Mulitple Choice A monopolistically competitive firm in the long run will a. have
ID: 1125716 • Letter: M
Question
Mulitple Choice
A monopolistically competitive firm in the long run will
a.
have a demand curve tangent to its AC.
b.
have a demand curve below its AC.
c.
have a demand curve above its AC.
d.
operate where excessive profit can be achieved.
____ 93. Monopolistic competition in long-run equilibrium is characterized by
a.
excess capacity.
b.
higher cost per unit of output than under perfect competition.
c.
inefficiency in use of resources.
d.
All of the above are correct.
____ 94. A cartel is
a.
a group of oligopolists who try to behave like a single monopolist and split the benefits among themselves.
b.
a government-approved organization for the exchange of technical information among firms.
c.
a form of competition among oligopolists.
d.
a regulated industry that is officially permitted to set the price of its product above long-run average total cost.
____ 95. Price leadership is a form of
a.
tacit collusion.
b.
explicit collusion.
c.
monopolistic competition.
d.
a cartel policing mechanism.
____ 96. In reality, firms may seek to maximize
a.
sales.
b.
profits.
c.
market share.
d.
All of the above can be correct, depending upon management, owners, and other factors.
____ 97. If an oligopolistic manufacturer believes that he faces a kinked demand curve for his product, he thinks his competitors will ____ if he lowers his price and ____ if he raises his price.
a.
lower their prices; raise their prices.
b.
lower their prices; not raise their prices
c.
not lower their prices; raise their prices
d.
not lower their prices; not raise their prices
____ 98. A duopoly is
a.
a cartel in which all members try to cheat on the cartel.
b.
an industry with only two sellers.
c.
an industry with only two buyers.
d.
a cartel with only two members.
____ 99. If a market is contestable, then
a.
long-run economic profits are minimal due to inefficiency.
b.
long-run economic profits are zero.
c.
short-run and long-run economic profits are zero.
d.
positive economic profits are maximized due to the efficient production spurred by the threat of entry.
____ 100. A perfectly competitive firm and a monopolistically competitive firm are similar in each of the following respects except
a.
each has many buyers and sellers.
b.
firms sell homogeneous products in both markets.
c.
in having perfect information.
d.
for freedom of exit and entry.
a.
have a demand curve tangent to its AC.
b.
have a demand curve below its AC.
c.
have a demand curve above its AC.
d.
operate where excessive profit can be achieved.
Explanation / Answer
A monopolistically competitive firm in the long run will
a.
have a demand curve tangent to its AC.
If in the short run the monopolistically competitive firm may earn excessive profits, which will make new firms enter the industry. Therefore, in the long run, the monopolistic competitive firm will make the maximum profit when MC=MR and price equals ATC.
93. Monopolistic competition in long-run equilibrium is characterized by
d. all are correct. There is excess capacity since the profit maximization is MC= MR and extended to the demand curve. The ATC is also not at the minimum and since MC does not equal MR (D), there is inefficiency in the use of resources.
94. A cartel is
a.
a group of oligopolists who try to behave like a single monopolist and split the benefits among themselves. Example is OPEC.
95. Price leadership is a form of
a.
tacit collusion.
Price leadership is when one firm sets the price and others follow and they do this tacitly, no written communication.
a.
have a demand curve tangent to its AC.
If in the short run the monopolistically competitive firm may earn excessive profits, which will make new firms enter the industry. Therefore, in the long run, the monopolistic competitive firm will make the maximum profit when MC=MR and price equals ATC.
93. Monopolistic competition in long-run equilibrium is characterized by
d. all are correct. There is excess capacity since the profit maximization is MC= MR and extended to the demand curve. The ATC is also not at the minimum and since MC does not equal MR (D), there is inefficiency in the use of resources.
94. A cartel is
a.
a group of oligopolists who try to behave like a single monopolist and split the benefits among themselves. Example is OPEC.
95. Price leadership is a form of
a.
tacit collusion.
Price leadership is when one firm sets the price and others follow and they do this tacitly, no written communication.
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