Reading 20: Monopolistic Competition and Oligopoly - LOS a

答案和详解如下：

11.If an oligopoly is characterized by fierce competition, in long-run equilibrium the firms in the market will earn:

A)   zero economic profits.

B)   substantial economic losses.

C)   substantial economic profits.

D)   above the firm's weighted average cost of capital.

The correct answer was A)    

Free entry and exit implies zero profits in the long run.

12.Which of the following is most likely to be considered a characteristic of an oligopolistic industry?

A)   Few barriers to entry.

B)   Few economies of scale.

C)   A great deal of interdependence among firms.

D)   Many sellers.

The correct answer was C)

An oligopolistic industry has a great deal of interdependence among firms. One firm’s pricing decisions or advertising activities will affect the other firms' demand curves.

13.Assume that a firm in an oligopoly market believes the demand curve for its product is more elastic above a specific price than below this price. This belief is most closely associated with which of the following models?

A)   Dominant firm model.

B)   Kinked demand model.

C)   Variable elasticity model.

D)   Differentiated demand model.

The correct answer was B)

The kinked demand model assumes that each firm in a market believes that at some price, demand is more elastic in respect to price increases than it is to price decreases.

14.Consider the following statements:

Statement 1: “The kinked demand curve model of oligopoly assumes that a decrease in price will not be followed by other firms in the industry, but a price increase will.”

Statement 2: “Firms in monopolistic competition have high advertising expenses because they want to create the perception that their product is different from their competitors’ products when the competing products are actually quite similar.”

Which of the following best describes the accuracy of these statements?

A)                 Correct                                  Incorrect

B)                  Incorrect                               Correct

C)                  Correct                                  Correct

D)                  Incorrect                                Incorrect

The correct answer was B)

Statement 1 is incorrect because the kinked demand curve model contends that each firm in oligopoly competition believes that an increase (not decrease) in its price will not be followed by the competition, but a decrease (not increase) in price will. Each firm believes that it faces a demand curve that is more elastic (flatter) above a given price, i.e., the kink, than it is below the given price.

15.Consider the following statements:

Statement 1: “When oligopoly firms cheat on price fixing agreements, the resulting price and output quantity approaches that of perfect competition.”

Statement 2: “Monopolistic competition is inefficient because a large deadweight loss from advertising and marketing costs is a characteristic of this form of competition.”

Which of the following best describes the accuracy of these statements?

A)                  Incorrect                               Correct

B)                   Correct                              Incorrect

C)                    Correct                               Correct

D)                    Incorrect                            Incorrect

The correct answer was B)

The efficiency of monopolistic competition is not clear. While increased opportunity cost is associated with the intensive marketing and advertising activities that are characteristic of monopolistic competition, consumers definitely benefit from these selling activities because they receive information that often enables them to make better purchasing decisions. Hence the advertising and marketing costs may be more than the efficient amount, but do not represent a deadweight loss.