In the competitive market for figure skate blades, manufacturers offer an array of products that are
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A. distinctly different in a particular way.
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_____________ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry.
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C. An oligopoly
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_________ arises when firms act together to reduce output and keep prices high.
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B. A cartel
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A _________ refers to a group of firms colluding with one another to produce at the monopoly output and sell at the monopoly price.
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A. prisoner's dilemma
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The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is
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C. game theory
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If the CEO of I'MaBigBank is playing prisoner's dilemma then, from his perspective, the gains to be had from cooperation are
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D. larger than the rewards from pursuing self-interest.
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The perceived demand curve for a group of competing oligopoly firms will appear kinked as a result of their commitment to
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C. match price cuts, but not price increases.
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Perfect competition and monopoly stand at _____________ of the spectrum of competition.
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A. opposite ends
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If a perfectly competitive market involves many firms selling identical products, then, in the face of such competition,
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B. each of these firms must act as a price-taker.
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Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call ________________________.
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C. monopolistic competition
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As the name monopolistic competition implies, a firm's decisions in this setting will in certain ways resemble ______________ and in other ways resemble________________ .
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B. monopoly; perfect competition
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If monopolistic competitors must expect a process of entry and exit like perfectly competitive firms,
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D. they will be unable to earn higher-than-normal profits in the long run.
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In the highly competitive setting in which oligopoly firms operate, which of the following are considered to be typical temptations each may face?
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D. to cooperate to act as a single monopoly and all of the above
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Oligopoly firms acting individually may seek to gain profits ___________________________ .
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A. by expanding levels of output and cutting prices
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In a monopolistic competitive industry, firms can try to differentiate their products by
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A. creating optimal perceptions of the product.
B. choosing optimal locations from which the product is sold.
C. enhancing the intangible aspects of the product.
D. enhancing product's physical aspects and all of the above.
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Which of the following would be classified as a differentiated product produced by a monopolistic competitor?
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B. Channel No. 5
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Monopolistic competitors in the food industry will often include a recyclable symbol on packaging used for their product as a means to
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C. differentiate their product
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Product differentiation may occur in _______________ because ____________________ created strong preferences for certain brands.
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B. the minds of buyers; past habits and advertising
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What role can advertising play with respect to differentiated products?
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B. shapes consumers intangible preferences
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Which of the following best identifies what the concept of differentiated products is closely related to?
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D. the degree of product variety that is available.
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The demand curve as perceived by a perfectly competitive firm is __________ .
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A. flat
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The shape of the perceived demand curve for a perfectly competitive firm reflects that firm's ability to
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A. sell any quantity it wishes at the prevailing market price.
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If a perfectly competitive firm raises its price, the quantity demanded of its product _____________.
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B. falls to zero
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If a monopoly or a monopolistic competitor raises their prices, the quantity demanded ____________.
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C. will decline
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The perceived demand for a monopolistic competitor
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C. takes competitors into account
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If a monopoly or a monopolistic competitor raises their prices, then
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B. decline in quantity demanded will be larger for the monopolistic competitor.
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Would raising the price for a product create a larger decline in quantity demanded for a monopolistic competitor's than it would for a monopoly?
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D. yes; consumers will buy from competitors offering lower priced substitutes
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The demand curve as perceived by a monopolistic competitor is ______________ .
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C. downward-sloping
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The typical slope of the demand curve as perceived by a monopolistic competitor will
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B. reflect that firm's ability raise its price without losing all of its customers.
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If a monopolistic competitor raises its price, it _________ customers than a perfectly competitive firm, but ________________ customers compared to the number that a monopoly that raised its prices would.
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C. will lose fewer; it will lose more
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Why are the underlying economic meanings of the perceived demand curves for a monopolist and monopolistic competitor different?
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A. a monopolist faces the market demand curve and a monopolist competitor does not
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The first step to be undertaken by a profit-maximizing monopolistic competitor wanting to decide what price to charge is to
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B. select the profit maximizing quantity to produce
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If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,
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B. the firm should keep expanding production.
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Which of the following represents a difference in the process by which a monopolistic competitor and a monopolist make their respective decisions about quantity and price?
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D. a monopolist need not fear entry and also selection b above
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A monopolistically competitive firm may earn abnormally high profits in the
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A. short term, but the process of entry will drive those profits to zero in the long run.
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Through the process of exit, monopolistically competitive firms remaining in the market
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C. are no longer earning losses.
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Monopolistic competitors can make a _____________ in the short-run, but in the long run, ______________ will drive these firms toward _______________________ .
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A. profit or loss; entry and exit; a zero-profit outcome
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The long-term result of entry and exit in a perfectly competitive market is that all firms end up selling at the price level determined by the lowest point on the
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D. average cost curve
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In monopolistic competition, the end result of entry and exist is that firms end up with a price that lies
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C. on the downward-sloping portion of the average cost curve.
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In a perfectly competitive market, each firm produces at a quantity where price is set
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B. equal to marginal cost, both in the short run and in the long run.
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Perfect competition displays _____________________ because the social benefits of additional production, as measured by the price that people are willing to pay, are in balance with the ____________ to society of that production.
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C. allocative efficiency; marginal costs
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In a monopolistically competitive market, the rule for maximizing profit is to set MR = MC, which means
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A. price is higher than marginal revenue.
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When P > MC in a monopolistically competitive market, that industry will most likely produce ______________________ than would be found in a perfectly competitive industry.
