Deck 14: Oligopoly

Question 1

An industry that is dominated by a few firms, each of which recognizes that its own choices can affect the choices of its rivals and vice versa, is:

A) a monopoly.
B) an oligopoly.
C) characterized by monopolistic competition.
D) characterized by perfect competition.

Answer 1

B

Question 2

The market structure characterized by a few interdependent firms and barriers to entry is called:

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

Answer 2

C

Question 3

Oligopoly is a market structure characterized by:

A) independence in decision making.
B) interdependence: each firm's decision affects the profit of the other firms.
C) substantial diseconomies of scale.
D) a large number of small firms.

Answer 3

B

Question 4

A firm that is in an oligopoly knows that its _____ affect its _____ and that the _____ of its rivals will affect it.

A) actions; rivals; reactions
B) price changes; total revenue in a positive way; reactions
C) actions rarely; rivals; actions
D) price increases; total revenue in the long run only; large but not small price changes

Question 5

To calculate the Herfindahl-Hirschman index (HHI), one must _____ market share(s) of _____ in the industry.

A) sum the; the four largest firms
B) sum the; all of the firms
C) divide the; the largest firm by the sum of the four largest firms
D) sum the squared; all firms

Question 6

The largest Herfindahl-Hirschman index possible is _____, and the industry is a(n) _____.

A) 10; monopoly
B) 10,000; monopoly
C) 100,000; monopoly
D) 100,000; oligopoly

Question 7

An industry characterized by a few interdependent firms and by barriers to entry is called:

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

Question 8

In oligopoly, a firm must realize that:

A) what it does has no effect on the other firms in the industry.
B) its behavior will be ignored by other firms in the industry.
C) another major firm may dominate choices in the industry, and it will have to behave accordingly.
D) collusion was made legal in 2004.

Question 9

Oligopoly is a market structure that is characterized by a _____ number of _____ firms that produce _____ products.

A) large; relatively small and independent; identical
B) small; independent; identical or differentiated
C) large; relatively small and independent; differentiated
D) small; interdependent; identical or differentiated

Question 10

The market structure that is characterized by only a small number of producers is:

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

Question 11

Which of the following scenarios best describes an oligopolistic industry?

A) A single cable company serves customers in a small town.
B) Thousands of soybean farmers sell their output in a global commodities market.
C) Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.
D) A college has one bookstore selling textbooks to students.

Question 12

Oligopoly is a market structure that is characterized by a _____ number of _____ firms producing _____ products.

A) small; interdependent; identical or differentiated
B) small; independent; identical or differentiated
C) large; relatively small independent; differentiated
D) large; relatively small independent; identical

Question 13

The Herfindahl-Hirschman index equals _____ when _____ have (has) _____ of the market.

A) 10,000; four firms each; 25%
B) 5,000; three firms each; 33%
C) 5,000; two firms each; 50%
D) 100,000; one firm; 100%

Question 14

The sum of the squared market shares of each firm in an industry is the:

A) concentration ratio.
B) employment rate.
C) Herfindahl-Hirschman index.
D) market number.

Question 15

Which of the following Herfindahl-Hirschman indices is most likely to indicate a perfectly competitive market?

A) 100
B) 1,800
C) 10,000
D) 100,000

Question 16

In an oligopoly:

A) there are many sellers.
B) there are no barriers to entry.
C) firms recognize their interdependence.
D) total surplus is maximized.

Question 17

The Herfindahl-Hirschman index is a measure of concentration found by:

A) squaring the percentage market share of each firm in the industry.
B) squaring the percentage market share of each firm in the industry and then summing the squared market shares.
C) summing the percentage market shares of each firm in the industry.
D) squaring the sums of the concentration ratios found in an industry survey of the largest four and largest eight firms.

Question 18

An industry is dominated by a few firms. Each of these firms acknowledges that its own choices affect the choices of its rivals. Each firm also recognizes that its rivals' choices affect the decisions it makes. This industry is an example of:

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

Question 19

To be called an oligopoly, an industry must have:

A) independence in decision making.
B) a horizontal demand curve.
C) a small number of interdependent firms.
D) relatively easy entry and exit.

