Deck 16: Oligopoly

Question 1

The general term for market structures that fall somewhere in-between monopoly and perfect competition is

A)incomplete markets.
B)imperfectly competitive markets.
C)oligopoly markets.
D)monopolistically competitive markets.

Answer 1

B

Question 2

If there are many firms participating in a market,the market is either

A)an oligopoly or monopolistically competitive.
B)perfectly competitive or monopolistically competitive.
C)an oligopoly or perfectly competitive.
D)an oligopoly or a cartel.

Answer 2

B

Question 3

A market structure with only a few sellers,offering similar or identical products,is known as

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

Answer 3

A

Question 4

A market structure in which there are many firms selling products that are similar but not identical is known as

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

Question 5

Table 16-1
The following table shows the percentage of output supplied by the top eight firms in four different industries.

Refer to Table 16-1.What is the concentration ratio in Industry B?

A)5%
B)46%
C)85%
D)95%

Question 6

One characteristic of an oligopoly market structure is:

A)firms in the industry are typically characterized by very diverse product lines.
B)firms in the industry have some degree of market power.
C)products typically sell at a price that reflects their marginal cost of production.
D)the actions of one seller have no impact on the profitability of other sellers.

Question 7

If,in a particular market,firms sell identical products,then the market is (i) perfectly competitive.
(ii) monopolistically competitive.
(iii) an oligopoly.

A)(i) or (ii)
B)(ii) or (iii)
C)(i) or (iii)
D)(i) only

Question 8

A typical firm in the U.S.economy would be classified as

A)perfectly competitive.
B)imperfectly competitive.
C)a duopolist.
D)an oligopolist.

Question 9

One key difference between an oligopoly market and a competitive market is that oligopolistic firms

A)are price takers while competitive firms are not.
B)can affect the profit of other firms in the market by the choices they make while firms in competitive markets do not affect each other by the choices they make.
C)sell completely unrelated products while competitive firms do not.
D)sell their product at a price equal to marginal cost while competitive firms do not.

Question 10

Table 16-1
The following table shows the percentage of output supplied by the top eight firms in four different industries.

Refer to Table 16-1.What is the concentration ratio in Industry A?

A)24%
B)55%
C)66%
D)82%

Question 11

The typical firm in the U.S.economy

A)has some degree of market power.
B)sells its product for a price that is equal to the marginal cost of producing the last unit.
C)is perfectly competitive.
D)is a monopoly.

Question 12

There are two types of imperfectly competitive markets:

A)monopoly and monopolistic competition.
B)monopoly and oligopoly.
C)monopolistic competition and oligopoly.
D)monopolistic competition and cartels.

Question 13

When an industry has many firms,the industry is

A)an oligopoly if the firms sell differentiated products, but it is monopolistically competitive if the firms sell identical products.
B)an oligopoly if the firms sell differentiated products, but it is perfectly competitive if the firms sell identical products.
C)monopolistically competitive if the firms sell differentiated products, but it is perfectly competitive if the firms sell identical products.
D)perfectly competitive if the firms sell differentiated products, but it is monopolistically competitive if the firms sell identical products.

Question 14

An oligopoly is a market in which

A)there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market.
B)firms are price takers.
C)the actions of one seller in the market have no impact on the other sellers' profits.
D)there are many price-taking firms, each offering a product similar or identical to the products offered by other firms in the market.

Question 15

Firms in industries that have competitors but,at the same time,do not face so much competition that they are price takers,are operating in either a(n)

A)oligopoly or perfectly competitive market.
B)oligopoly or monopoly market.
C)oligopoly or monopolistically competitive market.
D)monopoly or monopolistically competitive market.

Question 16

Crude oil is primarily supplied to the world market by a few Middle Eastern countries.Such a market is an example of a(n) (i) imperfectly competitive market.
(ii) monopoly market.
(iii) oligopoly market.

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

Question 17

In a market that is characterized by imperfect competition,

A)firms are price takers.
B)there are always a large number of firms.
C)there are at least a few firms that compete with one another.
D)the actions of one firm in the market never have any impact on the other firms' profits.

Question 18

Table 16-1
The following table shows the percentage of output supplied by the top eight firms in four different industries.

