Deck 10: Oligopoly and Firm Architecture

Question 1

A market is composed of five firms, and their market shares are 30 percent, 25 percent, 20 percent, 15 percent, and 10 percent. What is the Herfindahl index for the industry?

A) 100
B) 2,250
C) 6,116
D) 10,000

Answer 1

2,250

Question 2

Which of the following is an oligopoly model where firms assume that their rivals will hold their rates of production constant?

A) The kinked demand curve model
B) The Cournot model
C) The Bertrand model
D) The price leadership model

Answer 2

The kinked demand curve model

Question 3

Which of the following is an oligopoly model where firms assume that their rivals will hold their rate prices constant?

A) The kinked demand curve model
B) The Cournot model
C) The Bertrand model
D) The price leadership model

Answer 3

The Bertrand model

Question 4

Which of the following is an oligopoly model where firms assume that their rivals will match price cuts but not price increases?

A) The kinked demand curve model
B) The Cournot model
C) The Bertrand model
D) The price leadership model

Question 5

Which of the following is an oligopoly model where firms respond to the behavior of a dominant firm?

A) The kinked demand curve model
B) The Cournot model
C) The Bertrand model
D) The price leadership model

Question 6

Use the following to answer questions below :

-Refer to the kinked demand graph. If an oligopolistic firm with constant unit cost equal to $60 faces this demand curve, then the firm will

A) produce 2 units of output.
B) produce 3 units of output.
C) produce 4 units of output.
D) None of the above is correct.

Question 7

Use the following to answer questions below :

-Refer to the kinked demand graph. If an oligopolistic firm with constant unit cost equal to $60 faces this demand curve, then the firm will

A) charge $60.00 per unit.
B) charge $62.50 per unit.
C) charge $65.00 per unit.
D) None of the above is correct.

Question 8

Use the following to answer questions below :

-Refer to the kinked demand graph. If an oligopolistic firm with constant unit cost equal to $40 faces this demand curve, then the firm will

A) produce 2 units of output.
B) produce 4 units of output.
C) produce 6 units of output.
D) None of the above is correct.

Question 9

Use the following to answer questions below :

-Refer to the kinked demand graph. If an oligopolistic firm with constant unit cost equal to $40 faces this demand curve, then the firm will

A) charge $40.00 per unit.
B) charge $50.00 per unit.
C) charge $60.00 per unit.
D) None of the above is correct.

Question 10

Use the following to answer questions below :

-Refer to the graph of market demand and marginal revenue. Two firms have formed a centralized cartel in order to maximize profit on the market. Their marginal cost curves are given below:
MC₁ = 5Q₁ and MC₂ = 10Q₂
In order to maximize profit, the firms should produce

A) Q₁ = 4, Q₂ = 2, and charge P = 50.
B) Q₁ = 8, Q₂ = 0, and charge P = 40.
C) Q₁ = 3, Q₂ = 1, and charge P = 60.
D) None of the above is correct.

Question 11

Use the following to answer questions below :

-Refer to the graph of market demand and marginal revenue. Two firms have formed a centralized cartel in order to maximize profit on the market. Their marginal cost curves are given below:
MC₁ = 10Q₁ and MC₂ = 30Q₂
In order to maximize profit, the firms should produce

A) Q₁ = 4, Q₂ = 2, and charge P = 50.
B) Q₁ = 8, Q₂ = 0, and charge P = 40.
C) Q₁ = 3, Q₂ = 1, and charge P = 60.
D) None of the above is correct.

Question 12

Use the following to answer questions below:

-Refer to the price leadership graph. The equilibrium price is

A) $40.
B) $50.
C) $60.
D) None of the above is correct.

Question 13

Use the following to answer questions below:

-Refer to the price leadership graph. The total quantity traded on the market at equilibrium is

A) 3 units.
B) 5 units.
C) 6 units.
D) None of the above is correct.

Question 14

Use the following to answer questions below:

-Refer to the price leadership graph. The quantity supplied by the barometric firm is

A) 2 units.
B) 3 units.
C) 4 units.
D) None of the above is correct.

Question 15

Use the following to answer questions below:

-Refer to the price leadership graph. The quantity supplied by the follower firms is

A) 2 units.
B) 3 units.
C) 4 units.
D) None of the above is correct.

