True / False
1. Most economic activity in the United States is carried out by monopolies.
a.
True
b.
False
False
Easy
DISC: Monopoly
United States – BPROG: Analytic
Monopoly
Monopolistic Competition
2. Monopolistic competition is a market structure characterized by many small firms selling a homogeneous product.
a.
True
b.
False
False
Easy
DISC: Monopolistic competition
United States – BPROG: Analytic
Monopolistic competition
Monopolistic Competition
3. Monopolistic competition differs from perfect competition only in the number of firms participating in the market.
a.
True
b.
False
False
Easy
DISC: Monopolistic competition
United States – BPROG: Analytic
Monopolistic competition
Monopolistic Competition
4. Monopolistic competition has at least one similarity to perfect competition: firms are free to enter and leave the
industry.
a.
True
b.
False
True
Easy
DISC: Monopolistic competition
5. Monopolistically competitive markets feature high barriers to entry.
a.
True
b.
False
False
Easy
6. Monopolistically competitive markets feature heterogeneous products.
a.
True
b.
False
True
Easy
7. A monopolistic competitor faces a horizontal demand curve.
a.
True
b.
False
False
Easy
Monopoly
8. The demand curve for a monopolistic competitor is likely to be flatter than that of a monopolist.
a.
True
b.
False
True
Moderate
Monopoly
9. The demand curve for a monopolistic competitor is likely to be steeper than that of a monopolist.
a.
True
b.
False
False
Moderate
10. The demand curve for a monopolistic competitor has a negative slope.
a.
True
b.
False
True
Easy
11. The cost-revenue diagrams for a monopolist and a monopolistic competitor are similar except that the demand curve
for the monopolistic competitor is flatter.
a.
True
b.
False
True
Moderate
12. For the monopolistic competitor, MR = P.
a.
True
b.
False
False
Moderate
13. In the long run, a monopolistically competitive firm’s demand curve must be tangent to its average cost curve.
a.
True
b.
False
True
Moderate
14. Monopolistically competitive firms can earn large profits in the long run.
a.
True
b.
False
False
Moderate
15. In the long run, zero economic profit exists in monopolistic competition and perfect competition.
a.
True
b.
False
True
Moderate
16. A monopolistic competitor can expect to earn an economic profit in the long run.
a.
True
b.
False
False
Easy
17. Under monopolistic competition, profits cannot persist because new firms will be attracted to the market.
a.
True
b.
False
True
Easy
18. In the long run, a monopolistically competitive firm earns small economic profits.
a.
True
b.
False
False
Easy
19. The entry of new firms into a monopolistically competitive industry will cause the long-run equilibrium price to rise.
a.
True
b.
False
False
Easy
20. Society definitely benefits by reducing the number of monopolistically competitive firms.
a.
True
b.
False
False
Moderate
21. The excess capacity theorem states that society would clearly benefit from a reduction in the number of monopolistic
competitors.
a.
True
b.
False
False
Moderate
22. Average cost is higher with a monopolistically competitive firm than with a perfectly competitive firm.
a.
True
b.
False
True
Easy
23. The short-run equilibrium of the firm under monopolistic competition has excess capacity.
a.
True
b.
False
True
Moderate
24. In the long run, a monopolistically competitive firm produces at minimum average cost.
a.
True
b.
False
False
Moderate
25. Society benefits from monopolistic competition because the firms are allocatively efficient.
a.
True
b.
False
False
Difficult
26. Excess capacity and inefficiency result under monopolistic competition.
a.
True
b.
False
True
Easy
27. An oligopoly is a market dominated by a few sellers.
a.
True
b.
False
True
Easy
Oligopoly
Oligopoly
28. An oligopoly is a market structure in which a few large firms dominate the sale of a single product.
a.
True
b.
False
True
Easy
Oligopoly
Oligopoly
29. When comparing industries, a monopolistically competitive industry is less competitive than an oligopoly.
a.
True
b.
False
False
Easy
Oligopoly
Oligopoly
30. Advertising never makes sense for an oligopolistic firm.
a.
True
b.
False
False
Easy
Oligopoly
Oligopoly
31. Oligopolists use advertising as a way of differentiating their products.
a.
True
b.
False
True
Easy
Oligopoly
Oligopoly
32. Oligopolists seldom change prices, because they don’t like change.
a.
True
b.
False
False
Easy
Oligopoly
Oligopoly
33. An oligopoly can be characterized by production of either identical goods or different goods.
a.
True
b.
False
True
Moderate
Oligopoly
Oligopoly
34. An oligopoly is a market in which at least some firms are large enough to influence market price.
a.
True
b.
False
True
Easy
Oligopoly
Oligopoly
35. Oligopolists behave independently of each other.
a.
True
b.
False
False
Easy
Oligopoly
Oligopoly
36. Oligopolies are difficult to analyze because of the interdependent nature of management decisions.
a.
True
b.
False
True
Moderate
Oligopoly
Oligopoly
37. The key difference between oligopoly and other market structures is the interdependence among producers.
a.
True
b.
False
True
Easy
Oligopoly
Oligopoly
38. Oligopolists almost always cooperate in making price and output decisions.
a.
True
b.
False
False
Moderate
Oligopoly
Oligopoly
39. Oligopolistic firms never collude because they have almost no incentive to do so.
a.
True
b.
False
False
Moderate
Oligopoly
Oligopoly
40. An oligopolist cares very much about what other firms in her industry are doing.
a.
