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Unformatted text preview: Monopolistic Competition, Oligopoly, and Resource Market Pricing Monopolistically competitive firms tend to realize normal profits (break even) in the long run because *a. Barriers to entry into the industry are relatively low b. Firms produce under conditions of diseconomies of scale c. Advertising increases the firms costs and thus decreases profits d. Sales promotion makes the firms demand curve more inelastic Game theory (payoff/profit matrix analysis) applies to a. Pure competition b. Pure monopoly c. Monopolistic competition *d. Oligopoly Game theory (payoff/profit matrix analysis) applies to firms *a. That are highly mutually interdependent b. That are not dependent on each other c. That operate in purely competitive industries d. That operate in monopolistically competitive industries Which of the following is not a characteristic of monopolistically competitive markets? a. Only normal profits in the long run *b. Price-taking firms c. Excess productive capacity in the long run d. Many firms of relatively small size Because monopolistically competitive firms produce differentiated products, each firm a. Faces a demand curve that is horizontal b. Faces a demand curve that is vertical c. Has no control over product price *d. Has some control over product price A monopolistically competitive firm hopes to a. Make an economic profit, but realizes economic losses in the long run *b. Make an economic profit, but realizes normal profit (break even) in the long run c. Minimize its losses in the short run, but realizes economic profit in the long run d. Minimize its losses in the short run, but realizes economic losses in the long run The table below uses game theory to analyze the behavior of firms in an oligopolistic market. The table gives the profit (payoff) matrix for Boeing and Airbus, in millions of dollars. Answer the next four questions on the basis of this table. Boeing High Price Low Price High Price Airbus = $500 Airbus = $400 Boeing=$500 Boeing=$650 Airbus Low Price Airbus=$650 Airbus = $350 Boeing=$400 Boeing=$350 If Boeing and Airbus behave competitively, the most likely profit is a. $500 million for Boeing and $500 million for Airbus b. $400 million for Boeing and $650 million for Airbus c. $650 million for Boeing and $400 million for Airbus *d. $350 million for Boeing and $350 million for Airbus If Boeing and Airbus form a collusive pact to maximize joint profits, the firms will realize profits totaling a. $700 million b. $900 million *c. $1,000 million d. $1,050 million Assume that Boeing adopts a low-price strategy and Airbus adopts a high-price strategy. *a. Boeings profits equal $650 million and Airbus profits equal $400 million b. Boe ings profits equal $400 million and Airbus profits equal $650 million c. Boeings profits equal $500 million and Airbus profits equal $500 million d. Boeings profits equal $350 million and Airbus profits equal $350 million Assume that Boeing adopts a high-price strategy and Airbus adopts a low-price strategy. Assume that Boeing adopts a high-price strategy and Airbus adopts a low-price strategy....
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