Ch 23 Practice Test 3Student: ___________________________________________________________________________ 1. Monopolistic competition is characterized by a: A.few dominant firms and low entry barriers. B.large number of firms and substantial entry barriers. C.large number of firms and low entry barriers. D.few dominant firms and substantial entry barriers. 2. Monopolistic competition resembles pure competition because: A.both industries emphasize nonprice competition. B.in both instances firms will operate at the minimum point on their long-run average total cost curves. C.both industries entail the production of differentiated products. D.barriers to entry are either weak or nonexistent. 3. Nonprice competition refers to: A.competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts. B.price increases by a firm that are ignored by its rivals. C.advertising, product promotion, and changes in the real or perceived characteristics of a product. D.reductions in production costs that are not reflected in price reductions. 4. The restaurant, legal assistance, and clothing industries are each illustrations of: A.countervailing power. B.homogeneous oligopoly. C.monopolistic competition. D.pure monopoly. 5. Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because: A.of product differentiation and consequent product promotion activities. B.monopolistically competitive firms cannot realize an economic profit in the long run. C.the number of firms in the industry is larger. D.monopolistically competitive producers use strategic pricing strategies to combat rivals. 6. Nonprice competition refers to: A.low barriers to entry. B.product development, advertising, and product packaging. C.the differences in information which consumers have regarding various products. D.an industry or firm in long-run equilibrium. 1 7. A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from: A.a relatively large number of firms and the monopolistic element from product differentiation. B.product differentiation and the monopolistic element from high entry barriers. C.a perfectly elastic demand curve and the monopolistic element from low entry barriers. D.a highly inelastic demand curve and the monopolistic element from advertising and product promotion. 8. The monopolistic competition model predicts that: A.allocative efficiency will be achieved. B.productive efficiency will be achieved. C.firms will engage in nonprice competition. D.firms will realize economic profits in the long run. 9. A monopolistically competitive firm has a: A.highly elastic demand curve. B.perfectly inelastic demand curve. C.highly inelastic demand curve. D.perfectly elastic demand curve. 10. The larger the number of firms and the smaller the degree of product differentiation the: A.greater the divergence between the demand and the marginal revenue curves of the monopolistically competitive firm. B.larger will be the monopolistically competitive firm's fixed costs. C.less elastic is the monopolistically competitive firm's demand curve. D.more elastic is the monopolistically competitive firm's demand curve. 11. A monopolistically competitive firm's marginal revenue curve: A.is downsloping and coincides with the demand curve. B.coincides with the demand curve and is parallel to the horizontal axis. C.is downsloping and lies below the demand curve. D.does not exist because the firm is a "price maker." 12. The price elasticity of a monopolistically competitive firm's demand curve varies: A.inversely with the number of competitors and the degree of product differentiation. B.directly with the number of competitors and the degree of product differentiation. C.directly with the number of competitors, but inversely with the degree of product differentiation. D.inversely with the number of competitors, but directly with the degree of product differentiation. 2 13. In the long-run, a profit-maximizing monopolistically competitive firm sets it price: A.above marginal cost. B.equal to marginal revenue. C.below marginal cost. D.equal to marginal cost. 14. In the long-run, the price charged by the monopolistically competitive firm attempting to maximize profits: A.must be less than ATC. B.must be more than ATC. C.may be either equal to ATC, less than ATC, or more than ATC. D.will be equal to ATC. 15. The monopolistically competitive seller maximizes profit by producing at the point where: A.total revenue is at a maximum. B.average costs are at a minimum. C.marginal revenue equals marginal cost. D.price equals marginal revenue. 16. Which of the following is correct for a monopolistically competitive firm in long-run equilibrium? A.MC = ATC B.MC exceeds MR C.P exceeds minimum ATC D.P = MC 17. Excess capacity refers to the: A.amount by which actual production falls short of the minimum ATC output. B.fact that entry barriers artificially reduce the number of firms in an industry. C.differential between price and marginal costs which characterizes monopolistically competitive firms. D.fact that most monopolistically competitive firms encounter diseconomies of scale. 3 leave this industry. Assume the firm is part of an increasing-cost industry.100. causing both demand and the ATC curve to shift upward. causing demand to rise and the ATC curve to shift downward. causing demand to fall and the ATC curve to shift upward. 19. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. B. C.210. C. 4 . In the long run firms will: A.160. B.18.enter this industry. D.enter this industry. D.enter this industry. The profit-maximizing output for this firm will be: A.180. causing both demand and the ATC curve to shift upward. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. D. C.some firms will exit the industry. 5 .will realize allocative efficiency at its profit-maximizing output. B. 22. D.new firms will enter the industry.cannot operate at a loss. C. If all monopolistically competitive firms in the industry have profit circumstances similar to the firm shown above: A. 21.above ATC. B.below ATC.is realizing an economic profit.is in long-run equilibrium. In short-run equilibrium.20. the monopolistically competitive firm shown above will set its price: A.no firms will exit the industry. B.all firms will exit the industry.below MC. C. D. The monopolistically competitive firm shown in the above figure: A.below MR. 24. D. which pertain to monopolistically competitive firms. D.diagram a only.diagram a only. C.23. Refer to the above diagrams.both diagrams a and c. B. Short-run equilibrium entailing economic loss is shown by: A.both diagrams b and c. 6 . Long-run equilibrium is shown by: A.diagram b only. Refer to the above diagrams.diagram c only. C.diagram c only. B. which pertain to monopolistically competitive firms.diagram b only. equilibrium output would decline and equilibrium price would fall.A.equilibrium output would decline and equilibrium price would rise. 26.EF. Refer to the above diagram for a monopolistically competitive firm. D.B. 7 . Long-run equilibrium price will be: A. D. C. B.25. Refer to the above diagram for a monopolistically competitive firm.the demand curve would become more elastic. If more firms would enter the industry and product differentiation would weaken: A. C. B.above A.resource misallocation would become more severe. C.earn a normal profit. B. if more firms enter a monopolistically competitive industry: A. C.production takes place where ATC is minimized.incur a loss.the demand curves facing existing firms would shift to the right. If some firms leave a monopolistically competitive industry. 31. B.the demand curves facing existing firms would become less elastic. B.marginal revenue equals marginal cost and price equals average total cost.the demand curves facing existing firms would shift to the left.become more elastic.marginal revenue will exceed marginal cost. In long-run equilibrium.27.MR = MC and minimum ATC > P.losses would necessarily occur.MR = MC and P > minimum ATC. F. D. D.economic profit is zero and price equals marginal cost. C.realize an economic profit.MR > MC and P = minimum ATC. 29.price will equal average total cost.P = MC = ATC.go bankrupt.shift to the left.price will equal marginal cost. 28.economic profits will be some positive amount. C.normal profit is zero and price equals marginal cost. For a monopolistically competitive firm in long-run equilibrium: A.be unaffected. C. the firm shown in the diagram above will: A. 30. D. H. E. B. D. the demand curves of the remaining firms will: A. B. Other things equal. G.shift to the right. When a monopolistically competitive firm is in long-run equilibrium: A. D. 8 . 10 units. firms will enter the industry and the demand curves of existing firms will shift to the right. D.If there are short-run losses.an efficient allocation of resources. firms will leave the industry and the demand curves of the remaining firms will shift to the left. H.8 units. economic profit will be: A.$8. Answer the next question(s) on the basis of the following demand and cost data for a specific firm: 33.$19.9 units. If columns (1) and (3) of the demand data shown above are this firm's demand schedule. If columns (1) and (3) of the demand data shown above are this firm's demand schedule. E. B.If there are short-run economic profits. 34. G. B. firms will leave the industry and the demand curves of the remaining firms will shift to the right. the profit-maximizing level of output will be: A. C. B.an overallocation of resources. F.an underallocation of resources. C. 9 .