Quiz 13: Oligopoly and Monopolistic Competition

Perfect competition and monopolistic competition are similar in that both market structures include A)price-taking behavior by firms. B)a homogeneous product. C)no barriers to entry. D)very few firms.

Perfect competition and monopolistic competition are similar in that firms in both types of market structure will A)act as price takers. B)produce a level of output where price equals marginal cost. C)earn zero profit in the long run. D)act as price setters.

Which of the following market structures is (are)capable of earning positive economic profits in the long run? A)monopoly B)oligopoly C)monopolistic competition D)Both A and B.

A competitive market structure differs from the monopoly, oligopoly, and monopolistic competition structures in the A)producers' ability to set price. B)profit maximization condition. C)amount of long-run profit. D)entry conditions.

Oligopoly differs from monopolistic competition in that an oligopoly includes A)product differentiation. B)barriers to entry. C)no barriers to entry. D)downward-sloping demand curves facing the firm.

Monopolistic competition and monopoly have all of the following in common EXCEPT A)P > MC. B)firms are price setters. C)barriers to entry. D)MR = MC.

Monopolistic competition and perfect competition differ because A)only monopolistically competitive firms will set MR = MC. B)only perfectly competitive firms will set MR = MC. C)only monopolistic competition allows for entry of other firms in the long run. D)only competitive firms take the price as given.

Which of the following market structures have market power? A)oligopoly B)monopolistic competition C)perfect competition D)Both A and B.

Regardless of market structure, all firms A)consider the actions of rivals. B)maximize profit by setting marginal revenue equal to marginal cost. C)produce a differentiated product. D)have the ability to set price.

What is the aspect of imperfect competition that is most distinct from perfect competition? A)free entry/exit B)perfect information C)differentiated products D)zero profits

Suppose that government requires airline companies to have at least 30 airplanes and serve at least 20 different airports. This is an example of A)safety concerns. B)perfect information. C)barriers to entry. D)labor union power.

Suppose that government used to requires airline companies to have at least 30 airplanes and serve at least 20 different airports. Now, this requirement changed to a minimum of 10 airplanes and 4 different airports. Such change in regulation will lead to A)lower profits due to increased competition. B)higher profits due to decreased competition. C)higher profits due to weaker labor unions. D)lower profits due to larger regulatory burden.

In comparing monopolistic competition to perfect competition, one can conclude that the lack of free entry is the key to having the ability to set price.

Firms in all types of market structures pay attention to current rival firms' behavior.

Explain why a monopoly or a perfectly competitive firm does not consider a rival firm's behavior, but an oligopoly and a monopolistically competitive firm do.

Explain how long-run economic profits are linked to entry in monopolistic competition and perfect competition.

A cartel is a group of firms that attempts to A)maximize joint revenue. B)maximize joint profit. C)behave independently. D)increase consumer surplus.

The Organization of Petroleum Exporting Countries (OPEC)is an example of a(n) A)oil monopoly. B)cartel. C)competitive arrangement. D)monopolistically competitive arrangement.

If a cartel is unable to monitor its members and punish those firms that violate the agreement, then A)the member firms will each act as price setters. B)the cartel will prosper in the long run. C)the market will become a monopoly. D)the cartel will fail.

In a sense, a cartel is self-destructive because A)it reduces consumer surplus. B)it sets price above marginal cost. C)each cartel member has the incentive to cheat on the cartel. D)each cartel member earns economic profit.

Which of the following conditions can help prolong the life of a cartel? A)There are only a few firms in the market and they all belong to the cartel. B)There are many firms in the market that are not members of the cartel. C)It is difficult to know what price any cartel member is actually charging. D)The cartel has no ability to punish members who cheat on the cartel.

Mergers may result in A)anticompetitive behavior. B)more efficient production. C)fewer firms in a market. D)All of the above.

Mergers are closely scrutinized by the government because A)they might allow the firms involved to dominate the market and act as a legalized cartel (monopoly). B)they always result in a more efficient market. C)they always result in lower joint profits of the firms involved. D)all mergers are undesirable.