Question 20

The most important source of oligopoly in an industry is:

A) economies of scale.
B) government regulation.
C) technological inferiority.
D) ownership of plentiful resources.

Question 21

Gary's Gas and Frank's Fuel are the only two providers of gasoline in their small town. Gary and Frank decide to form a cartel to raise the price of gasoline. The total industry profits are highest when _____ cheat(s) on the agreement, and Gary's profits are highest when _____.

A) neither firm; neither firm cheats on the agreement
B) neither firm; Gary cheats but Frank does not
C) both firms; Gary cheats but Frank does not
D) both Gary and Frank; both Gary and Frank cheat

Question 22

In which of the following situations does overt collusion take place?

A) Smaller firms in an industry have an unspoken agreement to charge the same price as the largest firm.
B) Firms in an industry agree openly on price and output, and they jointly make other decisions aimed at achieving monopoly profits.
C) Competition among a large number of small firms generates similar but slightly different prices.
D) Competition among a large number of small firms generates a stable market price.

Question 23

_____ occurs when the only two firms in an industry agree to fix the price at a given level.

A) Collusion
B) The ability to satisfy demand
C) Price extortion
D) Price leadership

Question 24

Overt collusion exists if:

A) firms agree openly on price and output and they jointly make other decisions aimed at achieving monopoly profits.
B) smaller firms in an industry tacitly agree to charge the same price as the largest firm.
C) competition among a large number of small firms generates a stable market price.
D) competition among a large number of small firms generates similar but slightly different prices.

Question 25

Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by:

A) producing more than the quantity that maximizes joint profits.
B) producing less than the quantity that maximizes joint profits.
C) charging more than the price that maximizes joint cartel profits.
D) advertising less than will maximize joint cartel profits.

Question 26

A cartel is an example of:

A) price extortion.
B) price leadership.
C) overt collusion.
D) perfect competition.

Question 27

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. If these two producers formed a cartel and acted to maximize total industry profits, total industry profit would be:

A) $10,000.
B) $5,000.
C) $2,500.
D) $1,250.

Question 28

An industry with only two firms is generally called:

A) a monopoly.
B) monopolistic competition.
C) a duopoly.
D) perfect competition.

Question 29

_____ occurs when the only two firms in an industry openly agree to fix the price at a given level.

A) Overt collusion
B) Price leadership
C) Contestability
D) Tacit collusion

Question 30

An extreme case of oligopoly in which firms collude to raise joint profits is known as a:

A) duopoly.
B) cartel.
C) dominant producer.
D) price war.

Question 31

The owners of the gas stations in a town are trying to set up a cartel that will raise the price of gasoline. Which of the following will INCREASE the chances that the cartel will fail because of cheating by the owners?

A) All of the gas stations face the same costs.
B) There are only a few gas stations.
C) The gas stations are producing as much as they can.
D) The gas stations vary in terms of the services that they provide.

Question 32

Which of the following characteristics make an industry more conducive to collusive behavior?

A) Firms in the industry have very different marginal costs of production.
B) Firms in the industry produce goods with significantly different product attributes.
C) Firms in the industry are operating at a maximum productive capacity that cannot be easily altered in the short run.
D) Firms in the industry serve customers that can easily switch between firms as they search for the best price.

Question 33

If there are two gas stations in a very small town, then the gas station business there is probably best characterized as:

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

Question 34

When firms openly agree on price and output and they jointly make other decisions aimed at achieving monopoly profits, those firms are practicing:

A) overt collusion.
B) tacit collusion.
C) price leadership.
D) competitive game.

Question 35

A duopoly is an industry that consists of:

A) a single firm.
B) two firms.
C) three or more firms.
D) a large number of small firms.

Question 36

An industry that consists of two firms is:

A) a duopoly.
B) a monopoly.
C) a monopsony.
D) monopolistic competition.

Question 37

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. If these two producers formed a cartel, split the production of output equally, and acted to maximize total industry profits, each firm's output would be _____ and each firm's profit would be _____.

