Question 1

The firm's price in monopolistic competition:

Accepted Answer

A)   is equal to average variable cost
B)   is equal to marginal revenue
C)   is found by reference to the demand curve
D)   is equal to marginal costE) A) and B)
F) C) and D)

Question 2

Which of the following is NOT an assumption of the model of monopolistic competition model?

Accepted Answer

A)   there is freedom of exit and entry into the industry
B)   many small firms
C)   each firm produces a product which is identical to that of its competitors
D)   each firm is independent in its decision makingE) A) and D)
F) A) and C)

Question 3

When economists discuss oligopoly, what do they mean by 'interdependence'?

Accepted Answer

They mean that when firms only have a fe...

Question 4

Game theory is applied to:

Accepted Answer

A)   any type of game
B)   the types of rules that cartels adopt
C)   co- operative situations
D)   strategic behaviour based on assumptions about rivals' behaviourE) A) and D)
F) C) and D)

Question 5

Degree's, a frozen food producer, is a monopolistically competitive firm. Degree's is currently selling frozen chips at a price of $3. Degree's marginal cost is 50 cents and marginal revenue is 50 cents. This firm should __________ to maximise profits.

Accepted Answer

A)   decrease output so that marginal revenue exceeds marginal cost
B)   increase output until price equals marginal cost
C)   decrease output until price equals marginal cost
D)   continue to produce the same output levelE) A) and D)
F) A) and C)

Question 6

A colluding oligopoly will face inelastic market demand and produce up to the point at which marginal revenue equals marginal cost and will set price equal to marginal cost.

Accepted Answer

A) True 
 B)False

Question 7

Tacit collusion is a formal agreement between firms not to engage in price competition.

Accepted Answer

A) True 
 B)False

Question 8

What is 'tacit collusion' and when is it likely to occur?

Accepted Answer

Oligopolists can make more profit if the...

Question 9

You are given the following information about an oligopolistic industry: Which combination of these features is likely to encourage collusion between the firms in the industry?

Accepted Answer

A)   (i) , (ii)  and (iii) 
B)   (i)  and (ii) 
C)   (ii)  and (iii) 
D)   (i)  and (iii) E) A) and D)
F) None of the above

Question 10

Explain the benefits of price discrimination for cinemas.

Accepted Answer

Tickets to the same movie can be offered...

Question 11

Firms in a monopolistically competitive industry are small relative to the total market.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following defines the Nash equilibrium?

Accepted Answer

A)   where the output chosen by each firm are consistent with each other
B)   the position resulting from everyone making their optimal decision based on their assumptions about their rivals' decisions
C)   where two or more firms (or people)  by attempting independently to choose the best strategy for whatever the other(s)  are likely to do, end up in a worse position than if they had co- operated in the first place.
D)   where neither firm is able to earn supernormal profits.E) A) and B)
F) None of the above

Question 13

In a monopolistically competitive industry:

Accepted Answer

A)   there is only one firm
B)   firms can either be large or small relative to the total market
C)   firms are large relative to the total market
D)   firms are small relative to the total marketE) B) and C)
F) None of the above

Question 14

If the industry is an oligopoly, the price charged and the quantity produced would be the same as if the industry was a monopoly if:

Accepted Answer

A)   the oligopolists enter a formal collusive agreement
B)   one of the oligopolists acts as a dominant price leader
C)   the oligopolist faces a kinked demand curve
D)   there is cosmetic price leadershipE) A) and B)
F) All of the above

Question 15

A monopolistically competitive firm that engages in non- price competition is trying to shift its demand curve to the right and make it more elastic.

Accepted Answer

A) True 
 B)False

Question 16

If a game player chooses a strategy in which the best outcome is better than the best outcome of other strategies this is called:

Accepted Answer

A)   minimax
B)   minimum
C)   maximin
D)   maximaxE) None of the above
F) All of the above

Question 17

In using diagrams to compare monopolistic competition to perfect competition and monopoly we find the demand curve for the firm in monopolistic competition is__________ elastic than that for monopoly and __________elastic than that for the firm in perfect competition.

