Question

Which of the following is most likely produced in a monopolistically competitive market?

	a.	Automobiles
	b.	Wheat
	c.	Oil
	d.	Fast food
	e.	Soybeans

Oligopolists are more sensitive to the pricing and output policies of their rivals when:

	a.	there are many firms in the industry.
	b.	all firms produce identical products.
	c.	there are barriers to entry.
	d.	there is freedom of entry and exit.
	e.	their products are highly differentiated.

It is harder to explain the behavior of firms in an oligopoly than in other market structures because:

	a.	firms base their decisions on what their rivals do.
	b.	the firms act independently of each other in an oligopoly.
	c.	the demand curve faced by a firm in an oligopoly can slope upward.
	d.	only differentiated products are produced by firms in an oligopoly.
	e.	only homogeneous products are produced by firms in an oligopoly.

A cartel is:

	a.	a group of monopolistically competitive firms that charge the same price.
	b.	illegal throughout the world.
	c.	a group of oligopolistic firms that engage in collusion.
	d.	usually legal in the United States.
	e.	an agreement among rival firms to set prices independently

1. Compared to a firm in perfect competition, a monopolistically competitive firm tends to:

   	a.	produce the same quantity.
   	b.	produce more and charge a lower price.
   	c.	produce more and charge a higher price.
   	d.	produce less and charge a higher price.
   	e.	produce less and charge a lower price.

1. In both monopolistic competition and a non-price-discriminating monopoly, _____.

   	a.	marginal revenue is equal to average revenue
   	b.	marginal revenue is equal to price
   	c.	the marginal revenue curve lies below the demand curve
   	d.	the marginal revenue curve lies above the demand curve
   	e.	the marginal revenue curve lies above the average revenue curve

1. A profit-maximizing firm in monopolistic competition should shut down in the short run if:

   	a.	price is more than average total cost.
   	b.	price is less than average variable cost.
   	c.	marginal revenue is equal to marginal cost.
   	d.	marginal revenue is less than price.
   	e.	price is less than average fixed cost.

1. The term “strategy” in terms of game theory refers to:

   	a.	the tendency for collusive firms to generate normal profits.
   	b.	each firm’s decision to charge a higher price than the price charged by the rival firm in an industry.
   	c.	the tendency of firms in an oligopoly to exit the market in the long run.
   	d.	each firm's game plan for making decisions.
   	e.	the tendency of firms to earn zero economic profit in the long run.

1. An oligopoly firm that _____ will earn long-run economic profit.

   	a.	incurs a high cost to achieve the minimum efficient scale
   	b.	charges a low price for its product
   	c.	enjoys huge brand loyalty
   	d.	charges a higher price for its product
   	e.	spends less on advertisement

Monopolistically competitive industries consist of:​

	a.	many firms, all selling identical products.​
	b.	​one firm selling several products.
	c.	one firm selling one product.​
	d.	many firms, each selling a slightly different product.​
	e.	many firms, each selling a completely different product.​

Answer 1

(1) (d)

In fast food market, there are many buyers and many sellers with free entry and exit, but each seller produces a slightly differentiated good.

(2) (b)

The more differentiated the product, the less elastic the demand and less sensitivity to a change in price or output by rivals. If all sellers are selling identical goods, demand is highly elastic and sellers are highly responsive to price-output decisions by rivals.

(3) (a)

Oligopolistic price-output decisions by firms are interdependent.

(4) (c)

(5) (d)

Compared to perfect competition, price is higher and output is lower for monopolistically competitive firms.

(6) (c)

In both the industry structures, the firm faces downward sloping demand and MR curve, and MR curve lies below demand curve.

NOTE: As per Answering Policy, 1st 6 questions are answered.