Question 16

If an oligopolist is attempting to maximize revenue, it should produce a quantity of output where marginal revenue is

A) greater than marginal cost.
B) equal to zero.
C) equal to marginal cost.
D) None of the above is correct.

Question 17

If a monopolistically competitive firm is earning profits in the short run, then in the long run the behavior of competing firms

A) will cause the firm's supply curve to shift to the left.
B) will cause the firm's supply curve to shift to the right.
C) will cause the firm's demand curve to shift to the left.
D) will cause the firm's demand curve to shift to the right.

Question 18

Two firms that comprise an industry have decided to engage in collusion. They intend to maximize their total collective profit, that is, to behave as a single monopolist. How should they behave?

A) Both firms should increase their levels of output.
B) The firm with the higher marginal cost should reduce output and the firm with the lower marginal cost should increase output.
C) The firm with the lower marginal cost should reduce output and the firm with the higher marginal cost should increase output.
D) Both firms should reduce their levels of output.

Question 19

Oligopolist A is considering a price reduction. The payoff from this strategy depends on the behavior of Oligopolist B. If Oligopolist B also reduces price, then Oligopolist A will earn a profit of $50,000. If Oligopolist B does not reduce price, then Oligopolist A will earn a profit of $100,000. The situation is symmetrical; that is, if Oligopolist B reduces price and Oligopolist A doesn't, then Oligopolist B will earn a profit of $100,000, and if both oligopolists reduce their prices, then Oligopolist B will earn a profit of $50,000. If neither oligopolist reduces price, then both will continue to earn profits of $75,000. What can Oligopolist A and Oligopolist B be expected to do in the absence of collusion?

A) Both will refrain from reducing price.
B) Both will reduce price.
C) Oligopolist A will reduce price, but Oligopolist B won't.
D) Oligopolist B will reduce price, but Oligopolist A won't.

Question 20

Some economists have suggested that oligopolists tend to maintain stable prices when there are changes in the demand for their products or in their costs of production. Which of the following models provides an explanation for this type of behavior?

A) Price leadership
B) Centralized cartel
C) Prisoners' dilemma
D) Kinked demand curve

Question 21

The market for automobiles is an example of

A) monopolistic competition.
B) duopoly.
C) differentiated oligopoly.
D) pure oligopoly.

Question 22

If an industry is composed of four firms and their market shares are 40 percent, 30 percent, 20 percent, and 10 percent, then the Herfindahl index for the industry is

A) 100.
B) 200.
C) 3,000.
D) 10,000.

Question 23

The Herfindahl index will be largest for an industry that is

A) a monopoly.
B) perfectly competitive.
C) a duopoly.
D) monopolistically competitive.

Question 24

The Herfindahl index will be smallest for an industry that is

A) a monopoly.
B) perfectly competitive.
C) a duopoly.
D) a differentiated oligopoly.

Question 25

According to the Cournot model, a firm will

A) assume that rival firms will keep their production constant.
B) produce the quantity where marginal revenue equals marginal cost.
C) respond to changes in production by rival firms by adjusting its production.
D) All of the above are correct.

Question 26

According to the Bertrand model, a firm will assume that rival firms will

A) keep their rates of production constant.
B) keep their prices constant.
C) match price cuts but not price increases.
D) match price increases but not price cuts.

Question 27

According to the kinked demand curve model, a firm will assume that rival firms will

A) keep their rates of production constant.
B) keep their prices constant.
C) match price cuts but not price increases.
D) match price increases but not price cuts.

Question 28

The refrigerator industry is an example of

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

Question 29

The petroleum industry is an example of

A) monopolistic competition.
B) pure oligopoly.
C) duopoly.
D) differentiated oligopoly.

Question 30

The kinked demand curve model assumes that

A) firms match price increases, but not price cuts.
B) demand is more elastic for price cuts than for price increases.
C) changes in marginal cost can never lead to changes in market price.
D) None of the above is correct.

Question 31

Which of the following is not a form of nonprice competition?

A) Advertising
B) Quality of service
C) Product quality
D) All of the above are forms of nonprice competition.

Question 32

A cartel that gives each member the exclusive right to operate in a particular geographic area is a

A) market-sharing cartel.
B) centralized cartel.
C) price leadership cartel.
D) None of the above is correct.

