Chapter 11 Quiz 7 – Flashcards
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Monopolistic competition means:
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many firms producing differentiated products
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Monopolistic competition resembles pure competition because:
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barriers to entry are either weak or nonexistent.
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A monopolistically competitive firm has a:
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highly elastic demand curve
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The larger the number of firms and the smaller the degree of product differentiation the:
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more elastic is the monopolistically competitive firm's demand curve
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In the short-run, a profit-maximizing monopolistically competitive firm sets it price:
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above marginal cost
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In the long-run, the price charged by the monopolistically competitive firm attempting to maximize profits:
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will be equal to ATC.
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In the long-run, economic theory predicts that a monopolistically competitive firm will:
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have excess production capacity.
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Oligopolistic industries are characterized by:
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a few dominant firms and substantial entry barriers.
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If you sum the squares of the market shares of each firm in an industry (as measured by percent of industry sales), you are calculating the:
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Herfindahl index.
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The study of how people (or firms) behave in strategic situations is called:
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game theory.
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Game theory can be used to demonstrate that oligopolists:
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can increase their profits through collusion.
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The kinked-demand curve of an oligopolist is based on the assumption that:
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competitors will follow a price cut but ignore a price increase.
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If an oligopoly is faced with a kinked-demand curve that is relatively elastic above, and relatively inelastic below, the going price, then it will:
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decrease total revenue by either increasing or decreasing price.
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Oligopolistic firms engage in collusion to:
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earn greater profits.
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Cartels are difficult to maintain in the long run because:
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individual members may find it profitable to cheat on agreements.
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If the several oligopolistic firms that comprise an industry behave collusively, the resulting price and output will most likely resemble those of:
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pure monopoly.
