Question

26. Because of easy entry, monopolistically competitive firms will

charge a price equal to their marginal cost

earn no economic profit in the short-run

earn no economic profit in the long-run

produce at the lowest average total cost achieving production efficiency

take advantage of all economies of scale available to it

27. Excess capacity typically occurs in the short-run

in perfect competition

in the long-run equilibrium in monopolistic competition

in the short-run in monopolistic competition

in the long-run equilibrium

in perfect competition

28. An industry would be considered concentrated in power if the Herfindahl-Hirschman Index (HHI) would equal

.15 (1,500) or less

any coefficient between .15 (1,500 and .18 (1,800)

.25 (2,500) or greater

a coefficient quantifying 800 or less

29. The maximum value for the Herfindahl-Hirschman Index would be _________ indicating a single firm has the entire industry.

100,000

2,500

5,000

7,500

10,000

30. Paul M. Sweezy's "Kinked Demand Curve" theory

states that oligopolists have no incentive to respond to rivals price decreases or increases

states that olitopolists are not strategically interdependent as game theory indicated

states that oligopolists have a greater tendency to respond aggressively to rivals' price increases but will largely ignore price decreases

states that oligopolists have a greater tendency to respond aggressively to rivals' price cuts but will largely ignore price increases

Answer 1

26. Because of easy entry, monopolistically competitive firms will earn no economic profit in the long-run

This is because entry and exit continues till all economic profits are exhausted.

27. Excess capacity typically occurs in the long-run equilibrium in monopolistic competition

This is because in the short run P > ATC or P < ATC but in the long run ATC is at its minimum only for perfect competition.

28. An industry would be considered concentrated in power if the Herfindahl-Hirschman Index (HHI) would equal

any coefficient between .15 (1,500 and .18 (1,800) This is called moderately dominanted or concentrated.

29. The maximum value for the Herfindahl-Hirschman Index would be 10000 indicating a single firm has the entire industry.

30. Paul M. Sweezy's "Kinked Demand Curve" theory states that oligopolists have a greater tendency to respond aggressively to rivals' price cuts but will largely ignore price increases