Deck 14: Oligopoly

Question 1

The major distinguishing characteristic of oligopoly is that

A) firms produce differentiated products.
B) firms can influence the price of their product.
C) entry into the industry easy.
D) firms are interdependent.

Answer 1

firms are interdependent.

Question 2

A market is defined as contestable if entry to it

A) is easy, but exit from it is difficult.
B) is difficult, but exit from it is easy.
C) and exit from it are both difficult.
D) and exit from it are both easy.

Answer 2

and exit from it are both easy.

Question 3

Entry to and exit from a(n) ________ market are ________.

A) oligopolistic; easy
B) perfectly competitive; difficult
C) contestable; difficult
D) contestable; easy

Answer 3

contestable; easy

Question 4

The ________ is the share of industry output in sales or employment accounted for by the top firms in an industry.

A) concentration ratio
B) contestability ratio
C) competitive index
D) collusive level

Question 5

The Five Forces Model helps illustrate the five competitive forces that determine the ________ in an industry.

A) price and quality of output
B) level of R&D and price of output
C) level of competition and profitability
D) profitability and degree of product differentiation

Question 6

In oligopoly, firms

A) are able to influence price only if the oligopolist's products are standardized.
B) are able to influence price only if the oligopolist's products are differentiated.
C) by virtue of their size, are able to influence price regardless of whether or not the product is differentiated or standardized.
D) have no influence over price regardless of whether or not the product is differentiated or standardized.

Question 7

A(n) ________ industry is characterized by strategic behavior.

A) perfectly competitive
B) monopolistic
C) monopolistically competitive
D) oligopolistic

Question 8

The market structure in which the behavior of any given firm depends on the behavior of the other firms in the industry is

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

Question 9

A ________ industry has a relatively small number of firms that dominate a market.

A) Cournot
B) contestable
C) concentrated
D) monopolistically competitive

Question 10

The four largest firms account for approximately 90% of U.S. beer sales. The U.S. beer industry would be best classified as a(n)

A) perfectly competitive industry.
B) monopolistically competitive industry.
C) oligopoly.
D) monopoly.

Question 11

According to the Five Forces Model, ________ are the five competitive forces that determine the level of competition and profitability in an industry.

A) rivals, buyers, suppliers, substitutes, and potential entrants
B) rivals, consumers, labor, weather, and government
C) buyers, suppliers, government, foreign competition, and weather
D) None of the above is correct.

Question 12

A(n) ________ industry has a single, unique product and blocked entry.

A) perfectly competitive
B) monopolistically competitive
C) monopolistic
D) oligopolistic

Question 13

In general, oligopolists compete

A) on price alone.
B) on many dimensions except for price.
C) on price, R&D, and marketing and advertising.
D) None of the above. There is no competition in oligopolistic industries.

Question 14

Products may be homogeneous or differentiated in the ________ market structure.

A) perfectly competitive
B) monopolistic
C) monopolistically competitive
D) oligopolistic

Question 15

One thing oligopolists must do in order to determine their optimal strategy is

A) anticipate the reaction of their customers to their strategy.
B) ignore the reaction of their rivals to their strategy.
C) ignore the reaction of their customers to their strategy.
D) produce a unique product which has no close substitutes.

Question 16

Oligopoly is difficult to analyze because

A) there is no price competition among oligopolistic firms.
B) of the complex interdependence that usually exists among oligopolistic firms.
C) price is not a decision variable for oligopolistic firms.
D) there is price competition among oligopolistic firms but no competition on product quality.

Question 17

Of the following, ________ is the best example of an oligopolistic industry.

A) retail grocery
B) automobiles production
C) electric power
D) soybean farming

Question 18

The airline industry is an example of a(n) ________ industry.

A) perfectly competitive
B) monopolistic
C) monopolistically competitive
D) oligopolistic

Question 19

In which of the four oligopolistic markets below is there considerable price competition?

A) music production industry
B) stent industry
C) airline industry
D) high-definition DVD industry

Question 20

A form of industry structure characterized by a few firms each large enough to influence market price is

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

Question 21

In which market type are firms able to influence price on both standardized products and differentiated products by virtue of their size?

A) oligopoly
B) perfect competition
C) monopolistic competition
D) all of the above

Question 22

Which of the following industries is the best example of an oligopoly?

A) the restaurant industry
B) the clothing industry
C) the corn industry
D) the automobile industry

Question 23

________ major distinguishing characteristic is that firms are interdependent.

A) Monopolistic Competition's
B) Perfect competition's
C) Monopoly's
D) Oligopoly's

Question 24

Which of the following is the best example of an oligopolistic industry?

A) convenience stores
B) book publishing
C) public utilities
D) smartphone manufacturing

Question 25

A concentrated industry has ________ that dominate a market.

A) a large number of firms
B) three or fewer firms
C) a relatively small number of firms
D) an infinite number of firms

Question 26

The share of ________ by the top firms is known as the concentration ratio.

A) industry output in sales or employment accounted for
B) resources used in production
C) the labor force employed
D) outstanding shares of stock issued

Question 27

In the oligopoly market structure, the behavior of any given firm ________ the behavior of the other firms in the industry.