The evidence on mergers occurring within the hospital industry suggests that A)efficiency gains that resulted have been passed on to customers through lower prices. B)the mergers have tended to not have any significant effect on hospital prices. C)prices have risen slightly as some efficiency gains are passed on to customers after mergers. D)prices have risen after mergers.

A typical firm in a cartel will hold which of the following attitudes? A)If everyone cheats, I'm better off, and so is everyone in the cartel. B)If I alone cheat, I'm better off; if everyone cheats, I'm worse off. C)I can never do better for myself than following agreed-upon cartel rules. D)If I suspect others are planning to cheat, I'll do best for myself by deciding not to cheat.

Television stations have seemingly synchronized their commercial breaks. This is likely an example of A)tacit collusion. B)explicit collusion. C)mixed strategies. D)pure strategies.

There are only two firms in an industry with demand curves q₁ = 30 - P and q₂ = 30 - P. Both have no fixed costs and each has a marginal cost of 10 per unit produced. If they behave as profit-maximizing price takers, each produces 10 units and sells them at a price of 10 so that each firm makes zero economic profits. If they form a cartel, their inverse demand curve is A)Q = 30 - P. B)Q = 60 - 2P. C)P = 60 - 2Q. D)P = 30 - Q/2.

There are only two firms in an industry with demand curves q₁ = 30 - P and q₂ = 30 - P. Both have no fixed costs and each has a marginal cost of 10 per unit produced. If they behave as profit-maximizing price takers, each produces 20 units and sells them at a price of 10 so that each firm makes zero economic profits. If they formed a cartel, the profit-maximizing price is A)10. B)15. C)20. D)25.

There are only two firms in an industry with demand curves q₁ = 30 - P and q₂ = 30 - P. Both have no fixed costs and each has a marginal cost of 10 per unit produced. If they behave as profit-maximizing price takers, each produces 20 units and sells them at a price of 10 so that each firm makes zero economic profits. If they formed a cartel and split the production of the output evenly, the profit-maximizing quantity produced by each firm is A)5. B)10. C)15. D)20.

There are only two firms in an industry with demand curves q₁ = 30 - P and q₂ = 30 - P. Both have no fixed costs and each has a marginal cost of 10 per unit produced. If they behave as profit-maximizing price takers, each produces 20 units and sells them at a price of 10 so that each firm makes zero economic profits. If they formed a cartel and split the production of the output evenly, the economic profit of each firm would be A)0. B)50. C)100. D)200.

There are only two firms in an industry with demand curves q₁ = 30 - P and q₂ = 30 - P. Both have no fixed costs and each has a marginal cost of 10 per unit produced. If they behave as profit-maximizing price takers, each produces 20 units and sells them at a price of 10 so that each firm makes zero economic profits. Suppose the two firms form a cartel. While firm 1 produces one-half of the profit-maximizing cartel output, firm 2 cheats and produces 5 units more. What would happen to the two firms' economic profits? A)Firm 1's profits remain the same, but firm 2's profits increase by 10.5 B)Firm 1's profits decrease by 5.5, but firm 2's profits increase by 11. C)Firm 1's profits decrease by 25, but firm 2's profits increase by 12.5. D)Firm 1's profits decrease by 12.5, but firm 2's profits increase by 25.

Requiring government agencies to report which company had the lowest bid for a government contract and the level of the bid, A)can help a cartel enforce its agreement. B)can speed up the end of a cartel. C)may foster competition. D)may help a cartel to lower its price.

Cartels are inherently self-destructive because each member firm has the incentive to cheat on the cartel agreement.

Collusion is more successful in a game that will continue forever or in a game with an uncertain ending time than in a game with a known ending time.

Suppose that market demand can be represented as p = 100 - 2Q. There are 10 identical firms producing an undifferentiated product, each with the total cost function TC = 50 + q². Compare the competitive outcome with the cartel outcome. What is the individual firm's incentive to cheat on the cartel?

Explain why gasoline stations across the street from each other with large signs displaying their prices may "legally" jointly set monopoly prices.