$10. C.$6.If there are short-run economic profits.production at the minimum attainable average total cost. D.32. firms will leave the industry and the demand curves of the remaining firms will shift to the right.If there are short-run losses. D.12 units. In long-run equilibrium monopolistic competition entails: A. C.both realize productive efficiency.diseconomies of scale. B. This firm is experiencing: A. Suppose that entry into this industry changes this firm's demand schedule from columns (1) and (3) shown above to columns ( 2) and (3). 39. 38. B. D. C. 37.less its excess capacity.35.earns an economic profit. D. D.both face perfectly elastic demand schedules. C. Refer to the above diagram for a monopolistically competitive producer.economic profit tends toward zero for both. The less elastic a monopolistic competitor's long-run demand curve. B. B.both realize allocative efficiency.produces where P = ATC. We can conclude that this industry is: A.lower its average total cost at its equilibrium level of output.higher its price relative to that of a pure competitor having the same cost curves.purely competitive. D.a shortage of production capacity. B. C.produces where MR exceeds MC. In the long run a monopolistically competitive firm: A.excess capacity of DE. 10 . D. C. An important similarity between a monopolistically competitive firm and a purely competitive firm is that: A.achieves allocative efficiency.monopolistically competitive.a constant cost industry.higher its long-run profits.a pure monopoly. 36.excess capacity of CD. the: A. The excess capacity problem diminishes as the monopolistically competitive firm's demand curve becomes less elastic. the greater is the excess capacity problem. B. B. the lesser is the excess capacity problem.allocative efficiency. B.improved resource allocation.The greater the degree of product variation.a few firms producing either a differentiated or a homogeneous product.The excess capacity problem means that monopolistically competitive firms typically produce at some point on the rising segment of their average total cost curve.advertising expenditures shift the average cost curve upward. but not allocative efficiency. C. B. In long-run equilibrium a monopolistically competitive producer achieves: A. 42. B.resources are optimally allocated to the production of the product.less likelihood of X-inefficiency. 45.lower its long-run profit.the higher its price relative to that of a pure competitor having the same cost curves. the: A. D. C.neither productive efficiency nor allocative efficiency.The greater the degree of product variation. D.greater its excess capacity. C. C.both productive efficiency and allocative efficiency. but not productive efficiency.many producers of a differentiated product. The economic inefficiencies of monopolistic competition may be offset by the fact that: A. B. 41. C. D.available capacity is fully utilized.a one-firm industry.stronger incentives to achieve economies of scale.40. The term oligopoly indicates: A. 11 .productive efficiency.greater product variety. C. 44.an industry whose four-firm concentration ratio is low.consumers have a number of variations of the product from which to choose. D. Which of the following is correct? A.lower its average total cost at its profit maximizing level of output. 43. D. The more elastic a monopolistic competitor's long-run demand curve. A significant benefit of monopolistic competition compared with pure competition is: A. D. 51.the demand curves of firms are kinked at the prevailing price.a firm that is large may be able to produce at a lower unit cost than can a small firm.interproduct competition. B. 47. 12 .differentiated oligopoly.Subway Sandwiches B. D.a small number of firms produce a large proportion of industry output. Use your basic knowledge and your understanding of market structures to answer this question. C.a few dominant firms and low entry barriers. C.the products of various firms are differentiated. 49. Which of the following companies most closely approximates a differentiated oligopolist in a highly concentrated industry? A. 48. B. D.monopolistic competition. C.Kaiser Aluminum. Oligopoly is difficult to analyze primarily because: A.a few dominant firms and no barriers to entry. cement.the price and output decisions of any one firm depend on the reactions of its rivals. aluminum. then: A.homogeneous oligopoly. B. The copper.neither allocative nor productive efficiency is achieved. B. B. C.firms must differentiate their products to earn economic profits.the number of firms is too large to make collusion understandable.entry to that industry will be easy. D.a few dominant firms and substantial entry barriers. Oligopolistic industries are characterized by: A. If there are significant economies of scale in an industry.Pittsburgh Plate Glass C. D.Ford Motor Company D. D.the products of various firms are homogeneous.a firm that is large will have to charge a higher price than will a small firm. 50.a large number of firms and low entry barriers.output may be either homogenous or differentiated. C.46. and industrial alcohol industries are examples of: A. The mutual interdependence that characterizes oligopoly arises because: A. D.always produce standardized products.the four largest firms account for 80 percent of total sales.the four largest firms account for 20 percent of total sales. Oligopolistic industries: A. Which of the following is an illustration of differentiated oligopoly? A. 55.are characterized by a relatively large number of small sellers.is 15 percent or more. D. 54.producing goods that differ in terms of quality and design.the soft drink industry D. oligopoly exists when the four-firm concentration ratio: A. 13 .in monopolistic competition. Clear-cut mutual interdependence with respect to the price-output policies exists in: A.in oligopoly.is 40 percent or more. B. C.retail stores in large cities 53. C. 56.each of the four largest firms accounts for 20 percent of total sales. B. Differentiated oligopoly exists where a small number of firms are: A.the aluminum industry B.setting price and output collusively.setting price and output independently. C.the industry is monopolistically competitive. C.oligopoly C. D. If the four-firm concentration ratio for industry X is 80: A.always produce differentiated products.in pure competition. 58. D.exceeds the Herfindahl index.monopolistic competition D. D. B.the steel industry C. Prices are likely to be least flexible: A.where product demand is inelastic.may produce either standardized or differentiated products. C. B.producing virtually identical products.is less than the Herfindahl index.52.pure competition 57.pure monopoly B. As a general rule. B. in oligopolistic industries a few large firms compete with one another in bidding down product price.10. B.100. $ 150 million. D. 61. 62. Concentration ratios may be inaccurate indicators of the degree of monopoly power in an industry because: A.the concentration ratio is more than 80 percent. C. D. 63. C. The Herfindahl index for a pure monopolist is: A. and $50 million.may understate the degree of competition because they ignore imported products.in most industries there are usually a number of firms producing identical products.000.000. 60.they are only calculated for local and regional markets.the firms in this industry face a kinked demand curve.59. C.foreign competition is not considered.10.provide detailed insights as to the price and output behavior of firms which comprise the various industries.may overstate the degree of competition because interindustry competition is ignored. We can conclude that: A.they do not distinguish between normal and economic profit. B. Interindustry competition means that: A.in some markets the producers of a particular product might face competition from products produced by other industries. B. B.is another name for the four-firm concentration ratio. C. D. B.tells us whether oligopolistic firms are engaging in collusion. $100 million.firms that sell a product at one stage of production are faced with firms that buy the product at the next stage of production. D.price leadership exists in this industry. C. D.may overstate the degree of competition because they ignore imported products. Suppose that total sales in an industry in a particular year are $600 million and sales by the top four sellers are $200 million. Concentration ratios: A. D. 64.gives much greater weight to larger firms than to smaller firms in an industry.100. 14 . B. C.they include interindustry competition. respectively.this industry is a differentiated oligopoly.measures the prices charged by oligopolistic manufacturers. The Herfindahl Index: A. C. B.80.2. D. C.000. each with a one percent market share. 10. D.000. 15 . The industry characterized by the above information is: A.65.4 percent and 100.2. 30.a monopolistically competitive industry. 10.1. C. B. D.000. The Herfindahl Index for the above industry is: A. C.a purely competitive industry.100 percent and 16.18. 67. B. D. B. The four-firm concentration ratio and the Herfindahl Index respectively would be: A.100 percent and 10.800. The Herfindahl Index for this industry is: A.600.200.600.a pure monopoly. and 10 percent. 10. 