1. Which of the following does NOT characterize an oligopolistic industry?* (A)
ID: 1112063 • Letter: 1
Question
1. Which of the following does NOT characterize an oligopolistic industry?* (A) Oligopolistic firms engage in strategic behavior. (B) Barriers to enter the oligopolistic industry are high (C) In the long run, oligopolistic firms cannot earn positive economic profits.* (D) The oligopolistic industry is dominated by a small number of large firms.* In the next three questions, consider a monopolistically competitive firm, whose cost and demand structures are graphed below. 2. The profit-maximizing price and quantity are MC ATC Price- Quantity P1 P2* P3* P4* AVC e(B). P2 e (D) P3 P4 PS MR a1 a2 Q3 3. The amount of economic profit/loss for the firm equals (A) Profit: (P2-P4) Q1- (B) Profit: (P2-P5 Q1- (C) Loss: (P1-P2 Q1- (D) Loss: (P2-P3Q2 4. If nothing changes, which of the following is an optimal policy for this firm (A) Shut down production in the short run, exit in the long run.* (B) Continue to produce in the short run, exit in the long run. (C) Adjust quantity such that P-MC.* (D) Make no changes to equilibrium quantity or price.* 5. Which of the following statements is FALSE about monopolistic competition and monopoly?- (A) Monopolistic competitors have an incentive to differentiate their products, but monopolies do not have this incentive. (B) Monopolies can earn positive economic profit in the long run, while monopolistically competitive firms do not. (C) Monopolistic competitors have the same amount of influence over the price of their products as monopolists. (D) They both produce less output than would be productively efficient.Explanation / Answer
1. C. Oligopolists can achieve positive economic profits in the long run as significant barriers to entry may exist.
2. B.
Monopolist is a price taker. He will determine the quantity of output that will maximize revenue. The monopolist faces a downward sloping demand curve because he can sell more if he lowers the price. The profit maximizing price and output is where marginal revenue equals marginal cost, then it is extended to the market demand curve to determine what market price corresponds to that quantity.
3. C, as ATC is higher than price of the monopolist.The monopoly loss equals (ATC-P)xQ.
4. B. Continue to produce in the short run as price is greather than AVC.
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