Chapter: Between Competition and Monopoly
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1. Which of the following characteristics of perfect competition does not apply in monopolistic competition?
a. Free entry and exit
b. Homogeneous products
c. Numerous participants
d. Perfect information

2. In the long run the prices charged by a firm in monopolistic competition will be
a. high enough to provide profits to the firm.
b. so low that many firms will drop out of the industry.
c. equal to marginal cost.
d. equal to average cost, including the opportunity cost of capital.

3. The force that leads to zero economic profits for monopolistically competitive firms in the long run is
a. excess capacity.
b. price wars among firms.
c. entry by new firms.
d. excessive advertising.

4. Monopolistic competition in long-run equilibrium is characterized by
a. excess capacity.
b. higher cost per unit of output than under perfect competition.
c. inefficiency in use of resources.
d. All of the above.

5. An advertising race among oligopolists may be rational if it
a. is defense advertising.
b. raises entry barriers.
c. increases cost per unit of sales.
d. encourages new entrants.

6. Cartels
a. are difficult to organize.
b. are difficult to preserve.
c. are especially unlikely to succeed if the members sell many varied products.
d. All of the answers above are correct.

7. To maximize sales revenue, an oligopolist will expand output until the elasticity of demand becomes
a. negative.
b. zero.
c. one.
d. infinite.

8. Oligopolist A cuts price in an attempt to enlarge his share of the market. His competitors retaliate with identical price cuts. In this case, in the figure below, oligopolist will move from point A to which point?

a. B
b. E
c. D
d. C
e. Enter answer choice e

9. The maximin criterion can be defined as which of the following?
a. One seeks the maximum of the minimum payoffs to the various available strategies.
b. One seeks the minimum of the maximum losses among the various available strategies.
c. One seeks the maximum of the minimum losses to the various available strategies.
d. One seeks the maximum of the maximum gains of the various available strategies.

10. Deviations from the perfectly competitive market can lead to
a. inefficiently high production costs.
b. higher prices and smaller outputs.
c. less efficient resource allocation
d. all of the above.

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