66.1.80. Suppose that firms in this industry miraculously split up such that there were 100 firms.4 percent and 4. 68. Assume six firms comprising an industry have market shares of 30.an oligopoly.1. monopolistic competitors.2950. The Herfindahl Index for this industry is: A. Game theory is best suited to analyze the pricing behavior of: A.69.fall. D. The study of how people (or firms) behave in strategic situations is called: A. rise. 16 .game theory. B.oligopolists. 72.2925. If Firm B merged with Firm C.rise. B.pure monopolists.cost-benefit analysis. rise.recursive analysis.remain the same. D. D.1000. C. C. Refer to the above data.normative economics.remain the same.pure competitors. Refer to the data above. D. 71. 70. B. rise C. B. C. fall.95. the industry's four-firm concentration ratio would ____ and its Herfindahl Index would ____: A. but only if Beta agrees to do the same. B. D. B. The above matrix best illustrates: A.C. D.also adopting a high-price policy. B. If Beta commits to a high-price policy. 75. Refer to the above diagram wherein the numerical data show profits in millions of dollars. 17 . Refer to the above diagram where the numerical data show profits in millions of dollars.adopting a low-price policy. the outcome of the game will be at cell: A. C.A.adopting a low-price policy.engaging in non-price competition only. Alpha will gain the largest profit by: A. D. C.B.73. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell.price discrimination. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell.game theory. If Alpha and Beta engage in collusion. C. 74.the principal-agent problem.D.product differentiation. C. D. Refer to the above profits-payoff table for a duopoly. B.there is no product differentiation.D. the outcome of the game is cell: A. C.both firms would profit by simultaneously lowering their prices by $1. C. Refer to the above profits-payoff table for a duopoly.76. 77. C.a price higher than $6.$6. B. B.competitors will match both price cuts and price increases. provided X also cut price.B. If initially firm X's price was $6 and Y's price was $5: A. firm Y will achieve the largest profit by selecting: A. With collusion and no cheating. B.C. provided Y also cut price.competitors will follow a price cut but ignore a price increase. provided X would also raise price by $1.Y would find it profitable to raise price by $1. If the firms are acting independently and firm X sets its price at $6.a price between $5 and $6. Refer to the above game theory matrix where the numerical data show the profits resulting from alternative combinations of advertising strategies for Ajax and Acme. 79.A. Acme's profits are shown in the lower left. D. D.X would find it profitable to cut price. Ajax's profits are shown in the upper right part of each cell. The kinked-demand curve of an oligopolist is based on the assumption that: A.$4. 18 . 78.Y would find it profitable to cut price. D.competitors will ignore a price cut but follow a price increase. the model assumes firms are engaging in some form of collusion. 19 . The kinked-demand curve model helps to explain price rigidity because: A. the going price.the associated marginal revenue curve is perfectly elastic at the going price.increase total revenue by increasing price. Suppose that the firm is initially in equilibrium at point E where the equilibrium price and quantity are P and Q. C. If an oligopoly is faced with a kinked-demand curve that is relatively elastic above. then it will: A. but lower total revenue by decreasing price. we may assume that: A.it is colluding with its rivals to maximize joint profits. Which of the following statements is correct? A. 82. C.Demand curve D1 assumes that rivals will match any price change initiated by this oligopolist.its demand curve is kinked. but lower total revenue by increasing price. If an oligopolist is faced with a marginal revenue curve that has a gap in it. B. D. B.there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price. D. B. D.demand is inelastic above and elastic below the going price.Demand curves D1 and D2 both assume that rivals will match any price change initiated by this oligopolist.it is selling a standardized product. Refer to the above diagram for a noncollusive oligopolist. 83. B. C.80.increase total revenue by either increasing or decreasing price. C.decrease total revenue by either increasing or decreasing price. and relatively inelastic below.increase total revenue by decreasing price. D.it is selling a differentiated product.Demand curves D1 and D2 both assume that rivals will ignore any price change initiated by this oligopolist. 81.Demand curve D2 assumes that rivals will match any price change initiated by this oligopolist. C. the firm's marginal revenue curve will be: A.is realizing an economic profit of bd per unit. Refer to the above diagram for a noncollusive oligopolist.noncollusive oligopoly. We assume that the firm is initially in equilibrium at point E where the equilibrium price and quantity are P and Q. Refer to the above diagram. 20 .pure competition. C. B. Refer to the above diagram. C. If the firm's rivals will ignore any price increase but match any price reduction. D.MR2aMR2.84.b.collusive oligopoly. In equilibrium the firm: A.pure monopoly.c.is incurring a loss. B. D.MR1bMR1.is realizing an economic profit of ad per unit. 85. D. 86.D1ED2.MR2abMR1. C.d.e. D. B. The above diagram portrays: A. Equilibrium price is: A. 87. B.should close down in the short run. B. Suppose the only three existing manufacturers of video game players signed a written contract by which each agreed to charge the same price for products and to distribute their products only in the geographical area assigned them in the contract. B. 93.increase production.there is a gap in marginal costs. D. C.individual members may find it profitable to cheat on agreements. C. 91.entry barriers are insignificant in oligopolistic industries. D.a purely competitive producer. Cartels are difficult to maintain in the long run because: A.a cartel.the firm will ignore price cuts by rivals. D.cost-plus pricing. A kink may exist in an oligopolist's demand curve because: A.a monopolistically competitive producer.a cartel. C. 92.products are differentiated.price leadership. C. B. B. B. C. This best describes: A.minimize unit costs of production. the P = MC level of output. D. but will match their price increases.an abrupt change in price elasticity occurs.an industry with a low four-firm concentration ratio.it is more profitable for the industry to charge a lower price and produce more output.price leadership.earn greater profits.88. This best describes: A.multiproduct pricing.realize allocative efficiency.multiproduct pricing. D.a pure monopoly. D. Oligopolistic firms engage in collusion to: A.they are illegal in all industrialized countries. that is. 89.a tacit understanding. 21 . If the firms in an oligopolistic industry can establish an effective cartel. B. 90. Assume the several manufacturers of ceramic tile in a city reach a verbal agreement to establish the price of their product at 55 cents per tile. the resulting output and price will approximate those of: A. C. raises entry barriers. D.Saudi Arabia. D.cartels. Advertising can enhance economic efficiency when it: A. D. C.covert collusion.increases entry barriers. B.price leadership. 99.when the number of firms is relatively large. 95.overt collusion.when there are ample opportunities for the firms to make secret price concessions to selected buyers.when the demand and cost conditions of the participating firms differ substantially. 22 . C.Norway. C. B.Venezuela. This is called: A.enables firms to achieve substantial economies of scale. B. C. C. B.increases consumer awareness of substitute products. D.94. Which of the following nations is not a member of the OPEC oil cartel? A. Advertising can impede economic efficiency when it: A. B.during periods of cyclical stability and full employment.boosts average total cost.increases consumer awareness of substitute products. 97. Other things equal. C. cartels and similar collusive arrangements are easier to establish and maintain: A.mutual interdependence. Suppose firms in a collusive oligopoly decide to establish their prices at a level that discourages new rivals from entering the industry.price leadership.increases brand loyalty.pricing the demand curve. 98. B.Iran. D.reduces brand loyalty. D.limit pricing. Secret conspiracies to fix prices are examples of: A. 96. oligopolistic markets only.both productive efficiency and allocative efficiency.pure monopoly B. D. D. C. C.productive efficiency but not allocative efficiency.oligopoly C.monopolistic competition D.tells us that the industry is monopolistically competitive.pure competition 23 . The presence of advertising in a particular market: A. B.both monopolistically competitive and oligopolistic markets. 103.may or may not mean substantial monopoly power in the industry. Most likely. A one-firm industry is known as: A. Suppose that a particular industry has a four-firm concentration ratio of 85 and a Herfindahl Index of 3000.tells us that the industry is an oligopoly. 