Two firms sell 100% orange juice in 10 ounce bottles. The juice is only good for one week. The two firms have contracts for all the oranges produced in a large geographic area. Each firm decides how many bottles of juice to produce at the same time. This market is best described with a A)Bertrand model. B)Stackelberg model. C)monopolistic competition model. D)Cournot model.

The Cournot Model of Oligopoly assumes that A)firms decide what quantity to produce. B)firms make their decisions simultaneously. C)firms do not cooperate. D)All of the above.

Compared to a cartel, firms in a Cournot Oligopoly A)make more joint profit. B)sell less output. C)make less joint profit. D)act independently.

-The above figure shows the reaction functions for two pizza shops in a small isolated town. The Cournot equilibrium is at point A)a. B)b. C)c. D)d.

-The above figure shows the reaction functions for two pizza shops in a small isolated town. Collusion would result in A)each firm producing 25 pizzas. B)each firm producing 40 pizzas. C)the firms splitting the production of 100 making 50 pizzas each. D)firm A monopolizing the market by selling 50 pizzas.

-The above figure shows the reaction functions for two pizza shops in a small isolated town. The perfect competitive outcome is that A)each firm produces 40 pizzas. B)each firm produces 50 pizzas. C)the firms split the production of 200 pizzas. D)each firm produces 200 pizzas.

-The above figure shows the reaction functions for two pizza shops in a small isolated town. Firm B producing 100 pizzas and firm A producing 50 pizzas is not a Cournot equilibrium because A)Cournot duopolists agree to share the market equally. B)firm B is not on its best-response function. C)firm A is not on its best-response function. D)neither firm is on its best-response function.

Suppose two Cournot duopolist firms operate at zero marginal cost. The market demand is p = a - bQ. Firm 1's best-response function is A)q₁ = (a - bq₂)/2b. B)q₁ = (a - 2bq₂)/2b. C)q₁ = a/b. D)q₁ = a/2b.

Suppose two Cournot duopolist firms operate at zero marginal cost. The market demand is p = a - bQ. Each firm will produce A)a/b. B)a/2b. C)a/3b. D)a/4b.

Suppose Cournot duopolist firms operate with each having a cost of 30q_i (i = 1,2)so that each firm's marginal cost is 30. The inverse market demand curve is P = 120 - Q where Q = q₁ + q₂. At the Nash-Cournot equilibrium, the total quantity, Q, is A)30. B)45. C)60. D)90.

Suppose Cournot duopolist firms operate with each having a cost of 30q_i (i = 1,2)so that each firm's marginal cost is 30. The inverse market demand curve is P = 120 - Q where Q = q₁ + q₂. At the Nash-Cournot equilibrium, the market price, P, is A)30. B)45. C)60. D)90.

Suppose Cournot duopolist firms operate with each having a cost of 30q_i (i = 1,2)so that each firm's marginal cost is 30. The inverse market demand curve is P = 120 - Q where Q = q₁ + q₂. Suppose there were no barriers to entry and firms continued to enter so long as there were positive economic profits. At the Nash-Cournot equilibrium, the total output, Q, is A)30. B)45. C)60. D)90.

Suppose Cournot duopolist firms operate with each having a cost of 30q_i (i = 1,2)so that each firm's marginal cost is 30. The inverse market demand curve is P = 120 - Q where Q = q₁ + q₂. Suppose there were no barriers to entry and firms continued to enter so long as there were positive economic profits. At the Nash-Cournot equilibrium, the price, P, is A)30. B)45. C)60. D)90.

In the Cournot model, a firm maximizes profit by selecting A)its output, assuming that other firms keep their output constant. B)its price, assuming that other firms keep their price constant. C)its output, assuming that other firms will retaliate. D)its price, assuming that other firms will retaliate.

In the Cournot model, the output that a firm chooses to produce increases as A)the total output of other firms increases. B)the number of firms in the market increases. C)the number of firms in the market decreases. D)its marginal cost increases.

Suppose Cournot duopolists firms face the same market demand curve, but have differing costs. At the Nash-Cournot equilibrium, the firm with the lower cost will A)have a lower price for its product than its competitor. B)produce a smaller output than its competitor. C)have a higher price for its product than its competitor. D)produce a larger output than its competitor.

