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A unique feature of an oligopolistic industry is: A. Low barriers to entry B. Standardized products C. Diminishing marginal returns D. Mutual interdependence |
D. Mutual interdependence |
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Mutual interdependence means that each firm in an oligopoly: A. Faces a perfectly inelastic demand for its product B. Considers the reactions of its rivals when it determines its pricing policy C. Depends on the other firms for its inputs D. Depends on the other firms for its markets |
B. Considers the reactions of its rivals when it determines its pricing policy |
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A firm in an oligopoly is similar to a monopoly in that: A. Both firms do not face competition from others B. Both firms could have significant market power and control over price C. Both firms face very inelastic demand for their products D. Both firms do not need to advertise |
B. Both firms could have significant market power and control over price |
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Which cannot be a characteristic of an oligopolistic industry? A. Differentiated products B. A large number of consumers C. Significant barriers to entry D. A perfectly elastic firm demand curve |
D. A perfectly elastic firm demand curve |
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Which statement about oligopoly is false? A. Oligopolistic firms recognize their interdependence B. Prices in oligopoly are predicted to fluctuate widely and frequently C. A few firms play an important role in the sale of a product D. One firm’s behavior is a function of what its rivals do |
B. Prices in oligopoly are predicted to fluctuate widely and frequently |
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The increased use of plastic bags instead of paper bags in grocery stores and retail shops is an example of: A. Overt collusion B. Covert collusion C. Import competition D. Interindustry competition |
D. Interindustry competition |
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Interindustry competition refers to the fact that: A. Oligopolistic producers establish a common price for their products B. Products are identical in a purely competitive industry C. Firms which sell a product at one stage of production buy materials and parts from other firms at prior stages of production D. In some markets the producers of a certain commodity might face competition from products of other industries |
D. In some markets the producers of a certain commodity might face competition from products of other industries |
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One major problem with concentration ratios is that they fail to take into account: A. The localized market for products B. Excess capacity in production C. Price leadership D. Mutual interdependence |
A. The localized market for products |
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Assume that an industry is significantly affected by import competition from foreign suppliers. Taking this factor into account, it would mean that: A. The Herfindahl index would be significantly higher in that industry because there are more firms in the industry B. The industry is less concentrated than suggested by domestic concentration ratios C. There is a high degree of interindustry competition D. There is a low degree of interindustry competition |
B. The industry is less concentrated than suggested by domestic concentration ratios |
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The Herfindahl index is a measure of: A. Profitability in an industry B. The price level in an industry C. The costs in an industry D. Market power in an industry |
D. Market power in an industry |
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Industry Y is dominated by five large firms that hold market shares of 20, 25, 15, 10, and 25 percent. The four-firm concentration ratio for this industry is: A. 70 percent B. 80 percent C. 85 percent D. 90 percent |
C. 85 percent |
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Collusion refers to a situation where rival firms decide to: A. Compete aggressively against each other B. Cheat on each other C. Agree with each other to set prices and output D. Combine their operations and merge with each other |
C. Agree with each other to set prices and output |
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In a duopoly, if one firm increases its price, then the other firm can: A. Keep its price constant and thus increase its market share B. Keep its price constant and thus decrease its market share C. Increase its price and thus increase its market share D. Decrease its price and thus decrease its market share |
A. Keep its price constant and thus increase its market share |
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Answer the question based on the following payoff matrix for a duopoly in which the numbers indicate the profit in thousands of dollars for a high-price or a low-price strategy. Refer to the above payoff matrix. If both firms operate independently and do not collude, the most likely profit is: A. $400,000 for firm X and $400,000 for firm Y B. $725,000 for firm X and $475,000 for firm Y C. $475,000 for firm X and $725,000 for firm Y D. $625,000 for firm X and $625,000 for firm Y |
A. $400,000 for firm X and $400,000 for firm Y |
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The kinked demand model of oligopoly assumes that: A. Rivals will ignore price increases but will match price cuts B. Rivals will ignore price cuts but will match price increases C. The oligopolistic firms are colluding D. A firm faces a more elastic demand curve if it cuts its price, and less elastic if it raises price |
A. Rivals will ignore price increases but will match price cuts |
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A major prediction of the kinked demand curve model is: A. Price stability in oligopolies B. Price instability in oligopolies C. Stability of production costs in oligopolies D. Instability of costs in oligopolies |
A. Price stability in oligopolies |
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If output is set at the kink of the kinked demand model, then there: A. Is a strong incentive for rivals to decrease prices B. Is a strong incentive for rivals to increase prices C. Is one price at which marginal revenue equals marginal cost D. Are several prices at which marginal revenue equals marginal cost |
D. Are several prices at which marginal revenue equals marginal cost |
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One shortcoming of the kinked demand curve model of oligopoly is that it does not explain: B. How the current price gets determined C. What the level of profits is for the firm D. Why the firm is a least-cost producer |
B. How the current price gets determined |
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Given the oligopolistic firm pictured above, what is the profit-maximizing price? A. P1 B. P2 C. P4 D. 0 |
C. P4 |
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On the above graph, if the oligopolist’s MC curve shifts from MC1 to MC2, the firm will charge: A. A higher price than before and total revenue will increase B. The same price as before and sell more output; total revenue will increase C. The same price as before and sell the same amount of output; total revenue will remain the same D. A higher price than before and sell less output; it can’t be determined whether total revenue will change |
C. The same price as before and sell the same amount of output; total revenue will remain the same |
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The strategy of establishing a price that prevents the entry of new firms is called: A. Cartel pricing B. Limit pricing C. Price leadership D. Profit maximizing price |
B. Limit pricing |
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Price leadership represents a situation where oligopolistic firms: A. Reduce their reliance on nonprice competition B. Form a cartel C. Face a kinked demand curve D. Tacitly collude |
D. Tacitly collude |
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In an oligopolistic market there is likely to be: A. Little consideration of the actions of rival firms B. Price taking behavior on the part of firms C. Homogeneous but not differentiated products D. Neither allocative nor productive efficiency |
D. Neither allocative nor productive efficiency |
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Which of the following factors tends to foster the development of an oligopoly? A. Economies of scale B. Foreign competition C. Antitrust legislation D. Low barriers to entry |
A. Economies of scale |
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