A) 500; $2,500
B) 250; $1,250
C) 1,000; $500
D) 1,000; $10,000

Question 38

Large barriers to entry in the gas station business explain why the two only gas stations in a small town:

A) can earn an economic profit in the long run.
B) must produce at the minimum average total cost in the long run.
C) have no fixed costs in the long run.
D) must produce a level of output such that MR = MC to maximize their profit.

Question 39

In an oligopoly market, collusion between firms usually leads to higher profits than noncooperative behavior. However, formal, overt collusion doesn't usually occur in the United States because: I. it is illegal.
II) there is an incentive for each firm to cheat on a collusive agreement.
III) an oligopolistic firm will typically prefer lower profits if the only way to make higher profits is to improve the profit position of its rivals.

A) I only.
B) II only.
C) I and II.
D) II and III.

Question 40

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. If these two producers formed a cartel and acted to maximize total industry profits, total industry output would be _____ and the price would be _____.

A) 1,000; $10
B) 100; $9
C) 400; $6
D) 500; $5

Question 41

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, Margaret's price effect will be a(n) _____ in profit of _____.

A) decrease; $400
B) increase; $400
C) increase; $200
D) decrease; $200

Question 42

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. If industry output is 350 gadgets produced by Margaret and 250 gadgets produced by Ray and if Ray decides to increase output by 100, Margaret's profit will be _____ and Ray's profit will be _____.

A) $1,750; $1,250
B) $1,250; $1,250
C) $1,400; $1,000
D) $1,050; $1,050

Question 43

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. If these two producers formed a cartel, agreed to split production of output evenly, and acted to maximize total industry profits, total industry profit would be:

A) $10,000.
B) $5,000.
C) $2,500.
D) $1,600.

Question 44

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. If industry output is 700, each firm's profits will be _____ than they would be at the output of 500, which maximizes industry profit.

A) $150 less
B) $150 more
C) $200 more
D) $200 less

Question 45

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, how many gadgets will Margaret sell?

A) 500
B) 200
C) 300
D) 600

Question 46

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, Margaret's quantity effect will be a(n) _____ in profit of _____.

A) decrease; $100
B) increase; $100
C) increase; $300
D) decrease; $300

Question 47

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly and are maximizing total industry profits. Total industry output would be _____ gadgets.

A) 10
B) 5
C) 50
D) 500

Question 48

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, the market price of gadgets will be:

A) $4.
B) $5.
C) $6.
D) $7.

Question 49

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, Margaret's quantity effect will be a(n) _____ in profit of _____.

A) decrease; $250
B) increase; $150
C) increase; $400
D) decrease; $400

Question 50

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. Each firm's output would be _____, and each firm's profit would be _____.

A) 500; $2,500
B) 200; $800
C) 1,000; $500
D) 1,000; $10,000

Question 51

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, Margaret's profit will be _____ and Ray's profit will be _____.

A) $1,250; $1,250
B) $500; $500
C) $1,400; $1,000
D) $1,000; $1,400

Question 52

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. If industry output is 300 gadgets produced by Margaret and 200 gadgets produced by Ray and if Ray decides to increase output by 100, industry price will be:

A) $4.
B) $3.
C) $2.
D) $1.

Question 53

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. If industry output is 350 gadgets produced by Margaret and 250 gadgets produced by Ray and if Ray decides to increase output by 100, industry price will be:

A) $3.
B) $2.
C) $1.
D) $0.

Question 54

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, the market price of gadgets will be:

A) $4.
B) $5.
C) $6.
D) $7.

Question 55

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, Margaret's profit will be _____, and Ray's profit will be _____.

A) $1500; $1,000
B) $900; $600
C) $1,400; $1,000
D) $1,000; $1,400

Question 56

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets but Ray continues to sell 200 gadgets, Ray's profits will be:

A) $1,400.
B) $1,250.
C) $600.
D) $400.