104.increased output due to persuasive advertising may perfectly offset the restriction of output caused by monopoly power. C.industry price leaders often select a price equal to marginal cost. Product differentiation is present in: A. 102. C. B. In which of the following industry structures is the entry of new firms the most difficult? A.monopolistic competition B.pure monopoly D.100.over time oligopolistic industries may promote more rapid product development and greater improvement of production techniques than if they were purely competitive. D. B. B.pure competition 105. D. 101.allocative efficiency but not productive efficiency.purely competitive markets only.oligopoly C.monopolistically competitive markets only. this industry would achieve: A.many oligopolists sell their products in monopolistically competitive or even purely competitive industries.means that barriers to entering the industry are high. The conclusion that oligopoly is inefficient relative to the competitive ideal must be qualified because: A.neither productive efficiency nor allocative efficiency. monopolistic competition B.pure monopoly D. An industry comprised of a very large number of sellers that are producing a homogeneous or standardized product is called: A.oligopoly C.monopolistic competition D. In which of the following market models do individual firms exert no control over product price? A. The purely competitive market model is portrayed in the above figures by: A.Figure B.both Figures B and D.Figure C.106. C.oligopoly C. D.oligopoly B. An industry producing a differentiated product whose four-firm concentration ratio is 18 percent is an example of: A.pure monopoly C.pure monopoly D. B.pure competition 109.Figure A.monopolistic competition B. 24 .pure competition 108.pure competition 107. D.Figure C.Figure B only.Figures A and B. D. Refer to the above figures. C.all four figures.Figure B only. Refer to the above figures. B.Figures A and C. D. 112.Figure D.Figure D.Figure D only.Figure C only. 25 . 111. Refer to the above figures. Refer to the above figures.both Figures C and D. Product differentiation may be present in: A. A homogeneous or standardized product is most likely to be produced in: A. 113.Figures B and D. Both allocative and productive efficiency are being realized in: A. B.Figure B.Figure A. Long-run economic profits are most likely to occur in: A. C.Figure B only. B. B.110. D. C. C.Figure A only. C advertising. reductions in production costs that are not reflected in price reductions. large number of firms and low entry barriers. Econ: 445 Learning Objective: 23-1 McConnell . few dominant firms and low entry barriers. D both industries emphasize nonprice competition. Econ: 446 Learning Objective: 23-1 McConnell .Chapter 23 #6 Micro: 212 Topic: 1 Type: Definition 1 . Monopolistic competition is characterized by a: a. b. b. large number of firms and substantial entry barriers. price increases by a firm that are ignored by its rivals. in both instances firms will operate at the minimum point on their long-run average total cost curves. c. competition between aluminum and steel in the manufacture of automobile parts. for example. both industries entail the production of differentiated products.Chapter 23 #2 Micro: 211 Topic: 1 Type: Application of Concept 2. Nonprice competition refers to: a. b. few dominant firms and substantial entry barriers. and changes in the real or perceived characteristics of a product. Monopolistic competition resembles pure competition because: a.Chapter 23 #4 Micro: 212 Topic: 1 Type: Application of Concept 3. competition between products of different industries.Ch 23 Practice Test 3 Key 1. barriers to entry are either weak or nonexistent. Econ: 446 Learning Objective: 23-1 McConnell . product promotion. d. C d. B c. monopolistic competition. Econ: 445 Learning Objective: 23-1 McConnell .Chapter 23 #8 Micro: 211 Status: New Topic: 1 Type: Application of Concept 5. monopolistically competitive producers use strategic pricing strategies to combat rivals. low barriers to entry. advertising. of product differentiation and consequent product promotion activities. product development. homogeneous oligopoly. c.Chapter 23 #12 Micro: 212 Topic: 1 Type: Definition 2 . the number of firms in the industry is larger. countervailing power. Econ: 446 Learning Objective: 23-1 McConnell .Chapter 23 #10 Micro: 211 Status: New Topic: 1 Type: Application of Concept 6. d.4. an industry or firm in long-run equilibrium. b. The restaurant. Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because: A b. the differences in information which consumers have regarding various products. and clothing industries are each illustrations of: a. Econ: 445 Learning Objective: 23-1 McConnell . monopolistically competitive firms cannot realize an economic profit in the long run. C d. Nonprice competition refers to: a. d. legal assistance. pure monopoly. and product packaging. a perfectly elastic demand curve and the monopolistic element from low entry barriers. highly inelastic demand curve. d. A monopolistically competitive industry combines elements of both competition and monopoly.Chapter 23 #16 Micro: 212 Topic: 1 Type: Application of Concept 9. Econ: 446 Learning Objective: 23-1 McConnell . Econ: 445 Learning Objective: 23-1 McConnell . C d. productive efficiency will be achieved. c. Econ: 446 Learning Objective: 23-1 McConnell . perfectly elastic demand curve.7. a relatively large number of firms and the monopolistic element from product differentiation.Chapter 23 #14 Micro: 211 Topic: 1 Type: Application of Concept 8. A monopolistically competitive firm has a: A b. product differentiation and the monopolistic element from high entry barriers. It is correct to say that the competitive element results from: A b. d. highly elastic demand curve. allocative efficiency will be achieved. c. The monopolistic competition model predicts that: a. firms will realize economic profits in the long run.Chapter 23 #18 Micro: 212 Topic: 2 Type: Definition 3 . b. firms will engage in nonprice competition. perfectly inelastic demand curve. a highly inelastic demand curve and the monopolistic element from advertising and product promotion. larger will be the monopolistically competitive firm's fixed costs. directly with the number of competitors and the degree of product differentiation.Chapter 23 #22 Micro: 213 Topic: 2 Type: Application of Concept 12. less elastic is the monopolistically competitive firm's demand curve. C d. does not exist because the firm is a "price maker.Chapter 23 #24 Micro: 214 Topic: 2 Type: Application of Concept 4 . inversely with the number of competitors. is downsloping and coincides with the demand curve. coincides with the demand curve and is parallel to the horizontal axis. c. inversely with the number of competitors and the degree of product differentiation. Econ: 448 Learning Objective: 23-1 McConnell . C d. The price elasticity of a monopolistically competitive firm's demand curve varies: a. more elastic is the monopolistically competitive firm's demand curve. but inversely with the degree of product differentiation. The larger the number of firms and the smaller the degree of product differentiation the: a. A monopolistically competitive firm's marginal revenue curve: a." Econ: 447 Learning Objective: 23-1 McConnell . b. but directly with the degree of product differentiation.Chapter 23 #20 Micro: 214 Topic: 2 Type: Application of Concept 11. Econ: 448 Learning Objective: 23-1 McConnell . is downsloping and lies below the demand curve. b. b. directly with the number of competitors.10. D greater the divergence between the demand and the marginal revenue curves of the monopolistically competitive firm. Chapter 23 #28 Micro: 214 Status: New Topic: 3 Type: Application of Concept 15. marginal revenue equals marginal cost. may be either equal to ATC. Econ: 448 Learning Objective: 23-2 McConnell .13. equal to marginal cost.Chapter 23 #26 Micro: 213 Status: New Topic: 3 Type: Application of Concept 14. C d. In the long-run. d. The monopolistically competitive seller maximizes profit by producing at the point where: a. Econ: 448 Learning Objective: 23-1 McConnell . price equals marginal revenue. the price charged by the monopolistically competitive firm attempting to maximize profits: a. b. above marginal cost. must be more than ATC. will be equal to ATC. c. Econ: 447 Learning Objective: 23-1 McConnell .Chapter 23 #30 Micro: 214 Topic: 3 Type: Application of Concept 5 . b. equal to marginal revenue. D must be less than ATC. c. In the long-run. total revenue is at a maximum. average costs are at a minimum. below marginal cost. less than ATC. or more than ATC. a profit-maximizing monopolistically competitive firm sets it price: A b. Econ: 449 Learning Objective: 23-1 McConnell . differential between price and marginal costs which characterizes monopolistically competitive firms. amount by which actual production falls short of the minimum ATC output. MC = ATC b.Chapter 23 #34 Micro: 215 Topic: 3 Type: Definition McConnell .Chapter 23 #32 Micro: 213 Topic: 3 Type: Application of Concept 17.Chapter 23 6 . Excess capacity refers to the: A b. MC exceeds MR C P exceeds minimum ATC d. Which of the following is correct for a monopolistically competitive firm in long-run equilibrium? a.16. d. c. P = MC Econ: 447 Learning Objective: 23-2 McConnell . fact that entry barriers artificially reduce the number of firms in an industry. fact that most monopolistically competitive firms encounter diseconomies of scale. Assume the firm is part of an increasing-cost industry. 210. b. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. leave this industry. b. enter this industry. causing demand to fall and the ATC curve to shift upward. 180. causing both demand and the ATC curve to shift upward. Econ: 447 Learning Objective: 23-1 McConnell . causing demand to rise and the ATC curve to shift downward. C d. In the long run firms will: a. causing both demand and the ATC curve to shift upward.18. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium.Chapter 23 7 . Econ: 448 Learning Objective: 23-2 McConnell .Chapter 23 #36 Micro: 213 Topic: 3 Type: Graphical 19. The profit-maximizing output for this firm will be: a. enter this industry. 100. C d. enter this industry. 160.Chapter 23 #38 Micro: 214 Topic: 3 Type: Graphical McConnell . below MR. d. d.Chapter 23 8 . B c.20. In short-run equilibrium. no firms will exit the industry. c. the monopolistically competitive firm shown above will set its price: A b.Chapter 23 #42 Micro: 214 Topic: 3 Type: Graphical McConnell . Econ: 447 Learning Objective: 23-1 McConnell . Econ: 448 Learning Objective: 23-2 McConnell . below ATC. new firms will enter the industry. above ATC. If all monopolistically competitive firms in the industry have profit circumstances similar to the firm shown above: a. some firms will exit the industry. below MC. all firms will exit the industry.Chapter 23 #40 Micro: 213 Topic: 3 Type: Graphical 21. Chapter 23 #44 Micro: 213 Topic: 3 Type: Graphical McConnell .22. cannot operate at a loss. is in long-run equilibrium. The monopolistically competitive firm shown in the above figure: a. c. b. is realizing an economic profit. Econ: 447 Learning Objective: 23-1 McConnell .Chapter 23 9 . D will realize allocative efficiency at its profit-maximizing output. Refer to the above diagrams. both diagrams a and c. diagram a only. diagram c only. d. diagram b only. Econ: 447 Learning Objective: 23-1 McConnell . both diagrams b and c. which pertain to monopolistically competitive firms.23.Chapter 23 #46 Micro: 213 Topic: 3 Type: Graphical 24. Refer to the above diagrams.Chapter 23 10 . Long-run equilibrium is shown by: A diagram a only. which pertain to monopolistically competitive firms. b. b. Econ: 447 Learning Objective: 23-2 McConnell .Chapter 23 #48 Micro: 213 Topic: 3 Type: Graphical McConnell . d. diagram b only. c. C diagram c only. Short-run equilibrium entailing economic loss is shown by: a. Chapter 23 #52 Micro: 214 Topic: 3 Type: Graphical McConnell .Chapter 23 11 . d. equilibrium output would decline and equilibrium price would fall. above A.25. If more firms would enter the industry and product differentiation would weaken: a. Long-run equilibrium price will be: a. Refer to the above diagram for a monopolistically competitive firm. Econ: 447 Learning Objective: 23-2 McConnell .Chapter 23 #50 Micro: 213 Topic: 3 Type: Graphical 26. EF. B. b. B c. Refer to the above diagram for a monopolistically competitive firm. C d. resource misallocation would become more severe. the demand curve would become more elastic. A. equilibrium output would decline and equilibrium price would rise. Econ: 448 Learning Objective: 23-2 McConnell . MR = MC and minimum ATC > P.27. be unaffected. marginal revenue equals marginal cost and price equals average total cost. B c. b. d. g. When a monopolistically competitive firm is in long-run equilibrium: a.Chapter 23 #56 Micro: 213 Topic: 3 Type: Application of Concept 29. incur a loss. shift to the right. Econ: 447 Learning Objective: 23-2 McConnell . normal profit is zero and price equals marginal cost. Econ: 448 Learning Objective: 23-2 McConnell . MR = MC and P > minimum ATC. c. economic profit is zero and price equals marginal cost. go bankrupt. In long-run equilibrium. production takes place where ATC is minimized. D e. f. c. realize an economic profit. d.Chapter 23 #58 Micro: 214 Topic: 3 Type: Application of Concept 12 . P = MC = ATC. the demand curves of the remaining firms will: a. h. earn a normal profit. MR > MC and P = minimum ATC. If some firms leave a monopolistically competitive industry. Econ: 447 Learning Objective: 23-2 McConnell .Chapter 23 #54 Micro: 213 Topic: 3 Type: Graphical 28. shift to the left. the firm shown in the diagram above will: A b. become more elastic. firms will leave the industry and the demand curves of the remaining firms will shift to the right. In long-run equilibrium monopolistic competition entails: A b. B c. d. an overallocation of resources. price will equal marginal cost. e. Econ: 448 Learning Objective: 23-2 McConnell . c. production at the minimum attainable average total cost. the demand curves facing existing firms would shift to the left. firms will leave the industry and the demand curves of the remaining firms will shift to the left. h.Chapter 23 #62 Micro: 213 Topic: 3 Type: Application of Concept 32. If there are short-run economic profits. the demand curves facing existing firms would become less elastic. f. Econ: 449 Learning Objective: 23-2 McConnell .Chapter 23 #64 Micro: 215 Topic: 3 Type: Application of Concept 13 . Econ: 447 Learning Objective: 23-2 McConnell . an efficient allocation of resources. If there are short-run economic profits. firms will leave the industry and the demand curves of the remaining firms will shift to the right. d. the demand curves facing existing firms would shift to the right. if more firms enter a monopolistically competitive industry: a. firms will enter the industry and the demand curves of existing firms will shift to the right. losses would necessarily occur.Chapter 23 #60 Micro: 214 Topic: 3 Type: Application of Concept 31. an underallocation of resources. d. B c. economic profits will be some positive amount. price will equal average total cost. g. For a monopolistically competitive firm in long-run equilibrium: a. marginal revenue will exceed marginal cost. If there are short-run losses. Other things equal. If there are short-run losses.30. Chapter 23 33.Answer the next question(s) on the basis of the following demand and cost data for a specific firm: McConnell . Econ: 448 Learning Objective: 23-1 McConnell . If columns (1) and (3) of the demand data shown above are this firm's demand schedule. B c. 9 units. 10 units. D $10. $8.Chapter 23 #66 Micro: 214 Topic: 3 Type: Table 34. Econ: 448 Learning Objective: 23-1 McConnell . d. 8 units. $6. economic profit will be: a. the profit-maximizing level of output will be: a. c. 12 units. b. If columns (1) and (3) of the demand data shown above are this firm's demand schedule.Chapter 23 #68 Micro: 214 Topic: 3 Type: Table 14 . $19. Suppose that entry into this industry changes this firm's demand schedule from columns (1) and (3) shown above to columns (2) and (3). c. An important similarity between a monopolistically competitive firm and a purely competitive firm is that: a. higher its price relative to that of a pure competitor having the same cost curves. the: a. both face perfectly elastic demand schedules. b. economic profit tends toward zero for both. D a pure monopoly. lower its average total cost at its equilibrium level of output. less its excess capacity.Chapter 23 #72 Micro: 214 Topic: 3 Type: Application of Concept 37. Econ: 448 Learning Objective: 23-1 McConnell . B c.35. We can conclude that this industry is: a. both realize productive efficiency. purely competitive. higher its long-run profits. monopolistically competitive. d. B c.Chapter 23 #70 Micro: 214 Topic: 3 Type: Table 36. d. Econ: 448 Learning Objective: 23-1 McConnell . The less elastic a monopolistic competitor's long-run demand curve. a constant cost industry. Econ: 448 Learning Objective: 23-1 McConnell . both realize allocative efficiency.Chapter 23 #74 Micro: 214 Topic: 3 Type: Application of Concept 15 . Refer to the above diagram for a monopolistically competitive producer. excess capacity of CD. In the long run a monopolistically competitive firm: a. a shortage of production capacity.McConnell . produces where P = ATC. d.Chapter 23 38. Econ: 447-449 Learning Objective: 23-1 McConnell . Econ: 448 Learning Objective: 23-2 McConnell .Chapter 23 #76 Micro: 213-215 Topic: 3 Type: Graphical 39. This firm is experiencing: a. diseconomies of scale. C d. achieves allocative efficiency. earns an economic profit. excess capacity of DE. produces where MR exceeds MC. B c. b.Chapter 23 #78 Micro: 214 Topic: 3 Type: Application of Concept 16 . Chapter 23 #84 Micro: 216 Topic: 4 Type: Application of Concept 17 . The greater the degree of product variation. D advertising expenditures shift the average cost curve upward. less likelihood of X-inefficiency. b. consumers have a number of variations of the product from which to choose. Econ: 450 Learning Objective: 23-1 McConnell . improved resource allocation. c. available capacity is fully utilized. resources are optimally allocated to the production of the product. C d. Econ: 450 Learning Objective: 23-1 McConnell . The excess capacity problem diminishes as the monopolistically competitive firm's demand curve becomes less elastic. Which of the following is correct? a.Chapter 23 #80 Micro: 216 Topic: 4 Type: Application of Concept 41. b. The excess capacity problem means that monopolistically competitive firms typically produce at some point on the rising segment of their average total cost curve. b.40. A significant benefit of monopolistic competition compared with pure competition is: a. Econ: 450 Learning Objective: 23-1 McConnell . greater product variety. D The greater the degree of product variation. stronger incentives to achieve economies of scale. the greater is the excess capacity problem. The economic inefficiencies of monopolistic competition may be offset by the fact that: a. the lesser is the excess capacity problem.Chapter 23 #82 Micro: 216 Topic: 4 Type: Fact 42. c. but not allocative efficiency. b. The term oligopoly indicates: a. lower its long-run profit. the higher its price relative to that of a pure competitor having the same cost curves. a one-firm industry. Econ: 449 Learning Objective: 23-2 McConnell . Econ: 449 Learning Objective: 23-2 McConnell . c. The more elastic a monopolistic competitor's long-run demand curve. b. D greater its excess capacity.Chapter 23 #86 Micro: 215 Topic: 4 Type: Application of Concept 44. a few firms producing either a differentiated or a homogeneous product. allocative efficiency. neither productive efficiency nor allocative efficiency. but not productive efficiency. In long-run equilibrium a monopolistically competitive producer achieves: A b. both productive efficiency and allocative efficiency. an industry whose four-firm concentration ratio is low. lower its average total cost at its profit maximizing level of output. Econ: 451 Learning Objective: 23-3 McConnell .Chapter 23 #90 Micro: 217 Topic: 5 Type: Definition 18 . the: a.Chapter 23 #88 Micro: 215 Status: New Topic: 4 Type: Application of Concept 45. c. productive efficiency.43. d. many producers of a differentiated product. C d. a few dominant firms and no barriers to entry. the products of various firms are homogeneous. Econ: 451 Learning Objective: 23-3 McConnell . Subway Sandwiches Pittsburgh Plate Glass Ford Motor Company Kaiser Aluminum. a small number of firms produce a large proportion of industry output.Chapter 23 #96 Micro: 217 Topic: 5 Type: Application of Concept 19 . the demand curves of firms are kinked at the prevailing price. the products of various firms are differentiated. The mutual interdependence that characterizes oligopoly arises because: a. Which of the following companies most closely approximates a differentiated oligopolist in a highly concentrated industry? a. Oligopolistic industries are characterized by: A b. c.Chapter 23 #92 Micro: 217 Topic: 5 Type: Definition 47. a few dominant firms and substantial entry barriers.Chapter 23 #94 Micro: 217 Topic: 5 Type: Complex Analysis 48. a large number of firms and low entry barriers. C d. Use your basic knowledge and your understanding of market structures to answer this question. Econ: 451 Learning Objective: 23-3 McConnell . a few dominant firms and low entry barriers. Econ: 451 Learning Objective: 23-3 McConnell . C d.46. b. b. d. B c. d. interproduct competition. B c. a firm that is large may be able to produce at a lower unit cost than can a small firm. and industrial alcohol industries are examples of: a.Chapter 23 #102 Micro: 221 Topic: 5 Type: Application of Concept 20 . entry to that industry will be easy. d. Econ: 451 Learning Objective: 23-3 McConnell . neither allocative nor productive efficiency is achieved.Chapter 23 #100 Micro: 217 Topic: 5 Type: Application of Concept 51. output may be either homogenous or differentiated.49. Econ: 455 Learning Objective: 23-3 McConnell . differentiated oligopoly. The copper. If there are significant economies of scale in an industry.Chapter 23 #98 Micro: 217 Topic: 5 Type: Application of Concept 50. firms must differentiate their products to earn economic profits. Econ: 451 Learning Objective: 23-3 McConnell . cement. c. d. monopolistic competition. aluminum. the number of firms is too large to make collusion understandable. the price and output decisions of any one firm depend on the reactions of its rivals. Oligopoly is difficult to analyze primarily because: a. homogeneous oligopoly. then: A b. a firm that is large will have to charge a higher price than will a small firm. C d. Differentiated oligopoly exists where a small number of firms are: A b. always produce differentiated products. producing goods that differ in terms of quality and design. c. Econ: 451 Learning Objective: 23-3 McConnell .Chapter 23 #108 Micro: 217 Topic: 5 Type: Definition 21 . producing virtually identical products. always produce standardized products.52. are characterized by a relatively large number of small sellers.Chapter 23 #106 Micro: 217 Topic: 5 Type: Definition 54. Which of the following is an illustration of differentiated oligopoly? a. B c.Chapter 23 #104 Micro: 217 Topic: 5 Type: Application of Concept 53. b. d. Oligopolistic industries: a. setting price and output collusively. setting price and output independently. may produce either standardized or differentiated products. Econ: 451 Learning Objective: 23-3 McConnell . the aluminum industry the steel industry the soft drink industry retail stores in large cities Econ: 451 Learning Objective: 23-3 McConnell . d. If the four-firm concentration ratio for industry X is 80: A b.Chapter 23 #112 Micro: 217 Topic: 5 Type: Application of Concept 57. in monopolistic competition. d. Prices are likely to be least flexible: A b. each of the four largest firms accounts for 20 percent of total sales. c. the industry is monopolistically competitive. where product demand is inelastic. Clear-cut mutual interdependence with respect to the price-output policies exists in: a. d. pure monopoly oligopoly monopolistic competition pure competition Econ: 451 Learning Objective: 23-3 McConnell . in pure competition. Econ: 452 Learning Objective: 23-3 McConnell . d.Chapter 23 #114 Micro: 218 Topic: 6 Type: Application of Concept 22 . c. the four largest firms account for 80 percent of total sales. B c. Econ: 451 Learning Objective: 23-3 McConnell .55. in oligopoly.Chapter 23 #110 Micro: 217 Topic: 5 Type: Application of Concept 56. the four largest firms account for 20 percent of total sales. price leadership exists in this industry. $100 million.Chapter 23 #120 Micro: 218 Topic: 6 Type: Application of Concept 23 . $150 million. exceeds the Herfindahl index. this industry is a differentiated oligopoly. oligopoly exists when the four-firm concentration ratio: a. 10. C d. Econ: 453 Learning Objective: 23-3 McConnell . is 15 percent or more.Chapter 23 #118 Micro: 219 Topic: 6 Type: Application of Concept 60. and $50 million. B c. the concentration ratio is more than 80 percent. B c. d.Chapter 23 #116 Micro: 218 Topic: 6 Type: Application of Concept 59. is 40 percent or more. Econ: 452 Learning Objective: 23-3 McConnell .000. 100. We can conclude that: a. 100.58. As a general rule.000. The Herfindahl index for a pure monopolist is: a. is less than the Herfindahl index. respectively. the firms in this industry face a kinked demand curve. 10. Econ: 452 Learning Objective: 23-3 McConnell . Suppose that total sales in an industry in a particular year are $600 million and sales by the top four sellers are $200 million. d. b. 61. Concentration ratios: a. b. C d. may overstate the degree of competition because they ignore imported products. may overstate the degree of competition because interindustry competition is ignored. may understate the degree of competition because they ignore imported products. provide detailed insights as to the price and output behavior of firms which comprise the various industries. Econ: 452 Learning Objective: 23-3 McConnell - Chapter 23 #122 Micro: 218 Topic: 6 Type: Application of Concept 62. Concentration ratios may be inaccurate indicators of the degree of monopoly power in an industry because: a. B c. d. they include interindustry competition. foreign competition is not considered. they are only calculated for local and regional markets. they do not distinguish between normal and economic profit. Econ: 452 Learning Objective: 23-3 McConnell - Chapter 23 #124 Micro: 218 Topic: 6 Type: Application of Concept 63. Interindustry competition means that: a. in oligopolistic industries a few large firms compete with one another in bidding down product price. B in some markets the producers of a particular product might face competition from products produced by other industries. c. firms that sell a product at one stage of production are faced with firms that buy the product at the next stage of production. d. in most industries there are usually a number of firms producing identical products. Econ: 452 Learning Objective: 23-3 McConnell - Chapter 23 #126 Micro: 218 Topic: 6 Type: Definition 24 64. The Herfindahl Index: a. b. c. D measures the prices charged by oligopolistic manufacturers. is another name for the four-firm concentration ratio. tells us whether oligopolistic firms are engaging in collusion. gives much greater weight to larger firms than to smaller firms in an industry. Econ: 453 Learning Objective: 23-3 McConnell - Chapter 23 #128 Micro: 219 Topic: 6 Type: Application of Concept 65. Assume six firms comprising an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl Index for this industry is: a. b. C d. 2,000. 1,600. 2,200. 80. Econ: 453 Learning Objective: 23-3 McConnell - Chapter 23 #130 Micro: 219 Topic: 6 Type: Application of Concept McConnell - Chapter 23 66. The industry characterized by the above information is: A b. c. d. an oligopoly. a purely competitive industry. a monopolistically competitive industry. a pure monopoly. Econ: 452 Learning Objective: 23-3 McConnell - Chapter 23 #132 Micro: 218 Topic: 6 Type: Table 25 67. The Herfindahl Index for the above industry is: a. B c. d. 1,600. 