Characteristics of Oligopoly

1. Which of the following best describes an oligopolistic market?

• (A) Many sellers with identical products and no barriers to entry

• (B) Many sellers, each with a clearly differentiated product, and no barriers to entry

• (C) A few competing sellers with similar products and high barriers to entry

• (D) A few competing sellers of identical products and no barriers to entry

2. One difference between oligopolies and monopolistically competitive markets is that ?

• (A) there is no deadweight loss in monopolistically competitive markets, but there is in oligopolies

• (B) the products sold in monopolistically competitive markets are identical

• (C) oligopolies have fewer barriers to entry

• (D) firms maximize profits in monopolistically competitive markets but not in oligopolies

• (E) there are fewer firms in oligopolistic markets than in monopolistically competitive ones

3. In which of the following market structures do firms recognize their mutual interdependence?

• (A) Oligopoly

• (B) Monopoly

• (C) Perfect competition

• (D) Unregulated natural monopoly

• (E) Monopsony

4. Which of the following characteristics is prevalent in oligopolies?

• (A) Allocative efficiency

• (B) Low barriers of entry

• (C) Consideration of rivals’ reactions

• (D) No deadweight loss

5. Collusion, price leadership, and price wars are usually observed in which of the following market structures?

• (A) Perfect competition

• (B) Monopolistic competition

• (C) Oligopoly

• (D) Monopoly

6. The cartel model of oligopoly predicts that ?

• (A) all the firms in the industry act in unison to set a monopoly price

• (B) each producer acts independently of others

• (C) firms follow the low-price firm in the industry

• (D) differences in cost of production discourage individual firms from cheating

7. If the only two firms in an industry successfully collude to maximize their joint profit, the price for the product will be ?

• (A) equal to the marginal cost of production

• (B) equal to the average total cost of production

• (C) above the marginal cost of production

• (D) above the monopoly price

• (E) below the average variable cost of production

8. A cartel is difficult to maintain for which of the following reasons?

• (A) Consumers substitute away from the good when the price increases.

• (B) Individual cartel members are tempted to cheat on the agreement.

• (C) Although the total gain to cartel members is positive, all members lose when everyone sticks to the agreement.

• (D) Some firms will reduce output in an effort to lower costs of production.

9. There are four firms in an oligopolistic industry. The four firms agree to collude and act like a monopoly. If one of the firms violates the agreement and charges a lower price or sells a larger quantity than what was agreed to, what will happen in the short run?

• (A) The firm that cheats will earn higher profits, and industry profits will be lower.

• (B) The firm that cheats will earn higher profits, and industry profits will be higher.

• (C) The firm that cheats will earn lower profits, and industry profits will be lower.

• (D) The firm that cheats will earn lower profits, and industry profits will be higher.

10. Which of the following best explains why it is difficult to maintain lasting collusive agreements?

• (A) There is an unavoidable conflict in that a collusive agreement can increase the profits of some, but not all, firms in the industry.

• (B) There is little potential for gain from collusion unless there is a large number of consumers in the market.

• (C) Each firm in the industry views itself as facing a vertical demand curve, even though the market demand curve is downward sloping.

• (D) The firms in the industry have a common incentive to increase output to a more competitive level.

• (E) Each firm realizes that its profits would increase if it were the only firm to violate the collusive agreement by increasing its production slightly.