Refer to Table 16-1.What is the concentration ratio in Industry C?

A)29%
B)39%
C)45%
D)56%

Question 19

Monopolistically competitive firms are typically characterized by

A)many firms selling products that are similar, but not identical.
B)many firms selling identical products.
C)a few firms selling products that are similar, but not identical.
D)a few firms selling highly different products.

Question 20

In which of the following markets is economic profit driven to zero in the long run?

A)Oligopoly
B)Monopoly
C)Perfect competition
D)Cartels

Question 21

A special kind of imperfectly competitive market that has only two firms is called

A)a two-tier competitive structure.
B)an incidental monopoly.
C)a doublet.
D)a duopoly.

Question 22

Table 16-2
The following table shows the total output produced by the top six firms as well as the total industry output for four industries.

Refer to Table 16-2.Which industry has the highest concentration ratio?

A)Industry A
B)Industry B
C)Industry C
D)Industry D

Question 23

As a group,oligopolists would always earn the highest profit if they would

A)produce the perfectly competitive quantity of output.
B)produce more than the perfectly competitive quantity of output.
C)charge the same price that a monopolist would charge if the market were a monopoly.
D)operate according to their own individual self-interests.

Question 24

Which of the following is a characteristic of oligopoly but NOT perfect competition?

A)Advertising and sales promotion
B)Profit maximization according to the MR = MC rule
C)Firms are price takers rather than price makers
D)Horizontal demand and marginal revenue curves

Question 25

Table 16-1
The following table shows the percentage of output supplied by the top eight firms in four different industries.

Refer to Table 16-1.Which industry has the highest concentration ratio?

A)Industry A
B)Industry B
C)Industry C
D)Industry D

Question 26

Table 16-1
The following table shows the percentage of output supplied by the top eight firms in four different industries.

Refer to Table 16-1.Which industry has the lowest concentratio ratio?

A)Industry A
B)Industry B
C)Industry C
D)Industry D

Question 27

A firm in a monopolistically competitive market is similar to a monopolist in the sense that it

A)must overcome significant barriers to entry.
B)faces a downward-sloping demand curve.
C)has no barriers to entry or exit.
D)it is the only seller of the good.

Question 28

Table 16-2
The following table shows the total output produced by the top six firms as well as the total industry output for four industries.

Refer to Table 16-2.Which industry has the lowest concentration ratio?

A)Industry A
B)Industry B
C)Industry C
D)Industry D

Question 29

What do economists call a market structure in which there are many firms selling products that are similar but not identical?

A)Perfect competition
B)Monopoly
C)Monopolistic competition
D)Oligopoly

Question 30

The commercial jetliner industry,consisting of Boeing and Airbus,would best be described as a (an)

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

Question 31

Imperfectly competitive firms are characterized by

A)horizontal demand curves.
B)standardized products.
C)a large number of small firms.
D)price making ability.

Question 32

Table 16-2
The following table shows the total output produced by the top six firms as well as the total industry output for four industries.

Refer to Table 16-2.What is the concentration ratio for Industry D?

A)13%
B)35%
C)45%
D)63%

Question 33

The U.S.market for locomotives is divided between two producers: General Electric has 70 percent of the market and General Motors has 30 percent.This market is an example of

A)monopolistic competition.
B)a collusive monopoly.
C)a duopoly.
D)a cartel.

Question 34

As a group,oligopolists would always be better off if they would act collectively

A)as if they were each seeking to maximize their own individual profits.
B)in a manner that would prohibit collusive agreements.
C)as a single monopolist.
D)as a single perfectly competitive firm.

Question 35

Table 16-2
The following table shows the total output produced by the top six firms as well as the total industry output for four industries.

Refer to Table 16-2.What is the concentration ratio for Industry C?

A)23%
B)34%
C)43%
D)52%

Question 36

Table 16-1
The following table shows the percentage of output supplied by the top eight firms in four different industries.

Refer to Table 16-1.What is the concentration ratio in Industry D?

A)32%
B)56%
C)60%
D)65%

Question 37

In markets characterized by oligopoly,

A)the oligopolists earn the highest profit when they cooperate and behave like a monopolist.
B)collusive agreements will always prevail.
C)collective profits are always lower with cartel arrangements than they are without cartel arrangements.
D)pursuit of self-interest by profit-maximizing firms always maximizes collective profits in the market.

