Question 1

Economies of scale will create a barrier to entry in an oligopoly industry when

Accepted Answer

When the typical firm's long-run average total cost curve reaches a minimum at a level of output that is a large fraction of total industry sales, it indicates that economies of scale exist in the industry. This means that larger firms can produce output at a lower cost per unit than smaller firms, making it difficult for new entrants to compete on a cost basis. Thus, economies of scale act as a barrier to entry in an oligopoly industry.

Question 2

Hewlett-Packard will not raise the prices of its personal computers without first considering how Dell might respond.This is evidence of

Accepted Answer

The fact that Hewlett-Packard is considering Dell's potential response when deciding on PC prices shows that there is interdependence between the two companies in the market. They are each influencing and reacting to each other's pricing decisions. Collusion and price fixing involve illegal agreements between companies, while cutthroat competition implies extreme and aggressive pricing tactics, which is not necessarily indicated in this scenario.

Question 3

A patent is an example of

Accepted Answer

A patent is a government-granted exclusive right to an inventor to prevent others from making, using, selling, or importing an invention for a limited period of time. This creates a government-imposed barrier to entry, as it prevents potential competitors from using the patented technology without the consent of the patent holder.

Question 4

If economies of scale are relatively unimportant in an industry,the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales.The industry will be ________.

Accepted Answer

If economies of scale are relatively unimportant, it means that the cost savings from producing in large quantities are minimal. As a result, firms will not have a significant cost advantage by producing at a large scale. Therefore, the typical firm's long-run average total cost curve will reach a minimum at a relatively small level of output. This indicates that the industry is competitive, as there are no significant barriers to entry, and firms must produce at a small scale to compete effectively.

Question 5

A four-firm concentration ratio measures

Accepted Answer

A four-firm concentration ratio measures the extent to which industry sales are concentrated among the four largest firms in the industry. It is calculated by adding up the market shares of the four largest firms in the industry. A higher concentration ratio indicates that the industry is dominated by a few large firms, while a lower concentration ratio indicates a more competitive industry with many smaller firms.

Question 6

When large firms in oligopoly markets cut their prices,

Accepted Answer

The answer of When large firms in oligopoly markets cut...

Question 7

A patent is a government-imposed entry barrier because

Accepted Answer

A patent grants a firm exclusive rights to a new product for a certain period (typically 20 years) from the date of invention, thereby preventing competitors from entering the market with a similar product. This limits competition and acts as a barrier to entry for other firms.

Question 8

Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6,000 units of output.In this case,this industry would be

Accepted Answer

The answer of Consider a U-shaped long-run average cost curve...

Question 9

Oligopoly differs from perfect competition and monopolistic competition in that

Accepted Answer

In oligopoly, firms often react to the pricing decisions of their competitors, making it difficult to determine the demand curve of each individual firm. This is unlike perfect and monopolistic competition, where firms have less influence over the market and can more easily determine their demand and marginal revenue curves. The other options are incorrect: A is false, as barriers to entry are typically higher in oligopoly industries than in perfectly competitive or monopolistically competitive ones; B is incorrect, as demand and marginal revenue curves are relevant for all market structures; and D is untrue, as concentration ratios are typically higher in oligopoly industries than in perfectly competitive or monopolistically competitive ones.

Question 10

Which of the following is not a barrier to entry?

Accepted Answer

An inelastic demand curve is not a barrier to entry. Barriers to entry refer to obstacles that make it difficult or costly for new firms to enter a market. An inelastic demand curve only means that a change in price will have a relatively small effect on the quantity demanded. It does not prevent new firms from entering the market. B, C, and D are all barriers to entry because they create advantages for existing firms that new firms cannot easily overcome.

Question 11

What do Wal-Mart,the Microsoft Corporation,and the Dell computer company have in common?

Accepted Answer

Each of these companies operate in highly competitive industries where profitability is greatly affected by their interactions with other firms. Wal-Mart competes with numerous other retailers, Microsoft with other software and technology companies, and Dell with other computer manufacturers. They must all adapt to changes in the market and the actions of their competitors in order to remain profitable.

Question 12

An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.This entry barrier is known as

Accepted Answer

The exclusive right to a new product for a period of 20 years from the date the product is invented is a patent. This is a type of government-imposed barrier to entry that gives a firm the legal right to exclude others from making, using, selling, or importing an invention. The purpose of a patent is to encourage innovation by providing inventors with an incentive to invest time and money in the development of new products and technologies. Copyrights apply to creative works like literature, music, and art, while exclusive marketing agreements and tariffs are not related to intellectual property protection.

Question 13

If economies of scale are relatively important in an industry,the typical firm's

Accepted Answer

The answer of If economies of scale are relatively important...

Question 14

Which of the following is not an example of a government-imposed entry barrier?

Accepted Answer

Antitrust legislation is actually designed to prevent entry barriers created by monopolies or oligopolies. It does not serve as a government-imposed entry barrier itself. Patents allow inventors exclusive rights to their inventions for a certain period of time, creating an entry barrier for competitors. Occupational licensing creates entry barriers for professionals by requiring a certain level of education or training before being allowed to practice in a certain field. Barriers to international trade can include tariffs, quotas, and other regulations that limit or restrict imported goods, creating entry barriers for foreign companies.

Question 15

We can draw demand curves for firms in perfectly competitive and monopolistically competitive industries,but not for oligopoly firms.The reason for this is

Accepted Answer

In oligopoly industries, firms' pricing decisions have a significant impact on their rivals' profits and market share. This means that an oligopoly firm's demand curve would not be a simple relationship between price and quantity demanded, as it would be affected by the reactions of its competitors. In contrast, for perfectly competitive and monopolistically competitive firms, the assumption that prices have no impact on rival firms' sales is more reasonable, allowing for the construction of traditional demand curves.

Question 16

Which of the following is not a characteristic of oligopoly?

Accepted Answer

Oligopoly is characterized by a small number of firms, interdependence among the firms and the ability to influence price. However, low barriers to entry are not a characteristic of oligopoly. In oligopoly, barriers to entry can be high, which can prevent new firms from entering the market, thus limiting competition.

Question 17

Which of the following is not part of an oligopolist's business strategy?

Accepted Answer

An important aspect of an oligopolist's business strategy is price competition and the impact of their pricing decisions on their rivals. Oligopolists often engage in price wars or set their prices based on their competitors' pricing policies. Therefore, the option of independently setting a product's price without consideration of its rivals' pricing policies is not part of an oligopolist's business strategy. The other options (A, B, and C) are all part of an oligopolist's business strategy as they involve decisions related to managing relations with suppliers, adopting new technologies, and entering new markets, which can impact their competitive position in the industry.

Question 18

For many years the Aluminum Company of America (Alcoa)controlled most of the world's supply of high quality bauxite,the ore needed to produce aluminum.What type of entry barrier was responsible for Alcoa's position in the aluminum industry?

Accepted Answer

Alcoa's control of the world's supply of high quality bauxite, the key input needed to produce aluminum, constitutes an ownership barrier. This allowed Alcoa to maintain its position and pricing power within the industry.

Question 19

As a measure of competition in an industry,concentration ratios have several flaws.One of these flaws is that concentration ratios

Accepted Answer

The answer of As a measure of competition in an...

Question 20

The fraction of an industry's sales that are accounted for by the largest firms is called

Accepted Answer

The four-firm concentration ratio measures the fraction of an industry's total sales that are accounted for by the four largest firms in the industry. It gives an indication of the level of market power and competition in the industry, with higher concentration ratios indicating less competition and more market power among a small number of firms.

Quiz 14: Oligopoly: Firms in Less Competitive Markets