Question 57

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel and are maximizing total industry profits and splitting the production of output evenly between themselves. If Margaret decides to cheat on the agreement and sell 100 more gadgets, how many gadgets will she sell?

A) 0
B) 250
C) 350
D) 600

Question 58

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. If these two producers formed a cartel, agreed to split production of output evenly, and acted to maximize total industry profits, total industry output would be _____ and the price would be _____.

A) 1,000; $10
B) 100; $9
C) 400; $6
D) 500; $5

Question 59

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets but Ray continues to sell 250 gadgets, Ray's profits will be:

A) $1,400.
B) $1,250.
C) $1,000.
D) $400.

Question 60

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, Margaret's price effect will be a(n) _____ in profit of _____.

A) decrease; $400
B) increase; $400
C) increase; $250
D) decrease; $250

Question 61

Use the following to answer questions:
Figure: Collusion
(Figure: Collusion) Look at the figure Collusion. The quantity of output produced by the industry with collusion is shown by:

A) Q.
B) R.
C) S.
D) T.

Question 62

Use the following to answer questions:
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) The figure Monopoly Profits in Duopoly shows how an industry consisting of two firms that face identical demand curves (D₁) can collude to increase profits. If the firms collude to share the market demand equally, then each firm will act as if its marginal revenue curve is given by:

A) MR₁.
B) 2 × MR₁.
C) MR₂.
D) MC.

Question 63

Use the following to answer questions:
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Oligopoly) Firms in the duopoly industry illustrated in the figure Monopoly Profits in Duopoly have zero fixed costs. The market demand curve is D₂. If the two firms colluded to maximize their combined economic profits, they would set the market price at _____, and combined economic profits of the firms would be _____.

A) P₁; given by the area of the rectangle 0P₁CQ₄
B) P₁; zero
C) P₃; given by the area of the rectangle 0P₃AQ₁
D) P₂; given by the area of the rectangle P₁P₂BG

Question 64

Use the following to answer questions:
(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that the crude oil industry is a duopoly and the marginal cost of producing crude oil is zero. If the two firms collude to share the market equally, the price of crude oil will be _____, firm 1 will produce _____ barrels, firm 2 will produce _____ barrels, and each firm will earn revenue equal to _____.

A) $80; 80; 80; $6,400
B) $80; 40; 40; $3,200
C) $60; 50; 50; $3,000
D) $40; 60; 60; $2,400

Question 65

Use the following to answer questions:
Figure: Collusion
(Figure: Collusion) Look at the figure Collusion. The quantity of output produced by firm 1 when there is collusion in the industry is shown by:

A) F.
B) G.
C) H.
D) K.

Question 66

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. If industry output is 300 gadgets produced by Margaret and 200 gadgets produced by Ray and if Ray decides to increase output by 100, Margaret's profit will be _____, and Ray's profit will be _____.

A) $1,750; $1,250
B) $1,250; $1,250
C) $1,400; $1,000
D) $600; $600

Question 67

Use the following to answer questions:
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) Given the duopoly industry illustrated in the figure Monopoly Profits in Duopoly, if each firm acted on the belief that it faced demand curve D₂ and acted without consideration of the other, each firm would attempt to maximize economic profits by producing quantity _____ and setting price equal to _____.

A) Q₄; P₁
B) Q₄; P₂
C) Q₁; P₄
D) Q₂; P₂

Question 68

Use the following to answer questions:
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) Look at the figure Monopoly Profits in Duopoly. Two firms could engage in _____ and reap monopoly profits.

A) game theory
B) the prisoners' dilemma
C) collusive behavior
D) measuring the four-firm concentration ratio

Question 69

Use the following to answer questions:
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) The efficient solution in the figure Monopoly Profits in Duopoly is found where price is _____ and quantity is _____.

A) P₁; Q₄
B) P₂; Q₂
C) P₂; Q₁
D) P₃; Q₁

Question 70

Use the following to answer questions:
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) Suppose the duopoly industry illustrated in the figure Monopoly Profits in Duopoly produces a perishable good. If the industry is perfectly competitive, the market price will likely end up being _____, and the combined economic profits of the firms will be _____.

