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Monopolistic Competition and Oligopoly

Question 1
Monopolistically competitive firms:

A .can earn economic profits or losses in both the short-run and the long-run.
B. can earn either profits or losses in the short-run, but earn zero economic profits in the long-run.
C. earn economic profits in the short-run but zero economic profits in the long-run.
D. earn zero economic profits in both the short-run and the long-run.

Question 2
The concentration ratio is defined as the:

A. percentage of industry output produced by a specific firm.
B. percentage of total industry output produced by the top firms.
C. squared value of the market shares of all the firms in an industry.
D. squared value of the market shares of the largest four firms in the industry.

Question 3
One advantage of the Herfindahl index over the concentration ratio is that the:

A. Herfindahl index ignores the small firms that always exist on the fringes of any industry.
B. Herfindahl index is easier to compute.
C. Herfindahl index takes into account all firms in an industry.
D. concentration ratio excludes the largest firms in an industry.

Question 4
According to contestable market theory

A. barriers to entry are much more important than market structure in determining the degree of price competition in an industry.
B. barriers to entry are much less important than market structure in determining the degree of price competition in an industry.
C. barriers to entry and market structure are both important in determining the degree of price competition in an industry.
D. neither barriers to entry nor market structure affect the degree of price competition in an industry.

Question 5
When a monopolistically competitive industry is in long-run equilibrium

A. firms earn economic profits.
B. firms earn zero economic profits.
C. price equals minimum average total cost.
D. price equals marginal cost.

Solution Preview

1. B. can earn either profits or losses in the short-run, but earn zero economic profits in the ...

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