oligopy

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In which of these continuums of degrees of competition (highest to lowest) is oligopoly properly placed?
A) pure competition, oligopoly, pure monopoly, monopolistic competition
B) oligopoly, pure competition, monopolistic competition, pure monopoly
C) monopolistic competition, pure competition, pure monopoly, oligopoly
D) pure competition, monopolistic competition, oligopoly, pure monopoly

d

The term oligopoly indicates:
A) a one-firm industry.
B) many producers of a differentiated product.
C) a few firms producing either a differentiated or a homogeneous product.
D) an industry whose four-firm concentration ratio is low.

c

Oligopolistic industries are characterized by:
A) a few dominant firms and substantial entry barriers.
B) a few dominant firms and no barriers to entry.
C) a large number of firms and low entry barriers.
D) a few dominant firms and low entry barriers.

a

The automobile, household appliance, and automobile tire industries are all illustrations of:
A) homogeneous oligopoly. C) pure monopoly.
B) monopolistic competition. D) differentiated oligopoly

d

Use your basic knowledge and your understanding of market structures to answer this question. Which of
the following companies most closely approximates a differentiated oligopolist in a highly concentrated
industry?
A) Subway Sandwiches B) Pittsburgh Plate Glass C) Ford Motor Company D) Kaiser Aluminum.

c

Use your basic knowledge and your understanding of market structures to answer this question. Which of
the following companies most closely approximates a homogenous oligopolist in a highly concentrated
industry?
A) Kellogg B) Pittsburgh Plate Glass C) Ford Motor Company D) Starbucks Coffee.

b

The mutual interdependence that characterizes oligopoly arises because:
A) the products of various firms are homogeneous.
B) the products of various firms are differentiated.
C) a small number of firms produce a large proportion of industry output.
D) the demand curves of firms are kinked at the prevailing price.

c

Barriers to entry in oligopolistic industries may consist of:
A) diseconomies of scale. C) ownership of essential resources.
B) diminishing returns. D) patent expirations.

c

The copper, aluminum, cement, and industrial alcohol industries are examples of:
A) interproduct competition. C) monopolistic competition.
B) homogeneous oligopoly. D) differentiated oligopoly.

b

If there are significant economies of scale in an industry, then:
A) a firm that is large may be able to produce at a lower unit cost than can a small firm.
B) a firm that is large will have to charge a higher price than will a small firm.
C) entry to that industry will be easy.
D) firms must differentiate their products to earn economic profits.

a

Oligopoly is difficult to analyze primarily because:
A) the number of firms is too large to make collusion understandable.
B) the price and output decisions of any one firm depend on the reactions of its rivals.
C) output may be either homogenous or differentiated.
D) neither allocative nor productive efficiency is achieved.

b

Oligopoly is more difficult to analyze than other market models because:
A) the number of firms is so large that market behavior cannot be accurately predicted.
B) the marginal cost and marginal revenue curves of an oligopolist play no part in the determination of
equilibrium price and quantity.
C) of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market
models.
D) unlike the firms of other market models, it cannot be assumed that oligopolists are profit maximizers.

c

. Prices are likely to be least flexible:
A) in oligopoly. C) where product demand is inelastic.
B) in monopolistic competition. D) in pure competition.

a

Mutual interdependence means that each oligopolistic firm:
A) faces a perfectly elastic demand for its product.
B) must consider the reactions of its rivals when it determines its price policy.
C) produces a product identical to those of its rivals.
D) produces a product similar but not identical to the products of its rivals.

b

If the four-firm concentration ratio for industry X is 80:
A) the four largest firms account for 80 percent of total sales.
B) each of the four largest firms accounts for 20 percent of total sales.
C) the four largest firms account for 20 percent of total sales.
D) the industry is monopolistically competitive.

a

As a general rule, oligopoly exists when the four-firm concentration ratio:
A) exceeds the Herfindahl index. C) is 40 percent or more.
B) is less than the Herfindahl index. D) is 15 percent or more

c

The Herfindahl index for a pure monopolist is:
A) 100. B) 10,000. C) 100,000. D) 10

b

Industries X and Y both have four-firm concentration ratios of 65 percent, but the Herfindahl index for X is
1,500 while that for Y is 2,000. These data suggest:
A) greater market power in X than in Y.
B) greater market power in Y than in X.
C) that X is more technologically progressive than Y.
D) that price competition is stronger in Y than in X.

b

Suppose that total sales in an industry in a particular year are $600 million and sales by the top four sellers
are $200 million, $150 million, $100 million, and $50 million, respectively. We can conclude that:
A) price leadership exists in this industry.
B) the concentration ratio is more than 80 percent.
C) this industry is a differentiated oligopoly.
D) the firms in this industry face a kinked demand curve.

