Deck 14: Oligopoly and Monopolistic Competition

Question 1

Homogeneous goods are ________.

A) perfect complements
B) perfect substitutes
C) similar but not identical
D) always inferior goods

Answer 1

perfect substitutes

Question 2

The U.S.book publishing industry is an example of ________.

A) perfect competition
B) oligopoly with differentiated products
C) oligopoly with homogeneous products
D) monopolistic competition

Answer 2

monopolistic competition

Question 3

The difference between an oligopoly with differentiated products and a monopolistic competition is ________.

A) how many inputs firms use
B) how many products firms produce
C) how many firms there are in the market
D) how much influence firms have over prices

Answer 3

how much influence firms have over prices

Question 4

________ is a market structure in which there are a few rival firms.

A) Perfect competition
B) Monopolistic competition
C) A monopoly
D) An oligopoly

Question 5

Goods that are similar but are not perfect substitutes are called ________ goods.

A) differentiated
B) homogeneous
C) normal
D) inferior

Question 6

Differentiated products can be found in ________.

A) perfect competition and monopoly market structures
B) perfect competition only
C) oligopoly and monopolistic competition market structures
D) monopoly only

Question 7

________ are examples of differentiated goods.

A) Books and cosmetics
B) Fuel and water
C) Potatoes grown by different farmers
D) Tea and energy drinks

Question 8

The pie chart below shows the market shares of various desktop operating systems in 2013 (http://www.netmarketshare.com/).

Different operating systems have different look and feel and different features from one another.Based on this information,which of the following best describes the structure of desktop OS market?

A) A monopoly
B) A monopolistic competition
C) An oligopoly with differentiated products
D) An oligopoly with homogeneous products

Question 9

The U.S.car manufacturing industry is an example of ________.

A) oligopoly with homogeneous products
B) oligopoly with differentiated products
C) monopolistic competition
D) perfect competition

Question 10

U.S.Code Title 18 § 1696 states
Whoever establishes any private express for the conveyance of letters or packets,or in any manner causes or provides for the conveyance of the same by regular trips or at stated periods over any post route which is or may be established by law,or from any city,town,or place to any other city,town,or place,between which the mail is regularly carried,shall be fined not more than $500 or imprisoned not more than six months,or both.
The Code of Federal Regulation (CFR)Title 39 Section 310.2 states
It is generally unlawful under the Private Express Statutes for any person other than the Postal Service in any manner to send or carry a letter on a post route or in any manner to cause or assist such activity.Violation may result in injunction,fine or imprisonment or both and payment of postage lost as a result of the illegal activity.
Under these laws,the U.S.Postal Service ________.

A) has a monopoly power over private express mail
B) has a comparative advantage over private express mail
C) competes in an oligopoly market for private express mail
D) competes in a monopolistic competition against other private express mail carriers

Question 11

________ is a market structure in which many rival firms produce differentiated products.

A) Perfect competition
B) Monopolistic competition
C) A monopoly
D) An oligopoly

Question 12

Differentiate between oligopoly and monopolistic competition on the basis of the number of firms and the degree of product differentiation.

Question 13

Which of the following is an example of a monopolistically competitive market?

A) The market for wheat
B) The market for coffee beans
C) The market for shampoo
D) The market for premium cars

Question 14

There are about 2,000 nail salons in New York City.Most salons are small businesses and offer a wide array of services.Based on this information,which of the following best describes the structure of this market in New York City?

A) A monopoly
B) A monopolistic competition
C) An oligopoly with differentiated products
D) An oligopoly with homogeneous products

Question 15

The Code of Federal Regulation (CFR)Title 39 Section 320.6 allows delivery of certain types of mail,generally called "extremely urgent" mail,by someone other than the U.S.Postal Service.Today,FedEx and UPS hold more than 75 percent of market share in the delivery of items permitted under the law.This is an example of ________.

A) a (near) monopoly
B) a (near) duopoly
C) a monopolistic competition
D) a competitive market

Question 16

Which option correctly sorts different market structures in terms of competitiveness,from the most competitive to the least?

A) Perfect competition, monopolistic competition, oligopoly, monopoly
B) Perfect competition, oligopoly, monopolistic competition, monopoly
C) Monopolistic competition, perfect competition, monopoly, oligopoly
D) Perfect competition, monopolistic competition, monopoly, oligopoly

Question 17

Homogeneous products are found in ________.

A) perfect competition and oligopoly market structures
B) monopoly only
C) perfect competition only
D) perfect competition and monopoly market structures

Question 18

Which option correctly sorts different market structures in terms of number of firms operating in them,from the most to the least?

A) Perfect competition, monopolistic competition, oligopoly, monopoly
B) Perfect competition, oligopoly, monopolistic competition, monopoly
C) Monopolistic competition, perfect competition, monopoly, oligopoly
D) Perfect competition, monopolistic competition, monopoly, oligopoly

Question 19

Which of the following markets is an oligopoly?

A) The market for premium apparel
B) The market for books
C) The market for video games
D) The market for wheat

Question 20

All firms in a monopolistically competitive industry face a ________ demand curve,so they have ________.

A) flat; no market power
B) flat; market power
C) downward-sloping; no market power
D) downward-sloping; market power

Question 21

An oligopoly market with identical products is similar to a ________,but the key difference is ________.

A) monopolistic competition market; oligopoly markets are more efficient
B) perfect competition market; oligopoly markets are more efficient
C) monopoly; the oligopolist must recognize the behavior of its competitors
D) monopolistic competition; the oligopolist is a price-taker

Question 22

Scenario: The market demand for soccer balls in a small town is 2,500 units, and there are two rival sports brands selling soccer balls in this town, Sporty and Go! The products of the two brands are identical.
Refer to the scenario above.If ________,the demand for Go!'s soccer balls will be 2,500 units.

A) the price charged by Sporty is higher than the price charged by Go!
B) the price charged by Go! is higher than the price charged by Sporty
C) the price charged by Sporty is equal to the price charged by Go!
D) the price charged by Go! is higher than the cost of producing a ball

Question 23

Under Bertrand competition,________.

A) the Nash equilibrium is marginal cost pricing (the perfectly competitive outcome)
B) the Nash equilibrium is monopoly pricing
C) there are multiple Nash equilibria
D) there is no set of strategies that lead to a Nash equilibrium

Question 24

Scenario: The market demand for soccer balls in a small town is 2,500 units, and there are two rival sports brands selling soccer balls in this town, Sporty and Go! The products of the two brands are identical.

Refer to the scenario above.If Aqua Inc.charges a price of $70 for each unit of Good A and Blu Corp.charges a price of $50,Blu Corp.will face a demand of ________ units.

A) 1,000
B) 1,500
C) 2,000
D) 3,000

Question 25

Alpha Corp.and Beta Corp.are the only firms in an industry.It is found that Alpha loses its entire market share to Beta when Beta lowers its price.What is the optimum pricing strategy for Alpha?

Question 26

Scenario: The market demand for soccer balls in a small town is 2,500 units, and there are two rival sports brands selling soccer balls in this town, Sporty and Go! The products of the two brands are identical.
Refer to the scenario above.If ________,the demand for Sporty's soccer balls will be 2,500 units.

A) the price charged by Sporty is higher than the price charged by Go!
B) the price charged by Go! is higher than the price charged by Sporty
C) the price charged by Sporty is equal to the price charged by Go!
D) the price charged by Go! is higher than the unit cost of producing a ball

Question 27

There are two firms in an industry,and their products are perfect substitutes for each other.Each firm had a market share of 50 percent and charged equal prices.However,when the demand for the good declined because of a recession,Firm A lowered its price to increase its sales.Firm B responded by lowering its price further.This is an example of the ________ of oligopoly.

A) Bertrand model
B) Cournot model
C) Pigouvian model
D) Pareto model

Question 28

An oligopoly model in which sellers compete on prices rather than quantities is called a ________ model.

A) Bertrand
B) Cournot
C) Pigouvian
D) Pareto

Question 29

An oligopoly market with differentiated products is similar to a ________,but the key difference is ________.

A) monopolistic competition market; oligopoly markets are more efficient
B) perfect competition market; oligopoly markets are more efficient
C) monopoly; the oligopolist must recognize the behavior of its competitors
D) monopolistic competition; there is no free entry in oligopoly

Question 30

Scenario: Suppose there are only two firms in an industry, and their products are perfect substitutes for each other. Each firm had a fixed marginal cost of $5 and zero fixed cost of operation. The highest the consumers of this product are willing to pay for it is $10, and there are 200 consumers in this market.
Refer to the scenario above.Suppose Firm 1 and Firm 2 have to come up with a pricing strategy simultaneously.In this case,Firm 1 will charge ________,and firm 2 will charge ________.

A) $10; $10
B) $10; $5
C) $5; $10
D) $5; $5

Question 31

Which of the following is a feature of an oligopoly?

A) There are a large number of sellers in this market.
B) There are no barriers to entry in this market.
C) Each firm in this market earns zero economic profits.
D) Each firm's actions affect the decisions of its rivals in this market.

Question 32

A duopoly in which each firm produces a homogeneous good is called a ________.

A) Bertrand competition
B) Cournot competition
C) Stackelberg competition
D) Sweazy competition

Question 33

Scenario: Suppose there are only two firms in an industry, and their products are perfect substitutes for each other. Each firm had a fixed marginal cost of $5 and zero fixed cost of operation. The highest the consumers of this product are willing to pay for it is $10, and there are 200 consumers in this market.
Refer to the scenario above.Suppose Firm 1 announces that it will charge $10 for its product.Then the optimal decision of Firm 2 will be to charge ________,and Firm 2 will then get ________ of the market share.

A) $9.99; 100 percent
B) $10; 50 percent
C) $5; 100 percent
D) $5; 50 percent

Question 34

Under Bertrand competition,________.

A) each firm produces until Price = Marginal cost
B) each firm produces until Price = Average variable cost
C) each firm produces until Marginal revenue = Marginal cost and then reads price off of the demand curve
D) none of the above

Question 35

Scenario: The market demand for soccer balls in a small town is 2,500 units, and there are two rival sports brands selling soccer balls in this town, Sporty and Go! The products of the two brands are identical.
Refer to the scenario above.If ________,the demand for Sporty's soccer balls will be 1,250 units.

A) the price charged by Sporty is higher than the price charged by Go!
B) the price charged by Go! is higher than the price charged by Sporty
C) the price charged by Sporty is equal to the price charged by Go!
D) the price charged by Sporty is higher than the cost of production of each ball

Question 36

Which of the following is a difference between an oligopoly with homogeneous products and a monopoly?

A) The firms in an oligopoly with homogeneous products earn positive economic profits in the long run, while a monopoly earns zero economic profits in the long run.
B) The firms in an oligopoly with homogeneous products face stiff competition from their rivals, while there is no competition in a monopoly.
C) There are huge barriers to entry in an oligopoly with identical products, while there are no barriers to entry in a monopoly.
D) The firms in an oligopoly with identical products charge a price higher than marginal cost in the long run, while a monopoly charges a price lower than marginal cost in the long run.

Question 37

________ is a market structure with only two competing firms

A) A duopoly
B) Perfect competition
C) A monopoly
D) Monopolistic competition

Question 38

Which of the following is a difference between an oligopoly with differentiated products and a monopolistically competitive market?

A) There are no barriers to entry in an oligopoly with differentiated products, while there are huge barriers to entry in a monopolistically competitive market.
B) There are huge barriers to entry in an oligopoly with differentiated products, while there are minimal barriers to entry in a monopolistically competitive market.
C) Firms in an oligopoly with differentiated products charge a price higher than marginal cost in the long run, while firms in a monopolistically competitive market charge a price lower than marginal cost in the long run.
D) Firms in an oligopoly with differentiated products charge a price lower than average total cost in the long run, while firms in a monopolistically competitive market charge a price higher than average total cost in the long run.

Question 39

A duopoly (two-firm industry)is an example of ________.

A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly

Question 40

Scenario: The market demand for soccer balls in a small town is 2,500 units, and there are two rival sports brands selling soccer balls in this town, Sporty and Go! The products of the two brands are identical.

Refer to the scenario above.The market for Good A in Corinthia is an example of a ________.

A) monopoly
B) duopoly
C) monopolistically competitive market
D) perfectly competitive market

Question 41

Which of the following is true when a Nash equilibrium is reached in a duopoly with homogeneous products?

A) Both firms earn positive economic profits.
B) Each firm charges a price equal to its average fixed cost.
C) Both firms earn zero economic profits.
D) Both firms incur huge losses.

Question 42

The market outcome in a duopoly with homogeneous products is similar to that in ________.

A) a perfectly competitive market
B) a monopolistically competitive market
C) a monopoly
D) an oligopoly with differentiated products

Question 43

How is a duopoly model with homogeneous products similar to the prisoners' dilemma game?

Question 44

A duopolist faces the entire market demand for its product if ________.

A) it charges a lower price than its rival
B) it charges a higher price than its rival
C) it charges the same price as its rival
D) it charges a price higher than its cost of production

Question 45

Which of the following will happen if a firm in a duopoly with homogeneous products increases its price above its marginal cost once a Nash equilibrium is reached?

A) The firm will earn huge economic profits.
B) The firm will gain market share.
C) The firm will lose all its customers to its rival.
D) The firm will continue to earn zero economic profits.

Question 46

In a duopoly with homogeneous products,the best response of a firm is to charge a lower price than its rival as long as ________.

A) the rival's price is above marginal cost
B) the rival's price is below marginal cost
C) the rival's price is above average cost
D) the rival's price is below average cost

Question 47

There are two firms in an industry,Firm A and Firm B.Both firms sell a homogenous product.If one firm sets a price higher than the other firm,then all the demand goes to the firm setting the lower price.If prices are equal,the demand is shared equally between the two firms.The following figure depicts the demand faced by Firm A.What is Firm B's strategy that could explain such a demand curve faced by Firm A?

A) Firm B sets its price to p.
B) Firm B sets its price to p'.
C) Firm B equates Firm A's price for any price between p and p' and never sets a price outside this interval.
D) Firm B sets its price to p' whenever the price of Firm A is greater than p, and sets a price equal to Firm A's whenever Firm A sets its price below p.

Question 48

La Dila and Swiss Pro are the only two firms in an industry.The firms initially charge equal prices for their products,which are perfect substitutes.What happens if La Dila decides to lower its price slightly?

A) La Dila will lose all its market share.
B) Swiss Pro will gain market share.
C) La Dila will face the entire market demand.
D) Swiss Pro will earn positive economic profits.

Question 49

In an oligopoly industry with differentiated products,price ________.

A) typically increases as the number of firms increases
B) is unaffected by the number of firms in the industry
C) typically decreases as the number of firms increases
D) is always the same as the monopoly price

Question 50

Scenario: The market demand for soccer balls in a small town is 2,500 units, and there are two rival sports brands selling soccer balls in this town, Sporty and Go! The products of the two brands are identical.

Refer to the scenario above.Each firm will face a demand of ________ units of Good A if both of them charge a price of $60.

A) 1,000
B) 1,500
C) 2,000
D) 3,000

Question 51

In an oligopoly with differentiated products,firms ________.

A) earn positive economic profits
B) incur losses
C) earn zero economic profits
D) do not face competition from their rivals

Question 52

La Dila and Swiss Pro are the only two firms in an industry.The firms charge equal prices for their products,which are perfect substitutes.La Dila decides to lower its price slightly.Swiss Pro responds by cutting its price further.This price cutting will continue as long as each firm's ________.

A) price is lower than its marginal cost
B) price is higher than its marginal cost
C) price is higher than zero
D) price is higher than its average fixed cost

Question 53

Scenario: The market demand for soccer balls in a small town is 2,500 units, and there are two rival sports brands selling soccer balls in this town, Sporty and Go! The products of the two brands are identical.

Refer to the scenario above.If the marginal cost of producing the last unit of the good is $40,a Nash equilibrium will occur when both firms charge a price of ________.

A) $20
B) $40
C) $60
D) $70

Question 54

The quantity demanded for a duopolist's product is zero if ________.

A) it charges a lower price than its rival
B) it charges a higher price than its rival
C) it charges the same price as its rival
D) it can produce the product at a low cost

Question 55

The following table shows the payoffs (profits) of the two firms in a duapoly industry who produce a nondifferentiated product. Each firm has two options: charge a high price of $70, or the minimum possible price of $50. The first number in the payoff cells is the profit of Firm A, and the second number is the profit of Firm B. Assume that both firms are after maximum profit.

Refer to the table above.What is the equilibrium result in this duopoly market?

A) Firm A charging $70, and Firm B charging $70
B) Firm A charging $70, and Firm B charging $50
C) Firm A charging $50, and Firm B charging $70
D) Firm A charging $50, and Firm B charging $50

Question 56

If firms in a duopoly with homogeneous products compete on price,a Nash equilibrium is reached when each firm charges a price ________.

A) equal to its average cost
B) higher than its average cost
C) equal to its marginal cost
D) lower than its marginal cost

Question 57

Scenario: The market demand for soccer balls in a small town is 2,500 units, and there are two rival sports brands selling soccer balls in this town, Sporty and Go! The products of the two brands are identical.

Refer to the scenario above.If Aqua Inc.charges a price of $20 for each unit of Good A and Blu Corp.charges a price of $60,Blu Corp.will ________.

A) face the entire market demand
B) lose all its customers to Aqua Inc.
C) face a demand of 2,000 units
D) face a demand of 1,500 units

Question 58

There are two firms competing à la Bertrand,and Firm A has a marginal cost strictly greater than that of Firm B.What will happen in this case?

A) At the Nash equilibrium, both firms should make positive profits.
B) Both firms will keep undercutting each other until neither firm makes positive profit in equilibrium.
C) Firm A will keep undercutting Firm B until, in equilibrium, Firm A makes positive profit and Firm B makes no profit.
D) Firm B will keep undercutting Firm A until, in equilibrium, Firm B makes positive profit and Firm A makes no profit.

Question 59

The following table shows the payoffs (profits) of the two firms in a duapoly industry who produce a nondifferentiated product. Each firm has two options: charge a high price of $70, or the minimum possible price of $50. The first number in the payoff cells is the profit of Firm A, and the second number is the profit of Firm B. Assume that both firms are after maximum profit.

Refer to the table above.If both firms decide to collude and charge $70 for their product,

A) Firm A is going to change its pricing strategy to $50.
B) Firm B is going to change its pricing strategy to $50.
C) Both Firm A and Firm B are going to change their pricing strategy to $50.
D) Both firms will gain a profit(payoff) greater than $1000 each.

Question 60

What does the term "undercutting" refer to?

Question 61

Which of the following is NOT a factor that enables collusion to work?

A) Cheating on collusive agreements can easily be observed
B) Threats of punishment toward cheating parties are credible
C) Firms are patient (e.g., value future profits highly)
D) Firms collude to set prices rather than output levels

Question 62

The firms in the petroleum industry of Perylia have decided to cooperate with each other by setting their respective market shares.This is an example of ________ in the petroleum industry.

A) cost cutting
B) undercutting
C) collusion
D) free riding

Question 63

Scenario: Two firms, Firm 1 and Firm 2, make differentiated products and compete in a duopoly market. The firms do not have a fixed cost. Firm 1's cost is $30 per unit, while Firm 2's cost is $25 per unit. (So they are the marginal cost and the average total cost). There are 1,000 consumers in this market. The demand is divided between the two firm in the following way:
• If Firm 1's price is less than twice Firm 2's price, then everyone buys from Firm 1.
• If Firm 1's price is more than twice Firm 2's price, then everyone buys from Firm 2.
• If Firm 1's price is equal to twice Firm 2's price, then half of the consumers buy from Firm 1 and the other half buy from Firm 2.
Refer to the scenario above.Suppose Firm 2 sets the price at $25.If Firm 1 sets its price above $50,then its profit is ________.If Firm 1 sets its price above $30 and below $50,then its profit is ________.If Firm 1 sets its price below $30,then its profit is ________.