Question 33

A cartel that operates like a multiplant monopolist is a

A) market-sharing cartel.
B) centralized cartel.
C) price leadership cartel.
D) None of the above is correct.

Question 34

Under the dominant-firm price leadership model,

A) all firms but the dominant firm are price takers.
B) the dominant firm acts as the residual monopolistic supplier.
C) the demand curve faced by the dominant firm is flatter than the market demand curve.
D) All of the above are correct.

Question 35

Oligopolistic firms can earn positive economic profits

A) in the short run, but not in the long run.
B) in the short run and in the long run.
C) in the long run, but not in the short run.
D) in neither the short run nor the long run.

Question 36

Which of the following forms of market organization assumes that entry and exit of firms is costless?

A) Differentiated oligopoly
B) Duopoly
C) Monopolistic competition
D) Pure oligopoly

Question 37

The harmful effects of oligopoly include all of the following except:

A) economies of scale result in a small number of large firms that spend more on research and development.
B) price is greater than long-run marginal and average cost.
C) production does not generally take place at the lowest point on the long-run average cost curve.
D) All of the above are harmful effects of oligopoly.

Question 38

The sales maximization model assumes that imperfectly competitive firms will produce a level of output where

A) marginal revenue is equal to zero.
B) marginal revenue is equal to marginal cost.
C) marginal revenue is equal to zero if profit is satisfactory.
D) they will break even.

Question 39

One reason that most economists do not support government industrial and trade policies is that the outcomes of these policies cannot

A) have a positive effect on a country's industries.
B) be accurately predicted.
C) help a country to overcome a comparative disadvantage.
D) prevent a country from losing a comparative advantage.

Question 40

The growth of global oligopolists has been encouraged by

A) the development of new transportation and telecommunications technologies.
B) the globalization of tastes.
C) reductions in barriers to international trade and investment.
D) All of the above have encouraged the growth of global oligopolists.

Question 41

In which of the sectors listed below has the growth in concentration been most pronounced during the past decade?

A) Agriculture
B) Mining
C) Banking
D) Home construction

Question 42

Firms in which of the following industries have used mergers and acquisitions to grow and globalize?

A) Telecommunications
B) Entertainment and communications media
C) Consumer products
D) All of the above are correct.

Question 43

Compared to relationship enterprises, virtual corporations are more likely to be

A) lasting and stable.
B) short term and temporary.
C) global in scope.
D) oligopolistic.

Question 44

When several independent firms form a temporary network to take advantage of a short-term business opportunity, the result is called a

A) collaborative firm.
B) relationship enterprise.
C) virtual corporation.
D) cartelized partnership.

Question 45

The ideal firm architecture includes all of the following except

A) a focus on core competencies.
B) the integration of physical and virtual systems.
C) a hierarchical, top-down management structure.
D) smaller, more flexible production facilities.

Question 46

Porter's strategic framework identifies forces that influence an industry's

A) intensity of competition and profitability.
B) rate of growth.
C) popularity among consumers.
D) potential as an exporter within the global economy.

Question 47

Which of the following is not a force identified by Porter's strategic framework?

A) Threat of entry
B) Intensity of rivalry
C) Government tax policy
D) Bargaining power of buyers

Question 48

The knowledge economy is characterized by a reliance on

A) innovation and creativity.
B) a customer-centric approach.
C) efficiency in production.
D) All of the above are correct.

Question 49

An emphasis on design innovation is typical of

A) the knowledge economy.
B) the virtual corporation.
C) relationship enterprises.
D) the creative firm.

Question 50

CENCOR is an acronym for a design strategy that consists of the following parts:

A) collaborate, evaluate, celebrate, occlude, and rationalize
B) calibrate, explore, create, organize, and realize
C) create, evoke, circumvent, officiate, and redeem
D) calculate, erect, consign, offer, and return

Question 51

Assume that the industry consists of 10 firms with 10% of the market share each. If three of these firms are allowed to merge and form a new firm with a 30% market share, while the remaining seven firms will remain with 10% each, what would the change in the Herfindahl index be due to this merger?

A) 1000
B) 600
C) 300
D) 100

Question 52

A market is composed of 2 firms, and the bigger firm takes up 60 percent of the market. What is the Herfindahl index for the industry?

