Exam 3

Question 1

The demand curve faced by monopolistically competitive producers will approach that of the
perfectly competitive market, the smaller the number of rivals and the weaker the degree of product differentiation.

Answer 1

FALSE

Question 2

Profits are maximized at the output level where marginal revenue equals marginal cost, whether the firm is under perfect competition, monopoly, oligopoly, or monopolistic competition.

Answer 2

TRUE

Question 3

In a conjectural variation oligopoly model, firms choose output by equating the industry
marginal revenue to the marginal cost.

Question 4

In a Cournot situation, one firm’s output directly affects the output of the other firm.

Answer 4

FALSE

Question 5

f the elasticities of demand were e1 = -1.25 and e2 = -2 for markets 1 & 2 respectively, then for
maximum monopoly profits, the price charged in market 1 should be higher than that of market 2.

Answer 5

TRUE

Question 6

Output and price in a Cournot solution will be greater than that of a cartel solution.

Answer 6

TRUE

Question 7

Profits are higher if the monopolist is able to practice third degree price discrimination.

Answer 7

TRUE

Question 8

Marginal Revenue Product (MRP) is the incremental revenue yielded by selling what the additional input produced.

Answer 8

TRUE

Question 9

A monopsony occurs when there is a single seller of inputs in the factor market.

Answer 9

FALSE

Question 10

Consumer surplus refers to the maximum amount that consumers are willing to pay to consume
a particular amount of good or service.

Answer 10

TRUE

Question 11

The weaker the barriers to entry into an industry, the more competition there will be in an
industry, other things being equal.

Answer 11

TRUE

Question 12

A lump sum tax regulation of a monopolist provides no deadweight loss to society.

Answer 12

FALSE

Question 13

Due to the characteristics of natural monopolies, a single-tier marginal cost pricing scheme
would largely be ineffective in reducing the monopolist’s inefficiency.

Answer 13

TRUE

Question 14

A stable cartel consists of a number of firms colluding to restrict output and to maximize industry profit.

Answer 14

TRUE

Question 15

The profit maximizing monopoly will only choose to operate at the inelastic portion of the
demand curve since this would ensure that the marginal revenue is not yet negative.

Answer 15

TRUE/FALSE

Question 16

In a quasi-competitive model of oligopoly behavior, oligopolies behave as if they have no control at all of the market price.

Answer 16

FALSE

Question 17

The overall picture of the labor supply curve suggests a straightforward posting relationship between wages and quantity of labor supplied.

Answer 17

TRUE

Question 18

In imperfectly competitive labor markets, the wages paid to workers are higher than the marginal factor cost of labor.

Answer 18

FALSE

Question 19

In game theory, the absence of a dominant strategy implies the absence of a Nash equilibrium
outcome.

Answer 19

FALSE

Question 20

The Prisoner’s Dilemma illustrates that non-cooperative actions will lead to an inefficient
outcome.

Answer 20

TRUE