Deck 18: Oligopoly

Question 1

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.

Answer 1

C

Question 2

If a few oil-producing countries in the Middle East decide to jointly limit the production of oil,

A)they are forming a cartel.
B)they would like the price of oil to be the same as if the market were perfectly competitive.
C)game theory does not apply to their actions because they are nations, not firms.
D)they will try to operate as a large, monopolistically competitive firm.
E)they will agree to lower the price of oil in order to increase their profits.

Answer 2

A

Question 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
E)the firm's demand curve is horizontal

Answer 3

B

Question 4

A firm faces a small number of competitors.This firm is competing in

A)a monopoly.
B)monopolistic competition.
C)an oligopoly.
D)perfect competition.
E)a perfect multi-firm monopoly.

Question 5

"Duopoly" is

A)another name for monopoly.
B)a special type of monopolistic competition.
C)a two-firm oligopoly.
D)a game with three players.
E)the situation when a firm sets a duo (two)of different prices for its customers.

Question 6

Herb's Inc.has a large share of its market and is tempted to collude with the few firms that are in its market.Herb's operates in

A)an oligopoly.
B)a monopolistically competitive market.
C)a monopoly market.
D)a perfectly competitive market.
E)collusively protected market.

Question 7

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.
E)barriers to entry and only one firm.

Question 8

There are two bookstores in a college town.If another bookstore opened, each of the stores would incur an economic loss.This bookstore market is

A)a natural monopoly.
B)a monopoly.
C)monopolistic competition.
D)a natural oligopoly.
E)a legal oligopoly.

Question 9

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 monopolistically competitive market.
D)a monopoly.
E)a natural monopolistically competitive market.

Question 10

An oligopoly created because of economies of scale is called a

A)natural oligopoly.
B)legal oligopoly.
C)public oligopoly.
D)monopolistic oligopoly.
E)scale oligopoly.

Question 11

Firms in an oligopoly
I∙are independent of each others actions.
Ii∙can each influence the market price.
Iii∙ charge a price equal to marginal revenue.

A)i only
B)ii only
C)iii only
D)i and iii
E)i, ii, and iii

Question 12

When economies of scale limit the number of firms in an industry to 3, there is a

A)natural monopoly.
B)natural oligopoly.
C)legal oligopoly.
D)legal cartel.
E)natural monopolistic competition.

Question 13

A cartel is

A)a market structure with a small number of large firms.
B)a market structure with a large number of small firms.
C)a group of firms acting together to raise price, decrease output, and increase economic profit.
D)a market with only two firms.
E)another name for an oligopoly.

Question 14

A cartel is

A)a group of firms selling identical products but at slightly different prices.
B)an agreement among firms to limit output, raise prices, and increase economic profit.
C)the automobile producing industry.
D)the only firm selling a particular product.
E)an illegal agreement among firms which most often arises in monopolistically competitive markets.

Question 15

Daryl's Inc.has formed a cartel with the two other firms in its industry.In which of the following market structures does Daryl's operate?

A)monopolistic competition.
B)oligopoly.
C)perfect competition.
D)monopoly.
E)legally protected monopoly.

Question 16

A firm faces a small number of competitors.This firm is competing in

A)a monopoly.
B)monopolistic competition.
C)an oligopoly.
D)perfect competition.
E)a perfect multi-firm monopoly.

Question 17

A group of firms acting together to limit output, raise price, and increase economic profit is a called a

A)duopoly.
B)monopolistic oligopoly.
C)competitive oligopoly.
D)cartel.
E)multi-firm competitive monopoly.

Question 18

A cartel is most likely to occur in

A)perfect competition as firms compete by reducing cost.
B)oligopoly as firms act together to raise prices and increase profits.
C)monopolistic competition where firms collude to increase profits.
D)oligopoly as firms compete to lower price and increase their own profits.
E)monopoly because it faces no competition.

Question 19

A group of firms that has entered into an agreement to restrict output and increase prices and profits is called

A)a compliance.
B)a cartel.
C)an oligopoly.
D)a duopoly.
E)a multi-firm monopoly.

Question 20

A two-firm oligopoly is called a

A)double monopoly.
B)cartel.
C)duopoly.
D)monopolistic oligopoly.
E)dual-market.

