ECON 1900-02 Chapter 9 Review Quiz & Key
Which of the following is not characteristic of monopolistic competition?
a) product differentiation
b) a relatively large number of firms
c) collusive agreements among firms
d) relatively easy industry entry in the long run
2) This question is based on the following graph showing a monopolistically competitive firm in
short-run equilibrium.
The equilibrium output for this firm will be:
a) Q1
b) Q2
c) Q3
d) Q4
3) This question is based on the following graph showing a monopolistically competitive firm in
short-run equilibrium.
If this is an increasing cost industry, and firms enter this industry in the long run:We did not
cover this concept; you don’t have to know this.
a) the ATC curve will shift up and demand will decrease
b) the ATC curve will shift up and demand will increase
c) the MR curve will shift up and demand will decrease
d) the MR curve will shift up and demand will increase
4) The following question is based on this graph of a monopolistic competitor in long-run
equilibrium.
Long-run equilibrium output will be:
a) Qa
b) Qb
c) Qc
d) O
5) The following question is based on this graph of a monopolistic competitor in long-run
equilibrium.
In order to meet the productive efficiency criterion this firm would have to produce an output of:
a) Qa
b) Qb
c) Qc
d) above Qc
6) The following question is based on this graph of a monopolistic competitor in long-run
equilibrium.
The amount of excess capacity in this firm is: We did not cover this; you don’t have to know
this.
a) Qb-Qa
b) Qc-Qb
c) Qc-Qa
d) there is no excess capacity
7) Economic profits tend to be driven to zero in monopolistic competition. However, some firms
may be able to sustain economic profits due to:
a) especially effective product differentiation
b) an exceptionally well-known brand name
c) a one-of-a-kind superior location
d) any of the above
8) The larger the Herfindahl index the greater the degree of market power in the industry.
a) True
b) False
9) Two industries can have the same concentration ratio yet have different Herfindahl index
values.
a) True
b) False
10) Mergers increase market concentration.
a) True
b) False
11) In a zero-sum game all players get zero payoffs.
a) True
b) False
12) The prisoner’s dilemma is an example of a non-cooperative game.
a) True
b) False
13) The prisoner’s dilemma has an outcome that involves a dominant strategy for only one
prisoner.
a) True
b) False
14) This question is based on the following payoff matrix for a two-firm oligopoly. The numbers
in the matrix represent the profits for a high-price or low-price strategy.
Firm A
High-price
Low-price
Firm B High-price A = 600 B = 600 A = 875 B = 200
Low-price A = 200 B = 875 A = 350 B = 350
If the firms collude to maximize joint profits, the total profits for the two firms will be:
a) $700
b) $1075
c) $1200
d) $1475
15) This question is based on the following payoff matrix for a two-firm oligopoly. The numbers
in the matrix represent the profits for a high-price or low-price strategy.
Firm A
High-price
Low-price
Firm B High-price A = 600 B = 600 A = 875 B = 200
Low-price A = 200 B = 875 A = 350 B = 350
If Firm A always pursues a high-price strategy, the best strategy for Firm B is:
a) a low-price strategy for earnings of $875
b) a low-price strategy for earnings of $350
c) a high-price strategy for earnings of $600
d) a high-price strategy for earnings of $275
16) This question is based on the following payoff matrix for a two-firm oligopoly. The numbers
in the matrix represent the profits for a high-price or low-price strategy.
Firm A
High-price
Low-price
Firm B High-price A = 600 B = 600 A = 875 B = 200
Low-price A = 200 B = 875 A = 350 B = 350
If both firms act independently and do not collude, what is the dominant strategy for each?
a) high-price for A and high-price for B
b) high-price for A and low-price for B
c) low-price for A and high-price for B
d) low-price for A and low-price for B
17) In a two player game with a dominant strategy equilibrium:
a) both players choose the same strategy
b) both players have a strategy that is best, no matter what their rival's strategy is
c) each player chooses the strategy of trying to dominate their rival
d) the players' joint profits are maximized
18) Another name for a "gentlemen's agreement" as applied to oligopolists is:
a) limit pricing
b) joint-profit maximization
c) tacit understanding
d) illegal conspiracy
19) The price leader in an oligopolistic industry:
a) necessarily sets the price that maximizes industry profit
b) determines production quotas for each firm
c) is usually the largest or most efficient firm in the industry
d) is assured that other firms will initiate similar price changes
20) According to the positive view of advertising, advertising does all of the following with the
exception of:
a) providing useful information to consumers
b) promoting monopoly power
c) diminishing monopoly power by calling attention to an array of substitute goods or
services
d) facilitating the introduction of new products and, hence, enabling technological progress
Key:
1c
2b
3a
4a
5c
6c
7d
8a
9a
10a
11b
12a
13b
14c
15q
16d
17b
18c
19c
20b