A) 3,000
B) 3,550
C) 5,200
D) 6,250

Question 53

A market is composed of three firms. If the bigger two firms' market shares are 45 and 30 percent, what is the Herfindahl index for the industry?

A) 3,000
B) 3,550
C) 5,200
D) 6,250

Question 54

A market is composed of 4 firms. The three bigger firms take up 40, 30 and 20 percent of the market share. What is the Herfindahl index for the industry?

A) 3,000
B) 3,550
C) 5,200
D) 6,250

Question 55

Assume that the industry consists of 5 firms each with 20 percent of the market share. If two of them merge, by how much does the Herfindahl index increase?

A) 800
B) 2,000
C) 2,500
D) 2,800

Question 56

Assume that the industry consists of 2 firms each with 50 percent of the market share. If each of them is split into 2 smaller companies, by how much does the Herfindahl index decrease?

A) 800
B) 2,000
C) 2,500
D) 2,800

Question 57

Two firms have formed a centralized cartel in order to maximize profit on the market. Their marginal cost curves are: MC₁ = 2Q₁ and MC₂ = 3Q₂. If the marginal revenue curve of the market is MR = 100-0.8Q, what quantity should the profit maximizing cartel produce?

A) Q=20
B) Q=30
C) Q=40
D) Q=50

Question 58

Two firms have formed a centralized cartel in order to maximize profit on the market. Their marginal cost curves are: MC_A = 2Q_A and MC_B = 3Q_B. If the marginal revenue curve of the market is MR = 100-0.8Q, what quantity should Firm A produce?

A) Q=20
B) Q=30
C) Q=40
D) Q=50

Question 59

Two firms have formed a centralized cartel in order to maximize profit on the market. Their marginal cost curves are: MC_A = 2Q_A and MC_B = 3Q_B. If the marginal revenue curve of the market is MR = 100-0.8Q, what quantity should Firm B produce?

A) Q=20
B) Q=30
C) Q=40
D) Q=50

Question 60

Two firms have formed a centralized cartel in order to maximize profit on the market. Their marginal cost curves are: MC_A = 2Q_A and MC_B = 3Q_B. If the marginal revenue curve of the market is MR = 100-0.8Q, what price should the cartel charge?

A) P=40
B) P=60
C) P=80
D) P=90

Question 61

Which of the following U.S. corporations had the highest sales in 2015?

A) Walmart
B) CVS
C) Ford Motor
D) AT&T

Question 62

Which of the following automobile manufacturers produced the most vehicles in 2016?

A) Volkswagen Group
B) Renault/Nissan
C) Honda
D) Fiat/Chrysler

Question 63

The most innovative firms are mostly from

A) Germany
B) Japan
C) China
D) Untied States

Question 64

A duopoly is an oligopoly in which several firms duel for consumer demand.

Question 65

Oligopoly is the prevalent form of market organization in the manufacturing sectors of industrial nations.

Question 66

Oligopolistic markets are characterized by rivalries between firms that arise because the actions of each firm in an industry have an effect on the other firms in the industry.

Question 67

Limit pricing refers to the oligopolistic practice of charging a price so low that new firms are discouraged from entering the industry.

Question 68

The sources of oligopoly are generally the same as for monopoly, that is, barriers to entry.

Question 69

Concentration ratios measure the total number of firms required to supply the market.

Question 70

If the concentration ratio for an industry is small, then the Herfindahl index is likely to be large.

Question 71

An oligopolistic industry is likely to have a large concentration ratio and a large Herfindahl index.

Question 72

The Cournot model focuses on interdependence among firms.

Question 73

The kinked demand curve model describes a monopolistically competitive market.

Question 74

The kinked demand curve model provides an explanation of price rigidity in the face of changes in costs.

Question 75

Oligopolists prefer to avoid engaging in nonprice competition.

Question 76

A cartel is an organization of colluding oligopolists.

Question 77

Cartels tend to self-destruct because each member has an incentive to cheat.

Question 78

Price leadership is an example of formal collusion.

Question 79

The sector in which the size of the largest firms has grown most is retail.

Question 80

If a firm with marginal cost equal to $2 faces a demand curve defined as QD = 10 - 2P, then revenue is at a maximum when price is $6.