Econ Final Chapter 12 Oligopoly

A. a group of oligopolists who try to behave like a single monopolist and split the benefits among themselves.

A cartel is A. a group of oligopolists who try to behave like a single monopolist and split the benefits among themselves. B. a government-approved organization for the exchange of technical information among firms. C. a form of competition among oligopolists. D. a regulated industry that is officially permitted to set the price of its product above long-run average total cost.

C. collusive group of firms.

A cartel is a A. motel for cars. B. chain of auto repair shops. C. collusive group of firms. D. computer chip manufacturer.

False

A cartel is a group of sellers of a single product who have joined together in order to enjoy the advantages of perfect competition. True or False

A. negative.

A firm now produces its sales-maximizing level of output. If the firm increased its output by one unit, its marginal revenue would become A. negative. B. smaller but still positive. C. larger but still negative. D. larger but still positive.

True

A perfectly contestable market is one which a firm can enter and exit without losing its investment. True or False

B. restaurant's average total cost will rise and its total revenue will fall.

A profit-maximizing, monopolistically competitive restaurant serves 60 burgers a day at a total cost of $180 and earns a total profit of $180. In the long run, everything else equal, the A. restaurant will charge more than $6 per burger. B. restaurant's average total cost will rise and its total revenue will fall. C. restaurant will sell more burgers at a lower average profit per burger. D. All of the above are correct.

D. MR = 0.

A sales-maximizing firm produces the output level at which A. MR = P. B. MR = MC. C. MR = AC. D. MR = 0.

C. more elastic demand if she raises her price than if she lowers her price.

According to the kinked demand curve model, an oligopolist may face A. more elastic demand than a monopolistic competitor. B. less elastic demand than a monopolistic competitor. C. more elastic demand if she raises her price than if she lowers her price. D. less elastic demand if she raises her price than if she lowers her price.

C. MR = MC.

All four market forms discussed in the text maximize profit were A. P = MC. B. AR = AC. C. MR = MC. D. MC = AR.

B. raises entry barriers.

An advertising race among oligopolists may be rational if it A. is defense advertising. B. raises entry barriers. C. increases cost per unit of sales. D. encourages new entrants.

A. a cartel.

An example of overt collusion is A. a cartel. B. price leadership. C. tacit collusion. D. a perfectly contestable market.

True

An oligopolist cares very much about what other firms in his industry are doing. True or False

True

An oligopolist who sets the price for the industry is a price leader. True or False

B. expects other firms to match price cuts but not price increases.

An oligopolist's effective demand curve will be kinked if the firm A. is acting as a price leader in the industry. B. expects other firms to match price cuts but not price increases. C. expects other firms to match all price changes. D. fears new entry into the industry.

True

An oligopoly is a market dominated by a few sellers. True or False

True

An oligopoly is a market in which at least some firms are large enough to influence market price. True or False

True

An oligopoly is a market structure in which a few large firms dominate the sale of a single product. True or False

True

An oligopoly using a maximin strategy must believe that the losses from underestimating a competitor's skill are worse than those from overestimating it. True or False

A. i and ii

At any given airport, the airlines hold long-term leases for passenger loading gates. New gates cannot be added without approval of the airlines. Frequent flier programs are also common in the industry. It is, therefore, more difficult for a new airline to enter a given airport (market). Such factors: (i) are called barriers to entry. (ii) tend to decrease the contestability of the air travel market. A. i and ii B. i not ii C. ii not i D. neither i nor ii

D. All of the above are correct.

Cartels are relatively rare because A. they are illegal in some countries, including the United States. B. members find it difficult to agree on key decisions. C. members frequently have an incentive to cheat on the cartel. D. All of the above are correct.

True

Cartels provide uniform management, but none of the advantages of economies of scale. True or False

B. members cheating by giving secret discounts.

Cartels usually succumb to divisive forces caused by A. limited information. B. members cheating by giving secret discounts. C. entry by new rivals seeking profits. D. insufficient profits compared to independent operations.

D. All of the above are correct.

Deviations from the perfectly competitive market can lead to A. inefficiently high production costs. B. higher prices and smaller outputs. C. less efficient resource allocation. D. All of the above are correct.

