04 Jun Question Quiz 4 This activity contains 10 questions. If an oligopolist facing a kinked demand c
Question
Quiz 4
This activity contains 10 questions.
If an oligopolist facing a kinked demand curve has a marginal cost curve which shifts upward, but remains in the discontinuous portion of the marginal revenue curve, the profit maximizing response of the firm would be to:
lower price and increase output.
reduce both price and output.
increase price and lower output.
increase both price and output.
not change either price or output since MC remains equal to MR.
In order for price leadership to be a successful practice for an oligopolistic firm there must be:
explicit collusion among all firms.
tacit collusion among all firms.
international collusion among all firms.
government sanctioned collusion among all firms.
A price war may emerge as a result of:
firms believing a price leader is much better off than they are and thus no longer following the price leader’s pricing behavior.
existing firms in an industry employing an entry deterrence strategy to discourage entry of new firms into an industry.
companies attempting to capture greater market share from their competitors.
all of the above.
One way for existing firms to limit entry into an industry is to
employ a limit-pricing strategy.
raise the customer switching costs.
threaten a price war.
do any of the above.
Which of the following market structures do not have nonprice competition?
A) Monopolistic competition.
B) Oligopoly.
C) Perfect Competition.
D) Monopoly.
E) A and C
F) B and D
When it comes to resource misallocation:
there is evidence that oligopolies cause a significant amount of resource misallocation.
firms in competitive industries cause more resource misallocation than oligopolies do.
oligopolies do not cause resource misallocation since price equals marginal cost for all firms.
there is no evidence that oligopolies cause a significant amount of resource misallocation.
Which of the market structures has unrestricted entry and exit, many sellers of the product and some ability to set the price?
Perfect Competition.
Oligopoly.
Monopoly.
Monopolistic Competition
Which of the market structures has the largest number of sellers in the market?
Oligopoly.
Perfect Competition.
Monopolistic Competition
Monopoly.
Which of the market structures has some ability to set the price and no long-run economic profits?
Oligopoly.
Monopolistic Competition
Monopoly.
Perfect Competition.
In the airline industry, frequent flyer programs are an example of
entry-deterring behavior.
limit-pricing behavior.
price leadership behavior.
raising customers’ switching costs.
The fact that a monopolistically competitive firm does not produce at the minimum of the ATC can be viewed as the cost of generating:
diseconomies of scale.
homogeneous products.
product differentiation and variety.
all of the above.
Which of the following statements is true about the cost curves for an information product?
The up-front costs for the first unit of output is large creating large fixed costs while the cost of additional units is small creating small marginal costs.
The up-front costs for the first unit of output is small creating small fixed costs while the cost of additional units is large creating large marginal costs.
The average total cost curve is U-shaped and the marginal cost curve is horizontal.
The average total cost curve is U-shaped but the demand curve is not downward sloping.
The publisher’s cost for developing this quiz and making them available does not vary with the number of times you or anyone else takes the quizzes. These quizzes:
will have a U-shaped average total cost curve for the publisher.
will have increasing marginal cost for the publisher.
are a search good.
are known as an information product.
In the short run, a monopolistically competitive firm will
select the rate of output where price equals marginal cost.
not advertise because the effects will not be realized until the long run.
make a profit.
select the rate of output where marginal revenue equals marginal cost.
In the long run, monopolistically competitive firms
make zero economic profits.
make positive economic profits.
make zero accounting profits.
can make either positive economic profits or zero economic profits, and always make positive accounting profits.
Which of the graphs represent the cost curves for an information product?
Panel B.
Panel A.
Panel D.
Panel C.
If average total costs are the same for a perfectly competitive firm and a monopolistically competitive firm, then we know that
the monopolistically competitive firm will produce fewer units than the perfectly competitive firm.
the monopolistically competitive firm will produce more units than the perfectly competitive firm.
both will produce at the minimum points of their average total cost curves.
any of the above are possible.
An information product differs from goods like toothpaste:
in that the shape of the cost curves and the method for determining the profit maximizing price and quantity differ.
since toothpaste requires advertising while an information product does not.
since toothpaste is a monopolistic competitive industry while an information product is a monopoly.
in that the method for determining profit maximizing price and quantity differ even though the shape of the cost curves are similar.
Why do firms in a monopolistic competitive market engage in product differentiation while firms in perfect competition do not?
Firms in a perfectly competitive market produce homogeneous products while firms in a monopolistic competitive market can distinguish their product from their competitors gaining some control over the price.
Long run profits are lower in a competitive market so why should the firms exert the effort to differentiate their product.
Firms in a monopolistic competitive market produce homogeneous products while firms in a perfectly competitive market can distinguish their product from their competitors gaining some control over the price.
The government set up certain rules and there are restrictions on product differentiation in competitive markets.
When the qualities of a good are relatively easy to assess in advance of their purchase, the good is known as:
an experience good.
an information product.
a search good.
an interactive good.
How can advertising be used as a signaling behavior?
The advertising signals useful information about the characteristics of the product.
A company that engages in a large amount of advertising signals its competitors that it is serious about staying in business.
The advertising signals the consumer that they should purchase the good.
