ECON 231
Chapter 12 Study Quiz


Reference: REF25137

1.
Refer to the above data. The Herfindahl Index for this industry is:
A.
95.
B.
1000.
C.
2925.
D.
2950.


Reference: F25201

2.
Refer to the above figures. A homogeneous or standardized product is most likely to be produced in:
A.
Figure A.
B.
Figure B.
C.
Figure C.
D.
Figure D.




Reference: F25067

3.
Refer to the above diagram for a monopolistically competitive producer. The firm is:
A.
minimizing losses in the long run.
B.
minimizing losses in the short run.
C.
realizing a normal profit in the long run.
D.
about to leave the industry.




Reference: F25042

4.
Refer to the above diagram for a monopolistically competitive firm. If more firms would enter the industry and product differentiation would weaken:
A.
resource misallocation would become more severe.
B.
the demand curve would become more elastic.
C.
equilibrium output would decline and equilibrium price would rise.
D.
equilibrium output would decline and equilibrium price would fall.


5.
The likelihood of a cartel being successful is greater when:
A.
firms are producing a differentiated, rather than a homogeneous, product.
B.
cost and demand curves of various participants are very similar.
C.
the number of firms involved is relatively large.
D.
the economy is in the recession phase of the business cycle.


6.
The demand curve of a monopolistically competitive producer is:
A.
less elastic than that of either a pure monopolist or a pure competitor.
B.
less elastic than that of a pure monopolist, but more elastic than that of a pure competitor.
C.
more elastic than that of a pure monopolist, but less elastic than that of a pure competitor.
D.
more elastic than that of either a pure monopolist or a pure competitor.


7.
If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, the Herfindahl Index is:
A.
10,000.
B.
2,500.
C.
3,750.
D.
1,000.


8.
In monopolistically competitive markets resources are:
A.
overallocated because long-run equilibrium occurs where price exceeds marginal cost.
B.
underallocated because long-run equilibrium occurs where price exceeds marginal cost.
C.
overallocated because long-run equilibrium occurs where marginal cost exceeds price.
D.
underallocated because long-run equilibrium occurs where marginal cost exceeds price.


9.
The kinked-demand curve model helps to explain price rigidity because:
A.
there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price.
B.
demand is inelastic above and elastic below the going price.
C.
the model assumes firms are engaging in some form of collusion.
D.
the associated marginal revenue curve is perfectly elastic at the going price.


10.
In the kinked demand curve model, the firm's marginal revenue curve and demand curve are identical.
A. True
B. False


11.
(Last Word) The leading seller of beer in the United States is:
A.
Coors.
B.
Anheuser-Busch.
C.
Miller Brewing Company.
D.
Corona.


12.
Under which of the following market structures will the long-run equilibrium price be equal to marginal cost?
A.
oligopoly
B.
monopolistic competition
C.
pure monopoly
D.
pure competition




Reference: F25067

13.
Refer to the above diagram for a monopolistically competitive producer. This firm is experiencing:
A.
a shortage of production capacity.
B.
excess capacity of CD.
C.
excess capacity of DE.
D.
diseconomies of scale.




Reference: F25042

14.
Refer to the above diagram for a monopolistically competitive firm. Long-run equilibrium output will be:
A.
greater than E.
B.
E.
C.
D.
D.
C.


Reference: REF25155

15.
Refer to the above game theory matrix where the numerical data show the profits resulting from alternative combinations of advertising strategies for Ajax and Acme. Ajax's profits are shown in the upper right part of each cell; Acme's profits are shown in the lower left. Without collusion, the outcome of the game is cell:
A.
A.
B.
B.
C.
C.
D.
D.


Reference: REF25040

16.
The monopolistically competitive firm shown in the above figure:
A.
is in long-run equilibrium.
B.
might realize an economic profit or a loss, depending on its choice of output level.
C.
cannot operate profitably, at least in the short run.
D.
can realize an economic profit.


17.
Suppose the Herfindahl Indexes for industries A, B, and C are 1,200, 5,000, and 7,500 respectively. These data imply that:
A.
market power is greatest in industry A.
B.
market power is greatest in industry B.
C.
market power is greatest in industry C.
D.
industry A is more monopolistic than industry C.


18.
The price elasticity of a monopolistically competitive firm's demand curve varies:
A.
inversely with the number of competitors and the degree of product differentiation.
B.
directly with the number of competitors and the degree of product differentiation.
C.
directly with the number of competitors, but inversely with the degree of product differentiation.
D.
inversely with the number of competitors, but directly with the degree of product differentiation.


19.
In long-run equilibrium, a monopolistically competitive firm sets it price:
A.
above marginal cost.
B.
below marginal cost.
C.
equal to marginal revenue.
D.
equal to marginal cost.




Reference: F25038

20.
Refer to the above diagrams, which pertain to monopolistically competitive firms. Short-run equilibrium entailing economic loss is shown by:
A.
diagram a only.
B.
diagram b only.
C.
diagram c only.
D.
both diagrams a and c.


21.
Oligopolistic firms engage in collusion to:
A.
minimize unit costs of production.
B.
realize allocative efficiency, that is, the P = MC level of output.
C.
earn greater profits.
D.
increase production.


22.
The mutual interdependence that characterizes oligopoly arises because:
A.
the products of various firms are homogeneous.
B.
the products of various firms are differentiated.
C.
a small number of firms produce a large proportion of industry output.
D.
the demand curves of firms are kinked at the prevailing price.




Reference: F25131

23.
Refer to the above diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Alpha and Beta agree to a high-price policy through collusion, the temptation to cheat on that agreement is demonstrated by the fact that:
A.
Beta can increase its profit by lowering its price.
B.
Beta can increase its profit by increasing its price still further.
C.
both Alpha and Beta can earn even more profits if both agree to a low-price policy.
D.
Alpha can increase its profit by reducing its production costs.




Reference: F25067

24.
Refer to the above diagram for a monopolistically competitive producer. If this firm were to realize productive efficiency, it would:
A.
also realize an economic profit.
B.
incur a loss.
C.
also achieve allocative efficiency.
D.
have to produce a smaller output.




Reference: F25131

25.
Refer to the above diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If both firms follow a high-price policy:
A.
Alpha will realize a $10 million profit and Beta a $30 million profit.
B.
each will realize a $20 million profit.
C.
Beta will realize a $10 million profit and Alpha a $30 million profit.
D.
each will realize a $15 million profit.


26.
Which of the following is an illustration of differentiated oligopoly?
A.
the aluminum industry
B.
the steel industry
C.
the soft drink industry
D.
retail stores in large cities


27.
The Herfindahl index for a pure monopolist is:
A.
100.
B.
10,000.
C.
100,000.
D.
10.


Reference: F25153

28.
Refer to the above diagram. Equilibrium price is:
A.
e.
B.
d.
C.
c.
D.
b.


29.
Monopolistically competitive and purely competitive industries are similar in that:
A.
both are assured of short-run economic profits.
B.
both produce differentiated products.
C.
the demand curves facing individual firms are perfectly elastic in both industries.
D.
there are few, if any, barriers to entry.



Reference: REF25123

30.
The Herfindahl Index for the above industry is:
A.
1,600.
B.
1,800.
C.
18,000.
D.
80.


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