Q15. 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.”

With respect to these statements:

A)   only one is correct.

B)   both are correct.

C)   both are incorrect.

Q16. If an oligopoly is characterized by fierce competition, in long-run equilibrium the firms in the market will earn:

A)   substantial economic losses.

B)   substantial economic profits.

C)   zero economic profits.

Q17. 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)   Variable elasticity model.

C)   Kinked demand model.

Q18. Firms in perfectly competitive markets and firms operating in a market characterized by monopolistic competition have several things in common. Which of the following is least likely one of them? Both:

A)   operate in markets that have low or no barriers to entry.

B)   face perfectly elastic demand curves.

C)   maximize economic profit.

Q19. Which of the following regarding monopolistic competition is most accurate?

A)     Each firm produces a differentiated product.

B)     Zero barriers to entry and exit exist.

C)     There are very few independent sellers.

答案和详解如下：

Q15. 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.”

With respect to these statements:

A)   only one is correct.

B)   both are correct.

C)   both are incorrect.

Correct answer is A)

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.

Q16. If an oligopoly is characterized by fierce competition, in long-run equilibrium the firms in the market will earn:

A)   substantial economic losses.

B)   substantial economic profits.

C)   zero economic profits.

Correct answer is C)

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

Q17. 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)   Variable elasticity model.

C)   Kinked demand model.

Correct answer is C)

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.

Q18. Firms in perfectly competitive markets and firms operating in a market characterized by monopolistic competition have several things in common. Which of the following is least likely one of them? Both:

A)   operate in markets that have low or no barriers to entry.

B)   face perfectly elastic demand curves.

C)   maximize economic profit.

Correct answer is B)

The only item listed in the question that monopolistic competition and pure competition do not have in common is a perfectly elastic demand curve. Under pure competition, producers face a perfectly elastic demand curve, whereas price searchers face downward sloping demand curves.

Q19. Which of the following regarding monopolistic competition is most accurate?

A)     Each firm produces a differentiated product.

B)     Zero barriers to entry and exit exist.

C)     There are very few independent sellers.

Correct answer is A)

Other characteristics of monopolistic competition (also known as competitive price searcher markets) are: a large number of independent sellers, low barriers to entry, and an elastic downward sloping demand curve.

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