Chapter 14: Imperfect Competition

In the quasi-competitive model
1. firms believe that price increases result in a very elastic demand, while price decreases result in an inelastic demand for their product.
2. each firm acts as a price taker even when there are few firms in an industry.
3. one dominant firm takes the reactions of all other firms into account in its output and pricing decisions.
4. firms coordinate their decisions to act as a multi-plant monopoly.
In the long run, under the quasi-competitive model, for a typical firm, price is
1. above average cost but equal to marginal cost.
2. above marginal cost but equal to average cost.
3. above marginal cost.
4. equal to marginal cost and equal to or greater than average cost.
In the cartel model
1. firms believe that price increases result in a very elastic demand, while price decreases result in an inelastic demand for their products.
2. each firm acts as a price taker.
3. one dominant firm takes the reactions of all other firms into account in its output and pricing decisions.
4. firms coordinate their decisions to act as a multi-plant monopoly.
Under the cartel model, each firm produces where
1. marginal cost equals marginal revenue.
2. price equals marginal cost.
3. the average cost curve is at a minimum.
4. price exceeds marginal cost by the greatest amount.
All of the following are problems associated with maintaining a cartel except
1. cartels are illegal.
2. a large amount of information is needed to coordinate a cartel.
3. profits are not maximized by a cartel so it will evolve into a monopoly.
4. each member of the cartel has an incentive to “chisel” by expanding output.
Each firm in a cartel has an incentive to chisel because market price exceeds
1. marginal cost.
2. average cost.
3. average variable cost.
4. average fixed cost.
In the price leadership model,
1. firms believe that price increases result in a very elastic demand, while price decreases result in an inelastic demand for their product.
2. each firm acts as a price taker.
3. one dominant firm takes the reactions of all other firms into account in its output and pricing decisions.
4. firms coordinate their decisions to act as multi-plant monopolies.
Under the price leadership model,
1. most firms act independently of the leader.
2. the leader’s price is always lower than the other firms’ prices.
3. the leader’s price is always higher than the other firms’ prices.
4. all firms adjust their prices to that chosen by the leader.
In the Cournot model, each firm assumes that its rival will ____ its output when the firm adjusts its own output. Which word(s) best complete(s) the sentence?
1. increase
2. not change
3. decrease
Product differentiation complicates the study of oligopolies because such markets may not
1. be efficient.
2. have prices equal to marginal cost.
3. have free entry and exit.
4. obey the law of one price.

Chapter 14: Imperfect Competition

Multiple Choice Questions