Oligopoly

What is the most significant example of an international cartel? A. AIG B. OPEC C. Drug cartels

B. OPEC

In the graph, the price elasticity of demand is ________ below the price of P0. A. less inelastic B. more elastic C. perfectly inelastic D. less elastic

D. less elastic

Advertising may decrease economic efficiency if it: A. increases monopoly power. B. prevents collusion. C. decreases market share. D. lowers the cost of production.

A. increases monopoly power.

By controlling price through collusion, oligopolists are able to: A. reduce uncertainty. B. prohibit the entry of new rivals. C. increase profits. D. cause price wars during business recessions. E. reduce inputs used in production.

A. reduce uncertainty. B. prohibit the entry of new rivals. C. increase profits.

In a non-collusive oligopolistic industry, prices are generally stable for the following? A. Cartel reasons B. Cost reasons C. Demand reasons D. Supply reasons E. Elasticity reasons

B. Cost reasons C. Demand reasons

Which of the following represent shortcomings for the four-firm concentration ratio? A. mutual interdependence B. world trade C. dominant firms D. localised markets E. price elasticity of demand F. interindustry competition

B. world trade C. dominant firms D. localised markets F. interindustry competition

Why would a firm deviate from a collusive outcome as presented in the payoff matrix? A. To facilitate entry of new firms B. To enhance cooperation with rival C. To increase joint profits D. To increase its profit E. To increase rival firms' profits.

D. To increase its profit

_______ ________ in oligopolistic industries means that each firm's profits partly depend on their rival's actions.

mutual interdependence

Demand and cost differences, the number of firms in the industry, and the potential for cheating all represent _________ to collusion.

obstacles

A(n) _________ is a market dominated by a few large producers of homogeneous or differentiated product.

oligopoly

An _______ is present when the largest four firms in an industry control more than 40% or more of the market.

oligopoly

To reduce uncertainty or increase profits, oligopolists may change their prices: A. competitively. B. collusively C. often D. rarely E. independently.

B. collusively

What are positive effects of large oligopolists not advertising? A. It would help reduce demand for material things and encourage new entrants into industries that will produce products that are good for society. B. Customers would not spend money on things they do not need. C. A reduction in advertising would help lower prices and possibly increase product output. D. The lack of manipulative information would reduce the chance of a firm becoming a monopoly.

C. A reduction of advertising would help lower prices and possible increase product output D. The lack of manipulative info would reduce the chance of a firm becoming a monopoly

How can advertising increase monopoly power of a firm? A. More informed consumers B. Improved economic efficiency C. Increased brand loyalty D. Greater market shares E. Increased profits

C. Increased brand loyalty D. Greater market shares E. Increased profits

An example for an oligopoly that produces a standardised product is the market for _________. A. automobiles B. breakfast cereals C. cement D. cigarettes E. tires

C. cement

Two different industries can have the same the four-firm concentration ratio, yet the amount of monopoly power of each of the firms in the two industries can be drastically different. For this situation which of the following represents the problem with the four-firm concentration ratio? A. localised markets B. interindustry competition C. dominant firms D. import competition

C. dominant firms

Oligopolies must consider the possible reaction of rivals to its own _________ , _________ and __________ decisions. A. pricing; output; equilibrium B. supply; demand; equilibrium C. pricing; output; advertising D. supply; demand; output

C. pricing; output; advertising

A situation where firms meet to fix prices, divide markets, or restrict competition is called: A. profit-maximisation. B. collusion. C. industrial strategy. D. efficiency development.

Collusion

In 2009, Walmart cut its price on several new books and Amazon matched it. Walmart then cut its price even more and it was also matched by Amazon, so Walmart cuts its price again which was then undercut by Target's even lower price. What is it called when firms behave in this way? A. Collusion B. Price leadership C. Mutual interdependence D. Price war

D. Price war

Which of the following is the reason for the demand curve demand curve segment e to D1? A. Rivals match a price increase B. Rivals ignore a price decrease C. Rivals ignore a price increase D. Rivals match a price decrease

D. Rivals match a price decrease

When is it called when a group of producers creates a formal written agreement stating the level of output by each firm and the prices that must be charged? A. price war B. OPEC C. mutual interdependence D. cartel

D. cartel

When members of an oligopoly meet to set prices to maximise profits this applies mainly to the _________ and/or the __________ model. A. price leadership; cartel B. price leadership; collusion C. price leadership; kinked-demand D. collusion; cartel

D. collusion; cartel

Price leaders make price adjustments: A. by holding a publicised meeting for all the members to attend. B. by communicating impeding price adjustments to the industry. C. by sending official notice to the federal government. D. infrequently, due to the uncertainty in rivals' response to these price changes. E. by establishing a price that discourages new entrants into the industry.

D. infrequently, due to the uncertainty in rivals' response to these price changes. B. by communicating impending price adjustments to the industry. E. by establishing a price that discourages new entrants into the industry.

The four-firm concentration ratio for the aluminum industry is understated due to competition between the aluminum and copper industries. What kind of problem does this represent with the four-firm concentration ratio? A. localised markets B. import competition C. dominant firms D. interindustry competition

D. interindustry competition

An oligopoly firm's demand curve will be kinked if: A. its rivals collude B. its rivals match price increases and price decreases C. its rivals ignore price increase and price decreases D. its rivals match price decreases but ignore price increases

D. its rivals match price decreases but ignore price increases

Barriers to entry into an oligopoly most resemble those of a: A. purely competitive market B. monopolistically-competitive market C. regulated monopoly D. pure monopoly

D. pure monopoly

Suppose the rivals of an oligopolistic firm ignore both a price increase and decrease. If so, then the firm's demand curve will be: A. vertical B. upward-sloping C. L-shaped D. straight E. kinked

D. straight

Oligopolies are comprised of: A. one large producer. B. hundreds of large producers. C. thousands of small producers. D. hundreds of small producers. E. a few large producers.

E. a few large producers.

Suppose rivals of an oligopolistic firm match either a price increase or decrease. If this occurs, then the firm's demand curve will look: A. undefined B. kinked and steep C. u-shaped D. horizontal or perfectly perfectly elastic E. straight and steep

E. straight and steep

A type of implicit understanding used by oligopolists to coordinate prices without engaging in outright collusion is known as _________ _________.

price leadership

When members of an oligopoly react to price changes by a dominant firm, the ________ ________ model is most applicable.

price leadership

Since entry of new firms increases the market supply and reduces prices and ________ , successful collusion requires that colluding firms _________ entry of new firms.

profits; block

Firms are more likely to cheat on a collusive agreement when the economy is experiencing a ____________.

recession

The four-firm concentration ratio, expressed as a percentage, expressed as a percentage, is the ratio of the ____________ of the four largest firms in an industry sales.

sales

The Herfindahl Index corrects for dominants firms in the industry by _________ the market shares of the firms and therefore giving greater weight to those more powerful firms in the industry.

squaring

Suppose RareAirs honors an agreement to price high with Uptown. If Uptown cheats and prices low instead of high, then Uptown can increase its payout by $ _______ million.

3 million

Which of the following are shortcomings of the kinked-demand analysis of oligopoly? A. During macroeconomic instability, oligopoly prices are not as rigid as the kinked-demand theory implies. B. The kinked-demand curve explains price inflexibility but not price itself. C. The kinked-demand curve explains price inflexibility but not price inflexibility. D. During macroeconomic instability, oligopoly prices are much more rigid than the kinked-demand theory implies.

A. During macroeconomic instability, oligopoly prices are not as rigid as the kinked-demand theory implies. B. The kinked-demand curve explains price inflexibility but not price itself.

What does a demand curve look like for an oligopolistic firm? A. It could be downward sloping or kinked B. It will always be U-shaped. C. It will always be kinked because it is a price maker. D. It will always be downward sloping because it is a price maker. E. It could be downward or upward sloping.

