Question

1. The major economic objective of cartels is to a.impose their political will on others b.restrict output, push up price, and increase profits c.reduce costs d.develop new ways of doing things e.b and d

2. The assumption that precludes economic profits in monopolistic competition in the long run is that a.there are many buyers and sellers b.the firms produce a homogeneous product c.there is easy entry and exit in this market structure d.buyers and sellers have all relevant information

3. The demand curve facing a firm in monopolistic competition is downward sloping because the firm a.sells a differentiated product b.is the entire industry by itself c.is smaller relative to the market d.b and c e.none of the above

4. Concentration ratios are used to determine a.the number of firms in an industry b.the potential for entry into an industry c.the degree of product differentiation d.the extent(degree) of oligopoly e.none of the above

5. Which of the following is not correct about contestable markets? A.there is easy entry into and costless exit from the market b.new firms entering the market can produce the product at the same cost as current firms c.firms exiting the market can easily dispose of their fixed assets by selling them elsewhere d.firms already in the market have technological advantages e.b and c

6. In the prisoner’s dilemma, each prisoner would be best off if a.both confess b.one confesses but the other does not c.one confesses regardless of what the other does d.neither confesses

7. In the prisoner’s dilemma, both prisoners end up ____ which turns out to be ____ confessed. A.confessing, better for them than if they had both not b.confessing, worse for them than if they had both not c.not confessing, better for them than if they had both d.not confessing, worse for them than if they both

8. The profit-maximizing monopolistic competitor produces where a.price equals marginal cost and marginal revenue b.marginal cost equals marginal revenue but not price c.price equals marginal revenue but not marginal cost d.price equals marginal cost but not marginal revenue

9. The monopolistic competitive firm will most likely earn a normal profit in the long run because of a.product differentiation b.many buyers and sellers c.easy entry and exit d.b and c

10. As a result of easy entry and exit in the monopolistic competitive market in the long run one may find that a.price equals minimum average total cost b.price equals average total cost c.price equals marginal cost d.price equals marginal revenue e.demand and marginal revenue are the same

11. It has been argued that because the monopolistic competitive firm faces a downward-sloping demand curve in the long run equilibrium it a.underutilizes its plant size b.has excess capacity c.produces an output smaller than the one that would minimize its costs of production d.a and b e.all of the above

Answer 1

1. Option A

A cartel is a group of independent market participants who collude with each other in order to improve their profits and dominate the market. Cartels are usually associations in the same sphere of business, and thus an alliance of rivals. Most jurisdictions consider it anti-competitive behavior.

2.Option A

Monopolistic competition describes an industry in which each firm can influence its market share by changing its price relative to its competitors. Its demand curve is downward- sloping because different firms' products are not homogeneous.

3.Option D

A concentration ratio is the ratio of the combined market shares of a given number of firms to the whole market size. It is commonest to consider the 3-firm, 4-firm or 5-firm concentration ratio. Concentration ratios are used to assess the extent to which a given market is oligopolistic.

4.Option D

Contestable market theory states that companies with few rivals behave in a competitive manner when the market they operate in has weak barriers to entry.The continuous risk of new entrants emerging and stealing market share leads incumbents to focus more on maximizing sales rather than profits.They realize that if they are too profitable, an entrant could easily come and undercut their business. A good example of an increasingly contestable industry is the market for parcel services in the UK. For many years Royal Mail has dominated the sector.