micro test 13 (16-17) Oligopoly
1. An oligopoly is a market structure in which many firms sell products that are similar but not identical.
F
12. The dominant strategy for an oligopolist is to cooperate with the group and maintain low production regardless of what the other oligopolists do.
F
13. Antitrust laws require manufacturers to engage in resale price maintenance or fair trade.
F
15. If a prisoners' dilemma game is repeated, the participants are more likely to independently maximize their profits and reach a Nash equilibrium.
F
4. When firms cooperate with one another, it is generally good for society as a whole.
F
6. When oligopolists collude and form a cartel, the outcome in the market is similar to that generated by a perfectly competitive market.
F
8. The greater the number of firms in the oligopoly, the more the outcome of the market looks like that generated by a monopoly.
F
9. Cooperation is easily maintained in an oligopoly because cooperation maximizes each individual firm's profits.
F
10. The prisoners' dilemma demonstrates why it is difficult to maintain cooperation even when cooperation is mutually beneficial.
T
11. There is a constant tension in an oligopoly between cooperation and self-interest because after an agreement to reduce production is reached, it is profitable for each individual firm to cheat and produce more.
T
14. Predatory pricing occurs when a firm cuts prices with the intention of driving competitors out of the market so that the firm can become a monopolist and later raise prices.
T
2. The market for crude oil is an example of an oligopolistic market.
T
3. The unique feature of an oligopoly market is that the actions of one seller have a significant impact on the profits of all of the other sellers in the market.
T
5. When firms cooperate with one another, it is generally good for the cooperating firms.
T
7. The price and quantity generated by a Nash equilibrium is closer to the competitive solution than the price and quantity generated by a cartel.
T
24. A situation in which oligopolists interacting with one another each choose their best strategy given the strategies that all the other oligopolists have chosen is known as a a. Nash equilibrium. c. cartel. b. dominant strategy. d. collusion solution.
a. Nash equilibrium.
30. Collusion is difficult for an oligopoly to maintain a. all of these answers. b. if additional firms enter of the oligopoly. c. because antitrust laws (also known as competition laws) make collusion illegal. d. because, in the case of oligopoly, self-interest is in conflict with cooperation.
a. all of these answers.
29. Many economists argue that resale price maintenance a. has a legitimate purpose of stopping discount retailers from free riding on the services provided by full service retailers. b. is price fixing and, therefore, is prohibited by law. c. is price fixing and, therefore, is prohibited by law and enhances the market power of the producer. d. enhances the market power of the producer.
a. has a legitimate purpose of stopping discount retailers from free riding on the services provided by full service retailers.
17. A market structure in which many firms sell products that are similar but not identical is known as a. monopolistic competition. c. perfect competition. b. monopoly. d. oligopoly.
a. monopolistic competition.
20. As the number of sellers in an oligopoly grows larger, an oligopolistic market looks more like a. monopoly. c. monopolistic competition. b. a competitive market. d. a collusion solution.
b. a competitive market.
21. When an oligopolist individually chooses its level of production to maximize its profits, it produces an output that is a. more than the level produced by a monopoly and less than the level produced by a competitive market. b. less than the level produced by a monopoly and more than the level produced by a competitive market. c. less than the level produced by either monopoly or a competitive market. d. more than the level produced by either monopoly or a competitive market.
a. more than the level produced by a monopoly and less than the level produced by a competitive market.
19. Suppose an oligopolist individually maximizes its profits. When calculating profits, if the output effect exceeds the price effect on the marginal unit of production, then the oligopolist a. should produce more units. b. has maximized profits. c. is in a Nash equilibrium. d. should produce fewer units. e. should exit the industry.
a. should produce more units.
31. Suppose that ABC Publishing sells an economics textbook and accompanying study guide. Roberto is willing to pay €75 for the text and €15 for the study guide. Marie is willing to spend €60 for the text and €25 for the study guide. Suppose both the book and study guide have a zero marginal cost of production. If ABC Publishing charges separate prices for both products, its best strategy is to charge prices that, when combined, total a. €85. b. €75. c. €80. d. €60. e. €90.
b. €75.
16. The market for hand tools (such as hammers and screwdrivers) is dominated by Draper, Stanley, and Craftsman. This market is best described as a. monopolistically competitive. c. an oligopoly. b. a monopoly. d. competitive.
c. an oligopoly.
18. If oligopolists engage in collusion and successfully form a cartel, the market outcome is a. the same as if it were served by competitive firms. b. efficient because cooperation improves efficiency. c. the same as if it were served by a monopoly. d. known as a Nash equilibrium.
c. the same as if it were served by a monopoly.
32. Suppose that ABC Publishing sells an economics textbook and accompanying study guide. Roberto is willing to pay €75 for the text and €15 for the study guide. Marie is willing to spend €60 for the text and €25 for the study guide. Suppose both the book and study guide have a zero marginal cost of production. If ABC Publishing engages in tying the two products, its best strategy is to charge a combined price of a. €60. b. €90. c. €85. d. €75. e. €80.
c. €85.
22. When an oligopolist individually chooses its level of production to maximize its profits, it charges a price that is a. more than the price charged by either monopoly or a competitive market. b. less than the price charged by either monopoly or a competitive market. c. more than the price charged by a monopoly and less than the price charged by a competitive market. d. less than the price charged by a monopoly and more than the price charged by a competitive market.
d. less than the price charged by a monopoly and more than the price charged by a competitive market.
23. As the number of sellers in an oligopoly increases, a. output in the market tends to fall because each firm must cut back on production. b. the price in the market moves further from marginal cost. c. collusion is more likely to occur because a larger number of firms can place pressure on any firm that defects. d. the price in the market moves closer to marginal cost.
d. the price in the market moves closer to marginal cost.
33. Laws that make it illegal for firms to conspire to raise prices or reduce production are known as a. antimonopoly laws. b. all of these answers. c. anti-collusion laws. d. pro-competition laws. e. antitrust laws.
e. antitrust laws.