A) $0; positive; $0
B) $0; negative; $0
C) $0; positive; negative
D) $0; $0; $0

Question 64

The competition faced by firms in an oligopoly with differentiated products is higher than that faced by firms in ________.

A) a duopoly with homogeneous products
B) perfect competition
C) monopolistic competition
D) a monopoly

Question 65

As the number of firms in an oligopolistic market increases,________.

A) prices tend to decline toward marginal cost
B) prices tend to rise above marginal cost
C) the market demand for a good tends to fall
D) the profits earned by firms tend to rise

Question 66

Which of the following will happen if a new firm enters an oligopoly with differentiated products?

A) The market price will fall.
B) The market price will rise.
C) The existing firms will gain market share.
D) Each firm will have an equal market share.

Question 67

A collusion breaks down if ________.

A) a firm charges a higher price than the price set by the other colluding firms
B) a firm charges a lower price than the price set by the other colluding firms
C) the price set by the colluding firms equals the marginal cost of production
D) the price set by the colluding firms exceeds the marginal cost of production

Question 68

Suppose there are only two firms in an industry,and their products are perfect substitutes for each other.Each firm had a fixed marginal cost of $5,and zero fixed cost of operation.The highest the consumers of this product are willing to pay for it is $10,and there are 200 consumers in this market.The two firms agree to collude and come up with a pricing scheme that maximizes their joint profit.The agreed-on price of this collusion will be ________,and this collusion is ________.

A) $10; unstable
B) $10; stable
C) $5; unstable
D) $9.99; stable

Question 69

Which of the following is true of a duopoly with differentiated products?

A) A firm loses all its customers when its rival lowers the price of its product.
B) A firm does not lose all its customers when its rival lowers the price of its product.
C) A firm faces a perfectly elastic demand curve.
D) A firm faces a perfectly inelastic demand curve.

Question 70

Scenario: Two firms, Firm 1 and Firm 2, make differentiated products and compete in a duopoly market. The firms do not have a fixed cost. Firm 1's cost is $30 per unit, while Firm 2's cost is $25 per unit. (So they are the marginal cost and the average total cost). There are 1,000 consumers in this market. The demand is divided between the two firm in the following way:
• If Firm 1's price is less than twice Firm 2's price, then everyone buys from Firm 1.
• If Firm 1's price is more than twice Firm 2's price, then everyone buys from Firm 2.
• If Firm 1's price is equal to twice Firm 2's price, then half of the consumers buy from Firm 1 and the other half buy from Firm 2.
Refer to the scenario above.Suppose Firm 1 sets the price at $50.If Firm 2 sets its price above $25,then its profit is ________.If Firm 2 sets its price below $25,then its profit is ________.If Firm 2 sets its price at $25,then its profit is ________.

A) $0; negative; positive
B) $0; negative; $0
C) $0; positive; negative
D) $0; $0; $0

Question 71

Scenario: Two firms, Firm 1 and Firm 2, make differentiated products and compete in a duopoly market. The firms do not have a fixed cost. Firm 1's cost is $30 per unit, while Firm 2's cost is $25 per unit. (So they are the marginal cost and the average total cost). There are 1,000 consumers in this market. The demand is divided between the two firm in the following way:
• If Firm 1's price is less than twice Firm 2's price, then everyone buys from Firm 1.
• If Firm 1's price is more than twice Firm 2's price, then everyone buys from Firm 2.
• If Firm 1's price is equal to twice Firm 2's price, then half of the consumers buy from Firm 1 and the other half buy from Firm 2.
Refer to the scenario above.Suppose Firm 2 sets the price at $25.What price should Firm 1 set in response?

A) $0
B) $25
C) $30
D) $50

Question 72

Crisps and Smith's are the only two bakeries that sell cookies in a small community.Crisps sells butter cookies,while Smith's sells chocolate cookies.Which of the following will happen if Smith's lowers its price for cookies slightly below Crisps's price?

A) Crisps will lose all its customers to Smith's.
B) Smith's will lose all its customers to Crisps.
C) Crisps will face a lower demand for its cookies.
D) Smith's will face a lower demand for its cookies.