A) P₁; given by the area of the rectangle bounded by 0P₁CQ₄
B) P₁; zero
C) P₃; given by the area of the rectangle bounded by 0P₃AQ₁
D) P₂; given by the area of the rectangle bounded by P₁P₂GB

Question 71

Use the following to answer questions:
(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. If the industry were perfectly competitive, the output would be _____ gadgets, and the price would be _____.

A) 0; $10
B) 500; $5
C) 600; $4
D) 800; $2

Question 72

Use the following to answer questions:
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) Look at the figure Monopoly Profits in Duopoly. Each firm faces an identical demand curve, D₁, and the market demand curve is D₂. The figure illustrates how firms can reap monopoly profits even in an industry with:

A) free entry and exit.
B) two firms.
C) monopolistic competition.
D) a four-firm concentration ratio of 50.

Question 73

Use the following to answer questions:
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) The figure Monopoly Profits in Duopoly shows how an industry consisting of two firms that face identical demand curves (D₁) can collude to increase profits. If the firms collude to share the market demand equally, then each firm will act as if its demand curve is given by _____, while the market demand curve is given by _____.

A) D₁; MR₂
B) D₂; D₁
C) D₁; D₂
D) MR₁; MR₂

Question 74

Use the following to answer questions:
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) If the two firms in the figure Monopoly Profits in Duopoly colluded to split production evenly and to maximize their joint profits, the market price they set would be _____, and each firm's economic profit would be _____. (Assume that the market demand curve is D₂.)

A) P₂; given by the area of the rectangle bounded by P₁P₂EF = FEBG
B) P₁; P₁P₃AF
C) P₃; given by the area of the rectangle bounded by 0P₃AQ₁
D) P₂; given by the area of the rectangle bounded by P₁P₂BG

Question 75

Use the following to answer questions:
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) The figure Monopoly Profits in Duopoly shows how an industry consisting of two firms that face identical demand curves (D₁) can collude to increase profits. Which of the following assumptions is NOT a part of the analysis illustrated by the model?

A) The two firms are identical.
B) The two firms sell identical products.
C) While the firms face the same MC curves, their respective TC curves have unequal slopes.
D) Each firm has a horizontal marginal cost curve.

Question 76

Use the following to answer questions:
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) The figure Monopoly Profits in Duopoly shows how an industry consisting of two firms that face identical demand curves (D₁) can collude to increase profits. The market demand curve is D_2. If the firms collude to share the market demand equally, then each firm will act as if its demand curve is given by:

A) D₁.
B) D₂.
C) MR₁.
D) 2 × D₁.

Question 77

Use the following to answer questions:
Figure: Collusion
(Figure: Collusion) Look at the figure Collusion. The price charged by the industry with collusion is shown by:

A) W.
B) X.
C) Y.
D) Z.

Question 78

Use the following to answer questions:
(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. The marginal cost of producing crude oil is zero. If the crude oil industry is a monopoly, the price of crude oil will be _____, the total quantity of crude oil produced by the monopoly will be _____ barrels, and the monopoly will earn revenue equal to _____.

A) $80; 80; $6,400
B) $80; 80; $0
C) $160; 0; $0
D) $60; 100; $6,000

Question 79

Use the following to answer questions:
Figure: Monopoly Profits in Duopoly
(Figure: Monopoly Profits in Duopoly) The figure Monopoly Profits in Duopoly shows how an industry consisting of two firms that face identical demand curves (D₁) can collude to increase profits. The market demand curve is D_2. Which of the following assumptions is part of the analysis illustrated by the model?

A) The two firms have identical marginal cost but different average total cost.
B) The two firms sell differentiated products.
C) The MR curve is not relevant to either firm's choices.
D) The firms can act as a cartel and maximize their combined economic profit.

Question 80

Use the following to answer questions:
Figure: Collusion
(Figure: Collusion) Look at the figure Collusion. The quantity of output produced by firm 2 when there is collusion in the industry is shown by:

A) H.
B) J.
C) K.
D) L.