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Chapter 10--Monopolistic Competition and Oligopoly
Student: ___________________________________________________________________________
1. Firms may easily enter a monopolistically competitive market.

A. True
B. False
2. Product differentiation helps determine the slope of the demand curve facing a firm in monopolistic
competition.
A. True
B. False
3. Monopolistic competitors are protected by barriers to entry.

A. True
B. False
4. The forces that determine the cost of production are largely independent of the forces that shape demand.
A. True
B. False
5. The term monopolistic competition

A. is an alternate expression for monopoly
B. is used to describe perfect competition with strong entry barriers
C. denotes an industry with one seller of many differentiated products
D. denotes an industry with many sellers of homogeneous products
E. denotes an industry with many sellers of differentiated products
6. Monopolistically competitive industries consist of

A. one firm selling several products
B. one firm selling one product
C. many firms, all selling identical products
D. many firms, each selling a slightly different product
E. many firms, each selling a completely different product
7. Collusion among firms to raise price is rare in monopolistically competitive markets because
A. there are too many firms
B. there are too few firms
C. there is only one firm
D. products are homogeneous
E. price leadership is used instead
8. Monopolistically competitive firms ignore the effect of their decisions upon other firms in the industry
because
A. each firm is large relative to the market
B. each firm is small relative to the market
C. there are few sellers in the market
D. there is only one seller in the market
E. all firms follow the same known pricing rules
9. Monopolistic competition is different from perfect competition because monopolistic competitors produce
A. a homogeneous product
B. a homogeneous but unique product
C. identical products
D. differentiated products
E. products similar to those produced by a monopoly
10. If Family Travel Agency, a monopolistic competitor, offers services that are differentiated from the services
of other producers in the industry, it
A. faces a perfectly elastic demand curve
B. is a price taker
C. has some power to control the price it charges
D. faces a perfectly inelastic demand curve
E. produces a product with no close substitutes
11. A monopolistically competitive firm can raise price somewhat due to

A. product differentiation
B. barriers to entry
C. product similarity
D. its homogeneous product
E. high tariffs
12. The demand curve facing Imelda's Shoe Boutique, a monopolistically competitive firm,
A. is horizontal because Imelda's is small relative to the market as a whole
B. is horizontal because Imelda's is large relative to the market as a whole
C. slopes downward because Imelda's is small relative to the market as a whole
D. slopes downward because Imelda's sells a differentiated product
E. slopes downward because Imelda's firm is the entire industry
13. Monopolistically competitive firms use product differentiation to increase the price elasticity of demand.
A. True
B. False
14. Monopolistic competition is best described as

A. many firms with some control over price, and some product differentiation
B. many firms with no control over price, producing identical products
C. a few firms with some control over price, producing highly differentiated products
D. a few firms with no control over price, producing similar products
E. a single firm producing all of the output for the industry, with strong control over price
15. If a monopolistically competitive firm raises its price, it

A. loses all of its customers (sales drop to zero)
B. loses some, but not all, of its customers
C. loses very few customers
D. loses no customers at all
E. gains customers (sales increase)
16. Which of the following is most likely produced in a monopolistically competitive market?
A. soybeans
B. autos
C. fast food
D. oil
E. local phone service
A. restaurant meals
B. computer chips
C. firewood
D. motorcycles
E. soft drink
18. A firm could differentiate its product by all of the following means except one. Which is the exception?
A. making the product available at a number of different locations
B. increasing the number of services that accompany the product
C. making the product physically different from other products
D. using packaging or advertising to create a special subjective image of the product in the consumer's mind
E. emphasizing that the product provides the same benefits to consumers as the others on the market, even when
it is really physically different
19. All of the following are examples of product differentiation except one. Which is the exception?
A. developing a new video game or a computer program called "How to Teach Your New Dog Old Tricks"
B. manufacturing a car that minimizes outside noise relative to other cars
C. lowering the price of a good in a special sale
D. providing movies and special meals on airline flights
E. making sodium-free, caffeine-free colas
20. Economic analysis of product differentiation leads to all of the following conclusions except one. Which is
the exception?
A. Product differentiation makes it harder for firms to collude.
B. Product differentiation makes price leadership harder to maintain.
C. Product differentiation sometimes contributes to wasteful allocation of resources.
D. Product differentiation must be based on real, substantive differences among products.
E. There is a tradeoff between using resources efficiently and providing consumers with wide choices.
21. When firms differentiate their products, they

A. provide information to consumers with no additional use of productive resources
B. always increase their profits
C. always create real differences among products
D. frequently create artificial or superficial differences among products, thus raising production costs
E. usually strain the physical capacity of their plants
22. When firms in an industry produce differentiated products,

A. long-run economic profit will always be zero
B. short-run economic profit will always be positive
C. the demand curves facing firms will always be perfectly elastic
D. the demand curves facing firms will always be downward-sloping
E. new firms will always have an incentive to enter the industry in the long run
23. Monopolistic competitors are
A. price takers
B. price searchers
C. price maximizers
D. price ignorers
E. collusive price fixers
24. In economics, products are considered "differentiated" only if

A. they are physically or chemically different
B. sellers decide that they are different
C. buyers think that they are different
D. the government determines that they are different
E. they are produced by different firms
25. Compared to regular grocery stores, convenience stores have

A. higher prices and a more limited selection of goods
B. higher prices and a greater selection of goods
C. lower prices and a more limited selection of goods
D. lower prices and a greater selection of goods
E. equal prices and an equal selection of goods
26. A monopolistically competitive firm produces where demand is inelastic.

A. True
B. False
27. Firms in monopoly or monopolistically competitive market structures do not have traditional supply curves
as firms in perfect competition do.
A. True
B. False
28. A monopolistic competitor's demand curve is

A. perfectly elastic
B. less elastic than a monopolist's or oligopolist's but more elastic than a perfect competitor's
C. as elastic as an oligopolist's
D. more elastic than a monopolist's or oligopolist's but less elastic than a perfect competitor's
E. perfectly inelastic
29. The demand curve facing a firm will be more elastic,
A. the fewer the number of competing firms
B. the more differentiated the product
C. the more substitutes there are for its product
D. the greater the firm's ability to control price
E. the larger the profit the firm can make
30. What do monopolistic competition, pure monopoly, and perfect competition have in common?
A. free entry
B. long-run economic profits
C. differentiated product
D. price taking
E. the rule of profit maximization
31. Exhibit 10-1
In Exhibit 10-1, the monopolistic competitor's profit-maximizing level of output is

A. 75 units
B. 100 units
C. 125 units
D. 150 units
E. 137.5 units
32. Exhibit 10-1
In Exhibit 10-1, the price that the monopolistic competitor will charge at the profit-maximizing level of output
is
A. $2
B. $4
C. $8
D. $9
E. $10
33. Exhibit 10-1
The monopolistic competitor in Exhibit 10-1 is in

A. long-run equilibrium because price equals average total cost
B. long-run equilibrium because marginal cost equals marginal revenue
C. long-run equilibrium because price exceeds marginal cost
D. short-run equilibrium because it is earning a positive economic profit
E. short-run equilibrium because price equals average total cost
34. Exhibit 10-1
In Exhibit 10-1, the monopolistic competitor's total economic profit at the profit-maximizing level of output is
A. $0
B. $4
C. $600
D. $6
E. $750
35. Exhibit 10-2
Consider Exhibit 10-2. If the firm is charging price P* for output q*, then in order to minimize loss in the short
run, the firm should
A. shut down because price is greater than average variable cost
B. shut down because price is greater than marginal cost
C. shut down because price is less than average variable cost
D. continue to produce because price is greater than average variable cost
E. continue to produce because price is greater than marginal cost
36. Exhibit 10-3
Q P TC
1 $27 $10
2 24 17
3 21 25
4 18 40
5 15 60
The profit-maximizing output for the firm in Exhibit 10-3 is

A. 0 units
B. 1 unit
C. 3 units
D. 5 units
E. impossible to determine because MC and MR are not known
37. Exhibit 10-3
Q P TC
1 $27 $10
2 24 17
3 21 25
4 18 40
5 15 60
The profit-maximizing price for the firm in Exhibit 10-3 is

A. $0
B. $27
C. $21
D. $15
E. impossible to determine because MR and MC are not known
38. Exhibit 10-3
Q P TC
1 $27 $10
2 24 17
3 21 25
4 18 40
5 15 60
At the profit-maximizing output, the firm in Exhibit 10-3 is earning
A. an economic profit of $38
B. an economic profit, but the amount cannot be determined
C. zero economic profit
D. an economic profit of $32
E. an economic loss
39. Exhibit 10-3
Q P TC
1 $27 $10
2 24 17
3 21 25
4 18 40
5 15 60
At the profit-maximizing output, the monopolistically competitive firm in Exhibit 10-3 is in

B. long-run equilibrium because price is less than average total cost
C. short-run equilibrium because price is greater than average total cost
D. short-run equilibrium because there is an economic loss
E. short-run equilibrium because there is zero economic profit
40. In the short run, a monopolistically competitive firm is

A. guaranteed to earn zero economic profit
B. guaranteed to earn economic profit
C. guaranteed to earn an economic loss
D. guaranteed to earn either zero or positive economic profit
E. not guaranteed any level of economic profit
41. Exhibit 10-4
In the short run, which of the following should the firm in Exhibit 10-4 do?
A. Produce 10 units at a price of $36 per unit.
B. Produce 10 units at a price of $24 per unit.
C. Produce 10 units at a price of $40 per unit.
D. Produce 15 units at a price of $32 per unit.
E. We cannot determine what the firm should do without knowing its average variable cost.
42. Exhibit 10-4
For the situation depicted in Exhibit 10-4, what will happen in the long-run?
A. New technology will lower average total costs and increase profits for the firm.
B. Firms will exit this market causing economic profit to increase.
C. Product differentiation will lead to an increase in profitablility.
D. New firms will enter the market driving economic profit to zero.
E. Nothing, the situation will remain the same.
43. Exhibit 10-5
In the short run, the firm in Exhibit 10-5 should

A. shut down
B. produce 8 units at a price of $11 per unit
C. produce 8 units at a price of $10 per unit
D. produce 8 units at a price of $9 per unit
E. produce 10 units at a price of $9 per unit
44. Exhibit 10-5
In the long run, the firm in Exhibit 10-5 can expect

A. to shut down
B. entry into the industry which will reduce the demand for their product and lower their profit
C. exit from the industry which will increase demand for their product and increase their profitability
D. competitors to differentiate their products which will reduce the demand for their product and lower their
profit
E. no change in the industry
45. Exhibit 10-6
P Q TC
$7 0 $10
6 4 20
5 8 32
4 12 48
3 16 66
In Exhibit 10-6, what is the profit-maximizing price for this monopolistic competitor in the short run?
A. $7
B. $6
C. $5
D. $4
E. $3
46. Exhibit 10-6
P Q TC
$7 0 $10
6 4 20
5 8 32
4 12 48
3 16 66
In Exhibit 10-6, what is the maximum profit this monopolistic competitor can earn in the short run?
A. $40
B. $4
C. $48
D. $8
E. $0
47. If a monopolistically competitive firm can earn a profit, it will adjust production until
A. MR > AVC
B. MR = ATC
C. MC > MR
D. MR = AR
E. MR = MC
48. Exhibit 10-7
Assume that the firm in Exhibit 10-7 is maximizing profit. Its total revenue is
A. $5,320
B. $5,700
C. $4,750
D. $8,120
E. $8,100
49. Exhibit 10-7
At the profit-maximizing output level, total cost for the firm in Exhibit 10-7 is approximately
A. $5,700
B. $5,320
C. $4,750
D. $4,940
E. $8,100
50. Exhibit 10-7
At the profit-maximizing output level, the firm in Exhibit 10-7 is

A. earning economic profit of $760
B. earning economic profit of $950
C. earning zero economic profit
D. earning economic profit of $990
E. suffering a loss of $1,000
51. Exhibit 10-7

A. to earn an economic profit of $760
B. earn an economic profit of $950
C. earn zero economic profit
D. earn an economic profit of $990
E. suffer a loss of $1,000
52. Assume a monopolistically competitive firm is earning an economic profit. The marginal revenue from
selling an additional unit is $30 and the marginal cost of producing that additional unit is $23. The firm should
A. change neither its price nor its output level
B. reduce its price and increase its output level
C. increase its price and reduce its output level
D. reduce both its price and its output level
E. increase both its price and its output level
53. A rise in demand for restaurant meals is likely to cause which of the following in the short run?
A. economic losses for each restaurant
B. a lower price for each restaurant meal
C. fewer restaurants in the industry
D. more restaurants in the industry
E. economic profit for restaurants
54. A rise in demand for restaurant meals is likely to cause which of the following in the long run?
55. In both monopolistic competition and non-price-discriminating monopoly,

A. the marginal revenue curve lies above the average revenue curve
B. the marginal revenue curve lies above the demand curve
C. the marginal revenue curve lies below the demand curve
D. marginal revenue is equal to average revenue
E. marginal revenue is equal to price
56. A monopolistically competitive firm is producing an output level at which marginal revenue is greater than
marginal cost. This firm should __________ quantity and __________ price to increase profit or reduce losses.
A. increase, increase
B. increase; decrease
C. decrease; increase
D. decrease; decrease
E. increase; not change
57. A monopolistically competitive firm is producing an output level at which marginal revenue is less than
58. Exhibit 10-8
Assume the firm in Exhibit 10-8 is currently charging price P and producing output level Q. In order to
maximize profit (or minimize loss), the firm should
A. charge more and sell less
B. charge less and sell more
C. charge less and sell less
D. charge more and sell more
E. continue to charge P and sell Q
59. Exhibit 10-9
In order to maximize profit or minimize loss, the firm in Exhibit 10-9 should
A. produce 100 units of output and charge $15
B. produce 100 units of output and charge $8
C. produce more than 100 units of output and charge less than $8
D. produce slightly less than 100 units of output and charge more than $8
E. shut down
60. Exhibit 10-9
If the firm in Exhibit 10-9 produces 100 units of output, it will have
A. both d and e
B. variable cost of slightly less than $800
C. fixed cost of slightly more than $700
D. total cost of $1,500
E. total revenue of $800
61. Which of the following describes the relationship among market price (P), average revenue (AR), and
marginal revenue (MR) for a firm in monopolistic competition.
A. P = AR = MR
B. P > AR = MR
C. P = AR > MR
D. P > AR > MR
E. P = AR < MR
62. A profit-maximizing firm in monopolistic competition should shut down in the short run
A. if marginal revenue is less than price
B. if price is always less than average total cost
C. if price is always less than average fixed cost
D. if price is always less than average variable cost
E. under no circumstances
63. In the long run in monopolistic competition, firms earn zero economic profit.
A. True
B. False
64. If a monopolistically competitive firm is in long-run equilibrium and average cost equals $150, then the
market price must be $150.
A. True
B. False
65. Monopolistic competition is similar to

