Chapter 11 Quiz 7

Monopolistic competition means:
many firms producing differentiated products

Monopolistic competition resembles pure competition because:
barriers to entry are either weak or nonexistent.

A monopolistically competitive firm has a:
highly elastic demand curve

The larger the number of firms and the smaller the degree of product differentiation the:
more elastic is the monopolistically competitive firm’s demand curve

In the short-run, a profit-maximizing monopolistically competitive firm sets it price:
above marginal cost

In the long-run, the price charged by the monopolistically competitive firm attempting to maximize profits:
will be equal to ATC.

In the long-run, economic theory predicts that a monopolistically competitive firm will:
have excess production capacity.

Oligopolistic industries are characterized by:
a few dominant firms and substantial entry barriers.

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:
Herfindahl index.

The study of how people (or firms) behave in strategic situations is called:
game theory.

Game theory can be used to demonstrate that oligopolists:
can increase their profits through collusion.

The kinked-demand curve of an oligopolist is based on the assumption that:
competitors will follow a price cut but ignore a price increase.

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:
decrease total revenue by either increasing or decreasing price.

Oligopolistic firms engage in collusion to:
earn greater profits.

Cartels are difficult to maintain in the long run because:
individual members may find it profitable to cheat on agreements.

If the several oligopolistic firms that comprise an industry behave collusively, the resulting price and output will most likely resemble those of:
pure monopoly.