True

Economists place cartels among the least-desirable forms of market organization. True or False

D. more elastic is its demand curve.

Everything else equal, the more rivals a firm has, the A. less kinked is its demand curve. B. closer is its equilibrium price to its average variable costs. C. more differentiated is its product from rivals' products. D. more elastic is its demand curve.

True

Excess capacity and inefficiency result under monopolistic competition. True or False

A. more output and charge a lower price.

Firms have the option of maximizing sales revenue or maximizing profits. If a firm chooses to maximize sales, then it will produce A. more output and charge a lower price. B. the same output and charge a lower price. C. less output and charge a higher price. D. less output and charge a lower price.

True

Firms that maximize sales always produce more than profit-maximizing firms. True or False

True

Game theory is based on the idea that each participant makes decisions based on how she believes the competition will react. True or False

True

Game theory may be used to solve problems of interdependent decision making by large firms. True or False

C. customers will switch from rival firms to buy from them.

If an oligopolist cuts the prices of its products, A. customers will switch to a rival firm. B. customers will remain unchanged in number. C. customers will switch from rival firms to buy from them. D. rival firms will not react.

B. lower their prices; not raise their prices

If an oligopolistic manufacturer believes that he faces a kinked demand curve for his product, he thinks his competitors will _____ if he lowers his price and _____ if he raises his price. A. lower their prices; raise their prices. B. lower their prices; not raise their prices C. not lower their prices; raise their prices D. not lower their prices; not raise their prices

A. overt collusion.

If firms meet together to decide on prices and outputs there is A. overt collusion. B. tacit collusion. C. price leadership. D. None of the above are correct.

D. none of the cost benefits of large-scale production and all of the allocative inefficiencies of monopoly.

In an economist's view, a cartel usually offers to society A. all the cost benefits of large-scale production and none of the allocative inefficiencies of monopoly. B. all the cost benefits of large-scale production and all of the allocative inefficiencies of monopoly. C. none of the cost benefits of large-scale production and none of the allocative inefficiencies of monopoly. D. none of the cost benefits of large-scale production and all of the allocative inefficiencies of monopoly.

True

In the U.S. economy, oligopolies produce a larger dollar value of manufactured goods than firms in monopolistic competition. True or False

C. price leadership.

In the cigarette industry either R. J. Reynolds or Phillip Morris, for a time, raised prices twice a year by about 50 cents per carton. The other firms in the industry raised their prices by the same amount. Economists call this A. predatory pricing. B. a price war. C. price leadership. D. sales maximization.

True

In the long run, zero economic profit exists in monopolistic competition and perfect competition. True or False

D. perfect competition and perfectly contestable.

Markets in which the behavior of the firms theoretically leads to an efficient allocation of resources that maximizes the benefits to consumers given the resources available to consumers are A. monopolistic competition and oligopoly. B. monopoly and oligopoly. C. monopolistic competition and monopoly. D. perfect competition and perfectly contestable.

True

Monopolistic competition has at least one similarity to perfect competition: firms are free to enter and leave the industry. True or False

True

Most manufactured goods production in the United States is carried out by oligopolistic firms.

True

Oligopolies are difficult to analyze because of the interdependent nature of management decisions. True or False

True

Oligopolists use advertising as a way of differentiating their products. True or False

D. a few firms dominate a single market.

Oligopoly occurs when A. a few firms sell many different products. B. a few firms sell to a few large buyers. C. many firms dominate a single market. D. a few firms dominate a single market.

A. infrequently.

One indication that an industry might be oligopolistic is that prices change A. infrequently. B. frequently. C. in rhythmic patterns. D. on a regular, periodic basis.

True

One of the most famous cartels is OPEC. True or False

A. tacit collusion.

Price leadership is a form of A. tacit collusion. B. explicit collusion. C. monopolistic competition. D. a cartel policing mechanism.

True

Price leadership may sometimes be an example of covert collusive behavior by oligopolies. True or False

False

Society definitely benefits by reducing the number of monopolistically competitive firms. True or False

True

Some oligopolies may try to maximize sales revenue rather than maximize profits. True or False

True

Sticky prices are a direct result of the kinked demand curve. True and False

A. collusion which is carried out without any explicit agreement among firms.

Tacit collusion is A. collusion which is carried out without any explicit agreement among firms. B. collusion about tacits, rather than strategy. C. agreements which are sponsored by government. D. similar to pure competition.

