 7 Quiz Review: Question Preview (ID: 22271)

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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.

When mutual interdependence is present, it means that:
a) The producers are producing similar but not identical products.
b) The producers are producing 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.

Collusion is:
a) The practice of working with another firm to decrease other firm's market share.
b) The practice of working with another firm to increase joint profits.
c) The practice of watching an industry leader for signals as to how to adjust output and market price.
d) The practice of two industries competing for consumers.

In an oligopoly game (also known as a payoff matrix), each player will try to:
a) Minimize their competitor's market share.
b) Minimize their competitor's profits.
c) Maximize their own market share.
d) Maximize their own profits.

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 advertising to prevent lost profits.
b) Decrease advertising to prevent increase in cost.
c) Leave their advertising alone because it does not have a long term gain.
d) Increase their price and their advertising to offset the additional cost.

If two oligopolistic firms facing similar cost and demand conditions collude successfully, the outcome is most like:
a) The purely competitive model.
b) The pure monopoly model.
c) The price-leadership model.
d) The kinked demand model.

One assumption of the kinked demand model is:
a) The firms will be the least-cost producers of the product.
b) At the kink in the curve, marginal revenue will be greater than marginal cost.
c) Rivaling firms will ignore price increases and match price cuts.
d) Demand will be elastic throughout the range of production.

Cartels form because:
a) Joint profits can be maximized by a cartel.
b) Each producer will gain a larger market share.
c) It will decrease the costs of production
d) The elasticity of demand for the product will decrease if a cartel is formed.

Members in a cartel have a strong incentive to cheat because
a) They face the same costs of production but different demands for their products.
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) Each firm can increase their sales by dropping the price which increases their profits if they cheat.

In an oligopoly market:
a) Barriers to entry exist.
b) Firms make economic profits.
c) There are a small number of firms.
d) All of the above.

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) Have a larger number of competitors than in the short run.
d) Produce at a point where marginal cost and price are equal.

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) New firms will enter because barriers to entry are low.
c) Firms will standardize their products to decrease competition.
d) Firms will be more allocatively efficient.

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.

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 short run loss.
b) At a short run profit.
c) At a break-even output level.
d) At an efficient level of output.

In monopolistic competition, demand and marginal revenue are downward sloping because:
a) There are only a few large firms in the industry and each acts like a monopolist.
b) There is free entry and exit in the market.
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.

Monopolistically competitive firms differentiate their products and advertise to:
a) Make the firm more allocatively efficient.
b) Make the firm more productively efficient.
c) Make price less of an issue with consumers.
d) Make price more of an issue with consumers.

A characteristic of monopolistic competition is:
a) Firms will sustain economic profits in the long run.
b) Firms will produce at the optimal level of productive efficiency.
c) Firms will be allocatively efficient.
d) Firms will produce differentiated products.

Monopolistic competition is like pure competition in that:
a) Both market structures have free entry and exit.
b) Both market structures have standardized goods being produced.
c) Firms in both structures face perfectly elastic demand curves.
d) Both market structures rely on advertising to increase the demand for their products.

Which would not be considered a method of product differentiation for a monopolistically competitive firm:
a) Promotions and product packaging.
b) The use of brand names and trademarks.
c) Standardized hours of operation and operating procedures.
d) Location and accessibility.

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