In the Cournot model, if the products are differentiated, A)this reduces the pressure of one firm's decisions on the other. B)this increases the pressure of one firm's decisions on the other. C)there is no difference between this model and one with homogeneous goods. D)marginal costs are necessarily different.

As compared to the basic Nash-Cournot equilibrium for duopolists where the firms face the same market demand curve and have identical costs, in the situation where the firms produce products which are viewed by consumers as not being identical, A)there will generally be different prices charged by the two firms. B)there will generally be different quantities produced by the two firms. C)one or both of the firms may practice spurious differentiation. D)All of the above.

Suppose a market with a Cournot structure has five firms and a market price elasticity of demand equal to -2. What is a Cournot firm's Lerner Index? A).1 B).2 C).5 D)1

Suppose Cournot duopolists firms face the same market demand curve, but have differing costs. At the Nash-Cournot equilibrium, the firm with the higher cost will A)have a lower price for its product than its competitor. B)have a smaller profit than its competitor. C)have a higher price for its product than its competitor. D)have a higher profit than its competitor.

Suppose Cournot duopolists firms (A and B)face the same market demand curve, and initially have identical costs. Firm A figures out a way of reducing its marginal cost. At the new Nash-Cournot equilibrium, A)firm A's price falls. B)firm A's output expands and firm B's output contracts. C)firm B's profits expand. D)the price charged by both firms increases.

The Cournot model assumes that firm A maximizes its profit, holding firm B's output constant.

Suppose the demand for pizza in a small isolated town is p = 10 - Q. There are only two firms, A and B, and each has a cost function TC = 2 + q. Determine the Cournot equilibrium.

Explain why the intersection of the best-response functions is the Cournot equilibrium.

Assuming Cournot behavior, what happens to the market output, the price of the output, and each firm's output as the number of firms in a market increases?

Draw a graph that shows the effect on the equilibrium quantities if the government subsidizes one firm in a Cournot duopoly with a per-unit subsidy. Assume that the best-response functions are linear. Explain the new equilibrium quantities.

If two firms playing Cournot are identical with decreasing average costs, how should the firms divide production to maximize joint profits?

The Stackelberg model is more appropriate than the Cournot model in situations where A)there are more than two firms. B)all firms enter the market simultaneously. C)one firm makes its output decision before the other. D)firms will be likely to collude.

The outcome of the Stackelberg model is A)a Nash equilibrium. B)the same as the Cournot outcome. C)that the follower earns zero profit. D)that the follower cannot be on its best-response curve.

Which of the following is a necessary condition for government subsidies to influence a firm to choose an output level as if it were a Stackelberg leader? A)The subsidy must be announced before the firms choose output levels. B)The subsidy must be equal to the firm's marginal cost. C)The subsidy must be equal to the firm's rival's marginal cost. D)The firm does not have any fixed costs.

-The above figure shows the reaction functions for two pizza shops in a small isolated down. The Stackelberg leader will produce A)25 pizzas. B)50 pizzas. C)66.7 pizzas. D)100 pizzas.

Suppose two duopolists operate at zero marginal cost. The market demand is p = a - bQ. If firm 1 is the Stackelberg leader, what level of output will it choose? A)q₁ = (a - bq₂)/2b B)q₁ = (a - 2bq₂)/2b C)q₁ = a/b D)q₁ = a/2b

Suppose duopolists face the market inverse demand curve P = 100 - Q, Q = q₁ + q₂, and both firms have a constant marginal cost of 10. If firm 1 is a Stackelberg leader and firm 2's best response function is q₂ = (100 - q₁)/2, at the Nash-Stackelberg equilibrium firm 1's output is A)30. B)40. C)60. D)70.