A. perfect competition because the firms face downward-sloping demand curves and can earn only a normal
profit in the long run
B. pure monopoly because the firms face downward-sloping demand curves and can earn only a normal profit
in the long run
C. perfect competition because the firms face downward-sloping demand curves and similar to pure monopoly
in that the firms can earn only a normal profit in the long run
D. pure monopoly because the firms face downward-sloping demand curves and similar to perfect competition
E. pure monopoly because the firms face downward-sloping demand curves and can earn an economic profit in
the long run
66. In the long run, a monopolistically competitive firm will

A. produce a greater variety of goods than do firms in other market structures
B. produce a greater output level than would a perfectly competitive firm
C. produce where price equals average total cost
D. earn an economic profit
E. suffer a loss because of its advertising budget
67. Suppose that a monopolistically competitive firm is in long-run equilibrium. The firm's demand curve is
tangent to its average cost curve at Q = 25. Average cost is minimized at Q = 35, where average cost is $50.
Which of the following is true?
A. This firm maximizes profit at an output level of 25 units.
B. This firm maximizes profit at an output level of 35 units.
C. This firm maximizes profit at an output level less than 25 units.
D. This firm maximizes profit at an output level greater than 35 units.
E. There is not enough information to find the firm's profit-maximizing level of output.
A. This firm charges $50 for the good.
B. This firm charges more than $50 for the good.
C. This firm charges less than $50 for the good.
D. The firm has excess capacity at all output levels greater than 35 units.
E. Average cost is $50 at the profit-maximizing output level.
69. Each member of a cartel
A. faces a temptation to cheat on the agreement because lowering its price slightly below the established price
will usually increase the firm's sales and profit
B. faces a temptation to cheat on the agreement because raising its price slightly above the established price will
usually increase the firm's sales and profit
C. has no temptation to cheat on the agreement because lowering its price slightly below the established price
will usually have no impact on the firm's sales and profit
D. has no temptation to cheat on the agreement because raising its price slightly above the established price will
usually decrease the firm's sales and profit
E. has no temptation to cheat on the agreement because lowering its price slightly below the established price
will usually lower the firm's sales and profit
70. A cartel is
A. explicit collusion
B. a conglomerate merger
C. a horizontal merger
D. legal in the United States
E. implicit collusion
71. Collusion is easier to achieve and maintain in oligopoly when

A. there are many firms in the industry
B. the firms' products are homogeneous
C. the firms' cost structures are very different
D. there are very weak barriers to entry
E. the industry is located in the United States
72. Suppose a firm that sells a variety of athletic shoes is trying to start a pattern of price leadership in its
market. Which of the following is not a problem this firm might have to face?
A. Rivals recognize the intent of its actions.
B. Other firms may not necessarily follow the leader.
C. Other firms may not follow the leader but offer better service instead.
D. Differentiation among products allows for more variation in price.
E. The price leader must keep costs lower than other firms'.
73. Tacit collusion occurs in industries that

A. are monopolistically competitive
B. contain price leaders
C. experience rapid technological change
D. are regulated
E. produce very differentiated products
74. Which of the following does not hinder successful price leadership?
A. all of the following are correct
B. potentially large economic profits due to this activity
C. cheating by offering secret discounts
D. product differentiation
E. illegality of coordinated pricing
75. Historically, the U.S. steel industry has been a good example of
A. monopolistic competition
B. a cartel
C. a pure monopoly
D. the kinked demand curve model of oligopoly
E. the price leadership model of oligopoly
76. During certain periods in the past few decades, if one of the three major breakfast cereal producers in the
United States announced a price increase, the other two announced a similar price increase. This is a good
example of
B. a cartel
C. a pure monopoly
77. Cost-plus pricing

A. is used only in oligopolistic market structures
B. simplifies pricing policy by adding a markup to average total cost
C. in actual practice leads to markups which are greater for more elastic demand curves
D. is likely to increase profits more than the use of marginal analysis
E. requires the firm to project the amount which will be sold and then "mark-up" the price based on average
variable cost
78. Price wars occur more often in monopolistic competition than in other market structures.
A. True
B. False
79. A payoff matrix is a table listing the expected economic profit resulting from different possible strategies.
A. True
B. False
80. In the game theory model of oligopoly,
A. firms will be successful in colluding to raise prices
B. one firm raises its prices, and other firms follow suit
C. firms will match other firms' price cuts but not their price increases
D. firms may attempt to avoid the worst outcome but may achieve a less-than-optimal outcome
E. firms never avoid the worst outcome
81. In game theory, if two rivals in an oligopoly can avoid a large loss by cutting price from $40 to $35,
A. neither will cut its price
B. one will charge $40 and the other will charge $35
C. their actions will depend on their respective strategies
D. each will cut price but not all the way to $35
E. they will collude to do what's best for both of them
82. One common assumption in game theory is that firms

A. try to avoid the worst outcome
B. try to achieve the best outcome
C. minimize losses
D. always cooperate
E. always compete
83. Game theory is a separate model of oligopoly therefore it is of limited value when trying to generally
understand firm level behavior
A. True
B. False
84. Which of the following characteristics does perfect competition share with monopolistic competition?
A. price-taking firms
B. zero long-run economic profit
C. homogeneous product
D. some barriers to entry
E. economies of scale in production
85. Monopolistically competitive firms

A. are guaranteed to earn short-run economic profit
B. may earn short-run economic profits, although long-run economic profit is typically zero
C. may earn economic profit both in the short run and in the long run
D. earn zero economic profit both in the short run and in the long run
E. can only earn an economic profit in the inelastic portion of their demand curves
86. In the long run, economic profit for a monopolistically competitive firm
A. is zero, due to the lack of barriers to entry
B. is zero, due to product differentiation
C. may be positive, due to strong barriers to entry
D. may be positive, due to product differentiation
E. may be positive, due to advertising and product promotion
87. Exhibit 10-12
The profit-maximizing (or loss-minimizing) output for the firm in Exhibit 10-12 is
A. zero (i.e., a shut down case)
B. 700 units
C. 1,000 units
D. more than 700 and less than 1,000 units
E. more than 1,000 units
88. Exhibit 10-12
The profit-maximizing (or loss-minimizing) price the firm would charge in Exhibit 10-12 is
A. nonexistent, since the firm should shut down
B. $3.25
C. $3.00
D. $2.50
E. between $2.50 and $3.00
89. Exhibit 10-12
At the profit-maximizing (or loss-minimizing) output and price, the firm in Exhibit 10-12 would
A. be earning zero economic profit (i.e., breaking even)
B. be earning an economic profit
C. be earning an economic loss
D. be better off to shut down since total revenue does not cover fixed costs
E. have to expand to stay in business in the long run
90. In the long run, a monopolistically competitive firm will find

A. its demand curve shifting until price equals average total cost
B. its cost curve shifting until price equals average total cost
C. its demand curve shifting until marginal revenue equals marginal cost
D. its cost curve shifting until marginal revenue equals marginal cost
E. no changes in its demand or cost curves if it is earning an economic profit
91. Suppose that firms in a monopolistically competitive industry are earning short-run economic profits. In the
long run, the demand curve facing each individual firm can be expected to
A. shift to the left and become flatter
B. shift to the left and become steeper
C. shift to the right and become flatter
D. shift to the right and become steeper
E. remain constant
92. The first video rental outlets
A. earned short-run economic profits because they faced little competition
B. suffered short-run economic losses until videos caught on and demand for them increased
C. were able to earn long-run economic profits because of barriers to entry
D. earned only normal profits because the industry is perfectly competitive
E. provided a good example of an oligopoly
93. As a result of the economic profit earned by the first video rental outlets,
A. existing firms were able to successfully lobby the government for patent protection
B. competitors were attracted to the industry, and their entry reduced economic profit
C. demand dried up
D. Blockbuster saw an opportunity to take over the industry
E. competitors were discouraged from entering the industry
94. The historical trend in the video rental industry

A. has been one of increasing economic profits
B. has been cyclical in the sense that profits decrease, then increase
C. reflects the trend toward market concentration in all oligopolies
D. has been one of increasing market concentration
E. suggests the need for government regulation to eliminate price discrimination
95. Fixed costs in the video rental industry are

A. high because of the extensive advertising in that industry
B. high because of economies of scale
C. low because of economies of scale
D. higher in the long run than in the short run
E. low
96. In the long run in monopolistic competition, all economies of scale are exhausted.
A. True
B. False
97. Excess capacity is defined as the difference between a firm's maximum possible output and its actual
output.
A. True
B. False
98. Which of the following is inconsistent with the model of perfect competition?
A. ease of entry into an industry
B. ease of exit from an industry
C. many buyers and sellers in the industry
D. advertising of product differences in the industry
E. a horizontal demand curve facing each firm in the industry
99. In which of the following market structures is a firm most likely to advertise extensively and fear entry of
new firms?
A. perfect competition
B. pure monopoly
C. monopolistic competition
D. oligopoly
E. both perfect competition and monopolistic competition
100. Which of the following is true of the relationship between price and marginal cost under monopolistic
competition?
A. P = MC at all levels of output
B. P = MC only at the profit-maximizing quantity
C. P > MC at the profit-maximizing quantity
D. P < MC at the profit-maximizing quantity
E. P < MC at the quantities below the profit-maximizing quantity
101. In long-run equilibrium, a monopolistically competitive firm will produce

A. at the minimum average cost
B. at full capacity
C. along the downward-sloping portion of its ATC curve
D. along the upward-sloping portion of its ATC curve
E. at the minimum of marginal cost
102. At the profit-maximizing output, price is greater than marginal cost

A. for a monopolistically competitive firm only in the short run
B. for a monopolistically competitive firm only in the long run
C. for a monopolistically competitive firm in both the short run and the long run
D. for a perfectly competitive firm only in the short run
E. for a perfectly competitive firm only in the long run
103. In the long run, the output of a monopolistically competitive firm
A. exceeds that of an otherwise similar perfectly competitive firm
B. is less than that of an otherwise similar perfectly competitive firm
C. is at the point at which LRAC is minimized
D. equals that of an otherwise similar perfectly competitive firm
E. is less than that of an otherwise similar monopolist
104. A monopolistically competitive firm

A. earns no long-run economic profit and is therefore allocatively efficient
B. earns no long-run economic profit and therefore produces at the minimum point of its ATC curve
C. earns no long-run economic profit and is allocatively efficient even though it is not producing at the
minimum point of its ATC curve
D. earns no long-run economic profit, is allocatively inefficient, and does not produce at the minimum point of
its ATC curve
E. has a chance of making a long-run economic profit and is therefore allocatively inefficient
105. Although both perfectly competitive and monopolistically competitive firms earn normal profits in the
long run, monopolistically competitive firms will not
A. operate where price equals marginal cost
B. charge a higher price than firms in perfect competition
C. produce a smaller quantity than firms in perfect competition
D. produce where price equals average total cost
E. exit when demand falls below long-run average costs
106. Which of the following is true of firms in both monopolistic competition and perfect competition?
A. Firms face a horizontal demand curve.
B. Price exceeds marginal revenue.
C. Firms can enter and leave the industry with relative ease.
D. Price exceeds marginal cost.
E. Products are differentiated.
107. One difference between perfect competition and monopolistic competition is that
A. in perfect competition, firms cannot earn a long-run economic profit
B. in perfect competition, firms take full advantage of economies of scale in long-run equilibrium; in
monopolistic competition, firms do not
C. only under perfect competition is there ease of entry and exit
D. in monopolistic competition, the firm's demand curve is horizontal; in perfect competition, the firm's demand
curve slopes downward
E. in perfect competition, there are many firms; under monopolistic competition, there are few firms
108. Which of the following characteristics does perfect competition have in common with monopolistic
competition?
B. homogeneous products
C. no barriers to entry
D. horizontal demand curve
E. neither market advertises
109. Compared to a firm in perfect competition, the monopolistically competitive firm tends to
A. produce less and charge a higher price
B. produce less and charge a lower price
C. produce more and charge a lower price
D. produce more and charge a higher price
E. produce the same quantity
110. Excess capacity typically occurs

A. in the short run in perfect competition
B. in the short run in monopolistic competition
C. in long-run equilibrium in perfect competition
D. in long-run equilibrium in monopolistic competition
E. usually in markets experiencing an increase in demand
111. Which of the following is unique to perfect competition?