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C. a lower quantity of a good and charge a higher price
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When entry occurs in a monopolistically competitive industry,
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B. the perceived demand and marginal revenue curves for each firm will shift to the left.
D. a smaller quantity will be demanded at any given price.
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When exit occurs in a monopolistically competitive industry the
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A. perceived demand and marginal revenue curves will shift to the right.
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In the framework of monopolistic competition, the way advertising works can be perceived as
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B. causing a firm's perceived demand curve to become more inelastic.
C. causing demand for the firm's product to increase.
D. causing both b and c to occur.
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In the framework of monopolistic competition, advertising works because it causes
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D. a steeper perceived demand curve, as well as c above.
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A successful advertising campaign may allow competing monopolists to
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A. sell a greater quantity.
B. charge a higher price.
C. increase its profits.
D. do all of the above.
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If each of two competing monopolists undertakes equal advertising efforts to attract consumers away from the other, the total result is
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B. they will simply neutralize one another's efforts.
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A monopolistically competitive industry does not display ____________________ in either the short-run, when firms are making _______________, nor in the long-run, when firms are earning ________________ .
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C. productive and allocative efficiency; profits and losses; zero profits
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Which of the following is a question economists have struggled to address with only partial success?
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B. Whether a market-oriented economy produces the optimal amount of variety?
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If oligopolists compete hard against each other,
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C. zero profits result for all.
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Which of the following would most likely create the setting for an oligopoly?
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A. government grants Alex, Trent, and Alyse each a patent for their respective molybdenum based electric car batteries
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If oligopolistic firms banded together with the intention of acting like a monopoly, it would likely result in their being able to
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A. divide up the monopoly level of profit amongst themselves.
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The desire of businesses to __________________________, so that they can raise the prices that they charge and earn higher profits, has been well-understood by economists for a long time.
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D. avoid competing with each other
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How can parties who find themselves in a prisoner's dilemma situation avoid the undesired outcome and cooperate with each other?
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C. find effective ways to penalize firms who do not cooperate
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In the framework of an oligopoly, what strategy can work like a silent form of cooperation?
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A. always match other cartel firms' price cuts, but don't match price increases
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If one firm operating in an oligopoly raises its price and other firms do not do so,
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C. the sales of the firm that increased its price will decline sharply.
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The single most common form of competition in the U.S. is
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B. monopolistic competition among firms with differentiated products.
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Briefly discuss how differentiated products in a monopolistic competitive framework can arise.
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In a monopolistic competitive framework, differentiated products can arise from characteristics of the good or service, location from which the product is sold, intangible aspects of the product, and perceptions of the product.
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Briefly compare and contrast the perceived demand curve for a monopolistically competitive firm and a perfectly competitive firm.
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The perceived demand curve for a monopolistically competitive firm is downward sloping, which shows that unlike a perfectly competitive firm with its flat perceived demand curve, a monopolistically competitive firm is not a price-taker, but rather chooses a combination of price and quantity.
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Briefly compare and contrast the perceived demand curve for a monopolistic competitor and a monopolist.
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The perceived demand curve for a monopolistic competitor is flatter than the perceived demand curve for a monopolist, because if a monopolistic competitor raises price it will lose some customers to the competition, while a monopolist does not face any competition.
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Briefly explain what quantity a profit-maximizing monopolistic competitor will seek, as well as why or why not this type of competitive firm is productively efficient.
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A profit-maximizing monopolistic competitor will seek out the quantity where marginal revenue is equal to marginal cost. A monopolistically competitive firm is not productively efficient, because it does not produce at the minimum of its average cost curve.
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Briefly explain whether a monopolistically competitive firm is allocative efficient or not and why.
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A monopolistically competitive firm is not allocative efficient, because it does not produce where P = MC, but instead produces where P > MC.
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Briefly contrast the level that a monopolistically competitive firm will tend to produce at and the price it will charge with that of a perfectly competitive firm.
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A monopolistically competitive firm will tend to produce a lower quantity at a higher cost and to charge a higher price than a perfectly competitive firm.
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Briefly describe what an oligopoly is, as well as the circumstances that could allow oligopolists to earn their highest profits.
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An oligopoly is a situation where a few firms sell most or all of the goods in a market. Oligopolists would earn their highest profits if they can band together as a cartel and act like a monopolist by reducing output and raising price.
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Briefly compare and contrast the incentives found in perfect competition with those found in imperfect competition.
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Perfect competition has powerful incentives for efficiency, flexibility, and responsiveness. But the profits to be derived from imperfect competition encourage variety and innovation, whether in the form of monopolistic competition, monopoly, or oligopoly.
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List at least five examples of some intangible aspects that differentiate products.
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Some intangible aspects may be 1) promises like a guarantee of satisfaction; 2) promise of money back refund; 3) a reputation for high quality; 4) services like free delivery, 5) offering a loan to purchase the product; 6) lower service fees; or, 7) extended warranty on parts or service
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Identify and briefly discuss the ways to conceive how advertising works in the framework of monopolistic competition.
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In the framework of monopolistic competition there are two ways to conceive of how advertising works: either advertising causes a firm's perceived demand curve to become more inelastic (that is, it causes the perceived demand curve to become steeper); or advertising causes demand for the firm's product to increase (that is, it causes the firm's perceived demand curve to shift to the right). In either case, a successful advertising campaign may allow a firm to sell either a greater quantity or to charge a higher price, or both, and thus increase its profits.
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