MBA 505 Chapter 10 Quiz

1. A monopolistically competitive firm's demand curve slopes downward because

a. other firms are free to enter the market.
b. there are a large number of firms in the market.
c. a differentiated product gives the firm some monopoly power.
d. the firm has complete knowledge of market information.
e. the firm sells a standardized product.

2. If a monopolistically competitive industry is in long-run equilibrium and suddenly the cost of resources increases,

a. the demand and average-revenue curves will shift to the right.
b. the demand and average-revenue curves will shift to the left.
c. some firms will eventually leave the industry.
d. new firms will eventually enter the industry.
e. the cost structure of the firm will shift down.

3. If a monopolistically competitive firm is in long-run equilibrium, then

a. P = ATC and P = MC.
b. P = ATC and P > MC.
c. d = AR and AR = MR.
d. ATC = MR.
e. AFC = MR.

4. If a monopolistically competitive firm is earning positive economic profits, then in the long run its

a. demand will shift to the right and become more elastic.
b. demand will shift to the right and become more inelastic.
c. demand will shift to the left and become more elastic.
d. demand will shift to the left and become more inelastic.
e. Any of the answers listed here is equally likely to happen.

5. The short-run equilibrium position for a firm in monopolistic competition is where

a. price equals average variable cost.
b. marginal revenue equals rising marginal cost.
c. price equals marginal cost.
d. marginal revenue equals average revenue.
e. the firm's marginal-cost curve intersects its marginal-revenue curve from above.

6. The number of firms in an oligopoly industry must be

a. less than ten.
b. large enough that firms cannot collude.
c. large enough that firms cannot closely monitor each other.
d. small enough that firms are interdependent in decision making.
e. large enough that firms will see no reason to engage in nonprice competition.

7. An oligopoly market structure is not characterized by which of the following?

a. Presence of differentiated products
b. Presence of a few dominant firms with substantial entry barriers
c. Interdependence of firms
d. Presence of nondifferentiated products
e. No barriers to entry

8. The kinked-demand-curve theory

a. was derived solely to torture economics students.
b. assumes that rival firms will match a price increase but not a price decrease.
c. predicts price rigidity.
d. assumes that firms are independent and ignore the behavior of rivals.
e. is relatively elastic at prices below the kink and relatively inelastic at prices above the kink.

9. According to the theory of the kinked demand curve,

a. price wars will be commonplace.
b. the price will fluctuate frequently.
c. the kink occurs at the industry-wide price.
d. the price is established by a price leader.
e. game theory can be used to explain how firms react to rivals.

10. Which of the following statements about collusion is not true?

a. Collusion is illegal in the United States.
b. Its overriding goal is to reduce competition and thereby increase profits.
c. The greater the number of firms, the more difficult it is to maintain.
d. There is a tendency for cheating.
e. Collusion never results in benefits for the participants.

Answers
1c,2c,3b,4c,5b,6d,7e,8c,9c,10e.