Monopoly & Oligopoly (CH13 & CH14)

Advertising is an example of: A) nonprice competition. B) price leadership. C) tacit collusion. D) antitrust policy.

A

An increase in the fixed costs of a monopoly firm would _____ price and _____ quantity in the short run. A) not change; not change B) increase; increase C) decrease; decrease D) increase; decrease

A

The main reason a monopoly engages in price discrimination is: A) to increase its profits. B) to create a barrier to entry. C) o take advantage of market share. D) to give the impression of a fair market structure to discourage efforts to regulate the industry.

A

Which firm is most likely to be a natural monopoly? A) Municipal Power Light, the local supplier of electricity B) a pharmaceutical company that has the exclusive right to sell a patented drug C) a firm that owns nearly all the diamond mines in the world D) a restaurant that is unable to practice price discrimination and must charge all consumers the same price

A

Which of these monopolists no longer exists in any form whatsoever? A) East India Company B) Amtrak C) Hudson's Bay Company D) AT&T

A

A customer with significant buying power in an industry would: A) result in a kinked demand curve. B) make a tacit price agreement more difficult to achieve. C) have no effect on tacit pricing agreement negotiations. D) make a tacit price agreement easier to achieve.

B

Firms will choose a tit-for-tat strategy if they: A) are sure that cheating behavior will go unnoticed. B) believe that the firms in the industry will be competing with each other for a long time. C) do not believe interdependence is a prominent characteristic of the industry. D) expect that price wars will ultimately provide benefits for the dominant firm.

B

In industries characterized by a few firms that dominate the market, product differentiation is most likely to occur when firms: A) behave in a Bertrand model environment. B) have tacit agreements not to engage in price wars. C) follow a kinked demand curve model. D) engage in price wars.

B

The US banking industry has become more concentrated over the years but which event resulted in an acceleration in this process, resulting in a significantly more concentrated industry? A) the Great Depression B) the 2008 Great Recession C) the 2020 pandemic recession D) the panic of 1907

B

Under monopoly, the firm produces the output where _____, and in perfect competition, the firm produces the output where _____. A) P < MR = MC; P = MR = MC B) P > MR = MC; P = MR = MC C) P = MR = MC; P > MR = MC D) P = MR = MC; P = MR = MC

B

What is a natural monopoly? A) a monopoly resulting from one firm's exclusive ownership of a natural resource required to produce a good B) a monopoly that results when one firm is able to produce at a lower cost than multiple firms, giving large firms with higher levels of output an advantage over smaller competitors C) a market in which there is only one firm D) a monopoly that results from government issuing patents

B

Which of the following is a characteristic of oligopoly? A) large number of buyers and sellers B) firms must consider competitors' reactions when making decisions C) free entry and exit D) large number of firms producing differentiated products

B

Which of these factors increases the likelihood of collusion among firms? A) Firms have substantial excess production capacity. B) There are very few firms in the industry. C) US antitrust laws are strictly enforced. D) Products are differentiated and change frequently.

B

A(n) ______ gives an inventor a temporary monopoly on the use or sale of an invention. A) copyright B) monopoly C) patent D) externality

C

If you had an official license for the exclusive right to sell breakfast bagels in your community, your monopoly would result from: A) technological superiority. B) control of a scarce resource or input. C) government-set barriers. D) increasing returns to scale.

C

Suppose that each of the two firms in a duopoly has the independent choice of advertising or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million and the other gets profit of $2 million. According to game theory, if the firms collude to maximize joint profits: A) both may or may not advertise. B) both will advertise. C) neither will advertise. D) one will advertise and the other will not.

C

Suppose you are a manager of a firm that operates in a duopoly. Recently, the state attorney general fined you and your competitor for price fixing. In your market, firms only set prices, not total quantities to sell. From previous experience, you know your competitor has a marginal cost of $1.32 . Further, your marginal costs are $1.30 . The previous cartel price was $10.00, when you and your competitor were price fixing. What price level do you now choose to maximize profits? A) $1.30 B) $1.32 C) $1.31 D) $1.26

C

The industry closest to being a duopoly is A) the US market for news media outlets B) worldwide market for recorded music C) the worldwide market for large civilian airplanes D) film studios in the US market

C

Which statement about monopoly equilibrium and perfectly competitive equilibrium is incorrect? A) When a monopoly exists, the consumer surplus from the market is less than it would be if the same market were perfectly competitive. B) Monopoly output will be less than will the output of a comparable perfectly competitive industry. C) In the long run, economic profits are driven to zero in both a monopoly and a perfectly competitive market. D) Price is greater than marginal cost in monopoly, and price equals marginal cost in perfect competition.

C

A monopolist's marginal cost curve shifts up, but the firm's demand curve remains the same and the firm does not shut down. Compared with the condition before the increase in marginal costs, the monopolist will _____ its price and _____ its level of production. A) not change; decrease B) lower; increase C) raise; increase D) raise; decrease

D

Antitrust policy refers to government: A) encouragement of collusion in the marketplace and the creation of legal cartels. B) attempts to discourage mergers and acquisitions. C) attempts to nationalize important sectors of the economy, such as banking. D) attempts to prevent the acquisition of monopoly power.

D

In which parts of the supply chain for drugs like insulin do oligopolists predominate? A) drug production and healthcare insurance plan only B) drug production only C) pharmacy benefit management only D) drug production, pharmacy benefit management, and healthcare insurance plan

D

Maximization of joint profits is most likely when firms are: A) perfect competitors. B) monopolistic competitors. C) natural monopolists. D) duopolists who collude.

D

Most hot dog carts in a city sell hot dogs for $3.00 each. Each stand makes comparable products, but each is independently owned and operated. The marginal cost of selling hot dogs on the street is around $1.00, but owners have maintained the $3.00 price point for several years. The cart owners are not in regular contact. Hot dog vendors in this city: A) are acting competitively since they cannot change the going price of hot dogs. B) have formed a cartel. C) are trapped in a prisoner's dilemma. D) are colluding with one another but not as part of a cartel.

D

Regulation is most likely to occur in a market with a Herfindahl-Hirschman Index (HHI) of A) 1000 B) 5 C) 100 D) 2500

D

Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is: A) $9. B) $1. C) $29. D) $19.

D

The highest possible value of the Herfindahl-Hirschman index is _____, indicating that an industry is a monopoly. A) 100 B) 1,000 C) 10 D) 10,000

D