QUESTIONS FOR SECTION \\

I 111 which of the following indusiries are we least

likely IO find monopolisdc conipetiuonr (a) candy bars (b) stereo equipment (c) shampoo (d) glass (e) beer.

AATiicJi of the following will not be true for a

firm producing in long run monopolistically competi-tr\e equilibrium? (a) normal profits (b) price greater than minimum average cost (c) marginal cost greater than average cost (d) marginal cost = marginal revenue (e) less than infinitely elasdc demand for the firms product.

3. Some toothpaste companies are charged with operadng a joint profit maximizing cartel. \\hich ofthe following is inconsistent with the charge? (a) each of the firms earns super-normal profit (b) the industry demand curve is elasdc at the output produced (c) the marginal benefit of addidonal producdon equals the price (d) the cost curves ofthe defendants are idend-cal (e) each firm sets marginal cost equal to price.

4. The union representing workers in a firm producing toothpaste believes that the management believes that the demand curve for the firms product is "kinked". In this case, you would expect a demand for a moderate wage increase to lead to: (a) lower

output, higher price, lower profits and higher wages (b) higher output, lower price, lower profits, and lower wages? (c) unchanged output, unchanged price, unchanged wages? (d) unchanged output, unchanged price, higher wages, and lower profits? (e) none of the above.

15. Cartels find it difficult to maintain supernormal profits in the long run because: (a) it is hard to Keep individual firms from leaving the industry (b) each firm has an incentive to cheat by expanding output (c) each firm has an incentive to raise its price higher than the cartel price (d) cartels are unpopu-. lar with the public (e) none of the above.

V 6. An industry will most likely be oligopolisdc instead of monopolistically competitive when: (a) the number of competing firms is large (b) average total cost falls until high outputs are achieved (c) is muiimized when a t)pical firm has 2% of the whole "market (d) brand loyalt) on the part of customers is weak (e) management prefers larger businesses.

"7. In the OPEC cartel Saudi Arabia is a relatively low cost producer of oil, whereas Iran is a relatively high cost producer In a joint profit maximizing strategy we would then expect: (a) Iran to charge a higher price than Saudi Arabia (b) Iran to charge a lower price than Saudi Arabia (c) Iran to produce more oil than Saudi Arabia (d) Iran to produce less oil than Saudi Arabia (e) Iran to produce at a higher marginal cost than Saudi Arabia.

8. Monopolistic competition is like monopoly in that the monopolistic competitor: (a) has a MR curve lying above its AR curve (b) sells in the inelastic portion of its demand curve (c) makes long run profits (d) enjoys barriers to entry (e) faces a downward sloping demand curve in the short run.

9. Monopolistic competition and perfect compedtion are alike in that: (a) the long run profit maximizing output lies on a decreasing portion of the curve (b) the long run profit maximizing output lies on an increasing portion of the curve (c) no special barriers to entry exist (d) the firms products are differentiated (e) profits are impossible in both the long run and the short run.

10. The Yellow Brick Company makes bricks in long run equilibrium at a~cost of $6 per biicE If R~ expanded output, the cost would be $5 per brick. Which of the following market structures is inconsistent with this informadon? (a) monopoly (b) monopolistic competition (c) kinked demand curve oligop oly (d) a joint profit maximizing cartel (e) perfect compedtion.

11 (H). Certain steel firms are accused of operating a joint profit maximizing cartel. Which of the following is evidence that this charge is false? (a) some firms have much larger profits than others (b) the MC of the last unit produced is different for each firm (c) some firms make secret unexplained "side payments" to the others (d) all firms produce along the falling pordon of their curves (e) the . curves of the firms are identical.

12. Which of the following is characteristic of equilibrium in both monopoly and monopolistic competition? (a) the demand curve is kinked (b) MR exceeds both price and marginal cost (c) MR exceeds price only (d) average revenue exceeds both marginal cost and marginal revenue in equilibrium (e) MC and MR are equal and exceed price.

13. The monopohstically competitive model is characterized by: (a) a small number of firms selling identical products (b) a large number of firms selling idendcal products (c) a .small number of firms selling slightly different products (d) a large number of firms selling a large number of different products (e) a small number of firms selling completely unrelated products.

14. If candy bars are monopolisdcally competitive, then we would not expect to see a candy bar maker:

(a) charging a price greater than MC (b) setdng MR = MC (c) having "U" shaped curve (d) ever leaving the industry (e) receiving a positive profit in the long run.

15. The effect of entry on the monopolisdcally compeddve firm is to: (a) shift the long run curve up (b) reduce the MR available at each output

(c) cause an upward movement along the firms MC curve (d) increase AR and decrease MR at each output (e) to cause the firm to exit the industry.

16. Which of the following would not be an expected sequel to the formation of a jo int profit maximizing cartel in an otherwise competitive industry? (a) profits

(b) inefficiency (c) equilibrivmi price greater than MC (d) an incentive for the members to expand output beyond theiir allotted quotas (e) operation in the inelastic portion of the demand curve.

17. The discontinuity in the MR curve in the kinked demand curve oligopoly model arises because: (a) MR is less than price in this model (b) competitors will follow a price increase but not a decrease

(c) the firm doesnt know how competitors would react to a price change so that MR is uncertain

(d) the firm must decrease price in order to sell added production (e) none of the above.

18. According to a Wall Street Journal story, companies doing convertible conversions base their charges on the value of the car being converted rather than the marginal cost of the job. Which of the following can be ruled out? (a) profitable entry (b) a joint profit maximizing cartel (c) perfecdy competitive market structures for convertible conversions

(d) relatively inelasdc demand for conversions of expensive cars (e) kinked demand oligopoly.

