Oligopoly and Monopolistic Competition Review

Which of the following best describes an oligopistic market?

• Many sellers with identical barriers to entry

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

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

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

• No competition among sellers and high barriers to entry

• Neither company has a dominant strategy

• Both companies have an incentive to reduce production by 10%

• Both companies have an incentive to reduce production by 20%

• Only UA have an incentive to reduce production by 20%

• Only UB have an incentive to reduce production by 20%

Game theory is used to explain

• why firms price discriminate

• how monopolies evolve into oligopolies

• strategic behavior of firms in oligopoly

• profit maximization in monopoly

• price leadership of monopolistic competition

Based on the payoff matrix, which of the following is correct?

• Firm A always gets a smaller share of the industry profits.

• Firm A’s dominant strategy is to advertise.

• Firm B’s dominant strategy is not to advertise.

• The dominant strategy for both firms is not to advertise.

• Neither firm has a dominant strategy.

Monopolistically competitive product markets are inefficient because

• price equals the marginal value to the buyer of the last item produced

• price is greater than marginal cost

• excessive competition prevents other firms from entering the market

• homogeneous goods are usually overpriced

• short-run economic profit-making opportunities exist

One difference between oligopolies and monopolistically competitive markets is that

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

• the products sold in monopolistically competitive markets are identical

• oligopolies have fewer barriers to entry

• firms maximize profits in monopolistically competitive markets but not in oligopolies

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