Question 1

Suppose a monopolistically competitive industry evolved into a perfectly competitive industry. Which of the following statements is correct?

Accepted Answer

A)  The industry would produce more output and charge a lower price after the change.
B)  The industry would produce at decreasing returns to scale.
C)  Elasticity of demand for the firm's product would remain the same after this change occurred.
D)  This industry would produce the same level of output at lower prices in the long run than before the change.E) None of the above
F) B) and C)

Question 2

In a Bertrand model with identical products,

Accepted Answer

A)  price is the same as in a competitive market equilibrium.
B)  price and quantity are the same as in a monopoly.
C)  price and quantity are the same as in a duopoly.
D)  None of the above.E) A) and B)
F) A) and C)

Question 3

Product differentiation

Accepted Answer

A)  may allow firms to price above a competitive level.
B)  generates value as consumers value more choices.
C)  depends on perceived differences between products.
D)  All of the above.E) All of the above
F) None of the above

Question 4

In the Cournot model, if the products are differentiated,

Accepted Answer

A)  the firm can shift its demand curve to the right and make it less elastic.
B)  the firm's demand curve shifts to the left and becomes less elastic.
C)  the firm's demand curve shifts to the right and becomes more elastic.
D)  None of the above.E) A) and C)
F) A) and D)

Question 5

Assuming a homogeneous product, the Bertrand duopoly equilibrium price is

Accepted Answer

A)  the same as the Cournot equilibrium price.
B)  less than the Cournot equilibrium price.
C)  greater than the Cournot equilibrium price.
D)  equal to the monopoly price.E) A) and D)
F) A) and C)

Question 6

Which of the following statements is FALSE?

Accepted Answer

A)  Cartels only form among members of an oligopoly.
B)  A cartel might form if members believe they can increase profits by coordinating activity.
C)  Members of a cartel produce less output than that produced in a competitive market.
D)  Cartel members often have an incentive to cheat.E) A) and C)
F) A) and B)

Question 7

Which of the following does NOT influence the type of oligopoly that forms?

Accepted Answer

A)  Whether firms act sequentially or simultaneously.
B)  Whether firms set price or quantity.
C)  The type of demand curve the firms face.
D)  The time horizon over which firms will be in competition.E) All of the above
F) C) and D)

Question 8

In a Bertrand model, market power is a function of

Accepted Answer

A)  marginal cost.
B)  the number of firms.
C)  price elasticity of supply.
D)  product differentiation.E) B) and C)
F) A) and B)

Question 9

The Organization of Petroleum Exporting Countries (OPEC) is an example of a(n)

Accepted Answer

A)  oil monopoly.
B)  cartel.
C)  competitive arrangement.
D)  prisoner's dilemma.E) B) and D)
F) C) and D)

Question 10

The number of firms in a monopolistically competitive market will be smaller if

Accepted Answer

A)  the market demand curve shifts rightward.
B)  minimum efficient scale is lower.
C)  fixed costs are smaller.
D)  fixed costs are larger.E) B) and C)
F) None of the above

Question 11

Mergers are closely scrutinized by the government because

Accepted Answer

A)  they might allow the firms involved to dominate the market and act as a legalized cartel (monopoly) .
B)  they always result in a more efficient market.
C)  they always result in lower joint profits of the firms involved.
D)  all mergers are undesirable.E) None of the above
F) A) and D)

Question 12

The ability to set a price greater than marginal cost guarantees an economic profit for the monopolistic competitor (assuming P > AC).

Accepted Answer

A) True 
 B)False

Question 13

If a cartel is unable to monitor its members and punish those firms that violate their agreement, then

Accepted Answer

A)  the member firms will each act as price setters.
B)  the cartel will prosper in the long run.
C)  the market will become a monopoly.
D)  the cartel will fail.E) All of the above
F) A) and D)

Question 14

In monopolistically competitive markets

Accepted Answer

A)  price is greater than it would be in perfect competition.
B)  price is less than it would be in perfect monopoly.
C)  quantity is greater than it would be in perfect monopoly.
D)  All of the above.E) A) and D)
F) B) and C)

Question 15

In a Bertrand model with differentiated products,

Accepted Answer

A)  firms can set price above marginal cost.
B)  firms set price at marginal cost.
C)  price is independent of marginal cost.
D)  firms set price independently of one another.E) A) and D)
F) B) and D)

Question 16

Monopolistically competitive firms

Accepted Answer

A)  have market power because they face downward sloping demand curves.
B)  have no market power because they earn zero economic profit.
C)  have no market power because of free entry.
D)  have no market power because price equals marginal cost.E) All of the above
F) A) and B)

Question 17

Compared to a cartel, firms in a Cournot Oligopoly

Accepted Answer

A)  make more joint profit.
B)  sell less output.
C)  make less joint profit.
D)  act independently.E) A) and C)
F) A) and D)

Question 18

In the simplest version of the Cournot model, we assume the firms

Accepted Answer

A)  set quantities independently and simultaneously.
B)  set quantities independently and sequentially.
C)  set price independently and simultaneously.
D)  are not in a Nash equilibrium.E) A) and B)
F) None of the above

Question 19

The use of "most-favored-customer" clauses is an example of

Accepted Answer

A)  incenting members to maintain the cartel, because if they lower the price for one customer, they have to lower it for previous customers as well.
B)  incenting members to maintain the cartel, because if they raise the price for one customer, they have to raise it for previous customers as well.
C)  giving customers special perks for purchasing goods from members of the cartel.
D)  selling higher quality goods and services to favorite customers.E) A) and B)
F) B) and C)

Question 20

Is it true that in the long run, a monopolistically competitive firm has market power but earns no profit? Explain.

Accepted Answer

As strange as it sounds, yes. The firm e...

Exam 11: Oligopoly and Monopolistic Competition

In monopolistically competitive markets

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Product differentiation

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Mergers are closely scrutinized by the government because

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Suppose a monopolistically competitive industry evolved into a perfectly competitive industry. Which of the following statements is correct?

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In a Bertrand model with identical products,

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In the Cournot model, if the products are differentiated,

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The use of "most-favored-customer" clauses is an example of

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In a Bertrand model with differentiated products,

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The number of firms in a monopolistically competitive market will be smaller if

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The ability to set a price greater than marginal cost guarantees an economic profit for the monopolistic competitor (assuming P > AC).

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In a Bertrand model, market power is a function of

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Which of the following statements is FALSE?

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The Organization of Petroleum Exporting Countries (OPEC) is an example of a(n)

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If a cartel is unable to monitor its members and punish those firms that violate their agreement, then

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Which of the following does NOT influence the type of oligopoly that forms?

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Is it true that in the long run, a monopolistically competitive firm has market power but earns no profit? Explain.

Correct AnswerverifiedAs strange as it sounds, yes. The firm e...View AnswerShow Answer

Assuming a homogeneous product, the Bertrand duopoly equilibrium price is

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Monopolistically competitive firms

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Compared to a cartel, firms in a Cournot Oligopoly

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In the simplest version of the Cournot model, we assume the firms

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As strange as it sounds, yes. The firm e...
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