Question 21

The figure above shows the market demand curve and the ATC curve for a firm.If all firms in the market have the same ATC curve, the figure shows a ________ can profitably operate.

A)natural monopoly in which 1 firm
B)natural oligopoly in which 2 firms
C)natural oligopoly in which 3 firms
D)natural oligopoly in which 4 firms
E)natural oligopoly in which 5 or more firms

Question 22

A cartel is a group of firms

A)acting separately to limit output, lower price, and decrease economic profit.
B)acting together to limit output, raise price, and increase economic profit.
C)legally fixing prices.
D)acting together to erect barriers to entry.
E)that compete primarily with each other rather than the other firms in the market.

Question 23

When a city licenses only 3 taxi firms to serve the market, the city has created a

A)cartel.
B)legal monopoly.
C)monopolistically competitive market.
D)legal oligopoly.
E)natural oligopoly.

Question 24

The efficient scale of one firm is 20 units and the average total cost at the efficient scale is $30.The quantity demanded in the market as a whole at $30 is 40 units.This market is

A)a natural duopoly.
B)a legal duopoly.
C)a natural monopoly.
D)a legal monopoly.
E)monopolistically competitive.

Question 25

If an industry has an HHI of 2,500, the market structure is that of

A)a monopoly.
B)monopolistic competition.
C)an oligopoly.
D)perfect competition.
E)either monopoly or perfect competition, depending on the existence or absence of barriers to entry.

Question 26

A market with only two firms is called a

A)duopoly.
B)two-firm monopolistic competition.
C)two-firm monopoly.
D)cartel.
E)two-firm quasi monopoly.

Question 27

The figure above shows the market demand curve and the ATC curve for a firm.If all firms in the market have the same ATC curve, the lowest price at which a firm could stay in business in the long run is ________ per unit and the quantity demanded in the market at that price is ________ units per hour.

A)$20; 4,000
B)$10; 8,000
C)$10; 4,000
D)$20; 2,000
E)$20; 8,000

Question 28

Collusion results when a group of firms
I∙act separately to limit output, lower prices, and decrease economic profits.
Ii∙act together to limit output, raise prices, and increase economic profits.
Iii∙in the United States legally fix prices.

A)i only
B)ii only
C)iii only
D)i and iii
E)ii and iii

Question 29

To determine if a market is an oligopoly, we need to determine if

A)the market's HHI is less than 900.
B)there are many firms in the market.
C)the firms are so few that they recognize their mutual interdependencies.
D)the firms make identical or differentiated products.
E)cartels are legal in their market.

Question 30

The figure above shows the market demand curve and the ATC curve for a firm.If all firms in the market have the same ATC curve, the efficient scale for one firm is ________ units per hour.

A)2,000
B)4,000
C)8,000
D)10,000
E)more than 10,000

Question 31

The figure above shows the market demand curve and the ATC curve for a firm.If all firms in the market have the same ATC curve, the lowest price at which a firm could stay in business in the long run is ________ per unit and the quantity demanded in the market at that price is ________ units per hour.

A)$15; 6,000
B)$10; 8,000
C)$10; 6,000
D)$25; 2,000
E)$10; 4,000

Question 32

The figure above shows the market demand curve and the ATC curve for a firm.If all firms in the market have the same ATC curve, the efficient scale for one firm is ________ units per hour.

A)2,000
B)4,000
C)8,000
D)6,000
E)10,000

Question 33

The figure above shows the market demand curve and the ATC curve for a firm.If all firms in the market have the same ATC curve, the figure shows a ________ can profitably operate.

A)natural monopoly in which 1 firm
B)natural monopoly in which 2 firms
C)natural oligopoly in which 3 firms
D)natural oligopoly in which 2 firms
E)natural oligopoly in which 8 firms

Question 34

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.

Question 35

The figure above shows the market demand curve and the ATC curve for a firm.If all firms in the market have the same ATC curve, economies of scale limit the market to ________ firm(s).

A)1
B)2
C)3
D)4
E)8

Question 36

Even though four firms can profitably sell hotdogs downtown, the government licenses only two firms.This market is a

A)natural duopoly.
B)legal duopoly.
C)natural monopoly.
D)legal monopoly.
E)market-limited oligopoly.

