Question 1

Which of the following is a reason for the presence of barriers to entry in an oligopolistic market?

Accepted Answer

The answer of Which of the following is a reason...

Question 2

For a time, either R. J. Reynolds or Phillip Morris raised the prices of cigarettes twice a year by about 50 cents per carton. The other firms in the industry raised their prices by the same amount. Such behavior results in:

Accepted Answer

The behavior described in the question is an example of price leadership, in which one or a few firms set the price for the industry, and others follow suit. In this case, either R.J. Reynolds or Phillip Morris acted as the price leader, and the other firms in the industry followed their lead by raising their prices by the same amount. This behavior is common in industries with a few dominant firms and economic conditions that allow for stable pricing.

Question 3

The equilibrium price and quantity for a collusive oligopoly are determined by the intersection of the _____ curve and the horizontal sum of the short-run _____ curves for the oligopolists.

Accepted Answer

In a collusive oligopoly, firms cooperate to act as a monopoly and maximize their profits. The intersection of the marginal revenue (MR) curve and the horizontal sum of the short-run marginal cost (MC) curves for the oligopolists will determine the output level where the industry maximizes its total profit. At this output level, the price will be set where the demand curve intersects the industry's marginal revenue curve. Thus, the equilibrium price and quantity are determined by the intersection of the MR curve and the horizontal sum of the short-run MC curves.

Question 4

During the past 20 years, Marzi Corp., a large firm in an oligopolistic industry, has changed prices a number of times. Each time it does so, the other firms in the industry follow suit. Marzi Corp. is a _____.

Accepted Answer

Marzi Corp. is a price leader as it is the first firm to change prices, and others in the industry follow suit. This is typical behavior in an oligopolistic industry, where firms tend to closely observe and imitate each other's pricing strategies.

Question 5

Which of the following is true of game theory?

Accepted Answer

Cooperation is more likely to occur in repeated games than in one-shot games because players have the opportunity to learn from past interactions and establish trust or reputation.

Question 6

Identify the correct statement about game theory.

Accepted Answer

The Nash equilibrium is a solution concept in noncooperative game theory, where each player chooses their optimal strategy assuming that all other players also choose their optimal strategies. It is not a dominant strategy, as a dominant strategy is a strategy that is the best choice for a player, regardless of the choices made by the other players. The other options are incorrect as the prisoners' dilemma is a noncooperative game, collusion is an example of a cooperative game, and in a cooperative game, firms work together to achieve a common goal, such as setting prices collectively.

Question 7

Which of the following is a unique characteristic of an oligopolistic market structure?

Accepted Answer

Mutual interdependence means that each firm must consider the likely reactions of its rivals to any change in price, output, or product characteristics. This distinguishes oligopoly from other market structures where firms can act independently without considering the decisions of their competitors.

Question 8

Which of the following is true of game theory?

Accepted Answer

A tit-for-tat strategy, often used in repeated games, starts with cooperation and then mimics the opponent's previous move, effectively promoting cooperation by rewarding cooperative behavior and punishing non-cooperative behavior.

Question 9

Identify the correct statement.

Accepted Answer

A price leader sets the price that maximizes its profits. This is because a price leader is usually the largest firm in an oligopoly market and has the power to influence the market price. By setting a price that maximizes its profits, the price leader can maintain its dominant market position and deter potential competitors.

Question 10

In a collusive oligopoly, joint profits are maximized when the price of a good is based on the:

Accepted Answer

In a collusive oligopoly, the firms involved cooperate to fix prices and maximize their joint profits. In order to do so, they need to consider the market demand schedule, which reflects the demand for their product at different prices, and the marginal cost schedules of all the oligopolists, which reflect the additional cost of producing one more unit of the good. By setting a price where the market demand intersects with the joint marginal cost curve, the oligopolists can ensure that they maximize their profits together. Therefore, option B is the correct answer.

Question 11

Which of the following is likely to reduce the uncertainties associated with oligopoly market structure?

Accepted Answer

Collusion reduces uncertainties by allowing firms to coordinate their actions and reduce competition.

Question 12

Under oligopoly, a few large firms control most of the production and sale of a product because:

Accepted Answer

Oligopoly is characterized by high barriers to entry, and economies of scale are typically a significant barrier to entry, making it difficult for smaller firms to compete with larger firms. Larger firms can achieve economies of scale, which lead to lower costs and ultimately greater profits than smaller firms can achieve. Thus, oligopoly results in a few large firms controlling most of the production and sale of a product.

Question 13

A successful cartel restricts supply so that each member firm:

Accepted Answer

A successful cartel restricts supply in order to raise prices and increase profits, which allows each member to behave like a monopolist in the market. This means that each member has a significant market share and can influence prices and output levels. The other choices do not accurately describe the behavior of a cartel.

Question 14

Which of the following is true of an oligopoly market?

Accepted Answer

Oligopoly markets typically have a few large firms that dominate the market, which may create economies of scale. Economies of scale mean that larger firms have lower average costs, which can create a barrier to entry for new firms. Therefore, it is less likely for new firms to enter the market.

Question 15

Under conditions of oligopoly, economies of large-scale production mean that:

Accepted Answer

Under conditions of oligopoly, large firms have economies of scale that allow them to produce at lower costs per unit of output. Small firms cannot achieve the same level of efficiency and are therefore at a cost disadvantage when competing with relatively large firms. As a result, it is more difficult for small firms to survive in an oligopoly market.

Question 16

Oligopolies are characterized by:

Accepted Answer

Oligopolies are defined as markets that are dominated by a small number of firms, which usually results in high barriers to entry due to factors such as economies of scale, high start-up costs, and exclusive access to essential resources.

Question 17

In an oligopoly market, such as the U.S. domestic airline industry, United Airlines would:

Accepted Answer

In an oligopoly market where few large firms dominate the market, United Airlines would have to carefully anticipate the responses of its competitors before changing its fare prices. This is because any action taken by United Airlines could trigger a reaction from its competitors, leading to an intense price war that could harm all firms. Therefore, United Airlines would consider the likely responses of Delta, American, and Southwest before raising or lowering fares to avoid an all-out price war.

Question 18

One reason collusive oligopolies are usually short lived is that firms participating in the collusion:

Accepted Answer

Collusive oligopolies are usually short-lived because firms participating in the collusion tend to cheat on one another to increase their individual profits. This leads to a breakdown in the agreement and the likelihood of the collusion continuing for a long time is reduced.

Question 19

Which of the following is true of oligopoly?

Accepted Answer

In oligopoly, firms change their prices less frequently than perfect competitors because they are aware that their actions could elicit a strong response from their competitors. As a result, they may choose to stick with a set price for longer periods of time to maintain stability in the market.

Question 20

Which of the following is a characteristic of oligopoly?

Accepted Answer

Oligopoly markets are characterized by a small number of firms, which means that each firm's pricing decisions can have a significant impact on the market. However, because there are a limited number of competitors, these firms are also aware of the potential for retaliation from their rivals. As a result, substantial uncertainties exist concerning price-setting decisions.

Quiz 9: Monopolistic Competition and Oligopoly

Which of the following is a reason for the presence of barriers to entry in an oligopolistic market?

For a time, either R. J. Reynolds or Phillip Morris raised the prices of cigarettes twice a year by about 50 cents per carton. The other firms in the industry raised their prices by the same amount. Such behavior results in:

The equilibrium price and quantity for a collusive oligopoly are determined by the intersection of the _ curve and the horizontal sum of the short-run _ curves for the oligopolists.

During the past 20 years, Marzi Corp., a large firm in an oligopolistic industry, has changed prices a number of times. Each time it does so, the other firms in the industry follow suit. Marzi Corp. is a _____.

Which of the following is true of game theory?

Identify the correct statement about game theory.

Which of the following is a unique characteristic of an oligopolistic market structure?

Which of the following is true of game theory?

Identify the correct statement.

In a collusive oligopoly, joint profits are maximized when the price of a good is based on the:

Which of the following is likely to reduce the uncertainties associated with oligopoly market structure?

Under oligopoly, a few large firms control most of the production and sale of a product because:

A successful cartel restricts supply so that each member firm:

Which of the following is true of an oligopoly market?

Under conditions of oligopoly, economies of large-scale production mean that:

Oligopolies are characterized by:

In an oligopoly market, such as the U.S. domestic airline industry, United Airlines would:

One reason collusive oligopolies are usually short lived is that firms participating in the collusion:

Which of the following is true of oligopoly?

Which of the following is a characteristic of oligopoly?