A. The individual firm cannot earn economic profit in the long run.
B. It is easy for new firms to enter the industry.
C. The market demand curve slopes downward.
D. The demand curve facing an individual firm is perfectly elastic.
E. The firms in the industry produce a homogeneous product.
112. Monopolistically competitive firms do not achieve allocative efficiency in the long run because
A. marginal cost equals marginal revenue
B. marginal cost is greater than marginal revenue
C. marginal cost is less than marginal revenue
D. price is less than marginal cost
E. price is greater than marginal cost
113. Monopolistically competitive firms do not achieve productive efficiency because
A. entry of firms raises production costs in the long run
B. barriers to entry allow profit to be earned in the long run
C. price is greater than marginal cost at the profit maximizing output level
D. profit is maximized at a quantity where average total cost is not minimized
E. there is no threat of entry in the long run
114. Firms in monopolistic competition and perfect competition typically

A. are price takers
B. produce identical products
C. earn zero economic profit in the long run
D. face a downward-sloping demand curve
E. face an upward-sloping total revenue curve at all rates of output

A. perfect competition, in that firms face downward-sloping demand curves and earn zero long-run economic
profit
B. pure monopoly, in that firms face downward-sloping demand curves and can earn economic profits both in
the short run and in the long run
C. perfect competition, in that firms face perfectly elastic demand curves and earn zero long-run economic
profit
D. pure monopoly, in that firms can earn economic profits both in the short run and in the long run, and similar
to perfect competition, in that firms face perfectly elastic demand curves
E. pure monopoly, in that firms face downward-sloping demand curves, and similar to perfect competition, in
that long-run economic profit is zero
116. If marginal revenue is less than price for a firm, it must be true that the firm
A. is a monopoly
B. is in perfect competition
C. is in monopolistic competition
D. faces a perfectly elastic demand curve
E. faces a downward-sloping demand curve
117. Which of the following characteristics distinguishes oligopoly from other market structures?
A. a horizontal demand curve
B. a downward-sloping demand curve
C. production of homogeneous outputs
D. production of differentiated outputs
E. interdependence among firms in the industry
118. Oligopolistic industries consist of
A. a few independent firms
B. a few interdependent firms
C. many interdependent firms
D. many independent firms
E. a small monopoly
119. The automobile, breakfast cereal, and tobacco industries are examples of
B. oligopoly
C. perfect competition
D. monopoly
E. monopsony
120. The defining characteristic of oligopoly is that each firm

A. produces the same output as its rivals
B. acts independently of its rivals
C. is mutually interdependent
D. is atomistic
E. advertises how its products are different from its rivals' products
121. An intersection known as Four Corners lies 300 miles from the nearest town. At this intersection are three
independently owned gas stations and one small pharmacy. Which of the following is true?
A. The firms are all perfectly competitive because of their size.
B. It would be easier for all four firms to form a cartel than for only the gas stations to do so.
C. The gas stations are monopolistically competitive because there are so few of them that they are almost
monopolists.
D. The gas stations are perfectly competitive; the pharmacy is not.
E. The gas stations are oligopolists; the pharmacy is a monopolist.
122. Which of the following is unique to oligopoly among all the market structures?
B. profit maximization
C. mutual interdependence
D. advertising
E. long-run economic profits
123. Oligopolists are more sensitive to the pricing and output policies of their rivals when
A. all firms produce identical products
B. their products are highly differentiated
C. there is freedom of entry and exit
D. there are barriers to entry
E. there are many firms in the industry
124. The defining characteristic of oligopoly is product differentiation.

A. True
B. False
125. Something is called a barrier to entry only if it makes entry into an industry absolutely impossible.
A. True
B. False
126. When there are barriers to entry, a profit-maximizing firm already in the industry can charge any price it
wants, even in the long run.
A. True
B. False
127. It is harder to explain the behavior of firms in oligopoly than in other market structures because in
oligopoly
A. the firms act independently of each other
B. firms base their decisions on what their rivals do
C. only differentiated products are produced
D. only homogeneous products are produced
E. the demand curve can slope upward
128. Which of the following is not considered a barrier to entry?

A. economies of scale
B. patents
C. control of a scarce resource
D. licensing
E. perfect price discrimination
129. For firms in an oligopoly to be interdependent,
A. goods must be undifferentiated
B. goods must be differentiated
C. firms must be small
D. barriers to entry must be minimal
E. goods can be either undifferentiated or differentiated
130. An oligopoly is characterized by

A. few firms, which have control over market price
B. many firms and some barriers to entry
C. a large number of firms and no barriers to entry
D. a single firm and no barriers to entry
E. a single firm and significant barriers to entry
131. In which market structure(s) might firms produce an undifferentiated product?

A. perfect competition only
B. perfect competition and oligopoly
C. monopolistic competition only
D. perfect competition and monopolistic competition
E. monopoly only
132. If Ford raises the price of its automobiles, the demand curve for GM automobiles
A. shifts to the left
B. is unaffected
C. becomes more elastic
D. shifts to the right
E. becomes vertical
133. In an oligopoly, the demand curve facing an individual firm depends upon
A. the behavior of competing firms
B. the shape of the firm's average total cost curve
C. the shape of the firm's marginal cost curve
D. the firm's supply curve
E. the shape of the firm's average variable cost curve
134. Interdependent decision making on price, quality, or advertising is characteristic of
B. monopolies
C. oligopolies
D. monopolistic competition
E. both oligopolies and monopolistic competition
135. There are multiple models of pricing behavior in oligopolistic markets because
A. it is difficult to predict how rival firms will react to any pricing decision
B. the demand curve slopes upward for these firms
C. firms could earn profit in the long run unlike other markets
D. price has a direct impact on profit for a firm in oligopoly
E. the products are not identical in terms of quality, image, location
136. In oligopoly, minimum efficient scale is large relative to the market.

A. True
B. False
137. Economies of scale yield

A. declining average cost as output increases
B. declining marginal cost as output increases
C. declining total cost as output increases
D. diminishing average returns as output increases
E. increasing marginal revenue as output increases
138. Exhibit 10-13
All of the following statements regarding Exhibit 10-13 are true except one. Which is the exception?
A. The firm represented in the exhibit will likely be a perfect competitor.
B. There are economies of scale in this industry.
C. The minimum efficient quantity is 1,000 units.
D. At 500 units there is excess capacity.
E. A firm too small to produce at least 1,000 units will have difficulty surviving in this industry.
139. Exhibit 10-13
Consider Exhibit 10-13. If two firms each produced 500 units, the total cost of supplying 1,000 units would be
A. $6
B. $4,000
C. $4
D. $3,000
E. $6,000
140. Exhibit 10-14
Which of the curves shown in Exhibit 10-14 best represents the long-run average cost curve for an
oligopolist?
A. Curve a
B. Curve b
C. Curve c
D. Curve d
E. Curve e
141. The automobile industry is

A. in monopolistic competition because brand names are important
B. in monopolistic competition because it has economies of scale
C. in monopolistic competition for legal reasons
D. an oligopoly because each firm must produce a large amount of output before it can achieve low average
costs
E. an oligopoly for legal reasons
142. If a firm must produce a significant share of market output before low average costs can be achieved, the
structure of this industry will tend to be
B. perfect competition
C. oligopoly
D. either monopolistic competition or oligopoly
E. either perfect competition or monopolistic competition
143. Which of the following is not an example of an oligopolistic barrier to entry?

A. diseconomies of scale
B. legal restrictions
C. advertising and brand proliferation
D. high start-up costs
E. control over an essential resource
144. Oligopolists often sacrifice economies of scale as they expand product variety.
A. True
B. False
145. A brand name may contribute to oligopolists' economic profit by

A. shifting the demand curve leftward
B. shifting the supply curve leftward
C. overcoming economies of scale
D. acting as a barrier to entry
E. reducing advertising costs
146. The various models of oligopoly explain observed behavior in different industries, but none is satisfactory
as a general theory of oligopoly.
A. True
B. False
147. Which of the following is an example of an actual cartel?

A. the three largest cereal producers in the United States
B. General Motors, Ford, and Chrysler
C. the Organization of Petroleum Exporting Countries (OPEC)
D. the three major U.S. cigarette manufacturers
E. U.S. television networks -- ABC, NBC, CBS, and Fox
148. Collusion is most likely to occur in those oligopolies in which firms have vastly different cost structures.
A. True
B. False
149. Cartels are inherently unstable.

A. True
B. False
150. Collusion and cartels are frequently legal in Europe.

A. True
B. False
151. An oligopolist that cheats on a collusive agreement by reducing price will quickly be forced out of the
industry by its competitors.
A. True
B. False
152. The incentives for oligopolists to cheat on collusive agreements are strongest during periods of increasing
industry sales.
A. True
B. False
153. If a cartel can earn a profit, it will increase production as long as

A. MR > MC
B. MR > ATC
C. MC > MR
D. MR < AR
E. MR > AVC
154. Two heavy equipment manufacturers might collude in an effort to do all of the following except one.
Which is the exception?
A. determine a more advantageous price and quantity
B. prevent new entry into the market
C. take advantage of the legal benefits that U.S. cartels receive
D. increase their combined profits
E. predict the behavior of other competitors in the heavy equipment market with greater certainty
155. A cartel's marginal cost curve is the

A. highest of all the individual firms' marginal cost curves
B. lowest of all the individual firms' marginal cost curves
C. horizontal sum of all the individual firms' marginal cost curves
D. average of all the individual firms' marginal cost curves
E. product of all the individual firms' marginal cost curves
156. A cartel's profit-maximizing quantity occurs where the cartel's

B. marginal cost equals demand
C. price is highest
D. cost is lowest
E. demand curve has a kink
157. A cartel's profit-maximizing price is
A. on the demand curve at the quantity where marginal cost equals marginal revenue
B. on the demand curve where it intersects its marginal cost curve
C. the highest price possible
D. determined by using the cost-plus pricing model
E. where the kink in the demand curve occurs
158. Collusion occurs when

A. a firm chooses a level of output to maximize its own profit
B. firms get together to maximize joint profits
C. firms refuse to follow their price leaders
D. firms petition their U.S. senators for favors
E. two firms' price and output decisions come into conflict
159. A cartel is
A. a group of oligopolistic firms that engage in formal collusion
B. a group of monopolistically competitive firms which charge the same price
C. usually legal in the United States
D. an agreement among rival firms to set prices independently
E. illegal throughout the world
160. Three firms that are successful in colluding to raise their prices must
A. lose profits
B. announce any price changes to the government
C. restrict output
D. increase advertising to earn a profit
E. expand production
161. In a cartel,
A. all firms produce the same amount of output and earn the same profit
B. all firms produce the same amount of output but earn different amounts of profit because their costs differ
C. firms produce different amounts of output but earn the same profit
D. firms with higher average cost produce more so that all firms earn the same profit
E. firms with lower average cost often earn higher profits
162. Under which of the following market conditions is it most difficult to maintain a cartel agreement?
A. There are many firms in the industry and these firms have similar costs.
B. There are many firms in the industry and these firms have different costs.
C. There are few firms in the industry and these firms have similar costs.
D. There are few firms in the industry and these firms have different costs.
E. There are many firms in the industry and these firms produce homogeneous products.
163. If all six suppliers of cement to Metropolis all agree to establishes a price of $45 per ton, this would be
A. a legal contract
B. price discrimination
C. cost-plus pricing
D. a cartel
E. beneficial to consumers
164. The chances of successful collusion are greatest when

A. firms are producing a differentiated product
B. there are many firms in the industry
C. there are tiny firms and huge firms together in the same industry
D. demand curves and cost curves are similar among the firms in the industry
E. demand is falling
165. If zinc suppliers are successful in forming an international zinc cartel, they will experience
A. lower output and higher prices, which discourage the entry of new firms into the industry
B. lower output, higher prices, and the need to organize an effort to prevent the entry of new firms into the
industry
C. higher output and higher prices, which discourage the entry of new firms into the industry
D. higher output, higher prices, and the need to organize an effort to prevent the entry of new firms into the
industry
E. none of the above
166. Which of the following helps to make a cartel successful?

A. stable demand and costs
B. differentiated output
C. highly variable cost conditions
D. highly variable demand conditions
E. rapidly changing technology
167. An oligopoly model that describes formal collusion is the
A. kinked demand curve model
B. cartel model
C. cost-plus pricing model
D. game theory model
E. horizontal merger model
168. A formal agreement among the firms in an industry to coordinate their production and pricing decisions in
order to earn monopoly profits is known as
A. price discrimination
B. the kinked demand curve
D. a cartel
E. joint competition
169. Game theory provides us with a general approach to understanding the behavior of firms when their
choices are interdependent
A. True
B. False
170. The prisoner's dilemma is applicable only when considering the illegal behavior that firms in a
non-competitive market may pursue
A. True
B. False
171. A player's strategy is a game plan when decisions are interdependent

A. True
B. False
172. Because firms in an oligopoly are interdependent, they attempt to maximize revenues rather than profits
A. True
B. False
173. Game theory is most useful in understanding the decision making behavior of firms in which type of
industry?
B. monopoly
D. natural monopoly
E. oligopoly
174. Game theory focuses on

A. strategic behavior among interdependent firms
B. professional athletic events
C. competition between the players in board games
D. competition between those in the political arena and those in the market place
E. the interaction between firms in a competitive industry and those in a non-competitive industry
175. Game theory is used in a number of areas in economics. What is the primary reason that it is used in
analyzing oligopoly type market structures?
A. The firms are producing a similar product
B. The firms are producing differentiated products
C. The demand curve facing the oligopolistic firms is perfectly inelastic
D. The mutual interdependence of firms in industries with a small number of firms
E. The demand curve the oligopolistic firm faces is downward sloping
176. Game theory is the study of which of the following?