Suppose duopolists face the market inverse demand curve P = 100 - Q, Q = q₁ + q₂, and both firms have a constant marginal cost of 10. If firm 1 is a Stackelberg leader and firm 2's best response function is q₂ = (100 - q₁)/2, at the Nash-Stackelberg equilibrium the prices the two firms charge are A)P₁ = 40, P₂ = 40. B)P₁ = 30, P₂ = 30. C)P₁ = 30, P₂ = 40. D)P₁ = 40, P₂ = 30.

In which of the following market structures with 2 identical firms do both firms produce more than the Cournot outcome? A)Stackelberg Oligopoly B)Cartel C)Perfect Competition D)None of the above.

What strategic advantage compared to a Cournot Oligopoly results in the Stackelberg outcome? A)the ability to move first B)the ability to set price C)the ability to set quantity D)the ability to make independent decisions by the Stackelberg leader

If only two identical firms operate in a market, consumers prefer A)a Cournot equilibrium. B)a Stackelberg equilibrium. C)a collusive equilibrium. D)any equilibrium since they all result in the same consumer surplus.

The profitability of the second mover in a Stackelberg model is A)guaranteed to be negative. B)smaller than that of the first mover. C)greater than that of the first mover. D)greater than the Cournot profits.

Strategic trade policy might work if A)trade decisions are made simultaneously by two countries. B)trade decisions are made sequentially by two countries. C)trade decisions entail response by a trading partner. D)trade decisions are made in a random fashion.

Strategic trade policy requires ALL of the following EXCEPT A)subsidies set before output levels. B)non-retaliation of the trading partner. C)credible actions on the part of the subsidizing government. D)incomplete information on the part of the government.

Which of the following models results in the highest level of output assuming a fixed number of firms with identical costs and a given demand curve? A)Cournot B)Stackelberg C)Monopoly D)Cartel

Which of the following market models results in the highest price assuming a fixed number of firms with identical costs and a given demand curve? A)Cournot B)Stackelberg C)Monopoly D)Price is the same in all three markets.

Which of the following market models results in the highest level of consumer surplus assuming a fixed number of firms with identical costs and a given demand curve? A)Cournot B)Stackelberg C)Monopoly D)Cartel

Which of the following models results in the greatest deadweight loss assuming a fixed number of firms with identical costs and a given demand curve? A)Cournot B)Stackelberg C)Monopoly D)Perfect competition

Which of the following models results in the greatest total profit, assuming a fixed number of firms with identical costs and a given demand curve? A)Cournot B)Stackelberg C)Monopoly D)Perfect competition

As the number of firms increases in a market, the differences between the Cournot, Stackelberg, and price-taking market structures A)decrease. B)increase. C)remain the same. D)Cannot be determined.

Firms A and B are identical, produce identical products, and are the only firms in a market. Firm A's output is higher than Firm B's. This means that Firm B is the A)Cartel leader. B)Stackelberg leader. C)Stackelberg follower. D)Cournot leader.

Suppose duopolists face the market inverse demand curve P = 100 - Q, Q = q₁ + q₂, and both firms have a constant marginal cost of 10 and no fixed costs. If firm 1 is a Stackelberg leader and firm 2's best response function is q₂ = (100 - q₁)/2, at the Nash-Stackelberg equilibrium firm 1's profit is A)400. B)650. C)800. D)1200.

Suppose duopolists face the market inverse demand curve P = 100 - Q, Q = q₁ + q₂, and both firms have a constant marginal cost of 10. If firm 1 is a Stackelberg leader and firm 2's best response function is q₂ = (100 - q₁)/2, at the Nash-Stackelberg equilibrium firm 2's output is A)30. B)40. C)60. D)70.

Suppose duopolists face the market inverse demand curve P = 100 - Q, Q = q₁ + q₂, and both firms have a constant marginal cost of 10 and no fixed costs. If firm 1 is a Stackelberg leader and firm 2's best response function is , at the Nash-Stackelberg equilibrium firm 2's profit is A)400. B)650. C)800. D)1200.

If there are 2 identical firms in a market that choose the quantity they produce, total welfare is the highest when there is a cartel.

If two firms behave as Cournot duopolists, the level of social welfare is lower than if the same firms act as a cartel.