19. Imagine that the jeans industry is characterized

by fifty companies each of which sells a slighdy different design. In this case: (a) the jeans industry would basically follow the compeddve model if the public considered the differences to be unimportant and die monopolistically competitive model otherwise (b) the industry would be oligopolisdc (c) economies of scale are large ill reladon to industry output (d) it would be easy to organize a cartel (e) none of the above.

20. Ecoiiomagic, an economics consulting firm, is a monopolistic competitor in the environmental impact report (EIR) business. At present it turns out fifty EIRS per month at a marginal cost and marginal revenue of $1000 and $800 respectively. The firm should: (a) increase its rates if it remains open

(b) increase its output if it remains open (c) shut down (d) decrease its rates in order to sell more environmental impact reports (e) increase both its rates and output to earn greater profits.

21. Which of the following is necessarily true in competitive equilibrium and possibly tiue in the kinked demand oligopoly equilibrium? (a) the marginal cost of the last unit produced is the same for all firms (b) marginal revenue equals average total cost

(c) the marginal revenue curve is kinked (d) long run profits exist (e) unlimited economies of scale exist.

22. Which of the following is uncharacteristic of j the long run equilibrium in monopolistic competition? (a) many firms (b) open entry and exitj

(c) profits (d) marginal revenue less than price (e) equilibrium on a falhng portion of the average total] cost curve.

23. Which of the following indusu-ies would be least likely to follow the monopolistic competitioiil model? (a) toodipaste (b) book publishing (c) apparelj

(d) drugs (e) bulk cotton.

24. Firms X, Y and Z collectively have an 80% sha of their market. We would most reasonably con.sidej the niarket stiucnire to be: (a) perfecdy conipetitiv (b) monopolistically competitive (c) a joint maximin ing cartel (d) a kinked demand curve oligopoly (e) j monopoly (f) an oligopoly of some type or another, j

25. After die Second Worid War four Americ auto companies enjoyed about 90% of the mark* Today their share is much smaller and consumers hr the choice of mzuiy foreign makes. This suggests f

- Price-Searchers Markets

. market structure was originally, (a) an oligopoly and then became monopolisdcally compeddve (b) per-fecdy compeddve and then became a monopoly (c) a cartel and then became a kinked oligopoly (d) monop-olisdcally compeddve and then became a monopoly (e) monopolisdcally compeddve and stayed that vray

26. If a kinked demand curve oligopolist cuts his price below the kink in his demand curve: (a) his MR will necessarily be negative (b) other firms will maintain the original price (c) he vwll sell many more units

(d) his profits will rise (e) none of the above.

27. Profits will not persist in the long run in oligopoly unless: (a) barriers to entry exist (b) the oligopolists organize a joint profit sharing cartel (c) new firms enter (d) all firms have identical cost curves

(e) the oligopolists products are very popular.

28. Several years ago there was only one Nautilus club on the West Side of Los Angeles; today there are about thirty. This suggests that the initial club entered as: (a) a monopolist without entry barriers and is now a monopolistic competitor (b) a monopolist without entry barriers and is now operating a cartel (c) an oligopolist and still is one (d) a cartel (e) a perfect competitor and remains one.

29. If a monopolisdc competitor makes short run profits, it: (a) will need to make long run profits later

(b) will attract entry by other firms selling similar products (c) will lose its profits as its demand becomes less elasdc (d) should decrease its price to earn still greater profits (e) none of the above.

30. A monopolistic competitor wilh typical "U" shaped cost curves which attempts to maximize total revenue would: (a) probably be forced out of business in the long run (b) sell where his demand elasticity is 0

(c) sell where MR =1 (d) sell where his demand curve is infinitely elastic (e) equate MR and MC.

31. A monopolistic competitor operating in long run equilibrium always: (a) produces in the region of economies of scale (b) operates in the elastic region of his demand curve (c) fails to make a profit (d) achieves a MR that is less than the price he charges (e) all of the above.

32. A monopolistic competitor differs from a

member of a joint profit maximizing cartel in that:

(a) neither can make a profit (b) price exceeds the monopolistic competitors in the short run

(c) the cartelists average total cost curves are not "U" shaped (d) the monopolistic competitor cannot make a profit in the long run (e) all of the above.

33. Which of the following features are common to both monopolistic competitors and members of a joint profit maximizing cartel? (a) price greater dian marginal cost (b) inefficiency (c) "U" shaped average total cost curves (d) price greater than marginal cost (e)all ofthe above

34. Which of the following features are common to both monopolistic competitors and kinked demand oligopolists? (a) average revenue less than price (b) marginal cost greater than average revenue (c) market power in both the short run and the long run (d) a discontinuity in the marginal revenue curve (e) none of the above.

35. In the American economy: (a) kinked demand curve oligopoly is less common than the joint profit maximizing cartel kind of oligopoly (b) oligopolists behavior is probably closer to compedtion than to monopoly (c) oligopoly is becoming a serious problem (d) it is always irrational to join a cartel (e) regulation has lowered the prices of railroad oligopolists.

36. Which of the following would tend to limit the ability of a joint profit maximizing cartel to extiact profiti" (a) a high elasticity of demand for the product

(b) similar cost structures (c) high barriers to entry

(d) stable demand conditions (e) none of the above.

37. Price-making behavior is absent in which ofthe following market structures? (a) government supported cartels (b) natural monopoly (c) kinked demand oligopoly (d) long run monopolistic competition (e) none of the above.

38. In the long run, the price charged by a firm in monopolistic competition will be: (a) high enough to proNide some economic profits (b) so low that many firms will drop out of the industry (c) equal to marginal cost (d) equal to minimum average total cost

(e) none of the above.

39. If a firm in monopolistic competidon makes short run profits, long run adjustment will result in: