Deck 7: Cartels and Oligopoly

Question 1

Which of the following methods can be used to sustain a cartel?

A)removing barriers to entry
B)trade groups
C)acts of self- interest
D)the use of binding contracts

Answer 1

B

Question 2

If a cartel firm is producing the agreed upon quantity, they are producing at a level where .

A)their marginal revenue equals their marginal cost
B)their marginal cost exceeds their marginal revenue
C)the difference between marginal revenue and marginal cost (MR - MC)is negative
D)their marginal revenue exceeds their marginal cost

Answer 2

D

Question 3

If a cartel firm is producing a quantity at which the marginal revenue is equal to the marginal cost, the firm .

A)is producing less than the agreed upon quantity
B)is not producing the agreed upon quantity
C)has erected a barrier to entry
D)has not acted in self- interest

Answer 3

B

Question 4

Cartels are unstable due to all of the following factors except which one?

A)incentive to act in self- interest
B)trade groups
C)incentive for each firm to serve as the whistle- blower
D)entry of new firms into the market

Question 5

If a cartel firm is producing a quantity at which the marginal revenue is $4 and the marginal cost is $4, the firm .

A)has acted in self- interest
B)has erected a barrier to entry
C)is producing the agreed upon quantity
D)is producing less than the agreed upon quantity

Question 6

A market with four firms in competition with each other has a equilibrium price of $6 and equilibrium quantity of 100,000. If the four firms form a cartel, the cartel, set price will be than $6 and the set quantity will be _ than 100,000.

A)greater; less
B)less; greater
C)greater; greater
D)less; less

Question 7

If a cartel firm is producing a quantity at which the marginal revenue is $2 and the marginal cost is $2, the firm .

A)is producing the agreed upon quantity
B)has acted in self- interest
C)is producing less than the agreed upon quantity
D)has erected a barrier to entry

Question 8

A market with three firms in competition with each other has a equilibrium price of $5 and equilibrium quantity of 10,000. If the three firms form a cartel, the cartel, set price will be _ than $5 and the set quantity will be than 10,000.

A)greater; less
B)less; greater
C)greater; greater
D)less; less

Question 9

If new firms enter a cartel market, the probability that the cartel will survive _ if the cartel .

A)increases; includes or excludes the new firms from the agreement
B)decreases; includes or excludes the new firms from the agreement
C)decreases; excludes the new firms from the agreement, but not if the cartel includes the new firms
D)increases; excludes the new firms from the agreement, but not if the cartel includes the new firms

Question 10

If a member of a cartel is the first to alert authorities to the cartel behavior, which of the following will occur to this member firm?

A)The firm will face monetary fines, but its managers will not face jail time.
B)The firm will not face monetary fines, but its managers will face jail time.
C)The firm will face both monetary fines and jail time.
D)The firm will not be penalized.

Question 11

Self- interest makes cartels unstable for all of the following reasons except which one?

A)Each firm has the incentive to produce more than the agreed upon quantity.
B)Each firm has an incentive to be the whistle- blower.
C)Each firm has the incentive to lower their costs by producing less than the agreed upon quantity.
D)Each firm has an incentive to be the first to report and confess cartel behavior.

Question 12

A market with four firms in competition with each other has a equilibrium price of $25 and equilibrium quantity of 200,000. If the four firms form a cartel, the cartel, set price will be than $25 and the set quantity will be than 200,000.

A)greater; less
B)less; greater
C)greater; greater
D)less; less

Question 13

A small nation has three gasoline suppliers with a linear monthly market demand equal to: Q = 500,000 - 5P. Each firm's marginal cost (MC)and average total cost (ATC)curves are horizontal at $10,000 per month.
Refer to the information above. What is the vertical intercept of the demand curve?

A)0.50
B)500,000
C)100,000
D)0.20

Question 14

Because cartel firms produce a quantity that maximize their own firm's profits, there is an incentive to .

A)does; act in self- interest
B)does not; produce less than the agreed upon amount
C)does; produce more than the agreed upon amount
D)does not; act in self- interest

Question 15

Cartels are unstable for each of the following reasons except which one?

A)entry by new firms
B)the self- interest of each member
C)the bargaining necessary to form a cartel
D)barriers to entry

Question 16

If a member of a cartel is the first to alert authorities to the cartel behavior, which of the following will occur to this member firm?

A)The firm's most senior managers will face jail time.
B)The firm will not be considered whistle- blowers.
C)The firm will face significant fines.
D)The firm will not be penalized.

Question 17

Because an oligopoly includes a small number of firms, there is the possibility of _ rather than , which can _ profits for each of the firms.

A)cooperation; competition; decrease
B)competition; cooperation; decrease
C)competition; cooperation; increase
D)cooperation; competition; increase

Question 18

A small nation has three gasoline suppliers with a linear monthly market demand equal to: Q = 500,000 - 5P. Each firm's marginal cost (MC)and average total cost (ATC)curves are horizontal at $10,000 per month.
Refer to the information above. What is slope of the demand curve?

A)- 0.20
B)- 5
C)0.20
D)5

Question 19

A small nation has three gasoline suppliers with a linear monthly market demand equal to: Q = 500,000 - 5P. Each firm's marginal cost (MC)and average total cost (ATC)curves are horizontal at $10,000 per month.
Refer to the information above. If the firms compete, what is the equilibrium price in the market?

A)$100,000
B)$10,000
C)$500
D)$50,000

Question 20

All of the following are true regarding cartels except which one?

A)They are stable.
B)They are illegal.
C)They set the price higher than the competitive price.
D)They create a deadweight loss.

Question 21

All else equal, a cartel sets the price higher and produces less than in a competitive market.

Question 22

It is more likely for tacit collusion to occur in the _ market compared to the _ market.

A)paper towel; luxury cruise ship
B)dog food; luxury cruise ship
C)paper towel; commercial airline
D)luxury cruise ship; paper towel

Question 23

Which of the following is true regarding tacit collusion?

A)It is an informal, unstated agreement.
B)It is more likely to occur when the price elasticity of demand is large.
C)It is illegal.
D)It is more likely to occur when barriers to entry are low.

Question 24

Tacit collusion is more likely to occur when firms' costs closely related and their products close substitutes.

A)are not; are not
B)are; are not
C)are not; are
D)are; are

Question 25

All of the following are true regarding tacit collusion except which one?

A)It harms buyers.
B)It is more likely when barriers to entry are high.
C)It is an informal, unstated agreement.
D)It is more likely when the price elasticity of demand is large.

Question 26

In order to sustain a cartel, members are required to sign binding contracts.

Question 27

It is more likely for tacit collusion to occur in the _ market compared to the _ market.

A)fast food; commercial airline
B)commercial airline; fast food
C)dog food; commercial airline
D)dog food; cellular telephone provider

Question 28

Which of the following is true regarding tacit collusion?

A)It is illegal.
B)It is more likely to occur when barriers to entry are low.
C)It is more likely to occur when the price elasticity of demand is small.
D)It is a formal agreement.

Question 29

A small nation has three gasoline suppliers with a linear monthly market demand equal to: Q = 500,000 - 5P. Each firm's marginal cost (MC)and average total cost (ATC)curves are horizontal at $10,000 per month.
Refer to the information above. If the firms compete, what is the equilibrium quantity in the market?

A)45,000
B)50,000
C)450,000
D)500,000

Question 30

A small nation has three gasoline suppliers with a linear monthly market demand equal to: Q = 500,000 - 5P. Each firm's marginal cost (MC)and average total cost (ATC)curves are horizontal at $10,000 per month.
Refer to the information above. If the firms' managers form a price- fixing cartel that maximizes the firms' total profit, what is price charged in the market?

A)$55,000
B)$5,500
C)$100,000
D)$10,000

Question 31

All of the following are true regarding tacit collusion except which one?

A)It is more likely when firms' costs are closely related and their products are close substitutes.
B)It harms buyers.
C)It is more likely when barriers to entry are low.
D)It is an informal, unstated agreement.

Question 32

In tacit collusion, price visibility the cost of cheating and the temptation to cheat.

A)decreases; decreases
B)decreases; increases
C)increases; decreases
D)increases; increases

Question 33

Each firm in a cartel has an incentive to cheat on the agreement and produce less than the bargained amount.

Question 34

Firms in a cartel produce a quantity at which marginal revenue exceeds marginal cost.

Question 35

All of the following are true regarding tacit collusion except which one?

A)It is more likely when the price elasticity of demand is small.
B)It is more likely when barriers to entry are high.
C)It harms buyers.
D)It is illegal.

Question 36

A small nation has three gasoline suppliers with a linear monthly market demand equal to: Q = 500,000 - 5P. Each firm's marginal cost (MC)and average total cost (ATC)curves are horizontal at $10,000 per month.
Refer to the information above. If the firms' managers form a price- fixing cartel that maximizes the firms' total profit, what is the total quantity produced by all firms?

A)45,000
B)22,000
C)225,000
D)450,000

Question 37

If new firms enter a cartel market, the cartel can either incorporate the new firms into the agreement or exclude them, but regardless of inclusion or exclusion, the probability that the cartel will survive decreases.

Question 38

A small nation has three gasoline suppliers with a linear monthly market demand equal to: Q = 500,000 - 5P. Each firm's marginal cost (MC)and average total cost (ATC)curves are horizontal at $10,000 per month.
Refer to the information above. If the firms compete, how much do each of the firms earn in profit?

A)$10,000
B)$50,000
C)$0
D)$100,000

Question 39

It is more likely for tacit collusion to occur in the _ market compared to the _ market.

A)fast food; commercial airline
B)fast food; electric car
C)dog food; electric car
D)electric car; fast food

Question 40

A small nation has three gasoline suppliers with a linear monthly market demand equal to: Q = 500,000 - 5P. Each firm's marginal cost (MC)and average total cost (ATC)curves are horizontal at $10,000 per month.
Refer to the information above. If the firms' managers form a price- fixing cartel that maximizes the firms' total profit, what is the total economic profit made by all firms?

A)$575,000,000
B)$10,125,000,000
C)3,375,000,000
D)$54,000,000

Question 41

If Happy Campers advertises a 120 day low- price guarantee that will refund any of its customers the difference between the price they paid for a camper and a lower price offered by Happy Campers for the same camper, this is an example of .

A)a meet- the- competition clause
B)a meet- or- release clause
C)price visibility
D)a most- favored- customer clause

Question 42

If Big City Cameras advertises a 90 day low- price guarantee that will refund any of its customers the difference between the price they paid for a camera and a lower price offered by Big City Cameras for the same camera, this is an example of .

A)a meet- or- release clause
B)a most- favored- customer clause
C)a meet- the- competition clause
D)price visibility

Question 43

Most- favored- customer clauses can help support tacit collusion.

Question 44

If Best Office Supply states that it will meet any competitor's price on a 500 pack of copy paper and beat it by 10 percent, this is an example of .

A)a preannouncement
B)a barrier to entry
C)a meet- the- competition clause
D)price leadership

Question 45

If Big City Appliances is in tacit collusion with three smaller appliance firms and Big City Appliances consistently makes price changes that the other three firms then also make, this is an example of by Big City Appliances.

A)a precommitment
B)a meet- the- competition clause
C)a meet- or- release clause
D)price leadership

Question 46

If Fuel is Us is in tacit collusion with four smaller propane delivery firms and Fuel is Us consistently makes price changes that the other four firms then also make, this is an example of by Fuel is Us.

A)a meet- the- competition clause
B)a meet- or- release clause
C)a precommitment
D)price leadership

Question 47

If Big City Electronics is in tacit collusion with two smaller electronics firms and Big City Electronics consistently makes price changes that the other two firms then also make, this is an example of by Big City Electronics.

A)a meet- the- competition clause
B)a precommitment
C)a meet- or- release clause
D)price leadership

Question 48

Four propane delivery firms have a tacit agreement to charge a service fee of $50 in addition to $5 per gallon of propane. If the firms' cost of propane increases and one of the four firms advertises that it will increase the service fee to $75 and raise the cost of a gallon of propane to $5.50 next month, this is an example of _ .

A)price leadership
B)a meet- the- competition clause
C)a preannouncement
D)a precommitment

Question 49

When firms have a tacit collusion agreement, if prices are highly visible, this decreases the cost of cheating.

Question 50

Price visibility can work both for and against tacit collusion.

Question 51

If Happy Campers is in tacit collusion with four smaller camping firms and Happy Campers consistently makes price changes that the other four firms then also make, this is an example of by Happy Campers.

A)a precommitment
B)a meet- the- competition clause
C)price leadership
D)a meet- or- release clause

Question 52

A common contractual precommitment strategy is .

A)price visibility
B)a meet- or- release clause
C)a most- favored- customer clause
D)a meet- the- competition clause

Question 53

If Capital Appliances advertises a 60 day low- price guarantee that will refund any of its customers the difference between the price they paid for an appliance and a lower price offered by Capital Appliances for the same appliance, this is an example of .

A)a most- favored- customer clause
B)price visibility
C)a meet- the- competition clause
D)a meet- or- release clause

Question 54

The primary function of meet- the- competition clauses is to win customers.

Question 55

If Cruise the World advertises a 30 day low- price guarantee that will refund any of its customers the difference between the price they paid for a cruise and a lower price offered by Cruise the World for the same cruise, this is an example of .

A)a most- favored- customer clause
B)a meet- the- competition clause
C)a meet- or- release clause
D)price visibility

Question 56

If Mario's pizza states that it will meet any competitor's price on a 12 inch, one topping pizza, this is an example of .

A)a preannouncement
B)price leadership
C)a meet- the- competition clause
D)a high barrier to entry

Question 57

Four propane delivery firms have a tacit agreement to charge a service fee of $50 in addition to $5 per gallon of propane. If the firms' cost of propane increases and one of the four firms advertises that it will increase the service fee to $75 next month, this is an example of .

A)a precommitment
B)a preannouncement
C)price leadership
D)a meet- the- competition clause

Question 58

Tacit collusion is more likely to occur in the commercial airline market than the fast food market.

Question 59

Four propane delivery firms have a tacit agreement to charge a service fee of $50 in addition to $5 per gallon of propane. If the firms' cost of propane increases and one of the four firms advertises that it will increase the cost of a gallon of propane to $5.50 next month, this is an example of .

A)a precommitment
B)a meet- the- competition clause
C)a preannouncement
D)price leadership

Question 60

If Cruise the World is in tacit collusion with three smaller cruise firms and Cruise the World consistently makes price changes that the other three firms then also make, this is an example of by Cruise the World.

A)a meet- the- competition clause
B)price leadership
C)a precommitment
D)a meet- or- release clause

Question 61

If Happy Cleaners and Sparkle Cleaners are in a Cournot oligopoly and Happy Cleaners has a higher cost of production than Sparkle Cleaners, in equilibrium, Happy Cleaners will produce than Sparkle Cleaners and earn an economic profit that is Sparkle Cleaners.

A)more; less than
B)less; the same as
C)more; the same as
D)less; less than

Question 62

and oligopolies are similar in that they both compete on quantity.

A)Stackelberg; Bertrand
B)Stackelberg; Chamberlin
C)Cournot; Bertrand
D)Cournot; Stackelberg

Question 63

Cournot and Stackelberg oligopolies are similar in that they .

A)both compete on quantity
B)do not compete
C)both compete on marginal cost
D)both compete on price

Question 64

If Happy Cleaners and Sparkle Cleaners are in a Cournot oligopoly, the Cournot equilibrium will .

A)occur at the intersection of Happy Cleaners' and Sparkle Cleaners' best- response curves
B)only occur if Happy Cleaners and Sparkle Cleaners form a cartel
C)occur at a point on Happy Cleaners' best- response curve, but not Sparkle Cleaners' best- response curve
D)provide an incentive for both firms to adjust their output

Question 65

As the number of firms in a Cournot oligopoly , the equilibrium quantity gets closer to the equilibrium quantity.

