Question 1

Advertising makes it expensive for new firms to enter an industry.

Accepted Answer

A) True 
 B)False

Question 2

An oligopolistic market may be difficult to enter because of government regulation or the expense of nonprice competition.

Accepted Answer

A) True 
 B)False

Question 3

Collusion is undesirable and illegal because

Accepted Answer

A) Government intervention leads to inefficient outcomes. 
B) It leads to greater production than would occur in a competitive market. 
C) It is unprofitable and the government must bail out firms that are bankrupted by collusion. 
D) Resources are misallocated and the level of output is restricted. 
A) Government intervention leads to inefficient outcomes. 
B) It leads to greater production than would occur in a competitive market. 
C) It is unprofitable and the government must bail out firms that are bankrupted by collusion. 
D) Resources are misallocated and the level of output is restricted.

Question 4

Advertising cannot serve as a barrier to entry because any firm can advertise its product.

Accepted Answer

A) True 
 B)False

Question 5

Sky-High Skywriters raises its price,and the other four firms in the industry raise their prices in response.Coordination in this industry is accomplished by

Accepted Answer

A) Predatory pricing. 
B) Price leadership. 
C) Price-fixing. 
D) Retaliation. 
A) Predatory pricing. 
B) Price leadership. 
C) Price-fixing. 
D) Retaliation.

Question 6

Patents are a barrier to entry.

Accepted Answer

A) True 
 B)False

Question 7

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.If Clean Sweep manages to increase its sales to $3,000 per week at the current price and the size of the market does not change,the combined weekly sales of the three other firms will

Accepted Answer

A) Fall by $3,000 per week. 
B) Also rise. 
C) Not change. 
D) Fall by less than $3,000 per week. 
A) Fall by $3,000 per week. 
B) Also rise. 
C) Not change. 
D) Fall by less than $3,000 per week.

Question 8

To keep a market from being contested,firms might

Accepted Answer

A) Increase their concentration ratio. 
B) Practice price discrimination. 
C) Match price reductions by rivals. 
D) Seek to obtain a monopoly franchise from the government. 
A) Increase their concentration ratio. 
B) Practice price discrimination. 
C) Match price reductions by rivals. 
D) Seek to obtain a monopoly franchise from the government.

Question 9

Oligopolists consider the possible responses of rivals when making decisions.

Accepted Answer

A) True 
 B)False

Question 10

Suppose there are only three firms in a market.The largest firm has sales of $500 million,the second-largest has sales of $300 million,and the smallest has sales of $200 million.The market share of the largest firm is

Accepted Answer

A) 50 percent. 
B) 100 percent. 
C) 60 percent. 
D) 40 percent. 
A) 50 percent. 
B) 100 percent. 
C) 60 percent. 
D) 40 percent.

Question 11

The payoff to an oligopolist's price cut depends on how its rivals respond.

Accepted Answer

A) True 
 B)False

Question 12

A nationwide concentration ratio is likely to understate market power when

Accepted Answer

A) Firms sell nationally. 
B) The true markets are local and small. 
C) There is extensive foreign competition. 
D) A market is perfectly contestable. 
A) Firms sell nationally. 
B) The true markets are local and small. 
C) There is extensive foreign competition. 
D) A market is perfectly contestable.

Question 13

Which of the following industries has the highest concentration ratio?

Accepted Answer

A) Wheat production. 
B) Sugar production. 
C) Used car sales. 
D) Soft drinks. 
A) Wheat production. 
B) Sugar production. 
C) Used car sales. 
D) Soft drinks.

Question 14

Oligopolists will maximize total profits for all of the firms in the market at the rate of output where

Accepted Answer

A) TR = TC for the total market. 
B) MR = MC for the marginal firm. 
C) AR = AC for each firm. 
D) A monopoly firm would produce if it was maximizing profits. 
A) TR = TC for the total market. 
B) MR = MC for the marginal firm. 
C) AR = AC for each firm. 
D) A monopoly firm would produce if it was maximizing profits.

Question 15

Suppose the larger firm of a duopoly has sales of $400 million and the smaller firm has sales of $100 million.The market share of the larger firm is

Accepted Answer

A) 80 percent. 
B) 40 percent. 
C) 20 percent. 
D) 10 percent. 
A) 80 percent. 
B) 40 percent. 
C) 20 percent. 
D) 10 percent.

Question 16

The pricing strategy in which one firm is allowed to establish the market price for all firms in the market is called

Accepted Answer

A) Price discrimination. 
B) Price leadership. 
C) The profit-maximizing rule. 
D) Marginal cost pricing. 
A) Price discrimination. 
B) Price leadership. 
C) The profit-maximizing rule. 
D) Marginal cost pricing.

Question 17

The concentration ratio for an oligopoly is considered

Accepted Answer

A) Under 40 percent. 
B) Over 60 percent. 
C) 90 percent. 
D) 100 percent. 
A) Under 40 percent. 
B) Over 60 percent. 
C) 90 percent. 
D) 100 percent.

Question 18

A cartel is

Accepted Answer

A) A type of market structure. 
B) Not illegal in the United States. 
C) An organization intended to increase competition in an industry. 
D) A group of firms with an explicit,formal agreement to fix prices and output shares in a particular market. 
A) A type of market structure. 
B) Not illegal in the United States. 
C) An organization intended to increase competition in an industry. 
D) A group of firms with an explicit,formal agreement to fix prices and output shares in a particular market.

Question 19

Suppose there are 51 firms in a market.The largest firm has sales of $50 million and each of the other firms has sales of $1 million.The Herfindahl-Hirschman Index of this industry is

Accepted Answer

A) 2,500. 
B) 2,501. 
C) 2,550. 
D) 50. 
A) 2,500. 
B) 2,501. 
C) 2,550. 
D) 50.

Question 20

Open and explicit agreements concerning pricing and output shares transform an oligopoly into a

Accepted Answer

A) Monopoly. 
B) Cartel. 
C) Differentiated oligopoly. 
D) Perfectly competitive firm. 
A) Monopoly. 
B) Cartel. 
C) Differentiated oligopoly. 
D) Perfectly competitive firm.

Exam 25: Oligopoly

Advertising makes it expensive for new firms to enter an industry.

An oligopolistic market may be difficult to enter because of government regulation or the expense of nonprice competition.

Collusion is undesirable and illegal because

Advertising cannot serve as a barrier to entry because any firm can advertise its product.

Sky-High Skywriters raises its price,and the other four firms in the industry raise their prices in response.Coordination in this industry is accomplished by

Patents are a barrier to entry.

To keep a market from being contested,firms might

Oligopolists consider the possible responses of rivals when making decisions.

Suppose there are only three firms in a market.The largest firm has sales of $500 million,the second-largest has sales of $300 million,and the smallest has sales of $200 million.The market share of the largest firm is

The payoff to an oligopolist's price cut depends on how its rivals respond.

A nationwide concentration ratio is likely to understate market power when

Which of the following industries has the highest concentration ratio?

Oligopolists will maximize total profits for all of the firms in the market at the rate of output where

Suppose the larger firm of a duopoly has sales of $400 million and the smaller firm has sales of $100 million.The market share of the larger firm is

The pricing strategy in which one firm is allowed to establish the market price for all firms in the market is called

The concentration ratio for an oligopoly is considered

A cartel is

Suppose there are 51 firms in a market.The largest firm has sales of $50 million and each of the other firms has sales of $1 million.The Herfindahl-Hirschman Index of this industry is

Open and explicit agreements concerning pricing and output shares transform an oligopoly into a

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