Multiple Choice

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Chapter 12

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Multiple Choice

Multiple Choice
This activity contains 20 questions.

In monopolistic competition, the amount of monopoly power wielded by a firm depends on

its ability to operate strategically when making a decision. its success in differentiating its product. its ability to control the entire market. All of the above.

In the long run, monopolistic competition differs from perfect competition in that the monopolistically competitive firm has
zero fixed costs. All of the above. excess capacity. economic profit.

Monopoly power refers to the firm's ability to

possess economies of scale. restrict entry into the industry. earn economic profit. set price above marginal cost.

Fill in the blank. Monopolistically competitive firms are usually ______________

regulated because they cause large deadweight losses and don't offer any benefits. regulated because their market power is usually large. unregulated becuase their market power is usually small. unregulated because they tend to avoid inefficiencies.

In the long run, the monopolistically competitive firm earns zero economic profit because
it is easy to enter and exit the industry. other firms produce a perfect substitute for the firm's product. the firm has the ability to set its own price. the firm has excess capacity.

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Nash equilibrium refers to:

a situation in which all firms perform identical actions. actions in which a firm does the best it can regardless of its competitor's actions. strategies in which a firm does not take into account its competitor's actions. actions in which a firm does the best it can given its competitor's actions.

A relationship between a firm's profit-maximizing output and the amount it thinks its competitors will produce is called:
A payoff matrix. A reaction curve. Cournot equilibrium. Nash equilibrium.

Demand for gasoline in a small isolated town can be expressed as P = 10 - Q. There are two gasoline stations in town, A and B, so that QA+QB =Q. At firm A, TC = 5 +QA. At firm B, TC = 5 + QB. Write an expression for firm A's reaction function in the Cournot model of oligopoly.
QA = 10 - 2P. QA = 9 + 0.5QB. QA = 9 - 2QB. QA = 4.5 - 0.5QB.

Demand for gasoline in a small isolated town can be expressed as P = 10 - Q. There are two gasoline stations in town, A and B, so that QA+QB =Q. At firm A, TC = 5 +QA. At firm B, TC = 5 + QB. In Cournot's duopoly model, what will the price of gasoline be?
$4. $6. $1. $5.50.

Demand for gasoline in a small isolated town can be expressed as P = 10 - Q. There are two gasoline stations in town, A and B, so that QA+QB =Q. At firm A, TC = 5 +QA. At firm B, TC = 5 + QB. In Stackelberg's modek, how much gasoline will firm A (the leader) offer?
6 9 3 4.5

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Demand for gasoline in a small isolated town can be expressed as P = 10 - Q. There are two gasoline stations in town, A and B, so that QA+QB =Q. At firm A, TC = 5 +QA. At firm B, TC = 5 + QB. If these firms collude to maximize joint profit, then the price of gasoline will be
$10. $4.50. $5.50. $1.

In the Bertrand model of oligopoly, two duopolists compete by

simultaneously choosing output. simultaneously choosing price. simultaneously choosing both output and price. allowing the other firm to choose both output and price.

Assume that the demand for Zippy Cola can be expressed as Q = 20 - 4P1 + P2 where P1 is the price of Zippy Cola and P2 is the price of Zippy's only rival. Also, TC =Q. In Bertrand's model, Zippy's reaction function is
P1 = 24 + P2. P1 = 3 + P2/8. P1 = 5 + Q1 /2. P 1 = 3 + P 2.

Which of the following statements is correct?

Oligopolistic firms often have a strong desire for price stability. Implicit collusion usually turns into a strong, long-lasting relationship between two oligopolistic firms. Oligopolistic firms are quick to change prices following a change in production costs. All of the above.

Fill in the blank. The kinked demand curve model is attractively simple _______________.
and it provides a thorough explanation of oligopolistic pricing. but it does not really explain oligopolistic pricing. but it cannot describe price rigidity. but it doesn't take elasticity into account.

There are only two gasoline stations in a small isolated town. If both set a high price, they earn $50 each . If they set a low price, they earn $25 each . If one firm sets a low price while the other sets a high price, the low-price firm

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earns $70 while the high-price firm earns $10. Which of the following is a Nash equilibrium in this case?
Both firms set a low price. Both firms set the same price, which is an average of the high and the low price. One firm sets a low price and the other a high price. All of the above are Nash equilibria.

There are only two gasoline stations in a small isolated town. If both set a high price, they earn $50 each . If both set a low price, they earn $25 each . If one sets a low price while the other sets a high price, the low-price firm earns $70 while the high-price firm earns $10. The only way both firms will set a high price is if
one firm sets a high price and hopes the other does the same. prices are set once and never changed again prices are changed on a daily basis. the owners of the two firms are rivals.

Market demand for a good can be written as QD = 100 - P. The supply of the competitive fringe can be written as QS = -20 + P. If the dominant firm has a constant marginal cost of 20, what will be the market price?
60 80 40 20

Under which of the following conditions will a cartel be most successful?

When market demand is price elastic and the cartel is tightly organized. When market demand is price inelastic and the cartel is loosely organized. When market demand is price elastic and the cartel is loosely organized. When market demand is price inelastic and the cartel is tightly organized.

A cartel may be short lived if

total demand for the good is price elastic. the cartel does not control most supply. the supply of noncartel producers is price elastic. All of the above.

Answer choices in this exercise appear in a different order each time the page is loaded.

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