Difference between perfect and monopolistic competition

Question

Assignment:

QUESTION 1. The main difference between perfect competition and monopolistic competition is:

• the profit maximization principle MR=MC
• growth through merger
• the difference in the firm's profits in the long run.
• the degree of product differentiation.

QUESTION 2. Which of the following industries is most likely to represent the monopolistic competition market structure?

• The Agriculture industry
• Utility Companies
• Restaurants services
• Tobacco products

QUESTION 3. If firms are earning economic profit in a monopolistically competitive market, which of the following is most likely to happen in the long run?

• Some firms will leave the market.
• Firms will join together to keep others from entering.
• New firms will enter the market, thereby eliminating the economic profit.
• Firms will continue to earn economic profit.

QUESTION 4. In the Kinked Demand curve model, price tends to settle at the kink because

• MR=MC rule does not apply
• there is no unique MR curve
• the demand curve is inelastic throughout the range
• none of the above

QUESTION 5. A Cartel is defined to be:

• Any oligopolistic industry with fewer than 4 firms.
• A form of oligopoly in which firms agree to sell at different prices like in monopolistic competition.
• A form of oligopoly in which firms formally agree to establish a common price, in effect acting like a monopoly.
• A form of oligopoly in which firms agree to compete with each other on an equal basis.

QUESTION 6. Which of the following is the best example of a product or service that provides a benefit externality?

• the construction of a private road that allows vehicles if a toll is paid
• a public library
• a bookstore that is open 24 hours
• the construction of a golf course in a private hotel

 QUESTION 7. An example of a cost externality occurs when a mining company:

• dumps waste in river upstream from a popular fishing spot
• produces coal that is not in demanded in a recession
• underpays its employees
• overwork its employees

QUESTION 8. Which of the following may change the supply curve?

• Taste of consumers
• Income of consumers
• Technology
• Price of related goods

QUESTION 9. X and Y are substitute goods. X is put on sale "buy one get one free". This will lead to

• an increase in demand for Y
• a decrease in demand for Y
• an increase in demand for X and Y
• a decrease in demand for X and Y

QUESTION 10. Economic surplus is

• demand price less equilibrium price
• supply price above market price
• consumer's surplus plus producer's surplus
• none of the above

QUESTION 11. A monopsony is a market with

• one seller
• one employer
• one buyer and one seller
• two to eight sellers

QUESTION 12. A bilateral monopoly is a condition characterized by

• a perfect competition firm facing a monopsony
• a monopolistic firm facing a monopoly
• an oligopoly facing a monopsony
• a monopsony facing a union

QUESTION 13. A price discriminating firm will charge the lowest price when price elasticity of demand is

• lowest
• highest
• equal to 1
• zero

QUESTION 14. P = MC holds for

• all firms
• monopoly
• oligopoly
• perfect competition

 QUESTION 15. Oligopolies tend to

• minimize social loss
• maximize employment
• maximize social benefit
• allocate resources inefficiently

QUESTION 16. In the short run, a monopolist may

• attract other firms into the industry
• upgrade technology
• incur loss
• charge the lowest price possible to attract buyers

QUESTION 17. The best defense of oligopolist in our economy is

• they are the main source of consumer goods and services
• they promote social justice
• they invest in research and development
• they promote equity in global markets

QUESTION 18. During recessionary periods, the sale of ground beef goes up. This indicates that

• people have more time to make their own hamburgers during recessionary times
• people have more time to be outdoor and cook hamburgers during recessionary times
• ground beef is an inferior good
• ground beef is a normal good

QUESTION 19. In both monopolistic competition and oligopoly market structures

• firms may enter and exit the industry easily
• consumers perceive differences among the products of various competitors
• economic profits may be earned in the short run and long run
• producers collude tacitly

QUESTION 20. In the short run, a monopolistically competitive firm

• always earns profit
• earns profit higher than an oligopolistic firm
• earns profit higher than a perfectly competitive firm
• may or may not earn profit

QUESTION 21. If the price elasticity of demand is 1.56, a 50% sale on a product will

• decrease total revenue
• increase total revenue
• keep total revenue constant
• increase total revenue by 50%

QUESTION 22. When estimated, exponents of the Cobb-Douglas production function indicates

• maximum profits that can be earned
• minimum cost that can lead to efficient production
• input elasticites
• different price elasticities in different markets

QUESTION 23. The cross-price elasticities of X and Y are -.67. X was put on sale for two weeks, and it is no longer on sale. This will indicate

• demand for Y will not change
• demand for X will go up
• demand for X and Y will go up
• demand for Y will go down

QUESTION 24. Most industries in our economy exhibit decreasing returns to scale because of

• Scarcity of resources
• Law of diminishing marginal utility
• Law of diminishing marginal returns
• Government regulation

QUESTION 25. Labor unions are able to secure higher than market wage for their members by

• negotiation only
• restricting supply and negotiation
• resorting to strike for an indefinite period
• law suits

QUESTION 26. Panel consensus is an example of

• time series forecasting
• quantitative forecasting
• qualitative forecasting
• global forecasting

QUESTION 27. A monopolistically competitive firm maintains its market share through

• artificial product differentiation
• relying on brand loyalty
• non-price competition
• all of the above

QUESTION 28. When two or more explanatory variables are highly correlated, the condition is known as

• serial correlation
• multiple correlation
• spurious correlation
• multicollinearity

QUESTION 29. When a multiple regression equation is estimated, the F-test indicates

• how many variables were statistically significant
• how many variables were not statistically significant
• if the estimated equation was statistically significant
• if the intercept was statistically significant

QUESTION 30. Suppose a demand equation was estimated using the Regression technique. The explanatory variables included in the equation were price of own good, price of substitute good, income of consumers and expected future price. What test will be used to test if each of the explanatory variables were statistically significant?

• the F-test
• the correlation test
• the t-test
• the multicollinearity test

QUESTION 31. A 50% reduction of price of X led to a 75% decrease in demand of Y. This indicates

• X and Y are complementary goods
• X is a normal good, Y is an inferior good
• X and Y are independent goods
• X and Y are substitute goods

QUESTION 32. Compared to competition, a monopolist

• produces more and charges a higher price
• produces less and charges a lower price
• produces less and charges a higher price
• may produce more and may charge a higher price

QUESTION 33. Most public utilities in our economy enjoy a good degree of monopoly because of

• government regulation
• decreasing returns to scale
• increasing returns to scale
• constant returns to scale

QUESTION 34. The long run ATC is flatter in shape because

• all inputs are fixed
• there is a greater degree of substitution between inputs
• input elasticity is limited
• the long run is undefined

QUESTION 35. Which function of management is most concerned with risk minimization?

• cost minimization
• human resource management
• complying with government regulations
• entrepreneurial

36. When the price of X was $80, total number of Y sold in a store was 100. The store reduced the price of X by 50%. As a result, sale of Y increased to 150.

(a) Calculate cross price elasticity of demand of X and Y.

(b). What type of goods are X and Y.

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QUESTION 37. Assume the following demand and supply equations:

Qd: 11.5- 12.5p

Qs: 5.5 + 7.5p

(a). If a seller charges a price of .5 per unit, what will happen?

(b). At what price, there will be no shortage and no surplus? Prove your answer.

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38. Assume the following inverted demand function of a firm in the short run: P = 100 - 5Q which yields the MR function as 100 - 10 Q. Now assume the total cost function of this firm is : TC = 100 + 160Q - 20Q2

The above cost function yields the MC function as 160 - 40Q

(a) What is the amount of short-run profit or loss? Explain fully.

(b) Is this firm earning a profit or incurring a loss?

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