C. firms in oligopolistic industries react to each other's behavior in many ways.

The analysis of oligopolistic behavior is difficult because A. there are few real-world examples of oligopolies for economists to study. B. oligopolists make decisions independently of each other. C. firms in oligopolistic industries react to each other's behavior in many ways. D. economists have paid little attention to the topic in recent years and so have not yet applied to it the techniques of modern economic theory.

C. kinked demand curve model.

The apparent stickiness of the price of goods sold by oligopolists can be explained by the A. contestable markets model. B. sales maximization model. C. kinked demand curve model. D. entry deterrence model.

D. monopolistic competition wastes some of society's resources but the elimination of this waste does not necessarily benefit consumers.

The excess capacity theorem implies that A. consumers would be better off if some monopolistically competitive firms left their markets. B. consumers would be better off with more standardization of products. C. monopolistic competition benefits society by eliminating excess capacity in production. D. monopolistic competition wastes some of society's resources but the elimination of this waste does not necessarily benefit consumers.

B. costs of production under monopolistic competition can be lowered by reducing the number of producers.

The excess capacity theorem states that A. society is worse off with fewer monopolistic competitors. B. costs of production under monopolistic competition can be lowered by reducing the number of producers. C. lack of excess capacity leads to shortages during periods of unexpected growth in demand for goods produced by monopolistic competition. D. there is too much choice in our economy.

False

The excess capacity theorem states that society would clearly benefit from a reduction in the number of monopolistic competitors. True or False

A. AC and the demand curve occurs along the negatively sloped part of AC.

The key difference between monopolistic competition and perfect competition is tangency of A. AC and the demand curve occurs along the negatively sloped part of AC. B. the demand curve and AC occurs at the minimum point of the AC curve. C. AC and the demand curve occurs along the positively sloped part of AC. D. MC and MR at the optimum output.

True

The key difference between oligopoly and other market structures is the interdependence among producers. True or False

True

The kinked demand curve model is based on the assumption that rival firms will match a price cut but ignore a price increase. True or False

C. firms are managed and owned by different groups of people with different goals.

The reason firms often choose sales maximization as a goal is because A. that is where profits are maximized. B. it is impossible to maximize profits. C. firms are managed and owned by different groups of people with different goals. D. owners believe setting price/output to maximize profits is unfair to consumers.

True

The short-run equilibrium of the firm under monopolistic competition has excess capacity. True or False

C. a firm's competitors will follow it in a price decrease but not follow it in a price

The theory of the kinked demand curve is that A. although the firm sells a differentiated product, too many competitors exist to make it worthwhile speculating on responses to the firm's behavior. B. freedom of entry will reduce profits to zero. C. a firm's competitors will follow it in a price decrease but not follow it in a price increase. D. firms are all seeking the position of joint profit maximization.

A. profits at the profit-maximizing output. B. sales volume.

There is statistical evidence that managers' salaries are tied most closely to A. profits at the profit-maximizing output. B. sales volume. C. cost per unit at minimum-cost output. D. the closeness of output to the point where MR = MC.

C. one.

To maximize sales revenue, an oligopolist will expand output until the elasticity of demand becomes A. negative. B. zero. C. one. D. infinite.

True

To maximize sales revenue, an oligopolist will expand output until the marginal revenue curve cuts the horizontal axis. True and False

C. oligopoly and monopolistic competition

To understand most of today's economic activity in the U.S. economy, we should look at which of the following models? A. perfect competition and pure monopoly B. perfect competition and oligopoly C. oligopoly and monopolistic competition D. monopolistic competition and monopoly

A. If I alone cheat, I'm better off; if everyone cheats, I'm worse off.

Which of the following attitudes will be held by a typical firm in a typical cartel? A. If I alone cheat, I'm better off; if everyone cheats, I'm worse off. B. I can never do better for myself than by following agreed-upon cartel policies. C. If everyone cheats, I'm better off and so is everyone else in the cartel. D. If I suspect others are planning to cheat, I'll do best for myself by deciding not to cheat.

C. Do unto others as you would have them do unto you.

Which of the following best expresses the attitude toward competition of a firm engaged in tacit collusion with its rivals? A. A rolling stone gathers no moss. B. Waste not, want not. C. Do unto others as you would have them do unto you. D. Ask, and ye shall receive.