Question 1

Each of the following is a determinant of market power but which is the critical determinant of market power?

Accepted Answer

A) The number of producers. 
B) The size of each firm. 
C) The extent of barriers to entry. 
D) The availability of substitute goods. 
A) The number of producers. 
B) The size of each firm. 
C) The extent of barriers to entry. 
D) The availability of substitute goods.

Question 2

Refer to Figure 25.1 for an oligopoly firm.The existing price and quantity are $10 and 2,000 units.If we assume that rival firms match price decreases but not price increases,the firm's demand curve will most likely be (from left to right)

Accepted Answer

A) D1ED1. 
B) D2ED2. 
C) D1ED2. 
D) D2ED1. 
A) D1ED1. 
B) D2ED2. 
C) D1ED2. 
D) D2ED1.

Question 3

Discuss specific firm behavior that reduced the level of competition in an industry.What are the opportunity costs of greater concentration?

Accepted Answer

Firms in an oligopoly market can engage

Question 4

Game theory is the study of decision making in situations where strategic interaction occurs between rivals.

Accepted Answer

A) True 
 B)False

Question 5

When U.S.government regulations that prevent goods from being imported are relaxed,this

Accepted Answer

A) Causes oligopoly profits to increase. 
B) Causes U.S.cartels to become even stronger. 
C) Reduces the barriers to entry into U.S.markets. 
D) Creates an environment conducive to predatory pricing. 
A) Causes oligopoly profits to increase. 
B) Causes U.S.cartels to become even stronger. 
C) Reduces the barriers to entry into U.S.markets. 
D) Creates an environment conducive to predatory pricing.

Question 6

Market power leads to market failure when it results in

Accepted Answer

A) Decreased market output. 
B) Lower market prices. 
C) Normal economic profits. 
D) The demise of the industry. 
A) Decreased market output. 
B) Lower market prices. 
C) Normal economic profits. 
D) The demise of the industry.

Question 7

Which of the following does not function as a barrier to entry into an oligopoly market?

Accepted Answer

A) Patents. 
B) The expense involved in nonprice competition. 
C) Control of distribution outlets. 
D) Predatory pricing. 
A) Patents. 
B) The expense involved in nonprice competition. 
C) Control of distribution outlets. 
D) Predatory pricing.

Question 8

In the long run,an oligopolist is most likely to

Accepted Answer

A) Experience economic profits when sufficient barriers to entry are present. 
B) Experience zero economic profits because barriers to entry do not exist in the long run. 
C) Produce at the most technically efficient output level due to long-run competition. 
D) Face a straight demand curve. 
A) Experience economic profits when sufficient barriers to entry are present. 
B) Experience zero economic profits because barriers to entry do not exist in the long run. 
C) Produce at the most technically efficient output level due to long-run competition. 
D) Face a straight demand curve.

Question 9

Which of the following may not characterize an oligopoly?

Accepted Answer

A) A few firms. 
B) No market power. 
C) High barriers to entry. 
D) Substantial control over price. 
A) A few firms. 
B) No market power. 
C) High barriers to entry. 
D) Substantial control over price.

Question 10

Market share can be computed by dividing

Accepted Answer

A) The amount that a buyer buys by the total amount that is produced in the market. 
B) Profit by total cost. 
C) The amount sold by a single firm by the total sold in the market. 
D) Price by average total cost. 
A) The amount that a buyer buys by the total amount that is produced in the market. 
B) Profit by total cost. 
C) The amount sold by a single firm by the total sold in the market. 
D) Price by average total cost.

Question 11

Table 25.2 $$\begin{array} { | l | r | c | } 
\hline  { \text { Pool Sweeper } } & \text { Output (Revenue) } & \text { Market Share (\%) } \
\hline \text { North Star } & \$ 20,000 & \
\hline \text { Hurricarne } & \$ 16,000 & \
\hline \text { Blue Lagoon } & \$ 2,000 & \
\hline \text { Clean Sweep } & \$ 2,000 & \
\hline
\end{array}$$ Refer to Table 25.2.Assume there are only four firms in the pool sweeper industry.What is the Herfindahl-Hirschman Index for this industry?

Accepted Answer

A) 2,500. 
B) 50. 
C) 4,150. 
D) 4,125. 
A) 2,500. 
B) 50. 
C) 4,150. 
D) 4,125.

Question 12

The Herfindahl-Hirschman Index is the sum of the

Accepted Answer

A) Squared market shares of the firms in the market. 
B) Market shares of all the firms in the market. 
C) Market shares of the top four firms in the market. 
D) Squared concentration ratios for the firms in the market. 
A) Squared market shares of the firms in the market. 
B) Market shares of all the firms in the market. 
C) Market shares of the top four firms in the market. 
D) Squared concentration ratios for the firms in the market.

Question 13

The demand curve will be kinked if rival oligopolists

Accepted Answer

A) Match price increases but not price reductions. 
B) Match price reductions but not price increases. 
C) Match both price increase and price reductions. 
D) Do not match price changes at all. 
A) Match price increases but not price reductions. 
B) Match price reductions but not price increases. 
C) Match both price increase and price reductions. 
D) Do not match price changes at all.

