Practice_Ch11_ - Chapter 11 Practice Test Monopolistic...

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Chapter 11 Practice Test Monopolistic Competition and Oligopoly 1. Monopolistic competition and monopoly are similar in that both industry structures are characterized by: a. strategic behavior b. significant barriers to entry c. downward sloping demand curves facing the individual firms in the industry d. production at minimum long-run average cost Answer: c Feedback: A monopolistic firm, being the only firm in the industry, clearly faces a downward sloping demand curve. A monopolistically competitive firm’s demand, while quite elastic, is also downward sloping owing to its product differentiation. 2. True or false: The mutual dependence of oligopolistic firms arises from product differentiation. a. True b. False Answer: b Feedback: Mutual interdependence in oligopoly arises from the fact that there are but a few firms that dominate the industry. Each must consider the reactions of its rivals to its decisions. While some oligopolistic industries produce differentiated products, others do not. 3. The “payoff matrix” in game theory illustrates: a. the outcome of the winning strategy only b. the ineffectiveness of collusion in oligopoly c. the relationship between the Herfindahl index and the concentration ratio d. outcomes associated with each possible combination of the firms’ strategies Answer: d Feedback: Each cell of the payoff matrix illustrates the payoff to each firm should the firms adopt the strategies associated with that cell. By comparing payoffs, each firm can to some degree predict the strategy of the other firm and adjust its own strategy accordingly. 4. Goods produced by oligopolistic industries are typically: a. standardized b. differentiated c. differentiated if industrial goods d. differentiated if consumer goods Answer: d Feedback: Many industrial goods produced by oligopolies are standardized—copper, zinc, and steel, for example. Oligopolistic consumer goods industries are typically differentiated and are characterized by substantial advertising. 5. Compared to a competitive firm, a monopolistically competitive firm:
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a. faces a more inelastic demand curve b. is less likely to advertise its product c. faces a more elastic demand curve d. can earn positive profits in the long run Answer: a Feedback: Each firm in a competitive industry sells a product virtually identical to all the other firms in the industry, so that it faces a perfectly elastic demand curve. In contrast, firms in a monopolistically competitive industry produce differentiated products and have some control over the price. 6. Oligopolistic industries may be: a. less efficient than monopolies because the latter are typically regulated b. more efficient than competitive industries because the latter are typically characterized by X- inefficiency c. more efficient than monopolistically competitive industries because the latter typically spend too little on advertising d. less efficient than monopolies because the latter equate price and marginal cost Answer: a
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This note was uploaded on 02/22/2011 for the course ECON 2023 taught by Professor Meier during the Spring '11 term at St. Petersburg College.

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Practice_Ch11_ - Chapter 11 Practice Test Monopolistic...

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