A. The prisoner's dilemma
B. The behavior of people engaged in recreational games
C. The mutual interdependence of firms in oligopolistic industries
D. The downward sloping demand curve faced by firms in an oligopoly
E. The interaction between marginal and average revenue
177. The solution of a game is dependent upon

A. predicted response of competitors
B. the existence of a perfectly inelastic demand curve
C. costs of production being constant
D. economies of scale in production
E. marginal revenue being equal to marginal cost
178. Which of the following is likely to occur when it is known that a two-person game is to be played only
once?
A. Collusion
B. The demand curve becomes perfectly inelastic for this time period
C. The prisoner's dilemma
D. The pursuit of profit maximization for the entire industry
E. An attempt to equate marginal revenue with marginal cost
179. A prisoner's dilemma is a situation in which

A. a change in marginal cost may not lead to a change in price
B. a firm's competitors follow a price increase but ignore a price decrease
C. oligopolists behave irrationally
D. oligopolists attempt to maximize sales rather than profits
E. an oligopolists demand curve may become perfectly inelastic
180. Which of the following is likely to occur when a two-person game can be played repeatedly?
A. Collusion and cooperation among the players
B. The prisoner's dilemma
C. The industry demand curve will become perfectly elastic
D. The industry demand curve will become perfectly inelastic
E. There is no solution possible because of the indeterminate price quantity combinations
181. A prisoner's dilemma can be described as a situation in which

A. a decision maker is uncertain about the potential punishment for something done in the past
B. an individual decision maker finds it in his best interest to pursue a course of action that can lead to a less
than desirable outcome for the group
C. producers act so as to avoid maximizing profits because of government retaliation
D. individual firms seeks to maximize their own profits with no regard for the group
E. the summation of individual demand curves creates an inelastic demand curve facing the industry
182. The principal advantage of the game theory approach is that it allows us to
A. take all possible information into consideration before developing a theory
B. better understand why the firm in a competitive industry avoids games
C. better understand how the government should regulate a natural monopoly
D. better understand decision making when one person’s choices affect another person’s choices
E. understand the relationship between the firm and the industry demand curves
183. The advantage of game theory is that it allows us to focus on the
A. individual firm's incentives to cooperate or not
B. relationship between the market and firm level demand curve
C. costs and benefits
D. government regulators and the firms in an industry
E. models where there are no barriers to entry
184. The term strategy in terms of game theory refers to

A. the relationship between price and marginal cost
B. the relationship between individual firm demand curves and the market demand curve
C. each firm's game plan in making decisions
D. the interrelationship between price and marginal revenue
E. the tendency for collusive firms to generate normal profits
185. The payoff matrix refers to

A. the difference between total revenue and total cost at different price levels
B. a listing of the rewards and penalties associated with pursuing various strategies
C. the difference between average and marginal cost for the non-competitive firm
D. the difference between average and marginal revenue in a non-competitive industry
E. the difference between average variable and average total cost to the firm
186. The solution in the prisoner's dilemma is called the

A. loss minimizing solution
B. profit maximizing equilibrium
C. dominant-strategy equilibrium
D. revenue maximizing equilibrium
E. marginal revenue solution
187. The dominant-strategy solution implies that each firm

A. ignores the reactions of competitors
B. colludes with competitors to maximize industry profits
C. ignores the decisions of the other firms
D. takes all potential bits of information into consideration before making a decision
E. selects the optimal solution to a game
188. The prisoner's dilemma provides an explanation for
A. the price wars that sometimes occur in oligopolies
B. the ability of firms in an oligopoly to extract the entire consumer surplus
C. the collusive behavior that sometimes occurs in an oligopoly
D. the failure of firms in non-competitive industries to maximize profits
E. an irrational behavior that occurs in competitive markets
189. The tit-for-tat strategy implies that the firms

A. in non-competitive industries match price increases but ignore price decreases
B. will follow the lead of the dominant firm in making pricing decisions
C. prices will change whenever fixed cost changes
D. cooperate on the first round, and then follow your competitors reactions on the second round
E. price will only change if demand changes
190. Which oligopoly model was developed to explain price wars in an industry?
A. natural oligopolies
B. cartels
C. price leadership by a dominant firm
D. game theory
E. cost-plus theory
191. In a game that can be repeated, the optimal solution is

A. dependent upon each firm's decision in the first round of decision making
B. independent of the decisions that competitive firms made on the first round
C. to maximize profits regardless of what competitors do
D. to minimize costs regardless of what competitors do
E. to select the solution that minimizes the potential losses from a decision
192. As a real estate agent, Krista Otavi prides herself on her good training, availability to clients, and hard
work to make a sale. Which one of the basic ways of product differentiation does Krista emphasize?
A. services
B. product image
C. location
D. commission rate
E. physical differences
193. A greater supply of video rental outlets along with the increased availability of substitutes like cable
channels made rental rates
A. decrease slightly
B. remain unchanged
C. crash
D. fluctuate wildly up and down
E. increase
194. Which of the following is not a threat to bricks-and-mortar video rental stores?
A. on-demand movies delivered by broadband cable
B. rental services that deliver DVDs by mail
C. digital movies and TV shows available on Wal-Mart’s Web site
D. None of the answers is a threat.
E. All of the answers are threats.
195. In regards to monopolistic competition, some economists argue that consumers are willing to pay a higher
price in order to enjoy a wider selection of goods and services.
A. True
B. False
196. If the leading canned soup company introduces dozens of new flavors in order to dominate shelf space, the
company is most likely trying to create a barrier to entry by
A. increasing the total investment needed to reach the minimum efficient size
B. spending more on advertising than potential competitors can afford
C. exploiting economies of scale
D. crowding out the competition
E. establishing an undifferentiated oligopoly
197. To maximize cartel profit, the members must allocate output so that the marginal cost for the final unit
produced by each firm is
A. identical
B. unequal
C. negative
D. equal to the firm’s average total cost
E. maximized
198. Consensus becomes easier to achieve as the number of firms in a cartel grows
A. True
B. False
199. In the prisoner’s dilemma game, the sentence that each player receives depends on
A. neither strategy chosen
B. only the strategy the player chooses
C. only the strategy the other player chooses
D. the strategy the player chooses and on the strategy the other player chooses
E. None of the answers is correct.
200. In a coordination game, a Nash equilibrium occurs when

A. each player ignores the strategy of the other player
B. each player chooses no strategy, but maintains the status quo
C. each player chooses the same strategy
D. one player can improve the outcome by changing strategy
201. If oligopolists engaged in some sort of collusion, industry output would be __________ and the price
would be __________ than under perfect competition.
A. smaller, lower
B. smaller, higher
C. smaller, no different
D. greater, lower
E. greater, higher
202. Exhibit 10-15
Dan’l Boone Tobacco

Advertise Don’t advertise
Eagle Tobacco Advertise 1150, 1150 2020, 630
Don’t advertise 630, 2020 1500, 1500
Exhibit 10-15 depicts the payoff matrix facing Eagle Tobacco and Dan’l Boone Tobacco with respect to their decisions to advertise or not. What
strategies will maximize their joint profit?
A. Eagle advertise and Dan’l Boone doesn’t
B. both advertise
C. Eagle doesn’t advertise and Dan’l Boone does
D. neither advertises
E. can’t tell
203. Exhibit 10-15

Don’t advertise 630, 2020 1500, 1500
strategies will most likely result?
B. both advertise
E. can’t tell
204. Exhibit 10-15

Don’t advertise 630, 2020 1500, 1500
Exhibit 10-15 depicts the payoff matrix facing Eagle Tobacco and Dan’l Boone Tobacco with respect to their decisions to advertise or not. Eagle
Tobacco has a dominant strategy.
A. True
B. False
205. Exhibit 10-15

Don’t advertise 630, 2020 1500, 1500
Tobacco’s dominant strategy is not to advertise.
A. True
B. False
206. Exhibit 10-15

Don’t advertise 630, 2020 1500, 1500
Tobacco and Dan’l Boone Tobacco have the same dominant strategy.
A. True
B. False
207. Exhibit 10-16

A. 1 unit
B. 2 units
C. 3 units
D. 4 units
E. 5 units
208. Exhibit 10-16
In Exhibit 10-16, the monopolistic competitor's profit-maximizing price is

A. $10
B. $15
C. $20
D. $25
E. $30
209. Exhibit 10-16
In Exhibit 10-16, the monopolistic competitor will

A. lose $10
B. lose $15
C. break even
D. earn $25 profit
E. earn $30 profit
210. Exhibit 10-16
Consider the situation depicted for the monopolistically competitive firm in Exhibit 10-16. What would you
expect to happen in this market in the long-run?
A. exit of resources will occur and this firm’s demand curve will shift out leading to a higher price
B. exit of resources will occur and this firm’s demand curve will shift out leading to a lower price
C. nothing will happen the industry is in long-run equilibrium
D. entry of new resources will occur and this firm’s demand curve will shift in leading to a lower price
E. entry of new resources will occur and this firm’s demand curve will shift in leading to a higher price
211. Exhibit 10-17

A. 1 unit
B. 2 units
C. 3 units
D. 4 units
E. 5 units
212. Exhibit 10-17

A. $10
B. $15
C. $20
D. $25
E. $30
213. Exhibit 10-17

A. lose $10
B. lose $15
C. break even
D. earn $25 profit
E. earn $30 profit
214. Exhibit 10-17
215. Exhibit 10-18

A. 1 unit
B. 2 units
C. 3 units
D. 4 units
E. 5 units
216. Exhibit 10-18

A. $10
B. $15
C. $20
D. $25
E. $30
217. Exhibit 10-18

A. lose $10
B. lose $15
C. break even
D. earn $25 profit
E. earn $30 profit
218. Exhibit 10-18
Chapter 10--Monopolistic Competition and Oligopoly Key
1. Firms may easily enter a monopolistically competitive market.

A. True
B. False
2. Product differentiation helps determine the slope of the demand curve facing a firm in monopolistic
competition.
A. True
B. False
3. Monopolistic competitors are protected by barriers to entry.

A. True
B. False
4. The forces that determine the cost of production are largely independent of the forces that shape demand.
A. True
B. False
5. The term monopolistic competition

A. is an alternate expression for monopoly
B. is used to describe perfect competition with strong entry barriers
C. denotes an industry with one seller of many differentiated products
D. denotes an industry with many sellers of homogeneous products
E. denotes an industry with many sellers of differentiated products
6. Monopolistically competitive industries consist of

A. one firm selling several products
B. one firm selling one product
C. many firms, all selling identical products
D. many firms, each selling a slightly different product
E. many firms, each selling a completely different product
7. Collusion among firms to raise price is rare in monopolistically competitive markets because
A. there are too many firms
B. there are too few firms
C. there is only one firm
D. products are homogeneous
E. price leadership is used instead
8. Monopolistically competitive firms ignore the effect of their decisions upon other firms in the industry
because
A. each firm is large relative to the market
B. each firm is small relative to the market
C. there are few sellers in the market
D. there is only one seller in the market
E. all firms follow the same known pricing rules
9. Monopolistic competition is different from perfect competition because monopolistic competitors produce
A. a homogeneous product
B. a homogeneous but unique product
C. identical products
D. differentiated products
E. products similar to those produced by a monopoly
10. If Family Travel Agency, a monopolistic competitor, offers services that are differentiated from the services
of other producers in the industry, it
A. faces a perfectly elastic demand curve
B. is a price taker
C. has some power to control the price it charges
D. faces a perfectly inelastic demand curve
E. produces a product with no close substitutes
11. A monopolistically competitive firm can raise price somewhat due to

B. barriers to entry
C. product similarity
D. its homogeneous product
E. high tariffs
12. The demand curve facing Imelda's Shoe Boutique, a monopolistically competitive firm,
A. is horizontal because Imelda's is small relative to the market as a whole
B. is horizontal because Imelda's is large relative to the market as a whole
C. slopes downward because Imelda's is small relative to the market as a whole
D. slopes downward because Imelda's sells a differentiated product
E. slopes downward because Imelda's firm is the entire industry
13. Monopolistically competitive firms use product differentiation to increase the price elasticity of demand.
A. True
B. False
14. Monopolistic competition is best described as

A. many firms with some control over price, and some product differentiation
B. many firms with no control over price, producing identical products
C. a few firms with some control over price, producing highly differentiated products
D. a few firms with no control over price, producing similar products
E. a single firm producing all of the output for the industry, with strong control over price
15. If a monopolistically competitive firm raises its price, it

A. loses all of its customers (sales drop to zero)
B. loses some, but not all, of its customers
C. loses very few customers
D. loses no customers at all
E. gains customers (sales increase)
A. soybeans
B. autos
C. fast food
D. oil
E. local phone service
A. restaurant meals
B. computer chips
C. firewood
D. motorcycles
E. soft drink
18. A firm could differentiate its product by all of the following means except one. Which is the exception?
A. making the product available at a number of different locations
B. increasing the number of services that accompany the product
C. making the product physically different from other products
D. using packaging or advertising to create a special subjective image of the product in the consumer's mind
E. emphasizing that the product provides the same benefits to consumers as the others on the market, even when
it is really physically different
19. All of the following are examples of product differentiation except one. Which is the exception?
A. developing a new video game or a computer program called "How to Teach Your New Dog Old Tricks"
B. manufacturing a car that minimizes outside noise relative to other cars
C. lowering the price of a good in a special sale
D. providing movies and special meals on airline flights
E. making sodium-free, caffeine-free colas
20. Economic analysis of product differentiation leads to all of the following conclusions except one. Which is
the exception?
A. Product differentiation makes it harder for firms to collude.
B. Product differentiation makes price leadership harder to maintain.
C. Product differentiation sometimes contributes to wasteful allocation of resources.
D. Product differentiation must be based on real, substantive differences among products.
E. There is a tradeoff between using resources efficiently and providing consumers with wide choices.
21. When firms differentiate their products, they

A. provide information to consumers with no additional use of productive resources
B. always increase their profits
C. always create real differences among products
D. frequently create artificial or superficial differences among products, thus raising production costs
E. usually strain the physical capacity of their plants
22. When firms in an industry produce differentiated products,

A. long-run economic profit will always be zero
B. short-run economic profit will always be positive
C. the demand curves facing firms will always be perfectly elastic
D. the demand curves facing firms will always be downward-sloping
E. new firms will always have an incentive to enter the industry in the long run
23. Monopolistic competitors are
A. price takers
B. price searchers
C. price maximizers
D. price ignorers
E. collusive price fixers
24. In economics, products are considered "differentiated" only if

A. they are physically or chemically different
B. sellers decide that they are different
C. buyers think that they are different
D. the government determines that they are different
E. they are produced by different firms
25. Compared to regular grocery stores, convenience stores have

A. higher prices and a more limited selection of goods
B. higher prices and a greater selection of goods
C. lower prices and a more limited selection of goods
D. lower prices and a greater selection of goods
E. equal prices and an equal selection of goods
26. A monopolistically competitive firm produces where demand is inelastic.

