One reason why firms in monopolistically competitive markets earn zero profit in the long run is because
A) product differentiation disappears
B) barriers to entry become prohibitive
C) the price elasticity of demand for each firm falls to zero
D) so many firms enter the market that each firm's demand curve eventually becomes tangent to the firm's ATC curve
E) each firm's ATC curve shifts upward to eventually become tangent to its demand curve
2.
If some firms leave a monopolistic competitive market, the
A) remaining firms will charge a lower price to try to capture the released market share
B) remaining firms' cost curves will shift upward and to the right
C) remaining firms' demand curves will shift to the left
D) market demand curve shifts to the right
E) remaining firms will produce at a different point on their ATC curves
3.
A picture-frame company operates in a monopolistically competitive market. Its short- run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. Ignoring for now its long-run position, in the short run,
A) the firm makes zero economic profit, zero accounting profit, but $1,500 normal profit
B) other picture-frame companies will leave the market because it knows new firms will enter to drive price and economic profit down
C) the firm makes an $80,000 accounting profit
D) the firm makes an economic profit of $1,500
E) the market demand curve will shift to the left as more firms enter the market
4.
Costume jewelry is produced in a monopolistically competitive market. One producer produces 700 necklaces and at that output level, MR = MC = $3. We know then that
A) the price is $3
B) economic profit is $2,100
C) the price is higher than $3
D) new firms will enter the market
E) the firms should produce the 700 necklaces in the short run, but shut down in the long run
5.
In the long run, the economic profit earned by Hoot's Pump Chicken 'n' Ribs, a monopolistic competitor, is
A) not zero because competition is not perfect
B) not zero because its demand curve slopes downward
C) reduced to zero because firms enter the industry and shift its demand curve to the left
D) reduced to zero because firms leave the industry
E) not zero because firms face barriers to entry when they try to enter the industry
6.
In an unbalanced oligopoly
A) only two firms make up the oligopoly
B) the sales of the leading firms are distributed unevenly
C) the sales of the leading firms are distributed evenly
D) the sales of the 4 leading firms is less than 50 percent
E) the market share of the 4 leading firms equals 100 percent
7.
A merger between two firms occurs when
A) two firms agree to work temporarily on a single project, which is why we constantly read about mergers occurring and splitting up
B) one firm splits into two or more firms, such as General Motors splitting into divisions of Buick, Pontiac, and so on
C) each of the two firms agrees not to sell in each other's markets
D) the two firms become one firm, as in the newspaper industry when the Chicago Sun and the Chicago Times became the Chicago Sun-Times
E) one firm quits the industry and another takes over its market share
8.
All evidence points to the fact that firms' market power within an industry and industry concentration ratios are
A) directly related, that is, firms' market power is high when concentration ratios are high
B) inversely related, that is, firms' market power is low when concentration ratios are high
C) totally unrelated, that is, they are directly related in some industries and indirectly related in others
D) only moderately related, depending on the degree of competition in the industry
E) low for monopoly and high for perfect competition
9.
Have you used ketchup? Have you bought ketchup in a supermarket? Consider the characteristics of market structures and decide to which the ketchup industry belongs.a. b. c. d. e.
A) oligopoly because it represents competition among the few
B) monopolistic competition because the demand curves for each brand is horizontal
C) perfect competition because the good is identical (ketchup is ketchup)
D) monopoly because the firm demand curve is the industry demand curve
E) monopoly because there are no good substitutes
10.
Data concerning the four-firm concentration ratios for U.S. manufacturing industries indicate that
A) very few oligopolies exist in the real world but the oligopoly model is still useful because it tells us something about firm behavior
B) oligopolies are the second most prevalent market structure, monopoly being the first
C) the four leading firms usually have less than 10 percent of industry sales
D) the ratios are considerably less than the ratios in Canada and Western Europe
E) oligopolies are very common
11.
A merger between McDonald's and Burger King would be called a(n)
A) horizontal merger
B) vertical merger
C) conglomerate merger
D) cartel
E) illustration of game theory
12.
The merger between RJ Reynolds's and Nabisco would be called a(n)
A) horizontal merger
B) vertical merger
C) conglomerate merger
D) cartel
E) illustration of game theory
13.
A merger between Ford Motor Company and Visteon would be called a(n)
A) horizontal merger
B) vertical merger
C) conglomerate merger
D) cartel
E) illustration of game theory
14.
Suppose there are 100 firms in an industry. If the leading firm has a 60 percent market share, the second largest firm has a market share of half the leader's, the third has a market share of half the second's, and the fourth largest has a market share of half the third's, what is the four-firm concentration ratio?
A) 75 percent
B) 85 percent
C) 95 percent
D) 100 percent
E) impossible because their combined market shares exceed 100 percent
15.
Suppose there are 8 firms in an industry, and each has a different market share. If the largest firm has twice the market share of the second largest, which has twice the market share of the third largest (and so on to the eighth firm), what is the approximate four-firm concentration ratio?
A) 65 percent
B) 84 percent
C) 94 percent
D) 60 percent
E) 50 percent
16.
Over the years, many food and beverage producers began merging with other companies. Nabisco merged with a tobacco firm; Campbell's Soup purchased mushroom farms; and, Anheuser-Busch purchased, among others, malt, yeast, and canning companies. Chrysler merged with (and then un-merged with) Diamler-Benz. Which of these merging firms engaged in conglomerate mergers?
A) none
B) only Nabisco's
C) only Campbell's Soup
D) only Anheuser-Busch
E) only Chrysler
17.
Product differentiation forms the basic rationale for advertising expenditures and monopolistic competition.
A) True
B) False
18.
In long-run monopolistic competition, firms earn zero economic profit.
A) True
B) False
19.
The problem with the prisoner's dilemma, from the point of view of the police, is that no one is ever convicted.
A) True
B) False
20.
A cartel is a group of firms that acts as if it were a monopoly and produces where MR = MC for the industry.
A) True
B) False