Question 73

OnWheels and Speedstar are the only two manufacturers of sports cars.The cars manufactured by these companies are considered to be close substitutes,but not identical.How should each firm determine its price in this case?

Question 74

Scenario: Two firms, Firm 1 and Firm 2, make differentiated products and compete in a duopoly market. The firms do not have a fixed cost. Firm 1's cost is $30 per unit, while Firm 2's cost is $25 per unit. (So they are the marginal cost and the average total cost). There are 1,000 consumers in this market. The demand is divided between the two firm in the following way:
• If Firm 1's price is less than twice Firm 2's price, then everyone buys from Firm 1.
• If Firm 1's price is more than twice Firm 2's price, then everyone buys from Firm 2.
• If Firm 1's price is equal to twice Firm 2's price, then half of the consumers buy from Firm 1 and the other half buy from Firm 2.
Refer to the scenario above.Suppose Firm 1 sets the price at $50.What price should Firm 2 set in response?

A) At $25 or above
B) Below $25
C) Below $50
D) At $30

Question 75

Which of the following is a difference between an oligopoly with homogeneous products and an oligopoly with differentiated products?

A) There are a large number of sellers in an oligopoly with homogeneous products, while there are only a few sellers in an oligopoly with differentiated products.
B) Firms in an oligopoly with homogeneous products earn positive economic profits in equilibrium, while firms in an oligopoly with differentiated products earn zero economic profits in equilibrium.
C) There are huge barriers to entry in an oligopoly with homogeneous products, while there are no barriers to entry in an oligopoly with differentiated products.
D) Firms in an oligopoly with homogeneous products earn zero economic profits in equilibrium, while firms in an oligopoly with differentiated products earn positive economic profits in equilibrium.

Question 76

Collusion occurs when firms ________.

A) charge a price equal to their marginal cost of production
B) conspire to set the quantity they produce or the prices they charge
C) compete with one another by setting a price slightly lower than their rivals' prices
D) compete with one another by differentiating their products

Question 77

Firms in an oligopoly often do not collude with one another because ________.

A) collusion lowers profit
B) collusion increases the cost of production
C) collusion is illegal
D) collusion increases competition

Question 78

Scenario: Two firms, Firm 1 and Firm 2, make differentiated products and compete in a duopoly market. The firms do not have a fixed cost. Firm 1's cost is $30 per unit, while Firm 2's cost is $25 per unit. (So they are the marginal cost and the average total cost). There are 1,000 consumers in this market. The demand is divided between the two firm in the following way:
• If Firm 1's price is less than twice Firm 2's price, then everyone buys from Firm 1.
• If Firm 1's price is more than twice Firm 2's price, then everyone buys from Firm 2.
• If Firm 1's price is equal to twice Firm 2's price, then half of the consumers buy from Firm 1 and the other half buy from Firm 2.
Refer to the scenario above.Suppose Firm 1 sets its price at $50 and Firm 2 sets its price at $25.Is this a Nash equilibrium? Why?

A) No, because if Firm 1's price is $50, then Firm 2 should set its price below $25.
B) No, because if Firm 2's price is $25, then Firm 1 should set its price below $50.
C) Yes, because (a) if Firm 1's price is $50, then setting price at $25 is Firm 2's best response, and (b) if Firm 2's price is $25, then setting price at $50 is Firm 1's best response.
D) Yes, because (a) if Firm 1's price is $50, then setting price at $25 or below is Firm 2's best response, and (b) if Firm 2's price is $25, then setting price at least $50 is Firm 1's best response.

Question 79

There are a few firms in the automobile industry in Zadmia.To prevent a price war,these firms have secretly agreed to charge a price 20 percent above the marginal cost of production.This is an example of ________.

A) free riding
B) undercutting
C) collusion
D) cost cutting

Question 80

If firms in an oligopoly industry producing differentiated products collude,________.

A) they collectively produce the monopoly output level and divide the monopoly profits
B) they produce the same output level as noncollusive oligopoly, but deter entry
C) they increase output and decrease price to deter entry
D) they collectively produce up until Price = Marginal cost