Question 38

Table 16-2
The following table shows the total output produced by the top six firms as well as the total industry output for four industries.

Refer to Table 16-2.What is the concentration ratio for Industry B?

A)12%
B)32%
C)39%
D)51%

Question 39

The cigarette industry consists of large firms that compete vigorously through advertising which is directed at creating fantasy and image.Economists would characterize this industry as

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

Question 40

Table 16-2
The following table shows the total output produced by the top six firms as well as the total industry output for four industries.

Refer to Table 16-2.What is the concentration ratio for Industry A?

A)71%
B)81%
C)86%
D)88%

Question 41

In a duopoly situation,the logic of self-interest results in a total output level that

A)equals the output level that would prevail in a competitive market.
B)equals the output level that would prevail in a monopoly.
C)exceeds the monopoly level of output, but falls short of the competitive level of output.
D)falls short of the monopoly level of output.

Question 42

When an oligopoly market reaches a Nash equilibrium,

A)the market price will be different for each firm.
B)the firms will not have behaved as profit maximizers.
C)a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.
D)a firm will not take into account the strategies of competing firms.

Question 43

As a group,oligopolists earn the highest profit when they

A)achieve a Nash equilibrium.
B)produce a total quantity of output that falls short of the Nash-equilibrium total quantity.
C)produce a total quantity of output that exceeds the Nash-equilibrium total quantity.
D)charge a price that falls short of the Nash-equilibrium price.

Question 44

Table 16-4
Imagine a small town in which only two residents, Tony and Jill, own wells that produce safe drinking water. Each week Tony and Jill work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. To keep things simple, suppose that Tony and Jill can pump as much water as they want without cost so that the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water is shown in the table below.

Refer to Table 16-4.The socially efficient level of water supplied to the market would be

A)60 gallons.
B)80 gallons.
C)100 gallons.
D)120 gallons.

Question 45

Table 16-4
Imagine a small town in which only two residents, Tony and Jill, own wells that produce safe drinking water. Each week Tony and Jill work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. To keep things simple, suppose that Tony and Jill can pump as much water as they want without cost so that the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water is shown in the table below.

Refer to Table 16-4.Since Tony and Jill operate as a profit-maximizing monopoly in the market for water,what price will they charge for water?

A)$2
B)$4
C)$6
D)$7

Question 46

Table 16-4
Imagine a small town in which only two residents, Tony and Jill, own wells that produce safe drinking water. Each week Tony and Jill work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. To keep things simple, suppose that Tony and Jill can pump as much water as they want without cost so that the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water is shown in the table below.

Refer to Table 16-4.If the market for water were perfectly competitive instead of monopolistic,how many gallons of water would be produced and sold?

A)70
B)90
C)110
D)120

Question 47

In order to be successful,a cartel must

A)find a way to encourage members to produce more than they would otherwise produce.
B)agree on the total level of production for the cartel, but they need not agree on the amount produced by each member.
C)agree on the total level of production and on the amount produced by each member.
D)agree on the prices charged by each member, but they need not agree on amounts produced.

Question 48

In a particular town,Metrovision and Cableview are the only two providers of cable TV service.Metrovision and Cableview constitute a

A)duopoly, whether they collude or not.
B)cartel, whether they collude or not.
C)Nash industry, whether they collude or not.
D)monopolistically competitive market if they charge the same price.

Question 49

Table 16-3
The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $100,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero.

Refer to Table 16-3.Assume that there are two profit-maximizing digital cable TV companies operating in this market.Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell.What price will premium digital channel cable TV subscriptions be sold at when this market reaches a Nash equilibrium?

A)$40
B)$60
C)$80
D)$100

Question 50

Table 16-3
The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $100,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero.

Refer to Table 16-3.Assume that there are two profit-maximizing digital cable TV companies operating in this market.Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell.How many premium digital channel cable TV subscriptions will be sold altogether when this market reaches a Nash equilibrium?

A)3,000
B)6,000
C)9,000
D)12,000

Question 51

Table 16-3
The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $100,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero.