A) is independent of
B) must be different from
C) must be the same as
D) depends on

Question 28

The four largest firms account for approximately 95% of U.S. cigarette sales. The U.S. cigarette industry would be best classified as a(n)

A) perfectly competitive industry.
B) monopolistically competitive industry.
C) oligopoly.
D) monopoly.

Question 29

The conclusion that firms in oligopoly always produce where price exceeds marginal cost is true for all models of oligopoly except the

A) collusive oligopoly model.
B) price-leadership model.
C) Cournot model.
D) contestable market model.

Question 30

A monopolistic industry has

A) many differentiated products and easy entry.
B) a homogeneous product and easy entry.
C) a single, unique product and blocked entry.
D) either a standardized product or differentiated products.

Question 31

Related to the Economics in Practice on page 290: The smart phone industry is best characterized as

A) purely competitive.
B) monopolistically competitive.
C) an oligopoly.
D) a monopoly.

Question 32

Oligopoly is ________ to analyze because of the interdependence that usually exists among oligopolistic firms.

A) very easy
B) difficult
C) fairly easy
D) impossible

Question 33

One thing oligopolists must do in order to determine their optimal strategy is

A) anticipate the reaction of their rivals to their strategy.
B) ignore the reaction of their rivals to their strategy.
C) ignore the reaction of their customers to their strategy.
D) anticipate the reaction of government to their strategy.

Question 34

The music production industry is an example of a(n) ________ industry.

A) perfectly competitive
B) monopolistic
C) monopolistically competitive
D) oligopolistic

Question 35

________ characterizes the oligopoly market structure.

A) A single firm that controls the industry
B) A large number of firms producing a standardized product
C) A few firms each large enough to influence market price
D) A large number of firms producing differentiated products

Question 36

According to the Five Forces Model, there are five competitive forces that determine the level of ________ in an industry.

A) competition and profitability
B) entry and exit
C) product differentiation
D) supply and demand

Question 37

Products ________ in the oligopolistic market structure.

A) are always homogeneous
B) are always differentiated
C) are always unique
D) may be homogeneous or differentiated

Question 38

An oligopolistic industry is characterized by

A) one dominant firm in the industry.
B) having no market power.
C) free entry and exit.
D) strategic behavior.

Question 39

In contestable markets, large oligopolistic firms end up behaving like

A) monopolistically competitive firms.
B) a monopoly.
C) perfectly competitive firms.
D) a cartel.

Question 40

The ________ helps illustrate the competitive forces that determine the level of competition and profitability in an industry.

A) Cournot Model
B) concentration ratio
C) Five Forces Model
D) Contestable Market Model

Question 41

The size of the firm is what differentiates oligopoly markets from the other three market structure types (perfect competition, monopoly, and monopolistic competition).

Question 42

Oligopolists compete on price but not quality.

Question 43

Related to the Economics in Practice on page 290: The smart phone industry is best characterized as

A) monopolistic.
B) highly concentrated.
C) moderately concentrated.
D) not at all concentrated.

Question 44

The availability of substitute products outside the industry will limit the ability of oligopolistic firms to earn high profits.

Question 45

The Five Forces Model illustrates the forces that determine the level of product differentiation and price competition in an industry.

Question 46

Products produced in oligopoly markets can be homogeneous.

Question 47

Oligopolists have market power.

Question 48

The more differentiated the products produced by oligopolists, the more their behavior will resemble that of the monopolist.

Question 49

Oligopolistic industries are characterized by a few dominant firms.

Question 50

The fact that the behavior of one firm depends on the behavior of other firms is what differentiates oligopoly markets from the other three market structure types (perfect competition, monopoly, and monopolistic competition).

Question 51

Oligopolists compete on quality but not price.

Question 52

Markets in which entry and exit are difficult are known as contestable markets.

Question 53

In ________ markets, large oligopolistic firms end up behaving like perfectly competitive firms.

A) monopolistically competitive
B) monopoly
C) contestable
D) blocked

Question 54

Products produced in oligopoly markets are always differentiated.

Question 55

Even when faced with a relatively powerful seller, some buyers can still exert bargaining power.

Question 56

Entry to and exit from ________ market are easy.

A) an oligopolistic
B) a monopoly
C) a contestable
D) All of the above are correct.

Question 57

The product differentiation of firms in an industry is an indicator of the size distribution of firms.

Question 58

Traditionally, the airline industry has competed vigorously on price.

Question 59

In the contestable market oligopoly model, firms ________ produce where price exceeds marginal cost.

A) always
B) never
C) do not always
D) are not legally allowed to

Question 60

The airline industry is an example of an oligopoly.

Question 61

Refer to the information provided in Figure 14.1 below to answer the question(s) that follow. Figure 14.1
Refer to Figure 14.1. Six chewing gum producing firms form a cartel. The firms have identical cost structures. If the cartel produces the profit-maximizing output level, each firm should produce

A) 2,000 packs of chewing gum.
B) 6,000 packs of chewing gum.
C) 12,000 packs of chewing gum.
D) indeterminate output levels from this information.

