KIIT University 2008 micro-economics - exam paper

C)

there are significant barriers to entry in the industry.
D)

monopolistically competitive firms are efficient.
E)

there are many firms in the market.

33)

In the long run, in a monopolistically competitive industry,

33)

______
A)

P = ATC.
B)

P > MC.
C)

P > min ATC.
D)

MR = MC.
E)

All of the above relationships are actual.

34)

Firms in oligopoly

34)

______
A)

often earn much less than monopoly profits.
B)

cannot earn economic profits in the long run.
C)

never engage in price wars that damage profits.
D)

earn a similar level of profit as firms in perfect competition.
E)

cannot earn economic profits in the short run.

35)

Price wars in oligopoly

35)

______
A)

decrease allocative efficiency.
B)

outcome in monopoly profits.
C)

might lead firms to price their products equal to marginal cost.
D)

never benefit consumers.
E)

never benefit the economy.


SHORT ans. Write the word or phrase that best completes every statement or answers the ques..
36)

discuss which of the 2 indexes used to measure industry concentration provides a better measure of oligopoly/market power: CR4 (market shares of the 4 largest firms in the industry) or the Herfindahl-Hirshman Index (squared market shares for all firms)?

36)

_____________

37)

Why do firms in oligopoly industries have an incentive to behave strategically?

37)

_____________

38)

Explain, with use of a graph, why there is an incentive to cheat if a firm is a member of a centralized cartel.

38)

_____________

39)

Compare and contrast the assumptions of the perfect competition model with those of the monopolistic competition model.

39)

_____________

40)

How does the extent of product differentiation affect the elasticity of demand?















A monopolistically competitive firm can raise price somewhat due to
a. product differentiation b. barriers to entry c. product likeness d. its homogeneous product e. high tariffs

2. The demand curve facing Imelda's Shoe Boutique, a firm in monopolistic competition,
a. is horizontal because Imelda's is small relative to the market as a whole
b. is horizontal because Imelda's is large relative to the market as a whole
c. slopes downward because Imelda's is small relative to the market as a whole
d. slopes downward because Imelda's sells a differentiated product
e. slopes downward because Imelda's is the entire industry

3. Monopolistic competition is best defined as
a. many firms with a few control over price, and a few product differentiation
b. many firms with no control over price, producing identical products
c. a few firms with a few control over price, producing highly differentiated products
d. a few firms with no control over price, producing similar products
e. a single firm producing all of the output for the industry, with strong control over price

4. Which of the subsequent is most likely produced in a monopolistically competitive market?
a. soybeans b. autos c. fast food d. oil e. local phone service


5. In Exhibit 0155, the monopolistic competitor's profit-maximizing level of output is
a. 75 units
b. 100 units
c. 125 units
d. 150 units
e. 137.5 units


6. In Exhibit 0155, the price that the monopolistic competitor will charge at the profit-maximizing level of output is
a. $2
b. $4
c. $8
d. $9
e. $10


7. In Exhibit 0155, the monopolistic competitor's total economic profit at the profit-maximizing level of output is
a. $0
b. $4
c. $600
d. $6
e. $750


8. Monopolistic competition is similar to
a. perfect competition because the firms face downward-sloping demand curves and can only earn normal profit in the long run
b. pure monopoly because the firms face downward-sloping demand curves and can only earn normal profit in the long run
c. perfect competition because the firms face downward-sloping demand curves and similar to pure monopoly in that the firms can only earn normal profit in the long run
d. pure monopoly because the firms face downward-sloping demand curves and similar to perfect competition in that the firms can only earn normal profit in the long run
e. pure monopoly because the firms face downward-sloping demand curves and can only earn economic profit in the long run


9. The defining characteristic of oligopoly is that every firm
a. produces the identical output as its rivals
b. acts independently of its rivals
c. is mutually interdependent
d. is atomistic
e. advertises how its products are various from its rivals' products


10. It is harder to discuss the behavior of firms in oligopoly than in other market structures because in oligopoly,
a. the firms act independently of every other
b. firms base their decisions on what their rivals do
c. only differentiated products are produced
d. only homogeneous products are produced
e. the demand curve can slope upward


11. In an oligopoly, the demand curve facing an individual firm depends upon
a. the behavior of competing firms
b. the shape of the firm's avg. total cost curve
c. the shape of the firm's marginal cost curve
d. the firm's supply curve
e. the shape of the firm's avg. variable cost curve


12. The airline industry is
a. an oligopoly because of economies of scale
b. the world's largest advertiser
c. monopolistically competitive because most airplanes are quite similar
d. an oligopoly, partly because of barriers to entry in the form of airport landing rights
e. probably evolving from an oligopoly to a monopolistically competitive industry


13. The automobile industry is
a. in monopolistic competition because brand names are important
b. in monopolistic competition because it has economies of scale
c. in monopolistic competition for legal reasons
d. an oligopoly because every firm must produce a large amount of output before it can achieve low avg. costs
e. an oligopoly for legal reasons


14. Which of the subsequent is an example of an true cartel?
a. the 3 largest cereal producers in the United States
b. General Motors, Ford, and Chrysler (the "Big Three")
c. the Organization of Petroleum Exporting Countries (OPEC)
d. the 3 major U.S. cigarette manufacturers
e. ABC, NBC, and CBS


15. During certain periods in the past few decades, if 1 of the 3 major breakfast cereal producers in the United States announced a price increase, the other 2 announced a similar price increase. This is a good example of
a. monopolistic competition
b. a cartel
c. a pure monopoly
d. the kinked demand curve model of oligopoly
e. the price leadership model of oligopoly.

Earning:   Approval pending.