Suppose the demand for pizza in a small isolated town is p = 10 - Q. There are only two firms, A and B. Each has a cost function TC = 2 + Q. Determine the equilibrium quantities of each if firm A is the Stackelberg leader.

Suppose the demand for pizza in a small isolated town is p = 10 - Q. The only two firms, A and B, behave as Cournot duopolists. Each has a cost function TC = 2 + Q. If the government wants to subsidize firm A to raise its output to that of a Stackelberg leader, how large should the subsidy be?

What happens in a duopoly if both firms try to act as the Stackelberg leader?

Suppose the demand for pizza in a small isolated town is p = 10 - Q. There are only two firms, A and B, and each has a cost function TC = 2 + Q. Compare the firms' profits if they behave as Cournot duopolists with their profits if they form a cartel and share the market.

-The above figure shows the reaction functions for two pizza shops in a small isolated town. Compare the Cournot, Stackelberg, cartel, and competitive equilibria in terms of total output and welfare.

The Bertrand model is a more plausible model of firm behavior than the Cournot model A)when firms set the quantity to be sold. B)when firms sell a differentiated product. C)because firms that sell a non-differentiated product typically act as price takers. D)because the Bertrand model predicts that firms will price at marginal cost.

The Bertrand model of price setting assumes that a firm chooses its price A)independently of what price other firms charge. B)subject to what price rival firms are charging. C)so that joint profits are maximized. D)without considering the shape of the demand curve.

Assuming a homogeneous product, the Bertrand duopoly equilibrium price is A)the same as the Cournot equilibrium price. B)less than the Cournot equilibrium price. C)greater than the Cournot equilibrium price. D)equal to the monopoly price.

Assuming a homogeneous product, the Bertrand equilibrium price is A)independent of the number of firms. B)independent of the firm's marginal costs. C)equal to the Cournot equilibrium price. D)equal to the monopoly price.

One criticism of the Bertrand pricing model is that A)the model is implausible when there is product differentiation. B)when there is an oligopoly with no product differentiation, the model's prediction is inconsistent with reality. C)the model's predicted price is solely a function of demand conditions. D)the model's predicted price is dependent on the number of firms.

In a Bertrand model, graphically, the intersection of all firms' best-response curves determines A)the Nash equilibrium prices. B)the dominant strategy for each firm. C)the degree of product differentiation. D)the price of the market leader.

In a Bertrand model, market power is a function of A)marginal cost. B)the number of firms. C)price elasticity of supply. D)product differentiation.

In a Bertrand model with identical firms and a non-differentiated product, price will increase in response to A)an increase in the number of firms. B)a decrease in the number of firms. C)an increase in marginal cost. D)a decrease in marginal cost.

In a Bertrand model with differentiated products, A)firms can set price above marginal cost. B)firms set price at marginal cost. C)price is independent of marginal cost. D)firms set price independently of one another.

Product differentiation allows a firm to charge a higher price because the residual demand curve facing the firm A)is more elastic than the residual demand curve without product differentiation. B)is less elastic than the residual demand curve without product differentiation. C)is horizontal. D)shifts to the left.

Product differentiation A)may allow firms to price above a competitive level. B)generates value as consumers value more choices. C)depends on perceived differences between products. D)All of the above.

Two identical firms that share a market and produce a homogeneous good will find which of the following market outcomes LEAST desirable? A)Bertrand Oligopoly B)Cournot Oligopoly C)Cartel D)All are equally preferable.

Two identical firms that share a market and produce a homogenous good will find the Bertrand Oligopoly LEAST attractive because A)Cartels generate the highest joint profit. B)a Cournot Oligopoly will generate more profit than a Bertrand Oligopoly. C)they want to avoid a price war that leads to profit erosion and P = MC. D)All of the above.

Because firms selling a homogeneous product set price in response to the (perceived)pricing decision of other firms in the Bertrand Model of oligopoly in equilibrium price exceeds marginal cost.