Question 37

One way to identify oligopoly is to

A)determine the market's minimum price.
B)determine the market's maximum price.
C)determine whether the firm's ATC exceeds price.
D)use the Herfindahl-Hirschman Index (HHI).
E)use the Efficiency test.

Question 38

The figure above shows the market demand curve and the ATC curve for a firm.If all firms in the market have the same ATC curve, economies of scale limit the market to ________ firm(s).

A)1
B)2
C)3
D)4
E)8

Question 39

In the figure above, ________ firms will share the market and the ________.

A)2; efficient scale is 80 units
B)2; efficient scale is 40 units
C)3; efficient scale is 40 units
D)2; lowest possible price is $20
E)2; lowest possible price is $15

Question 40

Oligopoly is a market structure in which

A)many firms each produce a slightly differentiated product.
B)one firm produces a unique product.
C)a small number of firms compete.
D)many firms produce an identical product.
E)the number of firms is so small that they do not compete with each other.

Question 41

Which of the following is true? In the above figure, if the market is

A)a monopoly, output will be Q₁ and price will be P₃.
B)a monopoly, output will be Q₃ and price will be P₃.
C)perfect competition, output will be Q₂ and price will be P₂.
D)perfect competition, output will be Q₁ and price will be P₁.
E)perfect competition, output will be Q₃ and price will be P₃.

Question 42

In the above figure, the output of an oligopoly will range between

A)0 and Q₁.
B)Q₁ and Q₂.
C)Q₁ and Q₃.
D)Q₂ and Q₃.
E)0 and Q₂.

Question 43

The above figure shows the market demand curve for long-distance land-based telephone calls.Suppose the marginal cost of a long-distance telephone call is 2¢ a minute for a call no matter how many minutes of calls are made and there are 3 firms in the industry.If the firms in the industry operate as perfect competitors, the price of a call is ________ per minute and if the firms in the industry operate as a monopoly, the price of a call is ________ per minute.

A)2 cents; more than 3 cents and less than 4 cents
B)more than 3 cents and less than 4 cents; more than 3 cents and less than 4 cents
C)1 cents; 2 cents
D)2 cents; either equal to 4 cents or more than 4 cents
E)either equal to 4 cents or more than 4 cents; 2 cents

Question 44

In an oligopoly, output is

A)less than the output in monopoly.
B)greater than the output in perfect competition.
C)in all circumstances the same as the output in perfect competition.
D)somewhere between the output in monopoly and that in perfect competition outcomes.
E)in all circumstances the same as the output in monopoly.

Question 45

The above figure shows the market demand curve for long-distance land-based telephone calls.Suppose the marginal cost of a long-distance telephone call is 2¢ a minute for a call no matter how many minutes of calls are made and there are 3 firms in the industry.If the firms in the industry operate as a monopoly, there are ________ minutes of calls made per hour.

A)between 0 and 3 million
B)more than 3 million and less than or equal to 5 million
C)more than 5 million and less than or equal to 7 million
D)more than 7 million and less than or equal to 9 million
E)more than 9 million

Question 46

Imagine a duopoly in which two firms, A and B, produce the monopoly profit-maximizing output and equally share the economic profit.If firm A increases output,

A)both firms' profits increase.
B)firm A's profits increase and firm B's profits decrease.
C)firm B's profits increase and firm A's profits decrease.
D)both firms' profits decrease.
E)firm A's profits increase and firm B's profits do not change.

Question 47

If firms in an oligopolistic industry successfully collude and form a cartel, 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 higher than the monopoly price and, because there is more than one firm in the industry, more output than the monopoly amount
E)a price lower than the competitive price and, because there are only a few firms in the industry, less output than the competitive amount

Question 48

When oligopolies seek to operate as a single-price monopoly, the firms produce at the point where:

A)P = MC.
B)MR = MC.
C)P < ATC.
D)P = MR.
E)MC = ATC.

Question 49

Which of the following statements is correct?

A)A firm in oligopoly will charge a price that is lower than the price charged in perfect competition.
B)If firms in oligopoly look only at their own self-interest in deciding the output they should produce, the total market output will exceed that of a monopoly.
C)If one oligopolist reduces the price of its product, its demand curve shifts leftward.
D)Because many producers join to form a cartel, the market becomes monopolistic competition.
E)It is in the self-interest of each firm in an oligopoly to take the actions that maximize all the firms' joint profit.

