Deck 17: Oligopoly

Question 1

The figure above shows a ________ where ________ firm(s) produce(s) ________.

A) monopoly; 1; 90 units
B) natural duopoly; 2; 45 units each
C) natural monopoly; 2; 90 units
D) natural oligopoly; 3; 30 units each
E) natural monopoly; 3; 90 units each

Answer 1

natural oligopoly; 3; 30 units each

Question 2

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

Answer 2

$10; 8,000

Question 3

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

Answer 3

4

Question 4

Sammy's Pty Ltd competes with a few other firms because there are natural barriers to entry. Sammy's operates in

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

Question 5

An oligopoly created because of economies of scale is called a

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

Question 6

Which of the following is found ONLY in oligopoly?

A) Entry into the industry is blocked.
B) The firm's demand curve is horizontal.
C) One firm's actions affect another firm's profit.
D) Producers who sell identical products.
E) Sellers face a downward-sloping demand curve for their product.

Question 7

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

Question 8

A cartel is

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

Question 9

A cartel is a collusive agreement among a number of firms that is designed to

A) restrict output and lower prices to a predatory level.
B) expand output and raise prices.
C) restrict output and raise prices.
D) expand output and lower prices but not to a predatory level.
E) expand output and lower prices to a predatory level.

Question 10

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) 10,000
C) 8,000
D) 4,000
E) more than 10,000

Question 11

A cartel is most likely to occur in

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

Question 12

The fact that firms in oligopoly are interdependent means that

A) there are too many of them for any one firm to influence price.
B) one firm's profits are affected by other firms' actions.
C) there are barriers to entry.
D) they can produce either identical or differentiated goods.
E) they definitely compete with each other so that the price is driven down to the monopoly level.

Question 13

Even though four firms can profitably sell hotdogs in Adelaide's Rundle Mall, the Adelaide City Council licenses only two firms. This market is a

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

Question 14

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 Australia legally fix prices.

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

Question 15

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

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

Question 16

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

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

Question 17

The figure above shows that ________ occurs at ________ units and that ________ firms should share the market.

A) the lowest marginal cost; 30; 3
B) an economic profit; 45; 2
C) the efficient scale; 30; 3
D) the highest level of demand; 45; 2
E) the efficient scale; 45; 2

Question 18

'Duopoly' is

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

Question 19

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 5 or more firms
D) natural oligopoly in which 4 firms
E) natural oligopoly in which 3 firms

Question 20

Herb's Pty Ltd 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) a monopolistically competitive market.
B) a monopoly market.
C) an oligopoly.
D) a perfectly competitive market.
E) a collusively protected market.

Question 21

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

Question 22

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 cents per minute for a call no matter how many minutes of calls are made and there are three firms in the industry. If the firms in the industry operate as a monopoly, there are ________ minutes of calls made per hour.

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

Question 23

Economists use game theory to analyse strategic behaviour, which takes into account

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

Question 24

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 cents per minute for a call no matter how many minutes of calls are made and there are three 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) either equal to or more than 4 cents; 2 cents
C) 1 cent; 2 cents
D) more than 3 cents and less than 4 cents; more than 3 cents and less than 4 cents
E) 2 cents; either equal to or more than 4 cents

Question 25

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

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

Question 26

A Nash equilibrium is defined as

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

Question 27

If firms in an oligopolistic industry successfully collude and form a cartel, what price and output will result?

A) The competitive price and output.
B) The monopolistically competitive price and output.
C) A price lower than the competitive price and, because there are only a few firms in the industry, less output than the competitive amount.
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) The monopoly price and output.

Question 28

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 29

The prisoners' dilemma is an example of

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

Question 30

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 cents per minute for a call no matter how many minutes of calls are made and there are three 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 5 million and less than or equal to 7 million
C) more than 3 million and less than or equal to 5 million
D) more than 9 million
E) more than 7 million and less than or equal to 9 million

Question 31

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

A) more output than 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) the same amount of output as the competitive outcome.
E) less output than the monopoly outcome.

Question 32

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

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

Question 33

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

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

Question 34

The major dilemma facing Boeing and Airbus is the

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

Question 35

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) A price lower than the competitive price and less output than the competitive amount.
C) The competitive price and output.
D) A price lower than the competitive price and more output than the competitive amount.
E) The monopolistically competitive price and output.

Question 36

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

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

Question 37

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

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

Question 38

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

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

Question 39

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

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

Question 40

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

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

Question 41

Firms in oligopoly can achieve an economic profit

A) always in the long run.
B) only if the demand for their products is elastic.
C) only if the demand for their products is inelastic.
D) if they cooperate.
E) if they reach the non-cooperative equilibrium.

Question 42

The mobile-phone market can be considered a(n) ________ because ________.

A) oligopoly; there are few barriers to entry
B) monopoly; Apple makes the largest profit in the market
C) monopolistically competitive market; few firms make a profit and produce a variety of phones
D) monopolistically competitive market; the firms charge a markup over marginal cost
E) oligopoly; there are large profits for the firms that dominate the market

Question 43

Suppose Intel and AMD can each charge either $300 or $200 for a CPU (the computing unit of a computer). The above table illustrates the payoffs, in millions of dollars, from each of the four possible outcomes that could occur in their duopoly setting. If Intel charges $200 and AMD charges $300, then Intel's profit will be ________ million and AMD's profit will be ________ million.

A) $320; $160
B) $200; $180
C) $500; $220
D) $450; $220
E) $500; $100

Question 44

Which of the following does trade practices law prohibit if it substantially lessens competition or creates a monopoly? i. Acquiring a competitor's shares or assets
Ii) Territorial confinement
Iii) Becoming a director of a competing firm

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

Question 45

One of the main tools economists use to analyse strategic behaviour is

A) game theory.
B) dual theory, which is used to study duopolies.
C) the Herfindahl-Hirschman Index.
D) cartel theory.
E) the collusion index.

Question 46

Which of the following is an example of an exclusive dealing arrangement?

A) Prohibiting a seller from selling a competing item.
B) Selling different units of a good to the same buyer at different prices.
C) Preventing a buyer from reselling a product outside a specific area.
D) Forcing the purchase of all necessities from a single firm.
E) Selling one product only if another product is purchased.

Question 47

When duopoly games are repeated and a 'tit-for-tat' strategy is used,

A) one firm goes out of business.
B) both firms begin to incur economic losses.
C) the competitive outcome is more likely to be reached than when the game is played once.
D) the monopoly outcome is more likely to be reached than when the game is played once.
E) because the game is repeated it is impossible to predict whether the competitive or the monopoly outcome is more likely.

Question 48

The only two firms in a market are trying to decide what price to charge. The payoff matrix for this duopoly game is shown above. The payoffs are thousands of dollars of economic profit. In the Nash equilibrium, Firm A will set a price of ________ and Firm B will set a price of ________.

A) $20; $20
B) $10; $10
C) $10; $20
D) $20; $10
E) $20; something, but more information is needed to determine Firm B's price

Question 49

The table above shows the payoff matrix offered to two suspected criminals, Bonnie and Clyde. The payoffs are the years they will spend in prison. The suspected criminals are not allowed to communicate. Which of the following statements correctly describes the equilibrium choices made by Bonnie and Clyde?

A) The Nash equilibrium is the best outcome for Bonnie and Clyde.
B) Bonnie and Clyde could improve upon the Nash equilibrium if they could communicate.
C) In the Nash equilibrium, both Bonnie and Clyde deny committing the crime.
D) Bonnie and Clyde get the best outcome for themselves because they are not allowed to communicate.
E) There is no equilibrium in this game.

Question 50

The prisoners' dilemma game

A) would have the same outcome even if the prisoners could communicate and cooperate.
B) has an equilibrium in which both prisoners are made as well off as possible.
C) shows it is easy to cooperate.
D) has an equilibrium in which one prisoner is made as well off as possible and the other prisoner is made as worse off as possible.
E) shows that prisoners are better off if they cooperate.

Question 51

The table above shows the payoff matrix offered to two suspected criminals, Bonnie and Clyde. The payoffs are the years they will spend in prison. The suspected criminals are not allowed to communicate. Given the information in the payoff matrix, the Nash equilibrium is that Bonnie ________ and Clyde ________.

A) denies; confesses
B) denies; denies
C) confesses; denies
D) confesses; confesses
E) denies; either confess or denies, either outcome is consistent with the Nash equilibrium.

Question 52

Suppose Intel and AMD can each charge either $300 or $200 for a CPU (the computing unit of a computer). The above table illustrates the payoffs, in millions of dollars, from each of the four possible outcomes that could occur in their duopoly setting. What must Intel's price be for AMD to earn $220 million in profit?

A) $200
B) $220
C) $400
D) Either $300 or $400 because AMD earns $220 million in profit either way.
E) None of the above answers is correct because the payoff matrix shows that it is not possible for AMD to earn $220 million in profit.

Question 53

The only two firms in a market are trying to decide what price to charge. The payoff matrix for this duopoly game is shown above. The payoffs are thousands of dollars of economic profit. In the above game, in the Nash equilibrium,

A) Firm A is making $60,000 and Firm B is making $55,000 in economic profit.
B) Firm A and Firm B are both making $55,000 in economic profit.
C) Firm A and Firm B are both making $35,000 in economic profit.
D) Firm A and Firm B are both making $40,000 in economic profit.
E) Firm A and Firm B are both making $60,000 in economic profit.

Question 54

The only two firms in a market are trying to decide what price to charge. The payoff matrix for this duopoly game is shown above. The payoffs are thousands of dollars of economic profit. Which of the following statements is correct?

A) If Firm B sets P = $20, then Firm A will maximise its profit by setting its P = $20.
B) Firm B's strategy is to ALWAYS set P = $20 because that gives Firm B the highest possible profit.
C) If the firms cooperate, both could make $55,000 in economic profit.
D) The Nash equilibrium in this game is for both firms to set P = $20 because that maximises their combined profit.
E) If the firms play this game repeatedly, one would end up charging $20 and the other $10.