Question 62

________ is a group of firms colluding to make price and output decisions.

A) A concentrated industry
B) An oligopoly
C) A cartel
D) Price leadership

Question 63

The share of industry output accounted for by the top firms in an industry is the industry's concentration ratio.

Question 64

In the Cournot model the final level of output falls between the output that would prevail if the market were ________ and the output that would be set by a ________.

A) competitive; monopoly
B) oligopolistic; monopoly
C) monopolistic; cartel
D) monopolistically competitive; cartel

Question 65

Refer to the information provided in Figure 14.1 below to answer the question(s) that follow. Figure 14.1
Refer to Figure 14.1. Four chewing gum producing firms form a cartel. The firms have identical cost structures. If the cartel produces the profit-maximizing output level, each firm should produce

A) 3,000 packs of chewing gum.
B) 4,000 packs of chewing gum.
C) 12,000 packs of chewing gum.
D) indeterminate output levels from this information.

Question 66

You read that 25 firms that grow and export peanuts to the United States decide to form a cartel. The cartel aims to raise the price of peanuts and reduce output to increase profits for the peanut growers. You predict that this cartel will probably

A) not be successful because the number of firms is unmanageable and there are a number of good substitutes for peanuts.
B) not be successful because there are too few firms that are trying to organize the cartel.
C) be successful because the demand for peanuts is very elastic.
D) be successful because it will be very easy to enforce the rules among only 25 firms.

Question 67

The colluding oligopoly will face market demand and produce up until the point at which

A) price and marginal cost are equal and price will be set equal to marginal cost.
B) marginal revenue and marginal cost are equal and price will be set above marginal cost.
C) price and marginal revenue are equal and price will be set below marginal cost.
D) marginal revenue and marginal cost are equal and price will be set below marginal cost.

Question 68

In the Cournot model, when a new firm begins production it assumes its demand curve is

A) the market demand less the amount the other firm is selling.
B) the market demand plus the amount the other firm is selling.
C) the same as the competing firm's demand curve.
D) one-half of the competing firm's demand curve.

Question 69

The Five Forces Model determines whether an industry is an oligopoly.

Question 70

________ occurs when price- and quantity-fixing agreements among producers are implicit.

A) Tacit collusion
B) A Cournot model
C) A price-leadership model
D) A monopoly

Question 71

Assume that firms in an oligopoly are currently colluding to set price and output to maximize total industry profit. If the government forces the oligopolists to stop colluding, the price charged by the oligopolies will ________ and the total output produced will ________.

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

Question 72

In an oligopolistic industry, the price firms charge and the quantity they produce would be the same as if the industry were a monopoly if

A) the market is contestable.
B) the oligopolists behave as Cournot assumed.
C) one of the oligopolists acts as a dominant firm price leader.
D) the oligopolists collude.

Question 73

Refer to the information provided in Figure 14.1 below to answer the question(s) that follow. Figure 14.1
Refer to Figure 14.1. Six firms that produce chewing gum form a cartel. The cartel faces the market demand curve given by D. To maximize profits, the cartel should produce ________ packs of chewing gum and the price should be ________.

A) 12,000; $.25
B) 12,000; $.40
C) 14,000; $.30
D) 16,000; $.35

Question 74

A two firm oligopoly is known as a ________.

A) duopoly
B) cartel
C) monopoly
D) contestable market

Question 75

Tacit collusion

A) is legal under the U.S. antitrust laws.
B) occurs when firms engage in formal agreements to reduce output and increase prices in their industry.
C) is more likely to be successful in increasing industry profits when there are a few, similar firms in the industry.
D) is more likely to effectively raise prices in the industry when demand is elastic.

Question 76

Refer to the information provided in Figure 14.1 below to answer the question(s) that follow. Figure 14.1
Refer to Figure 14.1. Four firms that produce chewing gum form a cartel. The cartel faces the market demand curve given by D. At the profit-maximizing output, the total cost for the cartel is

A) $3,000.
B) $3,720.
C) $4,800.
D) $5,600.

Question 77

Refer to the information provided in Figure 14.1 below to answer the question(s) that follow. Figure 14.1
Refer to Figure 14.1. Four firms that produce chewing gum form a cartel. The cartel faces the market demand curve given by D. At the profit-maximizing output, the profit on each pack of gum is

A) $0.04.
B) $0.09.
C) $0.15.
D) $0.25.

Question 78

Which of the following is not an assumption of the Cournot model presented in the text?

A) There are two firms in an industry.
B) Each firm takes the output of the other firm as given.
C) Both firms maximize profits.
D) If the first firm cuts price, the second firm will follow and if the first raises price, the second will not follow.

Question 79

Refer to the information provided in Figure 14.1 below to answer the question(s) that follow. Figure 14.1
Refer to Figure 14.1. Firms form a cartel that maximizes profits. The profits are

A) $0.
B) $1,080.
C) $1,800.
D) indeterminate from this information.

Question 80

The oligopolistic model in which firms produce exactly the same results as would exist if a monopolist controlled the entire industry is called the ________ model.

A) Cournot
B) price leadership
C) maximin strategy
D) collusion