1,800. 18,000. 80. Econ: 453 Learning Objective: 23-3 McConnell - Chapter 23 #134 Micro: 219 Topic: 6 Type: Table 68. Suppose that firms in this industry miraculously split up such that there were 100 firms, each with a one percent market share. The four-firm concentration ratio and the Herfindahl Index respectively would be: a. b. c. D 100 percent and 10,000. 4 percent and 4. 100 percent and 16. 4 percent and 100. Econ: 452-453 Learning Objective: 23-3 McConnell - Chapter 23 #136 Micro: 218-219 Status: New Topic: 6 Type: Table McConnell - Chapter 23 69. Refer to the above data. The Herfindahl Index for this industry is: a. b. c. D 95. 1000. 2925. 2950. Econ: 453 Learning Objective: 23-3 McConnell - Chapter 23 #138 Micro: 219 Topic: 6 Type: Application of Concept 26 c. Refer to the data above. normative economics.70.Chapter 23 #142 Micro: 219 Topic: 7 Type: Application of Concept 72. fall. The study of how people (or firms) behave in strategic situations is called: a. fall. b. Econ: 453 Learning Objective: 23-4 McConnell . game theory. monopolistic competitors. Econ: 452-453 Learning Objective: 23-3 McConnell . D pure monopolists. the industry's four-firm concentration ratio would ____ and its Herfindahl Index would ____: A b. Game theory is best suited to analyze the pricing behavior of: a. b. d. rise. c. recursive analysis. rise. rise remain the same.Chapter 23 #144 Micro: 219 Topic: 7 Type: Application of Concept 27 . oligopolists. rise. pure competitors. D cost-benefit analysis.Chapter 23 #140 Micro: 218-219 Status: New Topic: 6 Type: Application of Concept 71. remain the same. c. If Firm B merged with Firm C. Econ: 453 Learning Objective: 23-4 McConnell . c. Refer to the above diagram wherein the numerical data show profits in millions of dollars. game theory.McConnell . Econ: 453 Learning Objective: 23-4 McConnell . The above matrix best illustrates: A b. price discrimination. but only if Beta agrees to do the same. product differentiation. Alpha will gain the largest profit by: a.Chapter 23 #146 Micro: 219 Topic: 7 Type: Table 74. also adopting a high-price policy. the principal-agent problem. engaging in non-price competition only. adopting a low-price policy.Chapter 23 73. Econ: 453 Learning Objective: 23-4 McConnell . Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. adopting a low-price policy. d. If Beta commits to a high-price policy. B c. d.Chapter 23 #148 Micro: 219 Topic: 7 Type: Table 28 . If Alpha and Beta engage in collusion.75.Chapter 23 76. D a price higher than $6. b. d. Econ: 453 Learning Objective: 23-4 McConnell . c.Chapter 23 #150 Micro: 219 Topic: 7 Type: Table McConnell . a price between $5 and $6. D. $4.Chapter 23 #152 Micro: 219 Topic: 7 Type: Table 29 . the outcome of the game will be at cell: A b. A. Refer to the above diagram where the numerical data show profits in millions of dollars. C. B. c. Econ: 453 Learning Objective: 23-4 McConnell . $6. If the firms are acting independently and firm X sets its price at $6. Refer to the above profits-payoff table for a duopoly. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. firm Y will achieve the largest profit by selecting: a. With collusion and no cheating. Y would find it profitable to cut price. b. the outcome of the game is cell: a. C d. both firms would profit by simultaneously lowering their prices by $1. provided Y also cut price. X would find it profitable to cut price. D A. c. B. Acme's profits are shown in the lower left. Econ: 453 Learning Objective: 23-4 McConnell . b.Chapter 23 #154 Micro: 219 Topic: 7 Type: Table McConnell . Refer to the above profits-payoff table for a duopoly. Y would find it profitable to raise price by $1.77. Econ: 453 Learning Objective: 23-4 McConnell .Chapter 23 #156 Micro: 219 Topic: 7 Type: Application of Concept 30 . D. provided X would also raise price by $1. C. If initially firm X's price was $6 and Y's price was $5: a. provided X also cut price. Ajax's profits are shown in the upper right part of each cell. Refer to the above game theory matrix where the numerical data show the profits resulting from alternative combinations of advertising strategies for Ajax and Acme.Chapter 23 78. d. The kinked-demand curve of an oligopolist is based on the assumption that: A b. but lower total revenue by decreasing price. decrease total revenue by either increasing or decreasing price. increase total revenue by decreasing price. The kinked-demand curve model helps to explain price rigidity because: A b. then it will: a. competitors will ignore a price cut but follow a price increase. there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price. competitors will follow a price cut but ignore a price increase. and relatively inelastic below.Chapter 23 #162 Micro: 223 Topic: 8 Type: Application of Concept 31 . but lower total revenue by increasing price. increase total revenue by increasing price.Chapter 23 #160 Micro: 223 Topic: 8 Type: Application of Concept 81. the associated marginal revenue curve is perfectly elastic at the going price.79. If an oligopoly is faced with a kinked-demand curve that is relatively elastic above. demand is inelastic above and elastic below the going price. d. increase total revenue by either increasing or decreasing price. the going price. Econ: 455 Learning Objective: 23-5 McConnell . c. the model assumes firms are engaging in some form of collusion. Econ: 457 Learning Objective: 23-5 McConnell . competitors will match both price cuts and price increases. c.Chapter 23 #158 Micro: 221 Topic: 8 Type: Application of Concept 80. there is no product differentiation. d. Econ: 457 Learning Objective: 23-5 McConnell . B c. If an oligopolist is faced with a marginal revenue curve that has a gap in it.Chapter 23 83.Chapter 23 #164 Micro: 222 Topic: 8 Type: Application of Concept McConnell . its demand curve is kinked. d. it is selling a standardized product. Demand curves D1 and D2 both assume that rivals will ignore any price change initiated by this oligopolist.82. Demand curve D1 assumes that rivals will match any price change initiated by this oligopolist. c. Suppose that the firm is initially in equilibrium at point E where the equilibrium price and quantity are P and Q. we may assume that: a. Demand curve D2 assumes that rivals will match any price change initiated by this oligopolist. B c. Demand curves D1 and D2 both assume that rivals will match any price change initiated by this oligopolist. Which of the following statements is correct? A b. d. it is selling a differentiated product. Refer to the above diagram for a noncollusive oligopolist.Chapter 23 #166 Micro: 221-222 Topic: 8 Type: Graphical 32 . Econ: 455-456 Learning Objective: 23-5 McConnell . it is colluding with its rivals to maximize joint profits. Econ: 456 Learning Objective: 23-5 McConnell . D1ED2. collusive oligopoly. B c.Chapter 23 #168 Micro: 221-222 Topic: 8 Type: Graphical McConnell . MR1bMR1. the firm's marginal revenue curve will be: a. Econ: 455-456 Learning Objective: 23-5 McConnell . b.Chapter 23 85. Refer to the above diagram for a noncollusive oligopolist. d. C d. The above diagram portrays: a. MR2abMR1. If the firm's rivals will ignore any price increase but match any price reduction. MR2aMR2. pure competition.84. We assume that the firm is initially in equilibrium at point E where the equilibrium price and quantity are P and Q. pure monopoly. Econ: 456 Learning Objective: 23-5 McConnell . noncollusive oligopoly.Chapter 23 #170 Micro: 222 Topic: 8 Type: Graphical 33 . Econ: 456 Learning Objective: 23-5 McConnell . Equilibrium price is: a. d.86. Econ: 455-456 Learning Objective: 23-5 McConnell . an abrupt change in price elasticity occurs. A kink may exist in an oligopolist's demand curve because: a. the firm will ignore price cuts by rivals. d. is realizing an economic profit of bd per unit. B c. c. Refer to the above diagram. is incurring a loss. d. In equilibrium the firm: A is realizing an economic profit of ad per unit. Econ: 456 Learning Objective: 23-5 McConnell . Refer to the above diagram. e. b. products are differentiated. should close down in the short run.Chapter 23 #176 Micro: 222 Topic: 8 Type: Application of Concept 34 . c.Chapter 23 #174 Micro: 221-222 Topic: 8 Type: Graphical 88. b. there is a gap in marginal costs. but will match their price increases. d.Chapter 23 #172 Micro: 222 Topic: 8 Type: Graphical 87. B c. B c. a purely competitive producer. d. they are illegal in all industrialized countries. a pure monopoly. a monopolistically competitive producer. the resulting output and price will approximate those of: a. If the firms in an oligopolistic industry can establish an effective cartel. Econ: 458 Learning Objective: 23-6 McConnell . b.Chapter 23 #180 Micro: 225 Topic: 9 Type: Application of Concept 91. entry barriers are insignificant in oligopolistic industries. an industry with a low four-firm concentration ratio. d. the P = MC level of output. it is more profitable for the industry to charge a lower price and produce more output. Econ: 459 Learning Objective: 23-6 McConnell . d. Econ: 457 Learning Objective: 23-6 McConnell . Oligopolistic firms engage in collusion to: a. realize allocative efficiency. B c. minimize unit