Refer to Table 16-3.Assume that there are two profit-maximizing digital cable TV companies operating in this market.Further assume that they are able to collude on the price and quantity of premium digital channel subscriptions to sell.As part of their collusive agreement they decide to take an equal share of the market.How much profit will each company make?

A)$40,000
B)$170,000
C)$480,000
D)$540,000

Question 52

Table 16-4
Imagine a small town in which only two residents, Tony and Jill, own wells that produce safe drinking water. Each week Tony and Jill work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. To keep things simple, suppose that Tony and Jill can pump as much water as they want without cost so that the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water is shown in the table below.

Refer to Table 16-4.As long as Tony and Jill operate as a profit-maximizing monopoly,what will their weekly revenue equal?

A)$200
B)$270
C)$350
D)$360

Question 53

Table 16-3
The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $100,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero.

Refer to Table 16-3.Assume that there are two digital cable TV companies operating in this market.If they are able to collude on the price and quantity of subscriptions to sell,what price (P)will they charge,and how many subscriptions (Q)will they sell collectively?

A)P = $40, Q = 12,000
B)P = $60, Q = 9,000
C)P = $80, Q = 6,000
D)P = $100, Q = 3,000

Question 54

Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together,

A)they are unable to maintain the same degree of monopoly power enjoyed by a monopolist.
B)each firm's profit always ends up being zero.
C)society is worse off as a result.
D)Both a and c are correct.

Question 55

Table 16-4
Imagine a small town in which only two residents, Tony and Jill, own wells that produce safe drinking water. Each week Tony and Jill work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. To keep things simple, suppose that Tony and Jill can pump as much water as they want without cost so that the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water is shown in the table below.

Refer to Table 16-4.Suppose the town enacts new antitrust laws that prohibit Tony and Jill from operating as a monopolist.What will the new price of water end up being once the Nash equilibrium is reached?

A)$3
B)$4
C)$5
D)$6

Question 56

Which of these situations produces the largest profits for oligopolists?

A)The firms reach a Nash equilibrium.
B)The firms reach the monopoly outcome.
C)The firms reach the competitive outcome.
D)The firms produce a quantity of output that lies between the competitive outcome and the monopoly outcome.

Question 57

When firms have agreements among themselves on the quantity to produce and the price at which to sell output,we refer to their form of organization as a

A)Nash arrangement.
B)cartel.
C)monopolistically competitive oligopoly.
D)perfectly competitive oligopoly.

Question 58

Table 16-3
The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $100,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero.

Refer to Table 16-3.If there is only one digital cable TV company in this market,what price would it charge for a premium digital channel subscription to maximize its profit?

A)$40
B)$60
C)$80
D)$100

Question 59

Table 16-3
The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $100,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero.

Refer to Table 16-3.Assume that there are two profit-maximizing digital cable TV companies operating in this market.Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell.How much profit will each firm earn when this market reaches a Nash equilibrium?

A)$0
B)$140,000
C)$170,000
D)$220,000

Question 60

Assuming that oligopolists do not have the opportunity to collude,once they have reached the Nash equilibrium,it

A)is always in their best interest to supply more to the market.
B)is always in their best interest to supply less to the market.
C)is always in their best interest to leave their quantities supplied unchanged.
D)may be in their best interest to do any of the above, depending on market conditions.

Question 61

When price is above marginal cost,selling one more unit at the current price will increase profit.This concept is known as the

A)income effect.
B)price effect.
C)output effect.
D)cartel effect.

Question 62

For cartels,as the number of firms (members of the cartel)increases,

A)the monopoly outcome becomes more likely.
B)the magnitude of the price effect decreases.
C)the more concerned each seller is about its own impact on the market price.
D)the easier it becomes to observe members violating their agreements.

Question 63

When oligopolistic firms interacting with one another each choose their best strategy given the strategies chosen by other firms in the market,we have

A)a cartel.
B)a group of oligopolists behaving as a monopoly.
C)a Nash equilibrium.
D)the perfectly competitive outcome.

Question 64

In a typical cartel agreement,the cartel maximizes profit when it

A)behaves as a monopolist.
B)behaves as a duopolist.
C)is flexible in enforcing production targets.
D)behaves as a perfectly competitive firm.

