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Exercise 5

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19 views

Exercise 5

Uploaded by

吳卓蔚
Copyright
© © All Rights Reserved
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Exercise 5

1. What are the distinguishing characteristics of monopolistic competition?


Monopolistic competition is a market structure in which a _______ number of
firms compete and each firm produces a _______ product.
A. large; differentiated
B. small; identical
C. small; differentiated
D. large; identical
Firms in monopolistic competition compete on _______ and firms _______.
A. product quality only; face a barrier to entry
B. product quality, price, and marketing; are free to enter and exit
C. price only; face a barrier to entry
D. product quality and price only; are free to enter and exit

2. Provide some examples of industries near your school that operate in


monopolistic competition.
The market for hydroelectricity _______ an example of monopolistic
competition. The market for athletic footwear _______ an example of
monopolistic competition.
A. is not; is
B. is not; is not
C. is; is not
D. is; is
The market for a local water supply _______ an example of monopolistic
competition. The market for women’s clothing _______ an example of
monopolistic competition.
A. is not; is
B. is not; is not
C. is; is
D. is; is not

3. Which of the following is a characteristic of monopolistic competition?


In monopolistic competition, _______.
A. only a few firms compete, and each firm supplies a large part of the total
industry output
B. collusion is possible and highly likely to occur
C. one firm can dictate market conditions
D. no one firm's actions directly affect the actions of the other firms
4. Describe the demand curve faced by a firm in monopolistic competition.
Because of product differentiation, a firm in monopolistic competition faces
_______ demand curve for the good it produces.
A. a vertical
B. a downward-sloping
C. an upward-sloping
D. a horizontal

5. Excess capacity is the amount by which the _____ exceeds the quantity that the
firm produces.
A. efficient scale
B. profit-maximizing quantity
C. markup
D. cost-minimizing quantity
Which of the following firms produces at the efficient scale?
A. A Gap outlet in Chicago sells 500 jackets a day and lowers its average variable
cost.
B. Dell produces 100 computers a week at which its average total cost is
minimized.
C. Toyota produces 20 cars a day at its Texas plant at which its profit is
maximized.
D. Starbucks makes 1,000 chai lattes each day at which its total revenue is
maximized.
Markup is the amount by which price _____ cost.
A. exceeds average
B. is less than marginal
C. exceeds marginal
D. is less than average

6. Why do firms in monopolistic competition operate with excess capacity?


Firms in monopolistic competition operate with excess capacity because ______.
A. the demand curve is downward sloping, which in the long run makes marginal
cost greater than average total cost
B. the demand curve is downward sloping, which in the long run makes marginal
cost less than average total cost
C. the average total cost curve is downward sloping along its entire length
D. in the long run, firms maximize markup, which makes marginal cost less than
average total cost
7. The table provides information about Prue's Personal Trainer Service, a firm that
is in monopolistic competition with similar firms that offer slightly differentiated
services.

What condition maximizes Prue's profit?


Prue's maximizes profit by producing the quantity at which ______.
A. MR = MC
B. MR = ATC
Fill in the TR and MR numbers in the table below.

What is Prue's profit-maximizing quantity? What is Prue's price?


Prue's profit-maximizing quantity is ______ sessions an hour. Prue's price is
$______ a session.
What is Prue's markup and does she have excess capacity?
Prue's markup is _______ and she _______ excess capacity.
A. $15 per session; has no
B. more than $15 an hour; has no
C. $30 per session; has
D. less than $15 an hour; has
Is Prue in a long-run equilibrium?
In long-run equilibrium, economic profit is _______.
A. zero
B. negative
C. positive
Prue makes an economic profit of $_______ an hour
Prue is _______ a long-run equilibrium.
A. in
B. not in

8. Food's Next Billion-Dollar Brand?


While it's not the biggest brand in margarine, Smart Balance has an edge on its
rivals in that it's made with a patented blend of vegetable and fruit oils that has
been shown to help improve consumers' cholesterol levels. Smart Balance sales
have skyrocketed while overall sales for margarine have stagnated. It remains to
be seen if Smart Balance's healthy message and high price will resound with
consumers.
Are long-run economic profits a possibility for Smart Balance? In long-run
equilibrium, will Smart Balance have excess capacity or a markup?
In the long run, economic profit _______ a possibility for Smart Balance. In the
long run, Smart Balance _______ have excess capacity.
A. is not; does
B. is; does not
C. is; does
D. is not; does not
In the long run, Smart Balance _______ a markup.
A. does not have
B. has
9. What are the two distinguishing characteristics of oligopoly?
The two distinguishing characteristics of oligopoly are _______.
A. natural or legal barriers prevent the entry of new firms, and a small number
of firms compete
B. no barriers prevent the entry of new firms, and a large number of firms
compete
C. natural or legal barriers prevent the entry of new firms, and a large number of
firms compete
D. no barriers prevent the entry of new firms, and a small number of firms
compete

10. Describe the prisoners' dilemma game and explain why the Nash equilibrium
delivers a bad outcome for both players.
In the prisoners' dilemma game, each player faces _______.
A. three strategies, confess, deny, or keep silent, and there are two possible
outcomes
B. two strategies, confess or deny, and there are four possible outcomes
C. three strategies, confess, deny, or keep silent, and there are four possible
outcomes
D. two strategies, confess or deny, and there is only one possible outcome
The Nash equilibrium delivers a bad outcome for both players because _______.
A. regardless of what the other prisoner does, the best strategy for each
prisoner is to deny
B. player collusion results in both players confessing
C. the game does not have a dominant-strategy equilibrium
D. regardless of what the other prisoner does, the best strategy for each
prisoner is to confess
11. Black and White are the two and only producers of piano keys. The firms are
identical. Despite it being illegal, the two firms decide to collude: to restrict
output and raise the price. With the deal in place, the firms can earn the
maximum monopoly profit and share it equally.
But each firm wants a bigger share of the market. They play a prisoners' dilemma
game. The table shows the payoff matrix for the game they are playing.

The Nash equilibrium is that Black _______ and White _______.


A. keeps the agreement; breaks the agreement
B. keeps the agreement; keeps the agreement
C. breaks the agreement; breaks the agreement
D. breaks the agreement; keeps the agreement

12. Nash equilibrium is an equilibrium in which each player takes the best possible
action _____ the action of the other player.
A. to compete with
B. to lower costs, given
C. given
D. without taking account of

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