Question 50

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.

Question 51

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

Question 52

The range in which a duopoly's output falls is less than or equal to the output level in ________ and more than or equal to the output level in ________.

A)monopolistic competition; monopoly
B)monopolistic competition; perfect competition
C)perfect competition; monopoly
D)monopoly; monopolistic competition
E)monopoly; perfect competition

Question 53

The major dilemma facing Boeing and Airbus is the

A)fact that neither will respond to the behavior of the other.
B)certainty surrounding the reaction of each firm to the behavior of the other firm.
C)fact that if each firm separately tries to maximize its profit, it might wind up with less profit that otherwise.
D)competition from other firms that drives their economic profit to zero.
E)fact that when they collude to maximize their profit, the other firm's profit might be larger than its profit.

Question 54

For a duopoly, the highest price is charged when the duopoly achieves

A)the competitive outcome.
B)the monopoly outcome.
C)an outcome between the competitive outcome and the monopoly outcome.
D)its noncooperative Nash equilibrium.
E)Both answers A and D are correct because both refer to the same price.

Question 55

If one firm in a duopoly increases its production by one unit beyond the monopoly output, that firm's profit ________, the other firm's profit ________, and the total profit of the duopoly ________.

A)increases; increases; increases
B)does not change; does not change; does not change
C)increases; decreases; does not change
D)increases; does not change; increases
E)increases; decreases; decreases

Question 56

The possible alternatives for an oligopoly range from the monopoly case with ________ to the perfectly competitive case with ________.

A)high output; low output
B)low prices; high prices
C)low profits; high profits
D)low output; high output
E)no cooperation among the firms; much cooperation among the firms

Question 57

Boeing and Airbus have entered into a cartel agreement that will enable them to boost their profits.What occurs if Boeing decides to cheat on the agreement?
I∙Boeing lowers the price of its airplanes.
Ii∙The total industry output increases.
Iii∙The total profits in the airplane industry will decrease.

A)i only
B)ii only
C)iii only
D)i and ii
E)i, ii, and iii

Question 58

When oligopolies operate like firms in perfect competition, the firms produce at the point where the

A)price is less than the marginal cost.
B)marginal cost equals the price.
C)price exceeds the marginal cost by the greatest amount.
D)price equals the average total cost.
E)marginal cost equals the average total cost.

Question 59

Imagine a duopoly in which two firms, A and B, produce the monopoly profit-maximizing output and equally share the economic profit.If firm A increases its output, the market price ________ and total economic profit of the two firms combined ________.

A)falls; decreases
B)falls; increases
C)rises; decreases
D)rises; increases
E)falls; does not change

Question 60

The above figure shows the market demand curve for long-distance land-based telephone calls.Suppose the marginal cost of a long-distance telephone call is 2¢ a minute for a call no matter how many minutes of calls are made and there are 3 firms in the industry.If the firms in the industry operate as perfect competitors, there are ________ minutes of calls made per hour.

A)between 0 and 3 million
B)more than 3 million and less than or equal to 5 million
C)more than 5 million and less than or equal to 7 million
D)more than 7 million and less than or equal to 9 million
E)more than 9 million

Question 61

The prisoners' dilemma is

A)an example of a duopoly game.
B)a theory about why firms break the law.
C)competition that can occur among firms in monopolistic competition.
D)an example of the monopolist charging high prices.
E)an example of a game that does not have a Nash equilibrium.

Question 62

Game theory is the tool that economists use to analyze strategic behavior, which is behavior that takes into account the ________ behavior of others and the mutual recognition of ________.

A)unexpected; interdependence
B)unexpected; independence
C)expected; interdependence
D)expected; independence
E)random; profit

Question 63

The players in a game theory situation often do not act in their joint interest because of which of the following?

A)They do not realize the benefit of cooperation.
B)Players strive to minimize their opponents' profits.
C)Players do not understand the game and its payoffs.
D)It is not in each player's self-interest to cooperate.
E)Players understand the game but they do not know which action(s)will benefit their joint interest.

Question 64

If a duopoly has reached the monopoly outcome, a firm can increase its profit by if it and it alone ________ its price and ________ its production.

