ECON 130 Exam IV

A monopolistically competitive firm may earn abnormally high profits in the

• short term, but the process of entry will drive those profits to zero in the long run.

• long term, but the process of entry will drive those profits to zero in the short run.

• short run, but after entry occurs, the long term perceived demand curve shifts to the right.

• long run, but after entry occurs, the short term perceived demand curve shifts to the right.

____________ arises when firms act together to reduce output and keep prices high.

• Collusion

• A cartel

• A monopoly

• An oligopoly

When a firm pursues a predatory pricing strategy, it does so

• to hire more staff to lower unemployment.

• to increase supply to benefit consumers.

• to maximize profits in the long run.

• to discourage short run competition.

As the name monopolistic competition implies, a firm’s decisions in this setting will in certain ways resemble ______________ and in other ways resemble ________________.

• monopoly; imperfect competition

• monopoly; perfect competition

• imperfect competition; perfect competition

• imperfect competition; oligopoly

The perceived demand curve for a group of competing oligopoly firms will appear kinked as a result of their commitment to

• match price increases, but not price cuts.

• stand at opposite ends of the competition spectrum.

• match price cuts, but not price increases.

• stand at the high point of the competition spectrum.

In a monopolistically competitive market, the rule for maximizing profit is to set MR = MC, which means

• price is higher than marginal revenue.

• price is equal to marginal revenue.

• price is equal to marginal cost.

• price is lower than marginal revenue.

A monopolist is able to maximize its profits by

• setting the price at the level that will maximize its per-unit profit.

• producing output where MR = MC and charging a price along the demand curve.

• setting output at MR = MC and setting price at the demand curve's highest point.

• producing maximum output where price is equal to its marginal cost.

If a monopolistic competitor raises its price, it ___________ customers than a perfectly
competitive firm, but ____________ customers compared to the number that a monopoly
that raised its prices would.

• will lose more; it will lose as many

• will lose more; it will lose more

• will lose fewer; it will lose more

• will lose fewer; it will lose as many

What role can advertising play with respect to differentiated products?

• allows a firm to sell any quantity it wishes

• shapes consumers intangible preferences

• shapes perceived demand for a price taker

• allows a firm to raise the prevailing market price

The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is

• oligopoly collusion.

• prisoner's dilemma.

• game theory.

• collusion theory