b

Concentration ratios:
A) may overstate the degree of competition because they ignore imported products.
B) may overstate the degree of competition because interindustry competition is ignored.
C) may understate the degree of competition because they ignore imported products.
D) provide detailed insights as to the price and output behavior of firms which comprise the various
industries.

c

If you sum the squares of the market shares of each firm in an industry (as measured by percent of industry
sales), you are calculating:
A) the four-firm concentration ratio. C) the degree of collusion.
B) the Herfindahl index. D) the Lerner inde

b

The Herfindahl Index:
A) measures the prices charged by oligopolistic manufacturers.
B) is another name for the four-firm concentration ratio.
C) tells us whether oligopolistic firms are engaging in collusion.
D) gives much greater weight to larger firms than to smaller firms in an industry.

d

If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal
percentage of sales, the Herfindahl Index is:
A) 10,000. B) 2,500. C) 3,750. D) 1,000

b

Game theory:
A) is the analysis of how people (or firms) behave in strategic situations.
B) is best suited for analyzing purely competitive markets.
C) reveals that mergers between rival firms are self-defeating

a

Game theory can be used to demonstrate that oligopolists:
A) rarely consider the potential reactions of rivals.
B) experience economies of scale.
C) that oligopolists can increase their profits through collusion.
D) may be either homogeneous or differentiated.

c

The kinked-demand curve of an oligopolist is based on the assumption that:
A) competitors will follow a price cut but ignore a price increase.
B) competitors will match both price cuts and price increases.
C) competitors will ignore a price cut but follow a price increase.
D) there is no product differentiation.

a

The kinked-demand curve describes a situation in which an oligopolist will be:
A) interested in maintaining the going price unless there is a rather large change in costs.
B) anxious to either increase or lower price.
C) anxious to increase price but not to lower price.
D) anxious to lower price but not to increase price.

a

If an oligopoly is faced with a kinked-demand curve that is relatively elastic above, and relatively inelastic
below, the going price, then it will:
A) increase total revenue by increasing price, but lower total revenue by decreasing price.
B) decrease total revenue by either increasing or decreasing price.
C) increase total revenue by either increasing or decreasing price.
D) increase total revenue by decreasing price, but lower total revenue by increasing price.

b

The kinked-demand curve model helps to explain price rigidity because:
A) there is a gap in the marginal revenue curve within which changes in marginal cost will not affect
output or price.
B) demand is inelastic above and elastic below the going price.
C) the model assumes firms are engaging in some form of collusion.
D) the associated marginal revenue curve is perfectly elastic at the going price.

a

Oligopolistic firms engage in collusion to:
A) minimize unit costs of production.
B) realize allocative efficiency, that is, the P = MC level of output.
C) earn greater profits.
D) increase production

c

The likelihood of a cartel being successful is greater when:
A) firms are producing a differentiated, rather than a homogeneous, product.
B) cost and demand curves of various participants are very similar.
C) the number of firms involved is relatively large.
D) the economy is in the recession phase of the business cycle.

b

Three major means of collusion by oligopolists are:
A) cartels, tacit understandings, and price leadership.
B) market sharing, mutual interdependence, and product differentiation.
C) cartels, kinked-demand pricing, and product differentiation.
D) tacit understandings, P = MC pricing, and mutual interdependence.

a

If the firms in an oligopolistic industry can establish an effective cartel, the resulting output and price will
approximate those of:
A) a purely competitive producer.
B) a pure monopoly.
C) a monopolistically competitive producer.
D) an industry with a low four-firm concentration ratio

b

One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the
following cases?
A) a rather large number of firms producing a differentiated product
B) a very few firms producing a differentiated product
C) a rather large number of firms producing a homogeneo

d

Which of the following statements is correct?
A) A cartel is usually a formal agreement among oligopolists that sets product price and determines each
firm's market share.
B) The practice of price leadership is almost always based on a formal written agreement.
C) All oligopolists heavily advertise their products.
D) Active and frequent price competition between firms is a basic characteristic of oligopoly

a

Advertising can impede economic efficiency when it:
A) reduces entry barriers.
B) reduces brand loyalty.
C) leads to greater monopoly power.
D) provides consumers with useful information about product quality.

c

We would expect a cartel to achieve:
A) both allocative efficiency and productive efficiency.
B) allocative efficiency, but not productive efficiency.
C) productive efficiency, but not allocative efficiency.
D) neither allocative efficiency nor productive efficiency.

d

Suppose that a particular industry has a a four-firm concentration ratio of 85 and a Herfindahl Index of
3000. Most likely, this industry would achieve:
A) both productive efficiency and allocative efficiency.
B) allocative efficiency but not productive efficiency.
C) neither productive efficiency nor productive efficiency.
D) productive efficiency but not allocative efficiency.

c

Suppose that an industry is characterized by a few firms and price leadership. We would expect that:
A) price would equal marginal cost.
B) price would equal average total cost.
C) price would exceed both marginal cost and average total cost.
D) marginal revenue would exceed marginal cost.

c

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