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| 1 | |
Compared to a competitive firm, a monopolistically competitive firm: |
| | A) | faces a less elastic demand curve. |
| | B) | is less likely to advertise its product. |
| | C) | faces a more elastic demand curve. |
| | D) | can earn positive profits in the long run. |
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| 2 | |
An industry whose Herfindahl index is 5300, producing a standardized product, is most likely an example of: |
| | A) | pure competition. |
| | B) | monopolistic competition. |
| | C) | oligopoly. |
| | D) | pure monopoly. |
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| 3 | |
Use the following payoff matrix to answer the next question.
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Refer to the matrix, which shows the profit payoffs to each of two oligopolistic firms of following either a high- or low-price policy. Gamma's payoffs are in the lower left corner of each cell; Delta's in the upper right. If Gamma uses a high-price strategy and Delta uses a low-price strategy: |
| | A) | their profits will be the same. |
| | B) | Gamma's profits will exceed Delta's profits. |
| | C) | Delta would prefer to switch to a high-price strategy. |
| | D) | Gamma would prefer to switch to a low-price strategy. |
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| 4 | |
Suppose several firms in a purely competitive industry begin to experiment slightly with their product designs. This product differentiation allows them to modestly increase their prices and increase their short-run profits. The industry now more closely resembles: |
| | A) | pure monopoly. |
| | B) | oligopoly. |
| | C) | monopolistic competition. |
| | D) | competitive monopoly. |
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| 5 | |
Suppose only three airlines service a particular route. One of the airlines typically signals its price intentions through a daily posting on its internet site, which the other two quickly match. This best describes: |
| | A) | cost-plus pricing. |
| | B) | price leadership. |
| | C) | a cartel. |
| | D) | game theory. |
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| 6 | |
If an oligopolist's demand curve is kinked at the going price: |
| | A) | the loss in revenue from reducing output by one unit exceeds the gain in revenue from expanding output by one unit. |
| | B) | the gain in revenue from expanding output by one unit exceeds the loss in revenue from reducing output by one unit. |
| | C) | total revenue will remain constant if price is changed in either direction. |
| | D) | profits will rise if price is increased but fall if price is decreased. |
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| 7 | |
Use the following diagram to answer the next question.
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The monopolistically competitive firm illustrated in the diagram exhibits productive inefficiency because its profit maximizing: |
| | A) | output is not at the intersection of demand and marginal cost. |
| | B) | output is not at the intersection of marginal cost and average total cost. |
| | C) | price exceeds marginal revenue. |
| | D) | price exceeds marginal cost. |
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| 8 | |
In an oligopolistic industry: |
| | A) | firms behave strategically. |
| | B) | output is produced at minimum average total cost. |
| | C) | firms make price and output decisions without regard to the responses of their rivals. |
| | D) | high profits will attract many new entrants to the industry. |
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| 9 | |
A particular industry consists of three firms whose market shares are 50%, 30%, and 20%. The Herfindahl index for the industry is: |
| | A) | 33.3. |
| | B) | 100. |
| | C) | 2400. |
| | D) | 3800. |
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| 10 | |
Use the following payoff matrix to answer the next question.
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Refer to the matrix, which shows the profit payoffs to each of two oligopolistic firms of following either a high- or low-price policy. Gamma's payoffs are in the lower left corner of each cell; Delta's in the upper right. If both firms make their decisions independently, the most likely outcome is: |
| | A) | $50 for both Gamma and Delta. |
| | B) | $30 for both Gamma and Delta. |
| | C) | $75 for Gamma and $20 for Delta. |
| | D) | $20 for Gamma and $75 for Delta. |
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