Demand curves

23) Figure 11.3 shows demands and costs for a monopolistically competitive firm. When the firm’s demand curve shifts from D1 to D2 and to D3,

A) the demand for the firm’s product is decreasing.

B) the firm’s average cost of production is increasing.

C) the firm’s marginal revenue curve also shifts to the left.

D) all of the above

24) Oligopoly differs from monopoly and perfect competition in that:

A) firms consider each other’s actions when choosing price and quantity.

B) there are a few firms in the industry.

C) firms act strategically.

D) all of the above

25) When a few firms sell similar products in a market, the market structure is most likely to be:

A) a perfectly competitive market.

B) a monopoly.

C) a monopolistically competitive market.

D) an oligopoly.

Answer:  C

26) Suppose that there are five firms in a market, each controlling 20% of the market. The HHI would equal

A) 2,000.

B) 100.

C) 20.

D) 1,000.

27) What are the key characteristics of an oligopoly,

28) What is meant be strategic behavior?

29) Figure 12.1 shows the market for a successful price-fixing arrangement (cartel) between two identical firms . When the two firms act like one and charge the same price, the market price will be ________ and each firm will produce and sell a quantity of ________.

A) $10; 200

B) $10; 100

C) $5; 500

D) $5; 250

30) Figure 12.1 shows a successful price-fixing arrangement (cartel) between two identical firms. When the two firms act like one and charge the same price, each firm will earn an economic profit of ________.

A) $1,250

B) $1,000

C) $500

D) $0

31) Consider Figure 12.3. Becky’s dominant strategy is ________ and David’s dominant strategy is ________.

A) high; high

B) low; low

C) high; low

D) low; high

32) Consider Figure 12.3. David chooses to charge a low price:

A) only if Becky chooses a high price.

B) only if Becky chooses a low price.

C) regardless of whether Becky chooses a high or low price.

D) in order to induce Becky to choose a high price.

33) A Nash Equilibrium in a game is that outcome in which

A) each player is doing the best he or she can given the other player’s action.

B) the players’ profits are equal.

C) the players’ earn the highest profits possible.

D) neither player plays his or her dominant strategy.

34) Joe and Steve are duopolists who each can follow two strategies: cooperate and jointly act like a monopolist, or don’t cooperate (cheat) and act like duopolists. Their profits are as follows:

If both cooperate: both receive $1 million

If one cooperates: cooperator receives $200,000, cheater receives $1.2 million

If both cheat:         both receive $500,000

What will they do?

35) If two firms use a tit-for-tat scheme to maintain cartel pricing and one firm chooses a high price in the current time period then:

A) that firm will also choose a low price in the next time period.

B) that firm will also choose a high price in the next time period.

C) the other firm will choose a low price in the next time period.

D) the other firm will choose a high price in the next time period.

Answer: D

Firm     2

High Price

Low Price

Firm 1

High Price

Firm 1 earns $100; Firm 2 earns $100

Firm 1 earns $25; Firm 2 earns $150

Low Price

Firm 1 earns $150; Firm 2 earns $25

Firm 1 earns $50; Firm 2 earns $50

37) The diagram shown in Table 12.2 describes a game in which

A) firms make their decisions simultaneously.

B) Firm 1 always decides first, and Firm 2 always decides last.

C) the firms take turns moving first.

D) firms must communicate with each other before making a decision.

38) In Figure 12.6, airline Fly Smart is initially a secure monopoly between two cities X and Y at point M, serving 300 passengers per day at the profit maximizing price of $300 per ticket. Suppose that Fly Smart discovers that a second airline is contemplating entering the market. If Fly Smart accommodates the entry, what will its profit be?

A) $44,400

B) $33,600

C) $29,600

D) $16,800

39) In Figure 12.6, airline Fly Smart is initially a secure monopoly between two cities X and Y at point M, serving 300 passengers per day at the profit maximizing price of $300 per ticket. Suppose that Fly Smart discovers that a second airline is contemplating entering the market. If the minimum market entry quantity is 130 passengers per day, Fly Smart’s entry-deterring quantity is:

A) 500 passengers per day.

B) 420 passengers per day.

C) 370 passengers per day.

D) 300 passengers per day.

42) A natural monopoly arises when

A) economies of scale are so great that only one firm can exist in a market.

B) a firm acquires a patent.

C) two firms merge to become the only firm serving an entire market.

D) a single firm controls all of a natural resource.

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