Chapter 18 Micro Economics

Sammy's Inc. competes with a few other firms because there are natural barriers to entry. Sammy's operates in

• A) a perfectly competitive market.

• B) an oligopoly.

• C) a monopolistic competitive market.

• D) a monopoly.

3) Which of the following is found ONLY in oligopoly?

• A) producers who sell identical products

• B) one firm's actions affect another firm's profit

• C) entry into the industry is blocked

• D) sellers face a downward sloping demand curve for their product

In an oligopoly, there are

• A) many firms and barriers to entry.

• B) many firms and no barriers to entry.

• C) few firms and barriers to entry.

• D) few firms and no barriers to entry.

A cartel is a collusive agreement among a number of firms that is designed to

• A) expand output and lower prices but not to a predatory level.

• B) restrict output and lower prices to a predatory level.

• C) restrict output and raise prices.

• D) expand output and raise prices.

• E) expand output and lower prices to a predatory level.

The fact that firms in oligopoly are interdependent means that

• A) there are barriers to entry.

• B) one firm's profits are affected by other firms' actions.

• C) they can produce either identical or differentiated goods.

• D) there are too many of them for any one firm to influence price.

• E) they definitely compete with each other so that the price is driven down to the monopoly level.

Consider Travel Trains and The Trolley — the only 2 firms that provide tourist transportation in a resort town. These two firms know that

• A) their actions affect each others' profits.

• B) they have no control over the prices they charge.

• C) they must price discriminate in order to earn a profit.

• D) they cannot earn an economic profit in the long run.

• E) it is legal for them to jointly determine their prices because they are the only two firms in the market.

When firms in an oligopoly successfully collude and do not cheat on a cartel agreement, they can make a long-run economic profit similar to

• A) perfect competition.

• B) monopoly.

• C) monopolistic competition.

• D) non-colluding oligopolies.

• E) the firms in regulated industries.

If firms in an oligopolistic industry consistently cut their price to sell more output, what price and output will result?

• A) the monopoly price and output

• B) the competitive price and output

• C) the monopolistically competitive price and output

• D) a price lower than the competitive price and less output than the competitive amount

• E) a price lower than the competitive price and more output than the competitive amount

The graph shows the market for the two zipline firms that operate in a resort city. If the firms decide to ________, they will ________.

• A) compete; serve 400 riders together

• B) compete; serve 200 riders together

• C) collude; serve 400 riders together

• D) act like a cartel; be operating illegally

• E) A and D are both correct.

The graph shows the market for the two zipline firms that operate in a resort city. If the firms maximize profit and decide to collude, together they will produce ________ rides at a price of ________ per ride.

• A) 200; $50

• B) between 200 and 400; between $30 and $50

• C) 200; $30

• D) 400; $50

• E) 400; $30