A. True
B. False
27. Firms in monopoly or monopolistically competitive market structures do not have traditional supply curves
as firms in perfect competition do.
A. True
B. False
28. A monopolistic competitor's demand curve is

A. perfectly elastic
B. less elastic than a monopolist's or oligopolist's but more elastic than a perfect competitor's
C. as elastic as an oligopolist's
D. more elastic than a monopolist's or oligopolist's but less elastic than a perfect competitor's
E. perfectly inelastic
29. The demand curve facing a firm will be more elastic,
A. the fewer the number of competing firms
B. the more differentiated the product
C. the more substitutes there are for its product
D. the greater the firm's ability to control price
E. the larger the profit the firm can make
30. What do monopolistic competition, pure monopoly, and perfect competition have in common?
A. free entry
B. long-run economic profits
C. differentiated product
D. price taking
E. the rule of profit maximization
31. Exhibit 10-1

A. 75 units
B. 100 units
C. 125 units
D. 150 units
E. 137.5 units
32. Exhibit 10-1
In Exhibit 10-1, the price that the monopolistic competitor will charge at the profit-maximizing level of output
is
A. $2
B. $4
C. $8
D. $9
E. $10
33. Exhibit 10-1
The monopolistic competitor in Exhibit 10-1 is in

B. long-run equilibrium because marginal cost equals marginal revenue
C. long-run equilibrium because price exceeds marginal cost
D. short-run equilibrium because it is earning a positive economic profit
E. short-run equilibrium because price equals average total cost
34. Exhibit 10-1
In Exhibit 10-1, the monopolistic competitor's total economic profit at the profit-maximizing level of output is
A. $0
B. $4
C. $600
D. $6
E. $750
35. Exhibit 10-2
Consider Exhibit 10-2. If the firm is charging price P* for output q*, then in order to minimize loss in the short
run, the firm should
A. shut down because price is greater than average variable cost
B. shut down because price is greater than marginal cost
C. shut down because price is less than average variable cost
D. continue to produce because price is greater than average variable cost
E. continue to produce because price is greater than marginal cost
36. Exhibit 10-3
Q P TC
1 $27 $10
2 24 17
3 21 25
4 18 40
5 15 60
The profit-maximizing output for the firm in Exhibit 10-3 is

A. 0 units
B. 1 unit
C. 3 units
D. 5 units
E. impossible to determine because MC and MR are not known
37. Exhibit 10-3
Q P TC
1 $27 $10
2 24 17
3 21 25
4 18 40
5 15 60
The profit-maximizing price for the firm in Exhibit 10-3 is

A. $0
B. $27
C. $21
D. $15
E. impossible to determine because MR and MC are not known
38. Exhibit 10-3
Q P TC
1 $27 $10
2 24 17
3 21 25
4 18 40
5 15 60
At the profit-maximizing output, the firm in Exhibit 10-3 is earning
A. an economic profit of $38
B. an economic profit, but the amount cannot be determined
C. zero economic profit
D. an economic profit of $32
E. an economic loss
39. Exhibit 10-3
Q P TC
1 $27 $10
2 24 17
3 21 25
4 18 40
5 15 60
At the profit-maximizing output, the monopolistically competitive firm in Exhibit 10-3 is in

B. long-run equilibrium because price is less than average total cost
C. short-run equilibrium because price is greater than average total cost
D. short-run equilibrium because there is an economic loss
E. short-run equilibrium because there is zero economic profit
40. In the short run, a monopolistically competitive firm is

A. guaranteed to earn zero economic profit
B. guaranteed to earn economic profit
C. guaranteed to earn an economic loss
D. guaranteed to earn either zero or positive economic profit
E. not guaranteed any level of economic profit
41. Exhibit 10-4
In the short run, which of the following should the firm in Exhibit 10-4 do?
A. Produce 10 units at a price of $36 per unit.
B. Produce 10 units at a price of $24 per unit.
C. Produce 10 units at a price of $40 per unit.
D. Produce 15 units at a price of $32 per unit.
E. We cannot determine what the firm should do without knowing its average variable cost.
42. Exhibit 10-4
For the situation depicted in Exhibit 10-4, what will happen in the long-run?
A. New technology will lower average total costs and increase profits for the firm.
B. Firms will exit this market causing economic profit to increase.
C. Product differentiation will lead to an increase in profitablility.
D. New firms will enter the market driving economic profit to zero.
E. Nothing, the situation will remain the same.
43. Exhibit 10-5
In the short run, the firm in Exhibit 10-5 should

A. shut down
B. produce 8 units at a price of $11 per unit
C. produce 8 units at a price of $10 per unit
D. produce 8 units at a price of $9 per unit
E. produce 10 units at a price of $9 per unit
44. Exhibit 10-5

A. to shut down
B. entry into the industry which will reduce the demand for their product and lower their profit
C. exit from the industry which will increase demand for their product and increase their profitability
D. competitors to differentiate their products which will reduce the demand for their product and lower their
profit
E. no change in the industry
45. Exhibit 10-6
P Q TC
$7 0 $10
6 4 20
5 8 32
4 12 48
3 16 66
In Exhibit 10-6, what is the profit-maximizing price for this monopolistic competitor in the short run?
A. $7
B. $6
C. $5
D. $4
E. $3
46. Exhibit 10-6
P Q TC
$7 0 $10
6 4 20
5 8 32
4 12 48
3 16 66
In Exhibit 10-6, what is the maximum profit this monopolistic competitor can earn in the short run?
A. $40
B. $4
C. $48
D. $8
E. $0
47. If a monopolistically competitive firm can earn a profit, it will adjust production until
A. MR > AVC
B. MR = ATC
C. MC > MR
D. MR = AR
E. MR = MC
48. Exhibit 10-7
Assume that the firm in Exhibit 10-7 is maximizing profit. Its total revenue is
A. $5,320
B. $5,700
C. $4,750
D. $8,120
E. $8,100
49. Exhibit 10-7
At the profit-maximizing output level, total cost for the firm in Exhibit 10-7 is approximately
A. $5,700
B. $5,320
C. $4,750
D. $4,940
E. $8,100
50. Exhibit 10-7
At the profit-maximizing output level, the firm in Exhibit 10-7 is

A. earning economic profit of $760
B. earning economic profit of $950
C. earning zero economic profit
D. earning economic profit of $990
E. suffering a loss of $1,000
51. Exhibit 10-7

A. to earn an economic profit of $760
B. earn an economic profit of $950
C. earn zero economic profit
D. earn an economic profit of $990
E. suffer a loss of $1,000
52. Assume a monopolistically competitive firm is earning an economic profit. The marginal revenue from
selling an additional unit is $30 and the marginal cost of producing that additional unit is $23. The firm should
A. change neither its price nor its output level
B. reduce its price and increase its output level
C. increase its price and reduce its output level
D. reduce both its price and its output level
E. increase both its price and its output level
53. A rise in demand for restaurant meals is likely to cause which of the following in the short run?
54. A rise in demand for restaurant meals is likely to cause which of the following in the long run?
55. In both monopolistic competition and non-price-discriminating monopoly,

A. the marginal revenue curve lies above the average revenue curve
B. the marginal revenue curve lies above the demand curve
C. the marginal revenue curve lies below the demand curve
D. marginal revenue is equal to average revenue
E. marginal revenue is equal to price
56. A monopolistically competitive firm is producing an output level at which marginal revenue is greater than
57. A monopolistically competitive firm is producing an output level at which marginal revenue is less than
58. Exhibit 10-8
Assume the firm in Exhibit 10-8 is currently charging price P and producing output level Q. In order to
maximize profit (or minimize loss), the firm should
A. charge more and sell less
B. charge less and sell more
C. charge less and sell less
D. charge more and sell more
E. continue to charge P and sell Q
59. Exhibit 10-9
In order to maximize profit or minimize loss, the firm in Exhibit 10-9 should
A. produce 100 units of output and charge $15
B. produce 100 units of output and charge $8
C. produce more than 100 units of output and charge less than $8
D. produce slightly less than 100 units of output and charge more than $8
E. shut down
60. Exhibit 10-9
If the firm in Exhibit 10-9 produces 100 units of output, it will have
A. both d and e
B. variable cost of slightly less than $800
C. fixed cost of slightly more than $700
D. total cost of $1,500
E. total revenue of $800
61. Which of the following describes the relationship among market price (P), average revenue (AR), and
marginal revenue (MR) for a firm in monopolistic competition.
A. P = AR = MR
B. P > AR = MR
C. P = AR > MR
D. P > AR > MR
E. P = AR < MR
62. A profit-maximizing firm in monopolistic competition should shut down in the short run
A. if marginal revenue is less than price
B. if price is always less than average total cost
C. if price is always less than average fixed cost
D. if price is always less than average variable cost
E. under no circumstances
63. In the long run in monopolistic competition, firms earn zero economic profit.
A. True
B. False
64. If a monopolistically competitive firm is in long-run equilibrium and average cost equals $150, then the
market price must be $150.
A. True
B. False

A. perfect competition because the firms face downward-sloping demand curves and can earn only a normal
profit in the long run
B. pure monopoly because the firms face downward-sloping demand curves and can earn only a normal profit
in the long run
C. perfect competition because the firms face downward-sloping demand curves and similar to pure monopoly
D. pure monopoly because the firms face downward-sloping demand curves and similar to perfect competition
E. pure monopoly because the firms face downward-sloping demand curves and can earn an economic profit in
the long run
66. In the long run, a monopolistically competitive firm will

A. produce a greater variety of goods than do firms in other market structures
B. produce a greater output level than would a perfectly competitive firm
C. produce where price equals average total cost
D. earn an economic profit
E. suffer a loss because of its advertising budget
A. This firm maximizes profit at an output level of 25 units.
B. This firm maximizes profit at an output level of 35 units.
C. This firm maximizes profit at an output level less than 25 units.
D. This firm maximizes profit at an output level greater than 35 units.
E. There is not enough information to find the firm's profit-maximizing level of output.
A. This firm charges $50 for the good.
B. This firm charges more than $50 for the good.
C. This firm charges less than $50 for the good.
D. The firm has excess capacity at all output levels greater than 35 units.
E. Average cost is $50 at the profit-maximizing output level.
69. Each member of a cartel
A. faces a temptation to cheat on the agreement because lowering its price slightly below the established price
will usually increase the firm's sales and profit
B. faces a temptation to cheat on the agreement because raising its price slightly above the established price will
usually increase the firm's sales and profit
C. has no temptation to cheat on the agreement because lowering its price slightly below the established price
will usually have no impact on the firm's sales and profit
D. has no temptation to cheat on the agreement because raising its price slightly above the established price will
usually decrease the firm's sales and profit
E. has no temptation to cheat on the agreement because lowering its price slightly below the established price
will usually lower the firm's sales and profit
70. A cartel is
A. explicit collusion
B. a conglomerate merger
C. a horizontal merger
D. legal in the United States
E. implicit collusion
71. Collusion is easier to achieve and maintain in oligopoly when

A. there are many firms in the industry
B. the firms' products are homogeneous
C. the firms' cost structures are very different
D. there are very weak barriers to entry
E. the industry is located in the United States
72. Suppose a firm that sells a variety of athletic shoes is trying to start a pattern of price leadership in its
market. Which of the following is not a problem this firm might have to face?
A. Rivals recognize the intent of its actions.
B. Other firms may not necessarily follow the leader.
C. Other firms may not follow the leader but offer better service instead.
D. Differentiation among products allows for more variation in price.
E. The price leader must keep costs lower than other firms'.
73. Tacit collusion occurs in industries that

A. are monopolistically competitive
B. contain price leaders
C. experience rapid technological change
D. are regulated
E. produce very differentiated products
74. Which of the following does not hinder successful price leadership?
A. all of the following are correct
B. potentially large economic profits due to this activity
C. cheating by offering secret discounts
D. product differentiation
E. illegality of coordinated pricing
75. Historically, the U.S. steel industry has been a good example of
B. a cartel
C. a pure monopoly
76. During certain periods in the past few decades, if one of the three major breakfast cereal producers in the
United States announced a price increase, the other two announced a similar price increase. This is a good
example of
B. a cartel
C. a pure monopoly
77. Cost-plus pricing

A. is used only in oligopolistic market structures
B. simplifies pricing policy by adding a markup to average total cost
C. in actual practice leads to markups which are greater for more elastic demand curves
D. is likely to increase profits more than the use of marginal analysis
E. requires the firm to project the amount which will be sold and then "mark-up" the price based on average
variable cost
78. Price wars occur more often in monopolistic competition than in other market structures.
A. True
B. False
79. A payoff matrix is a table listing the expected economic profit resulting from different possible strategies.
A. True
B. False
80. In the game theory model of oligopoly,
A. firms will be successful in colluding to raise prices
B. one firm raises its prices, and other firms follow suit
C. firms will match other firms' price cuts but not their price increases
D. firms may attempt to avoid the worst outcome but may achieve a less-than-optimal outcome
E. firms never avoid the worst outcome
81. In game theory, if two rivals in an oligopoly can avoid a large loss by cutting price from $40 to $35,
A. neither will cut its price
B. one will charge $40 and the other will charge $35
C. their actions will depend on their respective strategies
D. each will cut price but not all the way to $35
E. they will collude to do what's best for both of them
82. One common assumption in game theory is that firms

A. try to avoid the worst outcome
B. try to achieve the best outcome
C. minimize losses
D. always cooperate
E. always compete
83. Game theory is a separate model of oligopoly therefore it is of limited value when trying to generally
understand firm level behavior
A. True
B. False
84. Which of the following characteristics does perfect competition share with monopolistic competition?
B. zero long-run economic profit
C. homogeneous product
D. some barriers to entry
E. economies of scale in production
85. Monopolistically competitive firms

