Firms in monopolistic competition would persistently realize economic profits in both the short and long run.

Question 1

1. Firms in monopolistic competition would

persistently realize economic profits in both the short and long run.

realize economic profits in the long run and normal profits in the short run.

tend to incur persistent losses in both the short and long run.

tend to realize economic profits in the short run and normal profits in the long run.

2 points    

Question 2

1. In the long run, the most helpful action that a monopolistically competitive firm can take to maintain its economic profit is to

continue its efforts to differentiate its product.

raise its price.

lower its price.

do nothing, because it will inevitably experience a decline in profits.

2 points    

Question 3

1. Which of the following industries is most likely to represent the monopolistic competition market structure?

automobiles

tobacco products

restaurants

farm equipment

2 points    

Question 4

1. The four-firm concentration ratio

indicates the total profitability among the top four firms in an industry.

is an indicator of the degree of monopolistic competition.

indicates the presence and intensity of an oligopoly market.

is used by the government as a basis for anti-trust cases.

2 points    

Question 5

1. Mutual interdependence occurs when

all firms in an industry are affected by the same macro economic conditions, such as a recession, inflation, interest rates, exchange rates, etc.

the actions of firms are independent of each other.

the actions of one firm in an industry are easily recognized and perhaps copied by others.

monopolists recognize that they must face eventual competition in the long run.

2 points    

Question 6

1. In order for price discrimination to exist

markets must be capable of being separated.

markets must be interdependent.

different demand price elasticities must exist in different markets.

demand price elasticities must be identical in all markets.

Both markets must be capable of being separated and different demand price elasticities must exist in different markets

2 points    

Question 7

1. All of the following are conditions which are favorable to the formation of cartels except

the existence of a small number of firms.

geographic proximity of firms.

homogeneity of the product.

easy entry into the industry.

2 points    

Question 8

1. Transfer pricing is a method used to

determine whether a firm should make or buy a component product.

determine the correct value of a product as it moves from one stage of production to another.

minimize a multinational firm's tax liabilities.

All of these

2 points    

Question 9

1. Dominant price leadership exists when

one firm drives the others out of the market.

the dominant firm decides how much each of its competitors can sell.

the dominant firm establishes the price at the quantity where its MR = MC, and permits all other firms to sell all they want to sell at that price.

the dominant firm charges the lowest price in the industry.

2 points    

Question 10

1. Prices under an ideal cartel situation will be equal to

monopoly prices.

competitive prices.

prices under monopolistic competition.

marginal cost.

2 points    

Question 11

1. Asymmetric information represents a market situation in which

all parties to a transaction possess less than full information.

one party in a transaction has more information than the other party.

some information possessed by the parties in a transaction may be false.

a zero-sum game exists.

2 points    

Question 12

1. In a zero-sum game

the gains of one player are less than the gains of the other player.

the gains of one player are greater than the gains of the other player.

the gains of one player directly reflect the losses of another player.

the gains and losses of players are all expressed in zeros.

2 points    

Question 13

1. Market signaling

is a way of conveying information to other parties in a transaction where asymmetric information exists.

represents a dominant strategy in a multi-player game.

results in an optimum solution to a beach kiosk scenario.

None of these

2 points    

Question 14

1. If banks face a problem in loan markets when bad credit risks are the ones most likely to seek bank loans, it is described as

moral hazard.

moral suasion.

adverse selection.

fraud.

2 points    

Question 15

1. Moral hazard is the

outcome of a Prisoner's Dilemma.

result of market signaling.

risk associated with a Dutch auction.

risk that one party to a contract may alter its post-contract behavior to the detriment of another party.

2 points    

Question 16

1. Which of the following would be an example of FDI?

A Brazilian investor buys German government bond.

An American buys a new Swedish car.

An Italian firm builds a plant in Nebraska.

A Canadian investor buys a French equity.

2 points    

Question 17

1. The main difference between perfect competition and monopolistic competition is

the number of sellers in the market.

the ease of exit from the market.

the difference in the firm's profits in the long run.

the degree of product differentiation.

2 points    

Question 18

1. Which of the following represents a way in which multinational corporations can protect themselves from exchange rate risks?

forward markets

futures markets

currency options

All of these

2 points    

Question 19

1. Globalization has depressed wages in western industrialized countries, particularly those for

highly skilled workers.

highly educated workers.

semi-skilled workers.

low skilled workers.

2 points    

Question 20

1. In order to maximize profits, multinationals typically use transfer pricing by showing ________ profits in the high-tax country and by showing ________ profits in the low-tax country.

high; low

low; high

economic; normal

above-normal; accounting

2 points    

Question 21

1. Which of the following is an example of a government action to internalize a cost externality?

a fine imposed on a company that pollutes a stream

the closing of a public library

a sales tax on jewelry

the increase on bridge tolls

2 points    

Question 22

1. When cost externalities exist, an optimal equilibrium can be attained if the government

restricts production.

levies a tax for the difference between private costs and social costs.

prohibits production.

All three of these

Both restricts production and levies a tax for the difference between private costs and social costs

2 points    

Question 23

1. The demand for products that provide benefit externalities is generally ________ the demand for products that do not.

greater than

less than

the same as

greater or less (depending on the market) than

2 points    

Question 24

1. An example of a cost externality occurs when a mining company

dumps waste in river upstream from a popular fishing spot.

produces coal that is not in demand in a recession.

underpays its employees.

overworks its employees.

2 points    

Question 25

1. The supply of products that exhibit cost externalities is generally ________ the supply for products that do not.

greater than

less than

the same as

greater or less (depending on the market) than