QUESTION 17 A monopolistically competitive firm sets its price equal to its MR,

Question

QUESTION 17

A monopolistically competitive firm sets its price equal to its MR, while keeping it above MC.

True

False

2 points   

QUESTION 18

We say that the long-run equilibrium of a monopolistically competitive firm reflects excess capacity because its MC is not equal to its ATC.

True

False

2 points   

QUESTION 19

In a duopoly with a zero marginal cost, according to the Cournot model, at equilibrium the sum of the two firms' output would be more than 50 percent of the market demand at a zero price.

True

False

2 points   

QUESTION 20

In the kinked demand curve model it is assumed that the demand faced by an oligopoly is less elastic when it lowers the price but more elastic when it raises the price.

True

False

2 points   

QUESTION 21

A distinguishing characteristic of monopolistically competitive market is price discrimination.

True

False

2 points   

QUESTION 22

The general explanation for the relative price stability in an oligopolistic market is the existence of some degree of decision interdependency among the firms in the market.

True

False

Explanation / Answer

soln :

Q 17 ) True

For a monopolistically competitive firm , the price is above marginal cost and the price is set equal to marginal revenue

Q 18) True

In the long run equilibrium , monopolistically competitive firms operate on the declining portion of their average total cost curves , so marginal cost is below average total cost . Thus firms are said to have excess capacity under monopolistic competition and the firm is always eager to get another customer .

19)

20) True

In an Oligopoly , if the firm cuts its prices , other firms will follow suit . The firms own sales will expand but only slowly along the relative portion of the demand curve and therefore the demand is less elastic . Second if the firm rises its price , its competitors will not follow suit and therefore the demand faced by the oligopoly is more elastic when it rises the price .

21) True

A monopolistically competitive firm sells differentiated products and hence it has some control over the prices and has the ability to price discriminate .

22) True

In a oligopolistic competitive market , each firm watches the actions of the other firm very closely and since the number of firms are very few , an action by one firm will initiate action by its competitor . Therefore the market enjoys price stability as one firm rises or lower prices , the other firm follows suit .

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