Advertising will signal the industry that this firm has significant economies of scale.
The diagram represents the situation for a firm operating in a monopolistic competitive market. What is the profit maximizing price?
This firm will not produce.
P3
P4
P1
P2
One major difference between perfect competition and monopolistic competition is:
only perfectly competitive firms produce where MC=MR.
there is easy entry and exit of firms in perfect competition but not in monopolistic competition.
there are differentiated products in monopolistic competition but not in perfect competition.
all of the above.
Match the diagram to the economic situation for a monopolistic competitive firm.
A matching question presents 3 answer choices and 3 items. The answer choices are lettered A through C. The items are numbered 5.1 through 5.3. Screen readers will read the answer choices first. Then each item will be presented along with a select menu for choosing an answer choice.Using the pull-down menus, match each item in the left column to the corresponding item in the right column.
Panel C.
Panel A.
Panel B.
5.1 Profits for the firm are equal to 0.
5.2 Profits for the firm are less than 0.
5.3 Profits for the firm are greater than 0.
The greater the monopolistically competitive firm’s success at product differentiation the lower is (are) the firm’s:
price elasticity of demand.
options for altering product price.
opportunities for collusive behavior.
none of the above.
If there is no product differentiation at all, then the individual firm has a demand curve that is:
unit elastic and resembles the firm in perfect competition.
perfectly elastic and resembles the firm in perfect competition.
perfectly inelastic and resembles the firm in perfect competition.
downward sloping slightly and resembles the firm in perfect competition.
A firm that produces an information product will:
earn positive economic profits in the long run.
Earn negative economic profits in the long-run.
earn zero economic profits in the long run.
earn positive or zero economic profits in the long run.
The downward slope of the demand curve of a monopolistically competitive firm implies that the firm has:
some monopoly power over price, and therefore advertising may increase profits.
decreasing returns to scale.
no monopoly power over price, and therefore advertising will not increase profits.
increasing returns to scale.
constant returns to scale.
Which of the following is not true of firms in monopolistic competition and firms in perfect competition?
Production at the minimum of the ATC.
The possibility of short-run economic profits or losses.
Production where MC=MR.
Zero economic profits in long-run equilibrium.
How can an oligopoly form when there are network effects and market feedback?
Firms will successfully drive out their competitors when they pick a market leader and match any changes in price this leader does.
Firms will invest in excess productive capacity to signal other firms that they can outlast their competitors in a price war.
Firms will engage in limit pricing.
A few firms may be able to capture most of the growth in demand that is caused by positive market feedback.
All of the following are a fundamental characteristic of oligopoly except:
horizontal mergers.
barriers to entry.
economies of scale.
a homogeneous product.
Which of the following is not a theory of how firms may deter market entry by potential rivals?
A firm will invest in excess productive capacity to signal that they can outlast their competitors in a price war.
Firms may make it difficult for current customers to switch to products produced by new entrants.
Firms will engage in limit pricing signaling to potential entrants that they will lower the price making the market no longer attractive.
Firms will engage in a strategy of following the pricing of the dominant firm to demonstrate how strong that firm is.
Which of the following statements is true about how firms use game theory?
Firms will maximize their profits when they engage in cooperative games but will not maximize their profits when they engage in noncooperative games.
When firms get together to collude they use cooperative games but when they cannot work together they use noncooperative games.
Firms use noncooperative games as a form of barrier to entry but never use cooperative games in this manner.
Firms will maximize their profits when they engage in noncooperative games but will not maximize their profits when they engage in cooperative games.
Which of the following statements describes the kinked demand theory of oligopolistic price?
The firm believes that if it decreases its price no other firms will decrease their price and if they increase the price all other firms will also increase their price.
The kink will develop because the firm has not engaged in enough advertising.
Firms will follow the leader in the industry increasing and decreasing prices as the leader does.
The firm believes that if it increases its price no other firms will increase their price and if they lower the price all other firms will also lower their price.
One major difference between oligopoly and competition is that:
Oligopolistic firms act interdependently while competitive firms operate independently.
There is no major difference in the two types of firms since they both act interdependently.
There is no major difference in the two types of firms since they both act independently.
Oligopolistic firms act independently while competitive firms operate interdependently.
If whatever one player in a game wins comes at the expense of the other player(s) in the game, this is known as a:
positive-sum game.
reactionary game.
zero-sum game.
negative-sum game.
There are two firms in an industry. If both collude and set the monopolistic price, their profits will be $20 million each. If one firm sets the higher monopoly price and the other tries to get more business by charging a lower price, the high-priced firm earns $6 million in profits and the low-priced firm earns $30 million in profits. If both charge low prices, both earn $10 million. What are the dominant strategies for the two firms?
Both will charge the low price.
Both will charge the high price.
One will charge the high price, and then the other will charge the low price.
There is no dominant strategy in this case.
Firm Annual Sales
($ Million )
1 200
2 150
3 75
4 50
5 40
6 30
7 through 20 25
What does the four firm concentration ratio equal?
57%
12%
83%
100%
47.5%
40%
All of the following are reasons why an oligopoly may form except:
nonprice competition.
economies of scale.
mergers.
barriers to entry.
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