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Assume price exceeds average variable cost over the relevant range of demand.If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19,then to maximize profits the firm should


A) continue to produce the same quantity.
B) increase output.
C) decrease output.
D) shutdown.

E) A) and C)
F) B) and D)

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Table 11-3 Table 11-3 Table 11-3 shows the demand and cost schedules for a monopolistically competitive firm. -Refer to Table 11-3.What is its average variable cost of production at its optimal output level? A) $0 (because its optimal output =0) B) $15 C) $14.75 D) $29 Table 11-3 shows the demand and cost schedules for a monopolistically competitive firm. -Refer to Table 11-3.What is its average variable cost of production at its optimal output level?


A) $0 (because its optimal output =0)
B) $15
C) $14.75
D) $29

E) A) and D)
F) B) and D)

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Figure 11-3 Figure 11-3 Figure 11-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 11-3.If the firm represented in the diagram is currently producing and selling Qa units,what is the price charged? A) P<sub>0</sub> B) P<sub>1</sub> C) P<sub>2</sub> D) P<sub>3</sub> Figure 11-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 11-3.If the firm represented in the diagram is currently producing and selling Qa units,what is the price charged?


A) P0
B) P1
C) P2
D) P3

E) A) and B)
F) C) and D)

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An oligopoly firm is similar to a monopolistically competitive firm in that


A) both firms face the prisoner's dilemma.
B) both operate in a market in which there are entry barriers.
C) both firms have market power.
D) both firms are in industries characterized by an interdependent firm.

E) A) and B)
F) All of the above

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Table 11-4 Table 11-4 Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow.Each firm must decide on whether to increase its advertising spending to compete for customers.Table 11-4 shows the payoff matrix for this advertising game. -Refer to Table 11-4.What is the Nash equilibrium in this game? A) There is no Nash equilibrium. B) Godrickporter increases its advertising budget,but Star Connections does not. C) Star Connections increases its advertising budget,but Godrickporter does not. D) Both Godrickporter and Star Connections increase their advertising budgets. Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow.Each firm must decide on whether to increase its advertising spending to compete for customers.Table 11-4 shows the payoff matrix for this advertising game. -Refer to Table 11-4.What is the Nash equilibrium in this game?


A) There is no Nash equilibrium.
B) Godrickporter increases its advertising budget,but Star Connections does not.
C) Star Connections increases its advertising budget,but Godrickporter does not.
D) Both Godrickporter and Star Connections increase their advertising budgets.

E) None of the above
F) A) and D)

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Which of the following is true of a typical firm in a monopolistically competitive industry?


A) Product differentiation allows a successful firm to emerge as a market leader in the industry.
B) All firms have identical cost structures.
C) The more successful firms have an incentive to merge in order to exert greater market power.
D) Each firm acts independently.

E) A) and B)
F) A) and C)

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A game in which each player adopts its dominant strategy


A) will not lead to an equilibrium.
B) must be a cooperative game.
C) could result in a Nash equilibrium.
D) can never result in a Nash equilibrium.

E) None of the above
F) C) and D)

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Table 11-3 Table 11-3 Table 11-3 shows the demand and cost schedules for a monopolistically competitive firm. -Refer to Table 11-3.What are the profit-maximizing/loss-minimizing output level and price? A) Q=0 (firm should not produce) B) Q=3;P=$18 C) Q=4;P=$17 D) Q=5;P=$16 Table 11-3 shows the demand and cost schedules for a monopolistically competitive firm. -Refer to Table 11-3.What are the profit-maximizing/loss-minimizing output level and price?


A) Q=0 (firm should not produce)
B) Q=3;P=$18
C) Q=4;P=$17
D) Q=5;P=$16

E) A) and D)
F) A) and C)

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Productive efficiency does not hold for a profit-maximizing,monopolistically competitive firm in the long-run equilibrium because the firm operates along the diseconomies-of-scale region of its average total cost curve.

A) True
B) False

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A dominant strategy


A) is one that is the best for a firm,no matter what strategies other firms use.
B) is one that a firm is forced into following by government policy.
C) involves colluding with rivals to maximize joint profits.
D) involves deciding what to do after all rivals have chosen their own strategies.

E) B) and D)
F) None of the above

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A monopolistically competitive industry that earns economic profits in the short run will


A) continue to earn economic profits in the long run.
B) experience the entry of new rival firms into the industry in the long run.
C) experience the exit of existing firms out of the industry in the long run.
D) experience a rise in demand in the long run.

E) B) and C)
F) C) and D)

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Each member of OPEC can increase its income by selling more oil than its output quota because


A) by selling more at OPEC's cartel price,a member will automatically earn more income.
B) each member's demand is more elastic than the total demand for oil.
C) the demand for oil is inelastic so total revenue increases.
D) the demand for oil is perfectly elastic.

E) A) and B)
F) A) and C)

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The financial situation at Starbucks in the late 2000s illustrates the fact that maintaining long-run profits in a monopolistically competitive market is


A) impossible.
B) very difficult.
C) fairly easy.
D) almost always guaranteed.

E) A) and B)
F) None of the above

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In the long run,what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?


A) The demand curve will shift to the left and became more elastic.
B) The demand curve will shift to the left and became less elastic.
C) The demand curve will shift to the right and became more elastic.
D) The demand curve will shift to the right and became less elastic.

E) A) and B)
F) A) and C)

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For allocative efficiency to hold,


A) price must equal marginal revenue of the last unit sold.
B) price must equal the marginal cost of the last unit produced.
C) average variable cost is minimized in production.
D) average total cost is minimized in production.

E) A) and B)
F) C) and D)

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Figure 11-11 Figure 11-11 -Refer to Figure 11-11.What is the productively efficient output for the firm represented in the diagram? A) Qf units B) Qg units C) Qh units D) Qj units -Refer to Figure 11-11.What is the productively efficient output for the firm represented in the diagram?


A) Qf units
B) Qg units
C) Qh units
D) Qj units

E) C) and D)
F) None of the above

Correct Answer

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A monopolistically competitive firm that is earning profits will,in the long run,experience all of the following except


A) new rivals entering the market.
B) a decrease in demand for its product.
C) demand for the firm's product becomes more elastic.
D) a decrease in the number of rival products.

E) B) and D)
F) C) and D)

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Consumers in monopolistically competitive markets face a tradeoff between paying prices greater than marginal costs and purchasing products that are more closely suited to their tastes.

A) True
B) False

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Figure 11-3 Figure 11-3 Figure 11-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 11-3.What is the area that represents the total variable cost of production? A) 0P<sub>0</sub>aQ<sub>a</sub> B) 0P<sub>1</sub>bQ<sub>a</sub> C) P<sub>0</sub>abP<sub>1</sub> D) P<sub>1</sub>bdP<sub>3</sub> Figure 11-3 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. -Refer to Figure 11-3.What is the area that represents the total variable cost of production?


A) 0P0aQa
B) 0P1bQa
C) P0abP1
D) P1bdP3

E) A) and C)
F) A) and B)

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All of the following are examples of oligopolistic markets except


A) the broadcasting industry
B) aircraft manufacture
C) college bookstores
D) seafood restaurant chains

E) All of the above
F) A) and B)

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