A)decreases; monopolistically competitive
B)increases; monopoly
C)decreases; perfectly competitive
D)increases; perfectly competitive

Question 66

If Happy Cleaners and Sparkle Cleaners are in a Cournot oligopoly and Happy Cleaners has a lower cost of production than Sparkle Cleaners, in equilibrium, Happy Cleaners will produce than Sparkle Cleaners and charge a price that is _ Sparkle Cleaners.

A)more; less than
B)less; the same as
C)less; greater than
D)more; the same as

Question 67

In a Cournot oligopoly, managers determine quantity collusion and the managers at each firm believe that once their rival managers choose their quantity, they change it.

A)with no; will
B)with; will
C)with no; will not
D)with; will not

Question 68

The Chamberlin oligopoly provides a foundation for _ _ and differs from the Cournot oligopoly as it assumes firms to each other's actions.

A)tacit collusion; do not respond
B)cartels; do not respond
C)cartels; respond
D)tacit collusion; respond

Question 69

The leader in a Stackelberg oligopoly with a linear demand and marginal cost produces than the follower second firm, charges price, and earns than the follower in economic profit.

A)more; a higher; less
B)more; the same; more
C)less; the same; more
D)more; a higher; more

Question 70

In a Cournot oligopoly, if the demand curve is not linear, the firms' best- response curves _ be downward sloping and be linear.

A)will not; will
B)will; will
C)will; will not
D)will not; will not

Question 71

If Happy Cleaners and Sparkle Cleaners are in a Cournot oligopoly and Happy Cleaners has a lower cost of production than Sparkle Cleaners, in equilibrium, Happy Cleaners will produce than Sparkle Cleaners and earn an economic profit that is Sparkle Cleaners.

A)more; more than
B)more; the same as
C)less; the same as
D)less; more than

Question 72

A perfectly competitive market is in equilibrium and 50,000 units are being produced. If four firms take over this market and a Cournot oligopoly is formed, what is the new total equilibrium quantity produced?

A)62,500
B)60,000
C)40,000
D)50,000

Question 73

In a Cournot oligopoly, the firms in the market, the _ the equilibrium quantity and the the equilibrium price.

A)more; larger; lower
B)more; smaller; higher
C)less; smaller; lower
D)less; larger; lower

Question 74

If Happy Cleaners and Sparkle Cleaners are in a Cournot oligopoly and Happy Cleaners has a higher cost of production than Sparkle Cleaners, in equilibrium, Happy Cleaners will produce than Sparkle Cleaners and charge a price that is _ Sparkle Cleaners.

A)less; greater than
B)more; the same as
C)more; less than
D)less; the same as

Question 75

In a Bertrand oligopoly, firms select and earn _ economic profit.

A)quantity; positive
B)price; zero
C)quantity; zero
D)price; positive

Question 76

All of the following are true for the leader firm in a Stackelberg oligopoly with a linear demand and marginal cost except which one?

A)The leader earns more profit than if it operated in a Chamberlin oligopoly.
B)The leader has first- mover advantage.
C)The leader earns more profit than the follower second firm.
D)The leader takes the follower second firm's best- response production into consideration when determining its output level.

Question 77

Happy Cleaners is a monopoly and cleans 500 homes a month. If Sparkle Cleaners enters the market and a Chamberlin oligopoly is formed, Sparkle Cleaners will clean homes a month in equilibrium.

A)375
B)200
C)250
D)500

Question 78

A perfectly competitive market is in equilibrium and 100,000 units are being produced. If three firms take over this market and a Cournot oligopoly is formed, what is the new total equilibrium quantity produced?

A)75,000
B)133,333
C)100,500
D)82,500

Question 79

All else equal, two firms in a Chamberlin oligopoly will charge a price than two firms in a Cournot oligopoly and earn economic profit.

A)lower; more
B)higher; more
C)lower; less
D)higher; less

Question 80

In a Cournot oligopoly, the total profit is less when two firms compete compared to the cartel profits.