Question 65

The equilibrium price in a market characterized by oligopoly is

A)higher than in monopoly markets and higher than in perfectly competitive markets.
B)higher than in monopoly markets and lower than in perfectly competitive markets.
C)lower than in monopoly markets and higher than in perfectly competitive markets.
D)lower than in monopoly markets and lower than in perfectly competitive markets.

Question 66

An agreement among firms regarding price and/or production levels is called

A)an antitrust market.
B)a free-trade arrangement.
C)collusion.
D)a Nash agreement.

Question 67

In imperfectly competitive markets,increasing production will increase the quantity sold,but will also decrease the price of all units sold.This concept is known as the

A)income effect.
B)cost effect.
C)output effect.
D)price effect.

Question 68

As the number of firms in an oligopoly market

A)decreases, the market approaches the cartel outcome.
B)decreases, the market approaches the competitive market outcome.
C)increases, the market approaches the competitive market outcome.
D)increases, the market approaches the monopoly outcome.

Question 69

Suppose a market is initially perfectly competitive with many firms selling an identical product.Over time,however,suppose the merging of firms results in the market being served by only three or four firms selling this same product.As a result,we would expect

A)an increase in market output and an increase in the price of the product.
B)an increase in market output and an decrease in the price of the product.
C)a decrease in market output and an increase in the price of the product.
D)a decrease in market output and a decrease in the price of the product.

Question 70

There are two types of markets in which firms face some competition yet are still able to have some control over the prices of their products.The names given to these market structures are

A)monopolistic competition and oligopoly.
B)duopoly and triopoly.
C)perfect competition and monopolistic competition.
D)duopoly and imperfect competition.

Question 71

To increase their individual profits,members of a cartel have an incentive to

A)charge a higher price than the other members of the cartel.
B)increase production above the level agreed upon.
C)ignore the choices made by the other firms and act as a monopolist.
D)charge the same price a monopolist would charge.

Question 72

Assume oligopoly firms are profit maximizers,they do not form a cartel,and they take other firms' production levels as given.Then in equilibrium the output effect

A)must dominate the price effect.
B)must be smaller than the price effect.
C)must balance with the price effect.
D)can be larger or smaller than the price effect.

Question 73

If duopolists individually pursue their own self-interest when deciding how much to produce,the profit-maximizing price they will charge for their product will be

A)less than the monopoly price.
B)equal to the perfectly competitive market price.
C)greater than the monopoly price.
D)possibly less than or greater than the monopoly price.

Question 74

A situation in which firms choose their best strategy given the strategies chosen by the other firms in the market is called

A)a competitive equilibrium.
B)an open-market solution.
C)a socially-optimal solution.
D)a Nash equilibrium.

Question 75

The equilibrium quantity in markets characterized by oligopoly is

A)higher than in monopoly markets and higher than in perfectly competitive markets.
B)higher than in monopoly markets and lower than in perfectly competitive markets.
C)lower than in monopoly markets and higher than in perfectly competitive markets.
D)lower than in monopoly markets and lower than in perfectly competitive markets.

Question 76

Once a cartel is formed,the market is in effect served by

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

Question 77

If an oligopolist is part of a cartel that is collectively producing the monopoly level of output,then that oligopolist has the incentive to lower production with the aim of

A)lowering prices.
B)increasing profits for the group of firms as a whole.
C)increasing profits for itself, regardless of the impact on profits for the group of firms as a whole.
D)None of the above is correct.

Question 78

Cartels are difficult to maintain because

A)antitrust laws are difficult to enforce.
B)cartel agreements are conducive to monopoly outcomes.
C)there is always tension between cooperation and self-interest in a cartel.
D)firms pay little attention to the decision made by other firms.

Question 79

A group of firms that are acting in unison to maximize collective profits is called a

A)monopolistically competitive industry.
B)monopoly.
C)cartel.
D)Nash equilibrium market.

Question 80

If duopolists individually pursue their own self-interest when deciding how much to produce,the amount they will produce collectively will

A)be less than the monopoly quantity.
B)be equal to the monopoly quantity.
C)be greater than the monopoly quantity.
D)Any of the above are possible.