Question 14

Refer to Figure 25.1 for an oligopoly firm.Assume that the existing price and quantity are $10 and 2,000 units.Which of the following statements is most likely correct?

Accepted Answer

A) Demand curves D1 and D2 both assume that rivals will not match any price changes. 
B) Demand curves D1 and D2 both assume that rivals match any price changes. 
C) Demand curve D1 assumes that rivals do not match price changes. 
D) Demand curve D2 assumes that rivals do not match price changes. 
A) Demand curves D1 and D2 both assume that rivals will not match any price changes. 
B) Demand curves D1 and D2 both assume that rivals match any price changes. 
C) Demand curve D1 assumes that rivals do not match price changes. 
D) Demand curve D2 assumes that rivals do not match price changes.

Question 15

When firms are interdependent,

Accepted Answer

A) One firm can ignore other companies in the market when making decisions. 
B) The profit of one firm depends on how its rivals respond to its strategic decisions. 
C) They can act independently of one another. 
D) Then the market is perfectly competitive. 
A) One firm can ignore other companies in the market when making decisions. 
B) The profit of one firm depends on how its rivals respond to its strategic decisions. 
C) They can act independently of one another. 
D) Then the market is perfectly competitive.

Question 16

The soft drink market is dominated by Coke,Pepsi,and very few other firms.The firms often start price wars.The market can best be classified as

Accepted Answer

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

Question 17

According to "Coke Reignites Price War," price discounting (price wars)can destroy oligopoly profits.When profit destruction occurs,

Accepted Answer

A) Firms are powerless to change prices. 
B) Firms will wait for one firm to increase prices. 
C) Rival oligopolists seek to end it as quickly as possible. 
D) The entire industry will always collapse. 
A) Firms are powerless to change prices. 
B) Firms will wait for one firm to increase prices. 
C) Rival oligopolists seek to end it as quickly as possible. 
D) The entire industry will always collapse.

Question 18

A payoff matrix shows

Accepted Answer

A) The risks and rewards of alternative decision options. 
B) The payoffs of one firm always choosing to price low. 
C) What companies will do no matter what the other firm does. 
D) The losses from strategic decisions of two countries. 
A) The risks and rewards of alternative decision options. 
B) The payoffs of one firm always choosing to price low. 
C) What companies will do no matter what the other firm does. 
D) The losses from strategic decisions of two countries.

Question 19

Which of the following industries is likely to have the highest concentration ratio?

Accepted Answer

A) Corn production. 
B) Clothing manufacturing. 
C) Video game systems. 
D) College education. 
A) Corn production. 
B) Clothing manufacturing. 
C) Video game systems. 
D) College education.

Question 20

Market share is the percentage of total

Accepted Answer

A) Market output produced by the largest firm in an industry. 
B) Market output produced by a single firm. 
C) Market output produced by the four largest firms in an industry. 
D) Industry profit earned by a single firm. 
A) Market output produced by the largest firm in an industry. 
B) Market output produced by a single firm. 
C) Market output produced by the four largest firms in an industry. 
D) Industry profit earned by a single firm.

Exam 25: Oligopoly

Each of the following is a determinant of market power but which is the critical determinant of market power?

Refer to Figure 25.1 for an oligopoly firm.The existing price and quantity are $10 and 2,000 units.If we assume that rival firms match price decreases but not price increases,the firm's demand curve will most likely be (from left to right)

Discuss specific firm behavior that reduced the level of competition in an industry.What are the opportunity costs of greater concentration?

Game theory is the study of decision making in situations where strategic interaction occurs between rivals.

When U.S.government regulations that prevent goods from being imported are relaxed,this

Market power leads to market failure when it results in

Which of the following does not function as a barrier to entry into an oligopoly market?

In the long run,an oligopolist is most likely to

Which of the following may not characterize an oligopoly?

Market share can be computed by dividing

Table 25.2 Pool Sweeper Output (Revenue) Market Share (\%) North Star \ 20,000 Hurricarne \ 16,000 Blue Lagoon \ 2,000 Clean Sweep \ 2,000 Refer to Table 25.2.Assume there are only four firms in the pool sweeper industry.What is the Herfindahl-Hirschman Index for this industry?

The Herfindahl-Hirschman Index is the sum of the

The demand curve will be kinked if rival oligopolists

Refer to Figure 25.1 for an oligopoly firm.Assume that the existing price and quantity are $10 and 2,000 units.Which of the following statements is most likely correct?

When firms are interdependent,

The soft drink market is dominated by Coke,Pepsi,and very few other firms.The firms often start price wars.The market can best be classified as

According to "Coke Reignites Price War," price discounting (price wars)can destroy oligopoly profits.When profit destruction occurs,

A payoff matrix shows

Which of the following industries is likely to have the highest concentration ratio?

Market share is the percentage of total

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