costs of production.Chapter 23 #182 Micro: 224 Topic: 9 Type: Application of Concept 35 .Chapter 23 #178 Micro: 223 Topic: 9 Type: Application of Concept 90. individual members may find it profitable to cheat on agreements. increase production.89. that is. C earn greater profits. Cartels are difficult to maintain in the long run because: a. Chapter 23 #184 Micro: 225 Topic: 9 Type: Application of Concept 93. Suppose the only three existing manufacturers of video game players signed a written contract by which each agreed to charge the same price for products and to distribute their products only in the geographical area assigned them in the contract. b. multiproduct pricing. Suppose firms in a collusive oligopoly decide to establish their prices at a level that discourages new rivals from entering the industry. b. Assume the several manufacturers of ceramic tile in a city reach a verbal agreement to establish the price of their product at 55 cents per tile.92. C d. This best describes: a.Chapter 23 #188 Micro: 226 Topic: 9 Type: Definition 36 . a cartel. Econ: 457 Learning Objective: 23-6 McConnell . a tacit understanding. cost-plus pricing.Chapter 23 #186 Micro: 223 Topic: 9 Type: Definition 94. mutual interdependence. C d. C d. price leadership. a cartel. multiproduct pricing. Econ: 460 Learning Objective: 23-6 McConnell . Econ: 459 Learning Objective: 23-6 McConnell . price leadership. This is called: a. b. price leadership. This best describes: a. pricing the demand curve. limit pricing. Iran. c. Which of the following nations is not a member of the OPEC oil cartel? a. Econ: 458 Learning Objective: 23-6 McConnell . when the number of firms is relatively large. covert collusion. Venezuela. cartels and similar collusive arrangements are easier to establish and maintain: a. during periods of cyclical stability and full employment. B c. D Saudi Arabia. D cartels. d. price leadership.Chapter 23 #192 Micro: 224 Topic: 9 Type: Fact 97. Secret conspiracies to fix prices are examples of: a. c. Other things equal.Chapter 23 #190 Micro: 225 Topic: 9 Type: Application of Concept 96. Econ: 458 Learning Objective: 23-6 McConnell .Chapter 23 #194 Micro: 224 Topic: 9 Type: Fact 37 . when there are ample opportunities for the firms to make secret price concessions to selected buyers. overt collusion. b.95. when the demand and cost conditions of the participating firms differ substantially. Econ: 459 Learning Objective: 23-6 McConnell . Norway. b. Econ: 462 Learning Objective: 23-7 McConnell . increases consumer awareness of substitute products. means that barriers to entering the industry are high. boosts average total cost. Econ: 461 Learning Objective: 23-7 McConnell . d. Econ: 462 Learning Objective: 23-7 McConnell .Chapter 23 #200 Micro: 228 Topic: 10 Type: Application of Concept 38 . raises entry barriers. c. Advertising can impede economic efficiency when it: A b. may or may not mean substantial monopoly power in the industry. The presence of advertising in a particular market: a. increases consumer awareness of substitute products. b.98. D tells us that the industry is an oligopoly. C d.Chapter 23 #196 Micro: 227 Topic: 10 Type: Application of Concept 99. increases brand loyalty.Chapter 23 #198 Micro: 228 Topic: 10 Type: Application of Concept 100. reduces brand loyalty. Advertising can enhance economic efficiency when it: a. b. c. enables firms to achieve substantial economies of scale. tells us that the industry is monopolistically competitive. increases entry barriers. c. Suppose that a particular industry has a four-firm concentration ratio of 85 and a Herfindahl Index of 3000. The conclusion that oligopoly is inefficient relative to the competitive ideal must be qualified because: a. oligopolistic markets only. Most likely. 451 Learning Objective: 23-1 Learning Objective: 23-3 McConnell .Chapter 23 #202 Micro: 229 Topic: 11 Type: Complex Analysis 102. increased output due to persuasive advertising may perfectly offset the restriction of output caused by monopoly power. many oligopolists sell their products in monopolistically competitive or even purely competitive industries. productive efficiency but not allocative efficiency. Product differentiation is present in: a. Econ: 463 Learning Objective: 23-3 McConnell . c. b. Econ: 445. b. D purely competitive markets only. this industry would achieve: a. industry price leaders often select a price equal to marginal cost.Chapter 23 #204 Micro: 229 Topic: 11 Type: Application of Concept 103. 217 Topic: 12 Type: Application of Concept 39 . allocative efficiency but not productive efficiency. C d. d. both monopolistically competitive and oligopolistic markets. both productive efficiency and allocative efficiency. monopolistically competitive markets only. neither productive efficiency nor allocative efficiency. B over time oligopolistic industries may promote more rapid product development and greater improvement of production techniques than if they were purely competitive.101. Econ: 463 Learning Objective: 23-3 McConnell .Chapter 23 #206 Micro: 211. pure monopoly oligopoly monopolistic competition pure competition Econ: 451 Learning Objective: 23-1 Learning Objective: 23-3 McConnell . b. b. A one-firm industry is known as: a.Chapter 23 #212 Micro: 166 Topic: 12 Type: Application of Concept 40 . d. c. An industry comprised of a very large number of sellers that are producing a homogeneous or standardized product is called: a.Chapter 23 #208 Micro: 217 Topic: 12 Type: Application of Concept 105.Chapter 23 #210 Micro: 166 Topic: 12 Type: Application of Concept 106. D monopolistic competition oligopoly pure monopoly pure competition Econ: 400 Learning Objective: 23-1 Learning Objective: 23-3 McConnell . c.104. In which of the following industry structures is the entry of new firms the most difficult? A b. C d. monopolistic competition oligopoly pure monopoly pure competition Econ: 400 Learning Objective: 23-1 Learning Objective: 23-3 McConnell . An industry producing a differentiated product whose four-firm concentration ratio is 18 percent is an example of: A b.Chapter 23 #214 Micro: 218 Topic: 12 Type: Application of Concept 108.Chapter 23 41 . d. c. monopolistic competition oligopoly pure monopoly pure competition Econ: 452 Learning Objective: 23-1 Learning Objective: 23-3 McConnell . In which of the following market models do individual firms exert no control over product price? a.107.Chapter 23 #216 Micro: 166 Topic: 12 Type: Application of Concept McConnell . b. c. D oligopoly pure monopoly monopolistic competition pure competition Econ: 400 Learning Objective: 23-1 Learning Objective: 23-3 McConnell . b. d. Figure D only. Refer to the above figures. Econ: 447. D Figure A only. Figure B only. Refer to the above figures. The purely competitive market model is portrayed in the above figures by: a. Figure A. c. D all four figures. 222 Topic: 12 Type: Graphical 42 . Figure C. B c. 456 Learning Objective: 23-1 Learning Objective: 23-3 McConnell . Econ: 417 Learning Objective: 23-1 Learning Objective: 23-3 McConnell . Product differentiation may be present in: a.109. b. Both allocative and productive efficiency are being realized in: a. Figures B and D. Figure B only. Figure B.Chapter 23 #220 Micro: 183 Topic: 12 Type: Graphical 111. Econ: 413 Learning Objective: 23-1 Learning Objective: 23-3 McConnell . c. Figure C only. both Figures C and D.Chapter 23 #218 Micro: 179 Topic: 12 Type: Graphical 110. both Figures B and D.Chapter 23 #222 Micro: 213. Chapter 23 #224 Micro: 196 Topic: 12 Type: Graphical 113. D Figures A and B. Figure B only. d. Figure C. Long-run economic profits are most likely to occur in: a. Figure D. Econ: 430 Learning Objective: 23-1 Learning Objective: 23-3 McConnell . Figures A and C.112. Figure D. Figure B.Chapter 23 #226 Micro: 173 Topic: 12 Type: Graphical 43 . Figure A. b. A homogeneous or standardized product is most likely to be produced in: a. Refer to the above figures. c. B c. Refer to the above figures. Econ: 407 Learning Objective: 23-1 Learning Objective: 23-3 McConnell . Chapter 23 # of Questions 3 1 1 1 1 4 1 5 12 1 1 15 4 3 12 8 2 13 2 3 4 4 3 3 1 1 2 2 39 16 39 8 10 9 3 129 1 . 456 Econ: 447-449 Econ: 448 Econ: 449 Econ: 450 Econ: 451 Econ: 452 Econ: 452-453 Econ: 453 Econ: 455 Econ: 455-456 Econ: 456 Econ: 457 Econ: 458 Econ: 459 Econ: 460 Econ: 461 Econ: 462 Econ: 463 Learning Objective: 23-1 Learning Objective: 23-2 Learning Objective: 23-3 Learning Objective: 23-4 Learning Objective: 23-5 Learning Objective: 23-6 Learning Objective: 23-7 McConnell .Ch 23 Practice Test 3 Summary Category Econ: 400 Econ: 407 Econ: 413 Econ: 417 Econ: 430 Econ: 445 Econ: 445. 451 Econ: 446 Econ: 447 Econ: 447. 217 Micro: 212 Micro: 213 Micro: 213. 222 Micro: 213-215 Micro: 214 Micro: 215 Micro: 216 Micro: 217 Micro: 218 Micro: 218-219 Micro: 219 Micro: 221 Micro: 221-222 Micro: 222 Micro: 223 Micro: 224 Micro: 225 Micro: 226 Micro: 227 Micro: 228 Micro: 229 Status: New Topic: 1 Topic: 10 Topic: 11 Topic: 12 Topic: 2 Topic: 3 Topic: 4 Topic: 5 Topic: 6 Topic: 7 Topic: 8 Topic: 9 3 1 1 1 1 4 1 5 12 1 1 15 4 3 12 8 2 13 2 3 4 4 3 3 1 1 2 2 7 8 3 2 11 4 27 5 12 14 8 10 9 2 .Micro: 166 Micro: 173 Micro: 179 Micro: 183 Micro: 196 Micro: 211 Micro: 211. Type: Application of Concept Type: Complex Analysis Type: Definition Type: Fact Type: Graphical Type: Table 65 2 11 3 21 11 3 .