Multiple Choice Answers

  1. A two firm oligopoly is known as a ___
    a. Duopoly
    b. Cartel
    c. Monopoly
    d. Contestable market
  2. The demand curve facing a dominant firm in the price leadership model is derived by subtracting the
    a. Amount supplied by the smaller firms from market demand
    b. Amount supplied by the smaller firms from market supply
    c. Amount demanded by customers from the smaller firms from market supply
    d. Dominant firm’s marginal cost curve from the industry’s supply curve
  3. ___ occurs when price- and quantity-fixing agreements among producers are implicit.
    a. Tacit collusion
    b. A Cournot model
    c. A price-leadership model
    d. A monopoly
  4. A(n) ___ industry is characterized by strategic behavior.
    a. Perfectly competitive
    b. Monopolistic
    c. Monopolistically competitive
    d. Oligopolistic
  5. Resources are allocated efficiently when
    a. The market produces what people want
    b. Economic profits are zero
    c. Output is distributed in an equitable fashion
    d. Output is produced in a sustainable fashion
  6. According to the Five Forces Model, ___ are the five competitive forces that determine the level of competition and profitability in an industry.
    a. Rivals, buyers, suppliers, substitutes, and potential entrants
    b. Rivals, consumers, labor, weather, and government
    c. Buyers, suppliers, government, foreign competition, and weather
    d. None of the above
  7. Product differentiation that makes the product better for some consumers and worse for others is
    a. Always welfare decreasing
    b. Vertical differentiation
    c. Horizontal differentiation
    d. Never undertaken by firms
  8. Monopolies, oligopolies, and monopolistic competitive industries all
    a. Earn positive profits in the long run
    b. Have market power
    c. Are completely unconstrained in their pricing
    d. Raise price and quantity over what would occur in perfect competition in order to maximize their profits
  9. To maximize profit, a monopolistically competitive firm will produce where
    a. Marginal revenue equals price
    b. Price equals marginal cost
    c. Price equals average total cost
    d. Marginal revenue equals marginal cost
  10. In a monopolistically competitive industry
    a. Firms are large relative to the total market
    b. Firms are small relative to the total market
    c. Firms can be either large or small relative to the total market
    d. There is only one firm