A. are guaranteed to earn short-run economic profit
B. may earn short-run economic profits, although long-run economic profit is typically zero
C. may earn economic profit both in the short run and in the long run
D. earn zero economic profit both in the short run and in the long run
E. can only earn an economic profit in the inelastic portion of their demand curves
86. In the long run, economic profit for a monopolistically competitive firm
A. is zero, due to the lack of barriers to entry
B. is zero, due to product differentiation
C. may be positive, due to strong barriers to entry
D. may be positive, due to product differentiation
E. may be positive, due to advertising and product promotion
87. Exhibit 10-12
The profit-maximizing (or loss-minimizing) output for the firm in Exhibit 10-12 is
A. zero (i.e., a shut down case)
B. 700 units
C. 1,000 units
D. more than 700 and less than 1,000 units
E. more than 1,000 units
88. Exhibit 10-12
The profit-maximizing (or loss-minimizing) price the firm would charge in Exhibit 10-12 is
A. nonexistent, since the firm should shut down
B. $3.25
C. $3.00
D. $2.50
E. between $2.50 and $3.00
89. Exhibit 10-12
At the profit-maximizing (or loss-minimizing) output and price, the firm in Exhibit 10-12 would
A. be earning zero economic profit (i.e., breaking even)
B. be earning an economic profit
C. be earning an economic loss
D. be better off to shut down since total revenue does not cover fixed costs
E. have to expand to stay in business in the long run
90. In the long run, a monopolistically competitive firm will find

A. its demand curve shifting until price equals average total cost
B. its cost curve shifting until price equals average total cost
C. its demand curve shifting until marginal revenue equals marginal cost
D. its cost curve shifting until marginal revenue equals marginal cost
E. no changes in its demand or cost curves if it is earning an economic profit
91. Suppose that firms in a monopolistically competitive industry are earning short-run economic profits. In the
long run, the demand curve facing each individual firm can be expected to
A. shift to the left and become flatter
B. shift to the left and become steeper
C. shift to the right and become flatter
D. shift to the right and become steeper
E. remain constant
92. The first video rental outlets
A. earned short-run economic profits because they faced little competition
B. suffered short-run economic losses until videos caught on and demand for them increased
C. were able to earn long-run economic profits because of barriers to entry
D. earned only normal profits because the industry is perfectly competitive
E. provided a good example of an oligopoly
93. As a result of the economic profit earned by the first video rental outlets,
A. existing firms were able to successfully lobby the government for patent protection
B. competitors were attracted to the industry, and their entry reduced economic profit
C. demand dried up
D. Blockbuster saw an opportunity to take over the industry
E. competitors were discouraged from entering the industry
94. The historical trend in the video rental industry

A. has been one of increasing economic profits
B. has been cyclical in the sense that profits decrease, then increase
C. reflects the trend toward market concentration in all oligopolies
D. has been one of increasing market concentration
E. suggests the need for government regulation to eliminate price discrimination
95. Fixed costs in the video rental industry are

A. high because of the extensive advertising in that industry
B. high because of economies of scale
C. low because of economies of scale
D. higher in the long run than in the short run
E. low
96. In the long run in monopolistic competition, all economies of scale are exhausted.
A. True
B. False
97. Excess capacity is defined as the difference between a firm's maximum possible output and its actual
output.
A. True
B. False
98. Which of the following is inconsistent with the model of perfect competition?
A. ease of entry into an industry
B. ease of exit from an industry
C. many buyers and sellers in the industry
D. advertising of product differences in the industry
E. a horizontal demand curve facing each firm in the industry
99. In which of the following market structures is a firm most likely to advertise extensively and fear entry of
new firms?
B. pure monopoly
D. oligopoly
E. both perfect competition and monopolistic competition
100. Which of the following is true of the relationship between price and marginal cost under monopolistic
competition?
A. P = MC at all levels of output
B. P = MC only at the profit-maximizing quantity
C. P > MC at the profit-maximizing quantity
D. P < MC at the profit-maximizing quantity
E. P < MC at the quantities below the profit-maximizing quantity
101. In long-run equilibrium, a monopolistically competitive firm will produce

A. at the minimum average cost
B. at full capacity
C. along the downward-sloping portion of its ATC curve
D. along the upward-sloping portion of its ATC curve
E. at the minimum of marginal cost
102. At the profit-maximizing output, price is greater than marginal cost

A. for a monopolistically competitive firm only in the short run
B. for a monopolistically competitive firm only in the long run
C. for a monopolistically competitive firm in both the short run and the long run
D. for a perfectly competitive firm only in the short run
E. for a perfectly competitive firm only in the long run
103. In the long run, the output of a monopolistically competitive firm
A. exceeds that of an otherwise similar perfectly competitive firm
B. is less than that of an otherwise similar perfectly competitive firm
C. is at the point at which LRAC is minimized
D. equals that of an otherwise similar perfectly competitive firm
E. is less than that of an otherwise similar monopolist
104. A monopolistically competitive firm

A. earns no long-run economic profit and is therefore allocatively efficient
B. earns no long-run economic profit and therefore produces at the minimum point of its ATC curve
C. earns no long-run economic profit and is allocatively efficient even though it is not producing at the
minimum point of its ATC curve
D. earns no long-run economic profit, is allocatively inefficient, and does not produce at the minimum point of
its ATC curve
E. has a chance of making a long-run economic profit and is therefore allocatively inefficient
105. Although both perfectly competitive and monopolistically competitive firms earn normal profits in the
long run, monopolistically competitive firms will not
A. operate where price equals marginal cost
B. charge a higher price than firms in perfect competition
C. produce a smaller quantity than firms in perfect competition
D. produce where price equals average total cost
E. exit when demand falls below long-run average costs
106. Which of the following is true of firms in both monopolistic competition and perfect competition?
A. Firms face a horizontal demand curve.
B. Price exceeds marginal revenue.
C. Firms can enter and leave the industry with relative ease.
D. Price exceeds marginal cost.
E. Products are differentiated.
107. One difference between perfect competition and monopolistic competition is that
A. in perfect competition, firms cannot earn a long-run economic profit
B. in perfect competition, firms take full advantage of economies of scale in long-run equilibrium; in
monopolistic competition, firms do not
C. only under perfect competition is there ease of entry and exit
D. in monopolistic competition, the firm's demand curve is horizontal; in perfect competition, the firm's demand
curve slopes downward
E. in perfect competition, there are many firms; under monopolistic competition, there are few firms
108. Which of the following characteristics does perfect competition have in common with monopolistic
competition?
B. homogeneous products
C. no barriers to entry
D. horizontal demand curve
E. neither market advertises
109. Compared to a firm in perfect competition, the monopolistically competitive firm tends to
A. produce less and charge a higher price
B. produce less and charge a lower price
C. produce more and charge a lower price
D. produce more and charge a higher price
E. produce the same quantity
110. Excess capacity typically occurs

A. in the short run in perfect competition
B. in the short run in monopolistic competition
C. in long-run equilibrium in perfect competition
D. in long-run equilibrium in monopolistic competition
E. usually in markets experiencing an increase in demand
111. Which of the following is unique to perfect competition?

A. The individual firm cannot earn economic profit in the long run.
B. It is easy for new firms to enter the industry.
C. The market demand curve slopes downward.
D. The demand curve facing an individual firm is perfectly elastic.
E. The firms in the industry produce a homogeneous product.
112. Monopolistically competitive firms do not achieve allocative efficiency in the long run because
B. marginal cost is greater than marginal revenue
C. marginal cost is less than marginal revenue
D. price is less than marginal cost
E. price is greater than marginal cost
113. Monopolistically competitive firms do not achieve productive efficiency because
A. entry of firms raises production costs in the long run
B. barriers to entry allow profit to be earned in the long run
C. price is greater than marginal cost at the profit maximizing output level
D. profit is maximized at a quantity where average total cost is not minimized
E. there is no threat of entry in the long run
114. Firms in monopolistic competition and perfect competition typically

A. are price takers
B. produce identical products
C. earn zero economic profit in the long run
D. face a downward-sloping demand curve
E. face an upward-sloping total revenue curve at all rates of output

A. perfect competition, in that firms face downward-sloping demand curves and earn zero long-run economic
profit
B. pure monopoly, in that firms face downward-sloping demand curves and can earn economic profits both in
the short run and in the long run
C. perfect competition, in that firms face perfectly elastic demand curves and earn zero long-run economic
profit
D. pure monopoly, in that firms can earn economic profits both in the short run and in the long run, and similar
to perfect competition, in that firms face perfectly elastic demand curves
E. pure monopoly, in that firms face downward-sloping demand curves, and similar to perfect competition, in
that long-run economic profit is zero
116. If marginal revenue is less than price for a firm, it must be true that the firm
A. is a monopoly
B. is in perfect competition
C. is in monopolistic competition
D. faces a perfectly elastic demand curve
E. faces a downward-sloping demand curve
117. Which of the following characteristics distinguishes oligopoly from other market structures?
A. a horizontal demand curve
B. a downward-sloping demand curve
C. production of homogeneous outputs
D. production of differentiated outputs
E. interdependence among firms in the industry
118. Oligopolistic industries consist of
A. a few independent firms
B. a few interdependent firms
C. many interdependent firms
D. many independent firms
E. a small monopoly
119. The automobile, breakfast cereal, and tobacco industries are examples of
B. oligopoly
C. perfect competition
D. monopoly
E. monopsony
120. The defining characteristic of oligopoly is that each firm

A. produces the same output as its rivals
B. acts independently of its rivals
C. is mutually interdependent
D. is atomistic
E. advertises how its products are different from its rivals' products
121. An intersection known as Four Corners lies 300 miles from the nearest town. At this intersection are three
independently owned gas stations and one small pharmacy. Which of the following is true?
A. The firms are all perfectly competitive because of their size.
B. It would be easier for all four firms to form a cartel than for only the gas stations to do so.
C. The gas stations are monopolistically competitive because there are so few of them that they are almost
monopolists.
D. The gas stations are perfectly competitive; the pharmacy is not.
E. The gas stations are oligopolists; the pharmacy is a monopolist.
122. Which of the following is unique to oligopoly among all the market structures?
B. profit maximization
C. mutual interdependence
D. advertising
E. long-run economic profits
123. Oligopolists are more sensitive to the pricing and output policies of their rivals when
A. all firms produce identical products
B. their products are highly differentiated
C. there is freedom of entry and exit
D. there are barriers to entry
E. there are many firms in the industry
124. The defining characteristic of oligopoly is product differentiation.

A. True
B. False
125. Something is called a barrier to entry only if it makes entry into an industry absolutely impossible.
A. True
B. False
126. When there are barriers to entry, a profit-maximizing firm already in the industry can charge any price it
wants, even in the long run.
A. True
B. False
127. It is harder to explain the behavior of firms in oligopoly than in other market structures because in
oligopoly
A. the firms act independently of each other
B. firms base their decisions on what their rivals do
C. only differentiated products are produced
D. only homogeneous products are produced
E. the demand curve can slope upward
128. Which of the following is not considered a barrier to entry?

A. economies of scale
B. patents
C. control of a scarce resource
D. licensing
E. perfect price discrimination
129. For firms in an oligopoly to be interdependent,
A. goods must be undifferentiated
B. goods must be differentiated
C. firms must be small
D. barriers to entry must be minimal
E. goods can be either undifferentiated or differentiated
130. An oligopoly is characterized by

A. few firms, which have control over market price
B. many firms and some barriers to entry
C. a large number of firms and no barriers to entry
D. a single firm and no barriers to entry
E. a single firm and significant barriers to entry
131. In which market structure(s) might firms produce an undifferentiated product?

A. perfect competition only
B. perfect competition and oligopoly
C. monopolistic competition only
D. perfect competition and monopolistic competition
E. monopoly only
132. If Ford raises the price of its automobiles, the demand curve for GM automobiles
A. shifts to the left
B. is unaffected
C. becomes more elastic
D. shifts to the right
E. becomes vertical
133. In an oligopoly, the demand curve facing an individual firm depends upon
A. the behavior of competing firms
B. the shape of the firm's average total cost curve
C. the shape of the firm's marginal cost curve
D. the firm's supply curve
E. the shape of the firm's average variable cost curve
134. Interdependent decision making on price, quality, or advertising is characteristic of
B. monopolies
C. oligopolies
D. monopolistic competition
E. both oligopolies and monopolistic competition
135. There are multiple models of pricing behavior in oligopolistic markets because
A. it is difficult to predict how rival firms will react to any pricing decision
B. the demand curve slopes upward for these firms
C. firms could earn profit in the long run unlike other markets
D. price has a direct impact on profit for a firm in oligopoly
E. the products are not identical in terms of quality, image, location
136. In oligopoly, minimum efficient scale is large relative to the market.

A. True
B. False
137. Economies of scale yield

A. declining average cost as output increases
B. declining marginal cost as output increases
C. declining total cost as output increases
D. diminishing average returns as output increases
E. increasing marginal revenue as output increases
138. Exhibit 10-13
All of the following statements regarding Exhibit 10-13 are true except one. Which is the exception?
A. The firm represented in the exhibit will likely be a perfect competitor.
B. There are economies of scale in this industry.
C. The minimum efficient quantity is 1,000 units.
D. At 500 units there is excess capacity.
E. A firm too small to produce at least 1,000 units will have difficulty surviving in this industry.
139. Exhibit 10-13
Consider Exhibit 10-13. If two firms each produced 500 units, the total cost of supplying 1,000 units would be
A. $6
B. $4,000
C. $4
D. $3,000
E. $6,000
140. Exhibit 10-14
Which of the curves shown in Exhibit 10-14 best represents the long-run average cost curve for an
oligopolist?
A. Curve a
B. Curve b
C. Curve c
D. Curve d
E. Curve e
141. The automobile industry is

A. in monopolistic competition because brand names are important
B. in monopolistic competition because it has economies of scale
C. in monopolistic competition for legal reasons
D. an oligopoly because each firm must produce a large amount of output before it can achieve low average
costs
E. an oligopoly for legal reasons
142. If a firm must produce a significant share of market output before low average costs can be achieved, the
structure of this industry will tend to be
B. perfect competition
C. oligopoly
D. either monopolistic competition or oligopoly
E. either perfect competition or monopolistic competition
143. Which of the following is not an example of an oligopolistic barrier to entry?