Question 55

If two duopolists can stick to a cartel agreement to boost their prices, then both

A) price below average total cost.
B) make greater economic profits than if they did not collude.
C) price at marginal cost.
D) decrease their economic profits.
E) increase their production so that each produces more than if they did not collude.

Question 56

The table above shows the payoff matrix offered to two suspected criminals, Bonnie and Clyde. The payoffs are the years they will spend in prison. The suspected criminals are not allowed to communicate. Given the information in the payoff matrix, the Nash equilibrium is

A) Clyde confesses and Bonnie might either confess or not confess, either outcome is consistent with the Nash equilibrium.
B) both Bonnie and Clyde deny committing the crime.
C) Clyde confesses only if he thinks Bonnie denies committing the crime.
D) both Bonnie and Clyde confess to the crime.
E) Bonnie confesses only if she thinks Clyde denies committing the crime.

Question 57

The equilibrium in the prisoners' dilemma i. minimises the prisoners' combined jail time.
Ii) has one prisoner confessing and the other denying.
Iii) is a Nash equilibrium.

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

Question 58

Suppose Intel and AMD can each charge either $300 or $200 for a CPU (the computing unit of a computer). The above table illustrates the payoffs, in millions of dollars, from each of the four possible outcomes that could occur in their duopoly setting. If Intel charges $300 and AMD charges $300, then Intel's profit will be ________ million and AMD's profit will be ________ million.

A) $200; $180
B) $450; $220
C) $320; $160
D) $500; $100
E) $320; $220

Question 59

A Nash equilibrium occurs

A) only when players use the tit-for-tat strategy.
B) only when the game is played in Nashville, Tennessee
C) when each player acts without considering the actions of the other player.
D) when each player takes the best possible action given the action of the other player.
E) when each player takes the action that makes the combined payoff for all players as large as possible.

Question 60

In the 1970s, when petrol price ceilings below the equilibrium price of petrol were imposed in America, some petrol stations required that buyers of petrol also purchase other products sold at the station. This policy is an example of which of the following?

A) Requirements contracts
B) Exclusive dealing arrangements
C) Price discrimination
D) Bundling
E) Resale price maintenance

Question 61

If Polka Cola prevents all of its retail outlets from selling any other competing soft drink, it is engaged in

A) a tying agreement.
B) exclusive dealing.
C) resale price maintenance.
D) territorial confinement.
E) a requirement contract.

Question 62

Under what conditions would it be legal for two bakeries in a small country town to explicitly agree to raise their prices by 5 per cent?

A) Never.
B) If the price rise did not harm consumers in the long run by reducing competition.
C) If the price rise was necessary to keep one or both bakeries from closing.
D) If the price rise was not predatory.
E) If the price rise did not measurably increase producer surplus.

Question 63

The Shiny Watch company, a manufacturer of expensive watches, requires all of its retailers to sell its watches for a specific price. Which of the following statements are true? i. The Shiny Watch company is engaged in predatory pricing.
Ii) The Shiny Watch company is definitely violating the law.
Iii) The Shiny Watch company is engaged in resale price maintenance.

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

Question 64

Which of the following is ALWAYS a violation of trade practices law?

A) Predatory pricing
B) Tying arrangements
C) Price discrimination
D) Resale price maintenance
E) Price fixing

Question 65

If the Herfindahl-Hirschman Index (HHI) for a market is between 1,000 and 1,800, the ACCC should examine

A) mergers that lower the HHI by 100 or more points.
B) mergers that raise the HHI by 100 or fewer points.
C) all mergers.
D) no mergers.
E) mergers that raise the HHI by 100 or more points.

Question 66

When an oligopoly reduces its price with the intent of driving away its competitors, it is said to be engaging in

A) price discrimination.
B) pricing differentials.
C) price fixing.
D) predatory pricing.
E) a price-tying agreement.

Question 67

If Polka Cola agrees to sell its cola to a retailer only if the retailer also buys a lemon-lime drink, Polka Up, then Polka Cola is engaged in

A) predatory pricing.
B) a requirements contract.
C) price discrimination.
D) an exclusive dealing arrangement.
E) territorial confinement.

Question 68

The ACCC uses ________ to help determine whether to challenge a possible merger.

A) the antitrust law of natural monopolies
B) the four-firm concentration ratio
C) the Herfindahl-Hirschman Index
D) the Competition and Consumers Act
E) the Trade Practices Act

Question 69

Resale price maintenance

A) can lead to inefficiency by preventing low-price shops from being free riders.
B) is an example of a tying arrangement.
C) is always legal.
D) can lead to efficiency by preventing low-price shops from being free riders.
E) is a clear example of predatory pricing.

Question 70

Resale price maintenance can be illegal

A) under the Trade Practices Act.
B) if distributors tell the manufacturer the maximum price at which they will sell the product.
C) only if the distributors engage in predatory pricing.
D) only when it is combined with territorial confinement.
E) under the Competition and Consumers Act.

Question 71

________ is an agreement between a manufacturer and a distributor on the price at which a product will be resold.

A) A tying arrangement
B) Price discrimination
C) Predatory pricing
D) Price fixing
E) Resale price maintenance