True
b.
False
True
Easy
Oligopoly
Oligopoly
41. An oligopoly firm with a differentiated product will generally earn the largest profits without advertising.
a.
True
b.
False
False
Moderate
Oligopoly
Oligopoly
42. One of the most famous cartels is OPEC.
a.
True
b.
False
True
Easy
Oligopoly
Oligopoly
43. Economists place cartels among the least-desirable forms of market organization.
a.
True
b.
False
True
Moderate
Oligopoly
Oligopoly
44. A cartel is a group of sellers of a single product who have joined together in order to enjoy the advantages of perfect
competition.
a.
True
b.
False
False
Easy
Oligopoly
Oligopoly
45. Cartels provide uniform management, but none of the advantages of economies of scale.
a.
True
b.
False
True
Moderate
Oligopoly
Oligopoly
46. An oligopolist who sets the price for the industry is a price leader.
a.
True
b.
False
Easy
Oligopoly
Oligopoly
47. Price leadership works only if there is a single, dominant firm in the oligopoly.
a.
True
b.
False
False
Moderate
Oligopoly
Oligopoly
48. Price leadership is an example of explicit collusion by oligopolies.
a.
True
b.
False
False
Moderate
Oligopoly
Oligopoly
49. Price leadership may sometimes be an example of covert collusive behavior by oligopolies.
a.
True
b.
False
True
Difficult
Oligopoly
Oligopoly
50. Firms that maximize sales always produce more than profit-maximizing firms.
a.
True
b.
False
True
Moderate
Oligopoly
Oligopoly
51. Some oligopolies may try to maximize sales revenue rather than maximize profits.
a.
True
b.
False
True
Moderate
Oligopoly
Oligopoly
52. Sales maximization and profit maximization are essentially equivalent.
a.
True
b.
False
False
Moderate
Oligopoly
Oligopoly
53. To maximize sales revenue, an oligopoly will expand output until the price is zero.
a.
True
b.
False
False
Moderate
Oligopoly
Oligopoly
54. To maximize sales revenue, an oligopolist will expand output until the marginal revenue curve cuts the horizontal
axis.
a.
True
b.
False
True
Moderate
Oligopoly
Oligopoly
55. Sticky prices are a direct result of the kinked demand curve.
a.
True
b.
False
True
Moderate
Oligopoly
Oligopoly
56. The kinked demand curve is an explanation of sticky prices.
a.
True
b.
False
True
Moderate
Oligopoly
Oligopoly
57. The kinked demand curve model is based on the assumption that rival firms will match a price cut but ignore a price
increase.
a.
True
b.
False
True
Moderate
Oligopoly
Oligopoly
58. The kinked demand curve model explains pricing in monopoly markets.
a.
True
b.
False
False
Easy
Oligopoly
Oligopoly
59. Game theory may be used to solve problems of interdependent decision making by large firms.
a.
True
b.
False
True
Easy
Oligopoly
Oligopoly
60. Game theory is based on the idea that each participant makes decisions based on how she believes the competition will
react.
a.
True
b.
False
True
Easy
Oligopoly
Oligopoly
61. An oligopoly will always use game theory to maximize sales rather than profits.
a.
True
b.
False
False
Moderate
Oligopoly
Oligopoly
62. A duopoly is a form of oligopoly with two firms.
a.
True
b.
False
True
Easy
Oligopoly
Oligopoly
63. The maximin criterion seeks to minimize the maximum payoffs in order to win.
a.
True
b.
False
False
Difficult
Oligopoly
Oligopoly
64. An oligopoly using a maximin strategy must believe that the losses from underestimating a competitor’s skill are
worse than those from overestimating it.
a.
True
b.
False
True
Moderate
Oligopoly
Oligopoly
65. A dominant strategy is one that gives a player in a game a bigger payoff than the other player receives.
a.
True
b.
False
Easy
Oligopoly
Oligopoly
66. All players have dominant strategies.
a.
True
b.
False
False
Moderate
Oligopoly
Oligopoly
67. A dominant strategy is one that is best for one player regardless of the strategy chosen by the other player.
a.
True
b.
False
True
Easy
Oligopoly
Oligopoly
68. International trade can be correctly considered as an example of a zero-sum game.
a.
True
b.
False
False
Moderate
Oligopoly
Oligopoly
69. Repeated games can lead to tacit collusion.
a.
True
b.
False
True
Moderate
Oligopoly
Oligopoly
70. A perfectly contestable market is one in which there are excessive costs to entry and exit.
a.
True
b.
False
False
Moderate
Oligopoly
71. A perfectly contestable market is one which a firm can enter and exit without losing its investment.
a.
True
b.
False
True
Easy
Oligopoly
72. Firms in a perfectly contestable market will earn higher profits than firms in markets that are not perfectly contestable.
a.
True
b.
False
False
Moderate
Oligopoly
73. The models of perfect competition and monopoly are the most realistic.
a.
True
b.
False
False
Easy
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
A Glance Backward: Comparing the Four Market Forms
74. Perfect competition and pure monopoly are concepts useful primarily for realistic application.
a.
True
b.
False
75. Under perfect competition and monopolistic competition, profits are zero in long-run equilibrium.
a.
True
b.
False
76. Monopolies can misallocate resources by restricting output in an attempt to raise prices and profits.
a.
True
b.
False
Multiple Choice
77. Which of the following is not a requirement for the existence of monopolistic competition in a market?
a.
numerous small sellers