PRINCIPLES OF MICROECONOMICS
CHAPTER 13 & 14 UNIT ASSESSMENT
CHAPTER 13
1. Nonprice competition refers to:
1. competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts.
1. price increases by a firm that is ignored by its rivals.
1. advertising, product promotion, and changes in the real or perceived characteristics of a product.
1. reductions in production costs that are not reflected in price reductions.
1. In the short-run, a profit-maximizing monopolistically competitive firm sets it price:
equal to marginal revenue.
1. equal to marginal cost.
1. above marginal cost.
1. below marginal cost.
In the long run, new firms will enter a monopolistically competitive industry:
1. provided economies of scale are being realized.
1. even though losses are incu
ed in the short run.
1. until minimum average total cost is achieved.
1. until economic profits are zero.
A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50. To maximize profits:
1. The firm should continue to produce this quantity.
1. The firm should increase output and decrease price.
1. The firm should decrease output and increase price.
1. It is unclear what the firm should do without knowing marginal revenue.
In a monopolistically competitive market:
1. there is a relatively small number of sellers.
1. all products are identical.
1. it is typically difficult to enter the market.
1. there is a relatively large number of sellers.
Product differentiation is an important characteristic in a monopolistically competitive market because:
1. it results in zero profits in the short run.
1. it promotes productive efficiency in the long run.
1. it provides firms with some market power.
1. it implies market share is zero in the long run.
Which value (in percentage form) of the four-firm concentration ratio is most likely to indicate a monopolistically competitive market?
1. 100%
1. 60%
1. 30%
1. 2%
The Herfindahl index is:
1. the sum of the squared percentage market shares of all firms in the industry.
1. the sum of the market shares for the top 10 firms in the industry.
1. a measure of product differentiation in the market.
1. a measure of how easy it is for new firms to enter the market.
If profits are negative in a monopolistically competitive market, then:
1. the industry will stop production.
1. new firms will enter the market until economic profits are zero.
1. firms will exit the market until economic profit returns to the optimal positive level.
1. firms will exit the market until economic profit returns to zero.
In a monopolistically competitive market, the firm's marginal revenue schedule:
1. is the same as the demand schedule.
1. lies below the demand schedule.
1. lies above the demand schedule.
1. is not dependent on the demand schedule.
CHAPTER 14
11. Which of the following statements is true?
A. Nash equili
iums exist only in games with dominant strategies.
B. Dominant strategies do not exist in repeated games.
C. Collusive agreements will always
eak down in repeated games.
D. Games with a known ending date undermine reciprocity strategies.
12. In a duopoly, if one firm increases its price, then the other firm can:
A. keep its price constant and thus increase its market share.
B. keep its price constant and thus decrease its market share.
C. increase its price and thus increase its market share.
D. decrease its price and thus decrease its market share.
13. The term oligopoly indicates:
A. a one-firm industry.
B. many producers of a differentiated product.
C. a few firms producing either a differentiated or a homogeneous product.
D. an industry whose four-firm concentration ratio is low.
14. Game theory:
A. is the analysis of how people (or firms) behave in strategic situations.
B. is best suited for analyzing purely competitive markets.
C. reveals that mergers between rival firms are self-defeating.
D. reveals that price-fixing among firms reduces profits.
15. The kinked-demand curve of an oligopolist is based on the assumption that:
A. competitors will follow a price cut but ignore a price increase.
B. competitors will match both price cuts and price increases.
C. competitors will ignore a price cut but follow a price increase.
D. there is no product differentiation.
16. If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?
A. The kinked demand curve model of oligopoly
B. The price-leadership model of oligopoly
C. The pure monopoly model
D. The monopolistic competition model
17. Nonprice competition refers to:
A. competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts.
B. price increases by a firm that are ignored by the firm’s rivals.
C. advertising, product promotion, and changes in the real or perceived characteristics of a product.
D. reductions in production costs that are not reflected in price reductions.
18. In the short run, a profit-maximizing monopolistically competitive firm sets it price:
A. equal to marginal revenue.
B. equal to marginal cost.
C. above marginal cost.
D. below marginal cost.
19. In the long run, new firms will enter a monopolistically competitive industry:
A. provided economies of scale are being realized.
B. even though losses are incu
ed in the short run.
C. until minimum average total cost is achieved.
D. until economic profits are zero.
20. A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50. To maximize profits:
A. the firm should continue to produce this quantity.
B. the firm should increase output and decrease price.
C. the firm should decrease output and increase price.
D. it is unclear what the firm should do without knowing marginal revenue.
Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 23 percent, 22 percent, 18 percent, 12 percent, 11 percent, 8 percent, and 6 percent. What is the four-firm concentration ratio of the hamburger industry in this town? What is the Herfindahl index for the hamburger industry in this town? If the top three sellers combined to form a single firm, what would happen to the four-firm concentration ratio and to the Herfindahl index?
2. Suppose that a monopolistically competitive restaurant is cu
ently serving 230 meals per day (the output where MR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay $12 per meal. What is the size of this firm’s profit or loss? Will there be entry or exit? Will this restaurant’s demand curve shift left or right? In long-run equili
ium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $8. What is the size of the firm’s profit? Suppose that the allocatively efficient output level in long-run equili
ium is 200 meals. Is the deadweight loss for this firm greater than or less than $60