A. diseconomies of scale
B. legal restrictions
C. advertising and brand proliferation
D. high start-up costs
E. control over an essential resource
144. Oligopolists often sacrifice economies of scale as they expand product variety.
A. True
B. False
145. A brand name may contribute to oligopolists' economic profit by

A. shifting the demand curve leftward
B. shifting the supply curve leftward
C. overcoming economies of scale
D. acting as a barrier to entry
E. reducing advertising costs
146. The various models of oligopoly explain observed behavior in different industries, but none is satisfactory
as a general theory of oligopoly.
A. True
B. False
147. Which of the following is an example of an actual cartel?

A. the three largest cereal producers in the United States
B. General Motors, Ford, and Chrysler
C. the Organization of Petroleum Exporting Countries (OPEC)
D. the three major U.S. cigarette manufacturers
E. U.S. television networks -- ABC, NBC, CBS, and Fox
148. Collusion is most likely to occur in those oligopolies in which firms have vastly different cost structures.
A. True
B. False
149. Cartels are inherently unstable.

A. True
B. False
150. Collusion and cartels are frequently legal in Europe.

A. True
B. False
151. An oligopolist that cheats on a collusive agreement by reducing price will quickly be forced out of the
industry by its competitors.
A. True
B. False
152. The incentives for oligopolists to cheat on collusive agreements are strongest during periods of increasing
industry sales.
A. True
B. False
153. If a cartel can earn a profit, it will increase production as long as

A. MR > MC
B. MR > ATC
C. MC > MR
D. MR < AR
E. MR > AVC
154. Two heavy equipment manufacturers might collude in an effort to do all of the following except one.
Which is the exception?
A. determine a more advantageous price and quantity
B. prevent new entry into the market
C. take advantage of the legal benefits that U.S. cartels receive
D. increase their combined profits
E. predict the behavior of other competitors in the heavy equipment market with greater certainty
155. A cartel's marginal cost curve is the

A. highest of all the individual firms' marginal cost curves
B. lowest of all the individual firms' marginal cost curves
C. horizontal sum of all the individual firms' marginal cost curves
D. average of all the individual firms' marginal cost curves
E. product of all the individual firms' marginal cost curves
156. A cartel's profit-maximizing quantity occurs where the cartel's

B. marginal cost equals demand
C. price is highest
D. cost is lowest
E. demand curve has a kink
157. A cartel's profit-maximizing price is
A. on the demand curve at the quantity where marginal cost equals marginal revenue
B. on the demand curve where it intersects its marginal cost curve
C. the highest price possible
D. determined by using the cost-plus pricing model
E. where the kink in the demand curve occurs
158. Collusion occurs when

A. a firm chooses a level of output to maximize its own profit
B. firms get together to maximize joint profits
C. firms refuse to follow their price leaders
D. firms petition their U.S. senators for favors
E. two firms' price and output decisions come into conflict
159. A cartel is
A. a group of oligopolistic firms that engage in formal collusion
B. a group of monopolistically competitive firms which charge the same price
C. usually legal in the United States
D. an agreement among rival firms to set prices independently
E. illegal throughout the world
160. Three firms that are successful in colluding to raise their prices must
A. lose profits
B. announce any price changes to the government
C. restrict output
D. increase advertising to earn a profit
E. expand production
161. In a cartel,
A. all firms produce the same amount of output and earn the same profit
B. all firms produce the same amount of output but earn different amounts of profit because their costs differ
C. firms produce different amounts of output but earn the same profit
D. firms with higher average cost produce more so that all firms earn the same profit
E. firms with lower average cost often earn higher profits
162. Under which of the following market conditions is it most difficult to maintain a cartel agreement?
A. There are many firms in the industry and these firms have similar costs.
B. There are many firms in the industry and these firms have different costs.
C. There are few firms in the industry and these firms have similar costs.
D. There are few firms in the industry and these firms have different costs.
E. There are many firms in the industry and these firms produce homogeneous products.
163. If all six suppliers of cement to Metropolis all agree to establishes a price of $45 per ton, this would be
A. a legal contract
B. price discrimination
C. cost-plus pricing
D. a cartel
E. beneficial to consumers
164. The chances of successful collusion are greatest when

A. firms are producing a differentiated product
B. there are many firms in the industry
C. there are tiny firms and huge firms together in the same industry
D. demand curves and cost curves are similar among the firms in the industry
E. demand is falling
165. If zinc suppliers are successful in forming an international zinc cartel, they will experience
A. lower output and higher prices, which discourage the entry of new firms into the industry
B. lower output, higher prices, and the need to organize an effort to prevent the entry of new firms into the
industry
C. higher output and higher prices, which discourage the entry of new firms into the industry
D. higher output, higher prices, and the need to organize an effort to prevent the entry of new firms into the
industry
E. none of the above
166. Which of the following helps to make a cartel successful?

A. stable demand and costs
B. differentiated output
C. highly variable cost conditions
D. highly variable demand conditions
E. rapidly changing technology
167. An oligopoly model that describes formal collusion is the
A. kinked demand curve model
B. cartel model
C. cost-plus pricing model
D. game theory model
E. horizontal merger model
168. A formal agreement among the firms in an industry to coordinate their production and pricing decisions in
order to earn monopoly profits is known as
A. price discrimination
B. the kinked demand curve
D. a cartel
E. joint competition
169. Game theory provides us with a general approach to understanding the behavior of firms when their
choices are interdependent
A. True
B. False
170. The prisoner's dilemma is applicable only when considering the illegal behavior that firms in a
non-competitive market may pursue
A. True
B. False
171. A player's strategy is a game plan when decisions are interdependent

A. True
B. False
172. Because firms in an oligopoly are interdependent, they attempt to maximize revenues rather than profits
A. True
B. False
173. Game theory is most useful in understanding the decision making behavior of firms in which type of
industry?
B. monopoly
D. natural monopoly
E. oligopoly
174. Game theory focuses on

A. strategic behavior among interdependent firms
B. professional athletic events
C. competition between the players in board games
D. competition between those in the political arena and those in the market place
E. the interaction between firms in a competitive industry and those in a non-competitive industry
175. Game theory is used in a number of areas in economics. What is the primary reason that it is used in
analyzing oligopoly type market structures?
A. The firms are producing a similar product
B. The firms are producing differentiated products
C. The demand curve facing the oligopolistic firms is perfectly inelastic
D. The mutual interdependence of firms in industries with a small number of firms
E. The demand curve the oligopolistic firm faces is downward sloping
176. Game theory is the study of which of the following?

A. The prisoner's dilemma
B. The behavior of people engaged in recreational games
C. The mutual interdependence of firms in oligopolistic industries
D. The downward sloping demand curve faced by firms in an oligopoly
E. The interaction between marginal and average revenue
177. The solution of a game is dependent upon

A. predicted response of competitors
B. the existence of a perfectly inelastic demand curve
C. costs of production being constant
D. economies of scale in production
E. marginal revenue being equal to marginal cost
178. Which of the following is likely to occur when it is known that a two-person game is to be played only
once?
A. Collusion
B. The demand curve becomes perfectly inelastic for this time period
C. The prisoner's dilemma
D. The pursuit of profit maximization for the entire industry
E. An attempt to equate marginal revenue with marginal cost
179. A prisoner's dilemma is a situation in which

A. a change in marginal cost may not lead to a change in price
B. a firm's competitors follow a price increase but ignore a price decrease
C. oligopolists behave irrationally
D. oligopolists attempt to maximize sales rather than profits
E. an oligopolists demand curve may become perfectly inelastic
180. Which of the following is likely to occur when a two-person game can be played repeatedly?
A. Collusion and cooperation among the players
B. The prisoner's dilemma
C. The industry demand curve will become perfectly elastic
D. The industry demand curve will become perfectly inelastic
E. There is no solution possible because of the indeterminate price quantity combinations
181. A prisoner's dilemma can be described as a situation in which

A. a decision maker is uncertain about the potential punishment for something done in the past
B. an individual decision maker finds it in his best interest to pursue a course of action that can lead to a less
than desirable outcome for the group
C. producers act so as to avoid maximizing profits because of government retaliation
D. individual firms seeks to maximize their own profits with no regard for the group
E. the summation of individual demand curves creates an inelastic demand curve facing the industry
182. The principal advantage of the game theory approach is that it allows us to
A. take all possible information into consideration before developing a theory
B. better understand why the firm in a competitive industry avoids games
C. better understand how the government should regulate a natural monopoly
D. better understand decision making when one person’s choices affect another person’s choices
E. understand the relationship between the firm and the industry demand curves
183. The advantage of game theory is that it allows us to focus on the
A. individual firm's incentives to cooperate or not
B. relationship between the market and firm level demand curve
C. costs and benefits
D. government regulators and the firms in an industry
E. models where there are no barriers to entry
184. The term strategy in terms of game theory refers to

A. the relationship between price and marginal cost
B. the relationship between individual firm demand curves and the market demand curve
C. each firm's game plan in making decisions
D. the interrelationship between price and marginal revenue
E. the tendency for collusive firms to generate normal profits
185. The payoff matrix refers to

A. the difference between total revenue and total cost at different price levels
B. a listing of the rewards and penalties associated with pursuing various strategies
C. the difference between average and marginal cost for the non-competitive firm
D. the difference between average and marginal revenue in a non-competitive industry
E. the difference between average variable and average total cost to the firm
186. The solution in the prisoner's dilemma is called the

A. loss minimizing solution
B. profit maximizing equilibrium
C. dominant-strategy equilibrium
D. revenue maximizing equilibrium
E. marginal revenue solution
187. The dominant-strategy solution implies that each firm

A. ignores the reactions of competitors
B. colludes with competitors to maximize industry profits
C. ignores the decisions of the other firms
D. takes all potential bits of information into consideration before making a decision
E. selects the optimal solution to a game
188. The prisoner's dilemma provides an explanation for
A. the price wars that sometimes occur in oligopolies
B. the ability of firms in an oligopoly to extract the entire consumer surplus
C. the collusive behavior that sometimes occurs in an oligopoly
D. the failure of firms in non-competitive industries to maximize profits
E. an irrational behavior that occurs in competitive markets
189. The tit-for-tat strategy implies that the firms

A. in non-competitive industries match price increases but ignore price decreases
B. will follow the lead of the dominant firm in making pricing decisions
C. prices will change whenever fixed cost changes
D. cooperate on the first round, and then follow your competitors reactions on the second round
E. price will only change if demand changes
190. Which oligopoly model was developed to explain price wars in an industry?
A. natural oligopolies
B. cartels
C. price leadership by a dominant firm
D. game theory
E. cost-plus theory
191. In a game that can be repeated, the optimal solution is

A. dependent upon each firm's decision in the first round of decision making
B. independent of the decisions that competitive firms made on the first round
C. to maximize profits regardless of what competitors do
D. to minimize costs regardless of what competitors do
E. to select the solution that minimizes the potential losses from a decision
192. As a real estate agent, Krista Otavi prides herself on her good training, availability to clients, and hard
work to make a sale. Which one of the basic ways of product differentiation does Krista emphasize?
A. services
B. product image
C. location
D. commission rate
E. physical differences
193. A greater supply of video rental outlets along with the increased availability of substitutes like cable
channels made rental rates
A. decrease slightly
B. remain unchanged
C. crash
D. fluctuate wildly up and down
E. increase
194. Which of the following is not a threat to bricks-and-mortar video rental stores?
A. on-demand movies delivered by broadband cable
B. rental services that deliver DVDs by mail
C. digital movies and TV shows available on Wal-Mart’s Web site
D. None of the answers is a threat.
E. All of the answers are threats.
195. In regards to monopolistic competition, some economists argue that consumers are willing to pay a higher
price in order to enjoy a wider selection of goods and services.
A. True
B. False
196. If the leading canned soup company introduces dozens of new flavors in order to dominate shelf space, the
company is most likely trying to create a barrier to entry by
A. increasing the total investment needed to reach the minimum efficient size
B. spending more on advertising than potential competitors can afford
C. exploiting economies of scale
D. crowding out the competition
E. establishing an undifferentiated oligopoly
197. To maximize cartel profit, the members must allocate output so that the marginal cost for the final unit
produced by each firm is
A. identical
B. unequal
C. negative
D. equal to the firm’s average total cost
E. maximized
198. Consensus becomes easier to achieve as the number of firms in a cartel grows
A. True
B. False
199. In the prisoner’s dilemma game, the sentence that each player receives depends on
A. neither strategy chosen
B. only the strategy the player chooses
C. only the strategy the other player chooses
D. the strategy the player chooses and on the strategy the other player chooses
200. In a coordination game, a Nash equilibrium occurs when

A. each player ignores the strategy of the other player
B. each player chooses no strategy, but maintains the status quo
C. each player chooses the same strategy
D. one player can improve the outcome by changing strategy
201. If oligopolists engaged in some sort of collusion, industry output would be __________ and the price
would be __________ than under perfect competition.
A. smaller, lower
B. smaller, higher
C. smaller, no different
D. greater, lower
E. greater, higher
202. Exhibit 10-15

Don’t advertise 630, 2020 1500, 1500
strategies will maximize their joint profit?
B. both advertise
E. can’t tell
203. Exhibit 10-15

Don’t advertise 630, 2020 1500, 1500
strategies will most likely result?
B. both advertise
E. can’t tell
204. Exhibit 10-15

Don’t advertise 630, 2020 1500, 1500
Tobacco has a dominant strategy.
A. True
B. False
205. Exhibit 10-15

Don’t advertise 630, 2020 1500, 1500
Tobacco’s dominant strategy is not to advertise.
A. True
B. False
206. Exhibit 10-15