Suppose the demand for Pepsi-Cola is q_p = 54 - 2p_p + 1p_c. The demand for Coca-Cola is q_c = 54 - 2p_c + 1p_p. Each firm faces a constant marginal cost of zero. Determine the Bertrand equilibrium prices. What happens to the Bertrand equilibrium prices and profits if increased differentiation causes the demand for Pepsi-Cola to become q_p = 104 - 2p_p + 1p_c while the demand for Coca-Cola remains unchanged?

Suppose the demand for Pepsi-Cola is q_p = 50 - 2p_p + 1p_c. The firm faces a constant marginal cost of m, and p_c denotes the price of Coca-Cola. Assuming Bertrand behavior, derive Pepsi-Cola's best-response function and explain how the firm changes price in response to changes in its own marginal cost and changes in Coca-Cola's price.

In a Bertrand duopoly with product differentiation, explain how a change in one firm's marginal cost can have an effect on the price charged by the other firm.

Monopolistically competitive firms face downward-sloping residual demand curves because these firms A)have relatively few rivals (compared to competition). B)sell differentiated products. C)A and/or B. D)None of the above.

In the long run, a monopolistically competitive firm A)earns zero economic profit. B)produces at minimum average cost. C)operates at full capacity. D)All of the above.

Monopolistically competitive firms A)have market power because they can set price above marginal cost. B)have no market power because they earn zero economic profit. C)have no market power because of free entry. D)have no market power because price equals marginal cost.

In the short run, a monopolistic competitor A)produces at minimum efficient scale. B)produces where P = AC. C)sets P = MC. D)sets MR = MC.

In the long run, a monopolistic competitor A)sets MR = MC. B)produces where P = AC. C)sets P > MC. D)All of the above.

Minimum efficient scale refers to the lowest level of output at which A)the firm can earn a profit. B)average cost is minimized. C)the firm will operate. D)the average cost curve is downward sloping.

The number of firms in a monopolistically competitive market will be smaller if A)the market demand curve shifts rightward. B)the minimum efficient scale is lower. C)fixed costs are smaller. D)fixed costs are larger.

Suppose a monopolistically competitive industry evolved into a perfectly competitive industry. Which of the following statements is correct? A)The industry would produce more output and charge a lower price after the change. B)The industry would produce at decreasing returns to scale. C)Elasticity of demand for the firm's product would remain the same after this change occurred. D)This industry would produce the same level of output at lower prices in the long run than before the change.

Brand loyalty in monopolistically competitive markets manifests itself as A)upward-sloping marginal cost curves. B)downward-sloping demand curves. C)downward-sloping marginal cost curves. D)upward-sloping demand curves.

A firm with a flat demand curve A)has no brand loyalty. B)has weak brand loyalty. C)has strong brand loyalty. D)isn't really worried about brand loyalty; flat demand curves guarantee zero profit.

In monopolistically competitive markets, A)price is greater than it would be in perfect competition. B)price is less than it would be in perfect monopoly. C)quantity is greater than it would be in perfect monopoly. D)All of the above.

Product differentiation A)is possibly welfare enhancing if new products match consumer preferences better. B)is welfare reducing even if new products match consumer preferences better. C)is welfare enhancing even if new products do not match consumer preferences better. D)is welfare reducing even if new products do not match consumer preferences better.

Product differentiation A)can be actual or perceived. B)is only legal if it is perceived. C)is only important if it is perceived. D)is only important if it is actual.

Firms seek to differentiate their product A)to avoid state and federal regulation. B)to create an illusion of value. C)to strengthen their demand and to make it more inelastic. D)to strengthen their demand and to make it more elastic.

In a monopolistically competitive market, the lower the firms' fixed costs, A)the higher the deadweight loss. B)the less firms are active in equilibrium. C)the more firms are active in the equilibrium. D)the higher the prices charged.

In a monopolistically competitive market, the equilibrium price is $21, and each identical firm has a fixed cost of $40 and a constant marginal cost of $1. What is the output level of each producer? A)q = 1 B)q = 2 C)q = 2.9 D)q = 21

The ability to set a price greater than marginal cost guarantees an economic profit for the monopolistic competitor (assuming P > AC).

Is it true that in the long run, a monopolistically competitive firm has market power but earns no profit? Explain.