04 Jun Question 11. The long-run equilibrium pr
Question
11. The long-run equilibrium price charged by the monopolistic competitor is a. likely to be lower than the perfect competitor’s price. b. likely to equal long-run marginal cost. c. likely to exceed long-run average cost so that all firms are earning positive economic profits. d. likely to exceed the monopolist’s price. e. likely to lie somewhere between the perfect competitor’s price and the monopolist’s price.
12. The firm under monopolistic competition is likely to produce less and set a higher price than under perfect competition because a. the firm faces decreasing returns to scale. b. the firm faces increasing costs. c. the firm must incur selling expenses, including advertising. d. the firm operates where marginal revenue equals marginal cost. e. the firm faces a downward sloping demand curve.
13. In order to constitute an oligopolistic market structure a. there must be a few firms in a given relevant market. b. there must be a few firms selling in a national market. c. there must be more than 20 firms selling in the international market. d. there must be fewer than 15 firms in any given market.
14. The key feature of oligopoly is a. excess capacity. b. high profitability. c. product differentiation. d. interdependence of firms. e. the impersonal nature of the market.
ECON 3070 Intermediate Microeconomic Theory: Practice Multiple-Choice Questions 42
15. The basic behavioral assumption of the kinked demand model is a. each duopolist assumes that his or her rival’s price is invariant with respect to his or her own price. b. each duopolist assumes that his or her rival’s output is invariant with respect to his or her own output. c. duopolists recognize their mutual interdependence and agree to act in unison. d. each duopolist assumes that if he or she lowers the price, his or her rivals will do the same but that if he or she raises the price, his or her rivals may not follow suit. e. none of the above.
16. The kinked demand curve is used to a. illustrate the difference between pure and differentiated oligopoly. b. explain the stability of oligopolistic prices. c. illustrate the nature of zero-sum games. d. explain the prevalence of oligopoly in American industry. e. illustrate the linear programming problem faced by the firm.
17. The basic behavioral assumption of the Cournot model is a. each duopolist assumes that his or her rival’s price is invariant with respect to his or her own price. b. each duopolist assumes that his or her rivals’ output is invariant with respect to his or her own output. c. duopolists recognize their mutual interdependence and agree to act in unison. d. each duopolist assumes that if he or she lowers the price, his or her rivals will do the same but that if he or she raises the price, his or her rivals may not follow suit. e. none of the above.
18. A typical Cournot solution is defined as a. one in which the solution is identical to the purely competitive market. b. one in which the solution is identical to the monopoly solution. c. one in which the output is above the monopoly and below the purely competitive result. d. none of the above
19. If the firms in a monopolistically competitive “industry” made economic profit, a. they might earn this profit permanently. b. new firms would enter their “industry” until the profit was eliminated. c. the price elasticity of demand would have to be less than one in absolute value. d. both (b) and (c) would be true.
When answering questions 20-22 refer to the following graph about a monopolistically competitive firm:
20. The firm’s profit-maximizing output level equals a. 0I b. 0H c. 0G d. none of the above.
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