A. It could be downward sloping or kinked

Which of the following is true about the oligopolist if rivals match a price cut but ignore a price increase? A. Its marginal revenue curve would consist of two segments. B. Its marginal cost curve is made up of two segments C. Its demand curve is downward-sloping D. Demand is highly elastic below the going price.

A. Its marginal revenue curve would consist of two segments.

Which of the following are the reasons why multiple models are used to study oligopolies? A. Oligopolies cannot estimate both their demand and marginal revenue curves. B. Oligopolies can predict the reactions of their rivals. C. Oligopolies are not mutually interdependent. D. Oligopolies can determine their profit-maximizing price and output. E. Oligopolies encompass a greater range and diversity of market situations.

A. Oligopolies cannot estimate both their demand and marginal revenue curves. E. Oligopolies encompass a greater range and diversity of market situations.

Firms often merge, forming oligopolies in order to: A. gain greater control over market supply. B. become a larger buyer of inputs. C. increase control over price. D. limit monopoly power. E. raise the price of inputs.

A. gain greater control over market supply. B. become a larger buyer of inputs. C. increase control over price.

The fact that industry concentration may be overstated because the four-firm concentration ratio only accounts for production within the United States represents what kind of shortcoming with the four-firm concentration ratio? A. import competition B. interindustry competition C. localised markets D. dominant firms

A. import competition

The use of advertising by oligopolists: A. may increase or decrease competition. B. may increase or decrease prices. C. always decreases efficiency. D. always increases prices. E. always decreases competition. F. always increases efficiency.

A. may increase or decrease competition. B. may increase or decrease prices.

One OF the largest barriers to entry into the oil refining industry is: A. the capital equipment investment. B. suitable available geographic locations to build refineries. C. the need to hire non-specialised labor. D. cartels such as OPEC.

A. the capital equipment investment.

Three models used to study pricing and output by oligopolies are: A. the kinked-demand curve model B. price leadership model C. the kinked-supply curve model D. cost leadership model E. collusive pricing model

A. the kinked-demand curve model B. price leadership model E. collusive pricing model

Which of the following contributed in making the American auto industry into a differentiated oligopoly for nearly a century? A. the mutual interdependence of each firm's profitability B. mergers to help gain economies of scale C. the strategic behaviour of competitors D. import competition from foreign automakers E. the vision of automotive entrepreneurs F. entry barriers into the auto manufacturing industry

A. the mutual interdependence of each firm's profitability B. mergers to help gain economies of scale C. the strategic behaviour of competitors F. entry barriers into the auto manufacturing industry

According to the kinked-demand model of oligopoly, if the two of three firms ignore a price decrease by the firm: A. the third firm will gain sales because the other two firms' demand curve become more inelastic, relative to the third firm's demand curve. B.the third firm will gain sales because the other two firms' demand curve become more elastic. C. the third firm will lose sales because the other two firms' demand curve become more inelastic. D. the third firm will lose sales because the other two firms' demand curve become more elastic.

A. the third firm will gain sales because the other two firms' demand curve become more inelastic, relative to the third firm's demand curve.

Oligopolistic behaviour implies that oligopolists prefer competition: A. through advertising. B. through cartels. C. through pricing. D. through product development. E. over collusion.

A. through advertising. D. through product development.

Oligopolistic firms do which of the following when they change their pricing strategies? A. Affects costs and influence the products of rival firms. B. Affect profits and influence the profits of rival firms. C. Affect costs and influence the supply of rival firms. D. Affect profits without influencing the profits of rival firms.

B. Affect profits and influence the profits of rival firms.

What are the negative effects if a large oligopolists do not advertise? A. Many people would attempt to find new ways to get to buy more products. B. Consumers would be unaware of important new products. C. Customers might purchase less efficient products that cost more. D. Fewer product promotions would raise prices.

B. Consumers would be unaware of important new products. C. Customers might purchase less efficient products that cost more.

Collusion is more likely to occur when which of the following characteristics are true? A. Firms face high costs. B. Firms produce homogeneous goods. C. The demand for the good is high. D. Firms face similar costs. E. Firms produce differentiated goods.

B. Firms produce homogeneous goods. D. Firms face similar costs.

How can advertising increase monopoly power in a firm? A. Improved economic efficiency B. Increased brand loyalty C. More informed consumers D. Greater market shares E. Increased profits

B. Increased brand loyalty D. Greater market shares E. Increased profits

From society's standpoint, what are the effects of collusion in an oligopolistic industry? A. Lower prices, but greater output. B. The same as a monopoly. C. A more efficient industry. D. The same as monopolistic competition.

B. The same as a monopoly.

Which of the following are obstacles to collusion in an oligopolistic industry? A. mutual interdependence B. antirust laws C. threat of a price war D. demand and cost differences E. cheating F. recession

B. antirust laws D. demand and cost differences E. cheating F. recession

A firm in an oligopolistic market: A. has to change a price equal to the lowest average total cost (ATC). B. can set its price and output to maximise profits. C. cannot change its price. D. has its price set by the government.

B. can set its price and output to maximise profits.

All of the following are examples of oligopolies that produce a differentiated product except: A. electronics equipment B. copper C. household appliances D. sporting goods E. cigarettes

B. copper

In the _____ model of oligopoly, firms react to price decreases but ignore price increases. A. price leadership B. kinked-demand C. collusion model D. cost leadership

B. kinked-demand

As a means of conveying information, advertising is a relatively: A. cost ineffective way to get information to consumers. B. low-cost way to get information to consumers. C. confusing way to get information to consumers. D. ineffective way to get information to consumers. E. slow way to get information to consumers.

B. low-cost way to get information to consumers.

In the game illustrated in the figure to the right, if both follow a no-collusion strategy, the equilibrium outcome will be such that RareAir uses a _______ price and Uptown uses a ________ price strategy. A. low or high; high or low. B. low; low. C. high; high. D. high; low. E. low; high.

B. low; low.

Advertising can reduce efficiency by: A. increasing economies of scale. B. manipulating consumer preferences. C. increasing sales and output. D. speeding up technological process. E. providing misleading information.

B. manipulating consumer preferences. E. providing misleading information.

Industry concentration measures the extent to which: A. new firms may enter the industry. B. the largest firms account for industry output. C. firms advertise. D. firms earn economic profits. E. the smallest firms have excess capacity.

B. the largest firms account for industry output.

All the following are reasons why firms might merge, except: A. to increase economies of scale B. to decrease monopoly power C. to increase market share D. to obtain lower input prices E. to increase control over the product's price

B. to decrease monopoly power

When firms in an oligopoly ______, they receive higher payoffs than when they establish prices independently.

collude

Gentleman's agreements are a type of ________ collusion, occurring in social settings where a product's ________ is agreed upon and market shares are determined by ___________ competition.

covert; price; non-price

The prisoner's dilemma is an example of __________ __________

game theory

The study of how people behave in strategic situations is called: _____________ _______________.

game theory

Without collusion if a firm incorrectly assumes that its rivals will change the same price, but its rivals actually charge a lower price the firm's demand curve will shift to the _________.

left

The price leadership model in an oligopoly can break down and when it does it can lead to: A. a price war B. collusion C. an increase in profits D. greater market shares

A. a price war

If new firms to an industry must incur large advertising costs in order to establish their good in a market, what might be the result? A. additional barriers to entry B. lower costs of production C. improved economic efficiency D. more competitive market

A. additional barriers to entry

Firms in an oligopoly may produce: A. either a homogeneous product or a differentiated product. B. only a differentiated product. C. either a standardised product or a homogeneous product. D. only a homogeneous product. E. only a heterogeneous product.

A. either a homogeneous product or a differentiated product.

When the _________ is stable, oligopoly prices tend to be stable.

economy

In the graph, the price elasticity of demand is highly ____________ above the price of P(0).

elastic

The greater the difference in demand and costs between firms, the more difficult it is for firms to agree on ___________.

price

The Herfindahl Index corrects for dominant firms in the industry by _________ the market shares of the firms and therefore giving greater weight to those more powerful firms in the industry.

squaring