Don’t advertise 630, 2020 1500, 1500
Tobacco and Dan’l Boone Tobacco have the same dominant strategy.
A. True
B. False
207. Exhibit 10-16

A. 1 unit
B. 2 units
C. 3 units
D. 4 units
E. 5 units
208. Exhibit 10-16

A. $10
B. $15
C. $20
D. $25
E. $30
209. Exhibit 10-16

A. lose $10
B. lose $15
C. break even
D. earn $25 profit
E. earn $30 profit
210. Exhibit 10-16
211. Exhibit 10-17

A. 1 unit
B. 2 units
C. 3 units
D. 4 units
E. 5 units
212. Exhibit 10-17

A. $10
B. $15
C. $20
D. $25
E. $30
213. Exhibit 10-17

A. lose $10
B. lose $15
C. break even
D. earn $25 profit
E. earn $30 profit
214. Exhibit 10-17
215. Exhibit 10-18

A. 1 unit
B. 2 units
C. 3 units
D. 4 units
E. 5 units
216. Exhibit 10-18

A. $10
B. $15
C. $20
D. $25
E. $30
217. Exhibit 10-18

A. lose $10
B. lose $15
C. break even
D. earn $25 profit
E. earn $30 profit
218. Exhibit 10-18
Another random document with
no related content on Scribd:
he was not far wrong and indeed developed into one of his most
ardent supporters. In the October of 1852, the first year of their
friendship, Kingsley wrote a sonnet which he dedicated
“To the Authoress of ‘Our Village.’
“The single eye; the daughter of the light,

Well pleased to recognize in lowliest shade
Each glimmer of its parent ray, and made,
By daily draughts of brightness, inly bright;
The style severe, yet graceful, trained aright
To classic depths of clearness and repaid
By thanks and honour from the wise and staid;
By pleasant skill to blame and yet delight,
And hold communion with the eloquent throng
Of those who shaped and toned our speech and song;
All these are yours. The same examples here,
You in rich woodland, me on breezy moor,
With kindred aims the same sweet path along,
To knit in loving knowledge rich and poor.”
It was a beautiful tribute, which naturally touched the warm heart

of its recipient.
“Oh! my dear Mr. Kingsley,” she wrote, “how much
surprised and touched and gratified I have been by that too
flattering but most charming sonnet! Such praise from such
a person is indeed most precious. I will not say that I never
dreamt of your sending any compliments to myself,
because I am sure that you would not suspect me of such
vanity, but I must tell you how heartily I thank you,
especially for the lines which join us together in intention
and purpose.... I wonder whether you always leave people
liking you so very much more than they seem to have a
right to do! and whether it is your fault or mine that I talked
to you as if I had known you ever since you were a boy!
Pardon the impertinence, if it be one, and believe me ever
“Your obliged and faithful friend,
“M. R. Mitford.”
One result of the residence at Three Mile Cross, amid the
dilapidations of the later years, was the acute rheumatism from
which Miss Mitford began to suffer before her removal and which, as
the years crept on, got a firmer hold of her system. The
consequence was that often, for weeks at a time, she was not able
to walk a step, and had to be carried bodily downstairs by Sam, her
new man-of-all-work, assisted by K——, whom he had married. This
absence of walking exercise was a great hardship, for it was among
her chief delights to ramble round the lanes with the dogs, seeking
the earliest wild blooms and, with the aid of her favourite crook-stick,
gathering the honey suckle as it rioted in the hedge-tops. So, with
such exercise impossible, recourse was had to the pony-chaise,
wherein, with either Sam or K——, for driver, they would amble
quietly around the countryside or into Swallowfield Park, near by,
where, if they were at home, there was always a sure welcome from
Lady Russell or her daughters.
Mary Russell Mitford.
(From a painting by John Lucas, 1852.)
It was during one of these drives that the accident occurred which
was to render her still more helpless and to hasten her end. It was
caused by the overturn of the chaise, which threw the occupants with
great force on to the hard gravelled road. No bones were broken, but
the nerves of the hip and thigh were bruised and shattered, and
there was some injury to the spine which, though not noticed at the
time, soon developed seriously. A long and painful illness was the
result, during which the patient suffered the greatest agony,
frequently unable to move in order to change her position while in
bed. Lady Russell was a frequent and daily visitor, coming through
the mud and rain—for it was winter—to bring comforts for mind and
body to her sick friend. The spring of 1853 saw a slight change for
the better, and among the old friends who came to visit the invalid
was Lucas, the painter, who succeeded in getting his old patroness
to sit for another portrait. Miss Mitford was delighted with the result—
the expression she thought was wonderfully well-caught, “so
thoughtful, happy, tender—as if the mind were dwelling in a pleasant
frame on some dear friend.” With the approach of summer she had
gained sufficient strength to walk out into the garden, where, under a
great acacia tree, and near to a favourite syringa-bush, she had a
garden-seat and wrote, when not too weary. Here, and in her
bedroom, she worked at last on the novel, so long put off. By the end
of 1853 it was in the printer’s hands, and every effort was being
made to publish it early in 1854. “ Atherton has twice nearly killed
me,” wrote Miss Mitford to William Harness, “once in writing—now,
very lately, in correcting the proofs.” Talfourd, hearing of his old
friend’s illness, went to see her in March of 1854 and sat by her
bedside much affected at the change he saw in her. “All the old
friendship came back upon both, as in the many years when my
father’s house was a second home to him. We both, I believe, felt it
to be a last parting”—and that, indeed, it was, for Talfourd died, while
delivering a judgment, a fortnight later! The news of his death was a
severe shock to Miss Mitford.
Early in April, 1854, Atherton was published in three volumes by
Messrs. Hurst & Blackett, and, to the author’s great delight, Mr. Hurst
sent her word that Mr. Mudie had told him the demand was so great
as to oblige him to have four hundred copies in circulation. The
Dedication was “To her Dear Friend, Lady Russell, whose Sympathy
has Cheered the Painfullest Hours, as her Companionship has
Gladdened the Brightest,” and in the Preface she set forth in detail
the awful sufferings which she was forced to endure while writing the
work, “being often obliged to have the ink-glass held for me, because
I could not raise my hand to dip the pen in the ink.”
Mary Mitford.
(copy of a sketch made from memory
in 1853. E. H.)
Mary Russell Mitford.

(From a pencil sketch lent by W. H. Hudson, Esq.)
Frequent letters from Mrs. Browning, in Rome, came to cheer her,

urging that, if the invalid could not write herself, perhaps K——,
could send a line of news now and again. William Harness came for
a day and, finding his old playmate and friend so distressed, stayed
three weeks. He could see, all too plainly, that the frail body would
not last long, and he also found that she was troubled in spirit,
troubled at her lack of faith and by wandering thoughts which
obtruded in her prayers. Every day, and frequently during the day,
either Lady Russell or one of her daughters came and sat with the
invalid, being sometimes accompanied by a mutual friend, the Rev.
Hugh Pearson, Rector of Sonning—a parish nearly ten miles distant
—who drove over as often as he could be spared from his parochial
duties. To him, as to William Harness, Miss Mitford talked long and
earnestly on spiritual matters, while he tried to remove her doubts
and bring comfort to her anxious soul. As a means to this end he
arranged to administer the Sacrament to her, but was frequently put
off because, as she said, the thought of it agitated her so much. “Be
sure, dearest friend,” she wrote, “that I do not fail in meditation, such
as I can give, and prayer. It is my own unworthiness and want of an
entire faith that troubles me. But I am a good deal revived by sitting
at the open window, in this sweet summer air, looking at the green
trees and the blue sky, and thinking of His goodness who made this
lovely world.”
To William Harness she wrote, in August, telling him that she had,
at last, received the Sacrament at Mr. Pearson’s hands, together
with Sam and her friend, Mrs. C. Stephens. “I wish you had been
here also,” she pathetically added. Later, in September, she wrote
—“I wish you were sitting close to me at this moment, that we might
talk over your plans ... Swallowfield churchyard, the plain tablet, and
the walking funeral have only one objection—that my father and
mother lie in Shinfield Church, and that there is room left above them
for me. But I greatly dislike where the vault is—just where all the
schoolboys kick their heels. After all, I leave that to you—I mean the
whole affair of the funeral. It is very doubtful if I shall live till October.
At present I am better ... and now put my feet upon your chair. You
will not like it the less for having contributed to my comfort. I am still
as cheerful as ever, which surprises people much.” So she lingered,
writing whenever possible to distant friends, keenly anxious to hear
the latest literary news and delighting in the knowledge that a novel (
Philip Lancaster) had just been dedicated to her.
Swallowfield Churchyard, wherein Miss Mitford lies buried.
To Mr. Kingsley she wrote:—“The kindness of your letter, dearest

Mr. Kingsley, and those sweet words of sweet Mrs. Kingsley did me
literally good. My heart warmed to her from the first, as the only
realization I have ever seen of my vision of a Poet’s Wife. May God
in His mercy restore her health and spare you long to each other and
to the world. There are few such couples.”
In the autumn she received the following charming lines from
Walter Savage Landor, whom she first met, many years before, at
Talfourd’s dinner-table:—
“The hay is carried; and the Hours

Snatch, as they pass, the linden flowers;
And children leap to pluck a spray
Bent earthward, and then run away.
Park-keeper, catch me those grave thieves,
About whose frocks the fragrant leaves
Sticking and fluttering, here and there,
No false nor faltering witness bear.
“I never view such scenes as these
In grassy meadow, girt with trees,
But comes a thought of her who now
Sits with serenely patient brow
Amid deep sufferings. None hath told
More pleasant tales to young and old.
Fondest was she of Father Thames,
But rambled in Hellenic streams;
Nor even there could any tell
The country’s purer charms so well
As Mary Mitford.
“Verse! go forth
And breathe o’er gentle breasts her worth.
Needless the task ... but, should she see
One hearty wish from you and me,
A moment’s pain it may assuage—
A rose-leaf on the couch of Age.”
On January 7, 1855, Miss Mitford wrote to a friend:—“It has

pleased Providence to preserve to me my calmness of mind,
clearness of intellect, and also my power of reading by day and by
night, and which is still more, my love of poetry and literature, my
cheerfulness, and my enjoyment of little things. This very day, not
only my common pensioners, the dear robins, but a saucy troop of
sparrows, and a little shining bird of passage, whose name I forget,
have all been pecking at once at their tray of bread-crumbs outside
the window. Poor pretty things! how much delight there is in these
common objects, if people would but learn to enjoy them: and I really
think that the feeling for these simple pleasures is increasing with the
increase of education.” On the next day she wrote to Mr. Pearson,
urging him to decide when he would come and dine with a mutual
friend, for “if you wish for another cheerful evening with your old
friend, there is no time to be lost.”
Two days later, at five o’clock in the afternoon, with her hand in
that of Lady Russell, who had been with her all day, she passed
peacefully away, so calmly that her friend was scarcely conscious of
the passing.
Thus ended the life of this remarkable woman—remarkable alike

for her versatile genius as for her abiding faith in her father and the
fortitude with which she accepted and patiently bore the many
vicissitudes through which she was forced to pass.
On January 18, 1855, she was laid to rest in Swallowfield
Churchyard, in a spot which she had chosen. Originally it was not
within the churchyard proper, being on the fringe of Swallowfield
Park; but, to humour her, the railings were diverted and the little plot
was thus made available. It was a simple funeral, the only mourners
at the graveside being her two executors—the Rev. William Harness
and Mr. George May, her physician—and her two servants, Sam and
his wife, K——.
The grave is now marked by a simple granite cross, the cost of
which was borne by a few old friends.
FINIS
Printed by Butler & Tanner, Frome and London.

TRANSCRIBER’S NOTE
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Macroeconomics A Contemporary Approach 10th Edition

1. Firms may easily enter a monopolistically competitive market.

3. Monopolistic competitors are protected by barriers to entry.

5. The term monopolistic competition

6. Monopolistically competitive industries consist of

11. A monopolistically competitive firm can raise price somewhat due to

14. Monopolistic competition is best described as

15. If a monopolistically competitive firm raises its price, it

21. When firms differentiate their products, they

22. When firms in an industry produce differentiated products,

24. In economics, products are considered "differentiated" only if

25. Compared to regular grocery stores, convenience stores have

26. A monopolistically competitive firm produces where demand is inelastic.

28. A monopolistic competitor's demand curve is

31. Exhibit 10-1

In Exhibit 10-1, the monopolistic competitor's profit-maximizing level of output is

33. Exhibit 10-1

The monopolistic competitor in Exhibit 10-1 is in

35. Exhibit 10-2

The profit-maximizing output for the firm in Exhibit 10-3 is

37. Exhibit 10-3

The profit-maximizing price for the firm in Exhibit 10-3 is

38. Exhibit 10-3

39. Exhibit 10-3

At the profit-maximizing output, the monopolistically competitive firm in Exhibit 10-3 is in

40. In the short run, a monopolistically competitive firm is

42. Exhibit 10-4

In the short run, the firm in Exhibit 10-5 should

44. Exhibit 10-5

In the long run, the firm in Exhibit 10-5 can expect

46. Exhibit 10-6

At the profit-maximizing output level, the firm in Exhibit 10-7 is

In the long run, the firm in Exhibit 10-7 can expect

55. In both monopolistic competition and non-price-discriminating monopoly,

59. Exhibit 10-9

65. Monopolistic competition is similar to

66. In the long run, a monopolistically competitive firm will

71. Collusion is easier to achieve and maintain in oligopoly when

73. Tacit collusion occurs in industries that

77. Cost-plus pricing

82. One common assumption in game theory is that firms

85. Monopolistically competitive firms

87. Exhibit 10-12

90. In the long run, a monopolistically competitive firm will find

94. The historical trend in the video rental industry

95. Fixed costs in the video rental industry are

101. In long-run equilibrium, a monopolistically competitive firm will produce

102. At the profit-maximizing output, price is greater than marginal cost

104. A monopolistically competitive firm