Accepted Answer

A)   less; less
B)   less; more
C)   more; more
D)   more; lessE) None of the above
F) A) and C)

Question 18

As price discrimination enables firms to increase profits, it always disadvantages consumers.

Accepted Answer

A) True 
 B)False

Question 19

In each of the two cases below, why and how does the firm choose to separate its customers into two markets?
a) A hotel in the city centre offers weekend room discounts.
b) Plastic surgeons charge their lower- income patients less than their rich patients for similar operations.

Accepted Answer

These are both cases of third- degree pr...

Question 20

If a firm charges all young people one price and all old people another price this is called:

Accepted Answer

A)   second- degree price discrimination
B)   predatory pricing
C)   first- degree price discrimination
D)   third- degree price discriminationE) All of the above
F) B) and C)

Exam 6: Imperfect Competition

Which of the following defines the Nash equilibrium?

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You are given the following information about an oligopolistic industry: Which combination of these features is likely to encourage collusion between the firms in the industry?

Correct AnswerverifiedShow Answer

Tacit collusion is a formal agreement between firms not to engage in price competition.

Correct AnswerverifiedShow Answer

If a firm charges all young people one price and all old people another price this is called:

Correct AnswerverifiedShow Answer

In using diagrams to compare monopolistic competition to perfect competition and monopoly we find the demand curve for the firm in monopolistic competition is__________ elastic than that for monopoly and __________elastic than that for the firm in perfect competition.

Correct AnswerverifiedShow Answer

In each of the two cases below, why and how does the firm choose to separate its customers into two markets? a) A hotel in the city centre offers weekend room discounts. b) Plastic surgeons charge their lower- income patients less than their rich patients for similar operations.

Correct AnswerverifiedThese are both cases of third- degree pr...View AnswerShow Answer

Firms in a monopolistically competitive industry are small relative to the total market.

Correct AnswerverifiedShow Answer

Degree's, a frozen food producer, is a monopolistically competitive firm. Degree's is currently selling frozen chips at a price of $3. Degree's marginal cost is 50 cents and marginal revenue is 50 cents. This firm should __________ to maximise profits.

Correct AnswerverifiedShow Answer

If a game player chooses a strategy in which the best outcome is better than the best outcome of other strategies this is called:

Correct AnswerverifiedShow Answer

A monopolistically competitive firm that engages in non- price competition is trying to shift its demand curve to the right and make it more elastic.

Correct AnswerverifiedShow Answer

The firm's price in monopolistic competition:

Correct AnswerverifiedShow Answer

When economists discuss oligopoly, what do they mean by 'interdependence'?

Correct AnswerverifiedThey mean that when firms only have a fe...View AnswerShow Answer

What is 'tacit collusion' and when is it likely to occur?

Correct AnswerverifiedOligopolists can make more profit if the...View AnswerShow Answer

Game theory is applied to:

Correct AnswerverifiedShow Answer

Explain the benefits of price discrimination for cinemas.

Correct AnswerverifiedTickets to the same movie can be offered...View AnswerShow Answer

A colluding oligopoly will face inelastic market demand and produce up to the point at which marginal revenue equals marginal cost and will set price equal to marginal cost.

Correct AnswerverifiedShow Answer

In a monopolistically competitive industry:

Correct AnswerverifiedShow Answer

If the industry is an oligopoly, the price charged and the quantity produced would be the same as if the industry was a monopoly if:

Correct AnswerverifiedShow Answer

As price discrimination enables firms to increase profits, it always disadvantages consumers.

Correct AnswerverifiedShow Answer

Which of the following is NOT an assumption of the model of monopolistic competition model?

Correct AnswerverifiedShow Answer

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In using diagrams to compare monopolistic competition to perfect competition and monopoly we find the demand curve for the firm in monopolistic competition is elastic than that for monopoly and elastic than that for the firm in perfect competition.

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These are both cases of third- degree pr...
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They mean that when firms only have a fe...
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Oligopolists can make more profit if the...
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Tickets to the same movie can be offered...
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