A)raises; increases
B)raises; decreases
C)lowers; increases
D)lowers; decreases
E)raises; does not change

Question 65

Suppose a duopoly had reached the monopoly outcome and then the first firm increased its production.If the second firm next increases its production, the second firm's profit ________ and the first firm's profit ________.

A)increases; increases
B)increases; decreases
C)decreases; increases
D)decreases; decreases
E)increases; does not change

Question 66

For a duopoly, the maximum total profit is reached when the duopoly produces

A)the same amount of output as the competitive outcome.
B)the same amount of output as the monopoly outcome.
C)an amount of output that lies between the competitive outcome and the monopoly outcome.
D)more output than the competitive outcome.
E)less output than the monopoly outcome.

Question 67

If a duopoly has reached the monopoly outcome and only one firm increases its production, that firm's profit ________ and the other firm's profit ________.

A)increases; increases
B)increases; decreases
C)decreases; increases
D)decreases; decreases
E)increases; does not change

Question 68

Game theory is used to analyze the interactions among firms in ________.

A)oligopoly
B)perfect competition
C)monopoly
D)monopolistic competition
E)Both answers A and D are correct.

Question 69

The very best joint outcome possible for the firms in a duopoly is to produce the

A)monopoly level of output.
B)perfectly competitive level of output.
C)amount of output that maximizes total revenue.
D)amount of output that minimizes total cost.
E)Nash equilibrium level of output if the game is not repeated.

Question 70

For a duopoly, the smallest total quantity is produced when the duopoly achieves

A)the competitive outcome.
B)the monopoly outcome.
C)an outcome between the competitive outcome and the monopoly outcome.
D)its noncooperative Nash equilibrium.
E)Both answers A and D are correct because both refer to the same amount of output.

Question 71

Economists use game theory to analyze strategic behavior, which takes into account

A)monopoly situations.
B)the expected behavior of others and the recognition of mutual interdependence.
C)the price-taking behavior of oligopolists.
D)non-price competition.
E)that increased demand decreases the market power of the firms in the market.

Question 72

If both firms in a duopoly increase their production by one unit beyond the monopoly output, each firm's profit ________ and the total profit of the duopoly ________.

A)increases; increases
B)does not change; does not change
C)decreases; decreases
D)does not change; increases
E)decreases; does not change

Question 73

All games have which features?

A)prices, rules, and payoffs
B)rules, markets, and prices
C)rules, strategies, and payoffs
D)rules, strategies, and costs
E)equilibrium, prices, and quantities

Question 74

A Nash equilibrium is defined as

A)making zero economic profit in the long run.
B)forming a cartel with strong penalties for cheaters.
C)relying on other game players to realize the benefit of cooperation.
D)each player taking the best possible action given the action of the other player.
E)each player taking the action that is best for all the players.

Question 75

A Nash equilibrium in the duopoly game

A)means that one player has greater market power.
B)occurs when each player takes the best possible action regardless of the strategy chosen by other firms.
C)will always lead to equilibrium in which the firms' total profit is the largest.
D)can occur only if firms cooperate with each other.
E)means that a firm must be able to determine its actions and the actions of its competitor.

Question 76

The concepts of mutual interdependence and game theory illustrate the fact that firms competing in oligopoly

A)consider the actions of the rivals before changing the price of their product.
B)ignore the actions of their rivals when considering price changes.
C)engage in frequent price changes.
D)never change prices.
E)will mutually determine the combined best outcome for all players.

Question 77

A Nash equilibrium
I∙is named after the Nobel prize winning economist, John Nash.
Ii∙occurs when each player chooses the best strategy given the strategy of the other player.
Iii∙must give the best possible outcome for both players.

A)i only
B)ii only
C)iii only
D)i and ii
E)ii and iii

Question 78

The tool that economists use to analyze the mutual interdependence of oligopolies is

A)economies of scale.
B)the four-firm concentration ratio.
C)game theory.
D)the HHI.
E)the efficient scale.

Question 79

The prisoners' dilemma is an example of

A)product differentiation.
B)collusion.
C)game theory.
D)monopolistic competition.
E)decision making in a monopoly.

Question 80

A Nash equilibrium occurs when each player in a game takes the ________ given the action of the other player.

A)worst possible action for himself or herself
B)best possible action for himself or herself
C)most unpredictable possible action
D)most mutually beneficial possible action
E)best possible action for the other player