Multiple Choice Questions:
1. Which of the following is not a characteristic of oligopoly?
a. A few firms control most of the production and sale of a product.
b. Firms in the industry make price and output decisions with an eye to the decisions and policies of other firms in the industry.
c. Competing firms can enter the industry easily.
d. Substantial economies of scale are present in production.
2. Under oligopoly, a few large firms control most of the production and sale of a product because
a. Economies of scale make it difficult for small firms to compete.
b. Diseconomies of scale make it difficult for small firms to compete.
c Average total costs rise as production expands.
d. Marginal costs rise as production expands.
3. In an oligopoly such as the U.S. domestic airline industry, a firm such as United Airlines would
a. Carefully anticipate Delta, American, and Southwest’s likely responses before it raised or lowered fares.
b. Pretty much disregard Delta, American, and Southwest’s likely responses when raising or lowering fares.
c. Charge the lowest fare possible in order to maximize market share.
d. Schedule as many flights to as many cities as possible without regard to what competitors do.
4. One of the reasons that collusive oligopolies are usually short lived is that
a. They are unable to earn economic profits in the long run.
b. They do not set prices where marginal cost equals marginal revenue.
c. They set prices below long-run average total costs.
d. Parties to the collusion often cheat on one another.
5. In a collusive oligopoly, joint profits are maximized when a price is set based on
a. Its own demand and cost schedules.
b. The market demand for the product and the summation of marginal costs of the various firms.
c. The price followers’ demand schedules and the price leader’s marginal costs.
d. The price leader’s demand schedule and the price followers’ marginal costs.
6. During the 1950s, many profitable manufacturing industries in the United States, such as steel, tires, and autos, were considered oligopolies. Why do you think such firms work hard to keep imports from other countries out of the U.S. market?
a. Without import barriers, excess profits in the United States would attract foreign firms, break down existing price agreements, and reduce profits of U.S. firms.
b. Without import barriers, foreign firms would be attracted to the United States and cause the cost in the industry to rise.
c. Without import barriers, foreign firms would buy U.S. goods and resell them in the United States, causing profits to fall.
d. Without import barriers, prices of goods would rise, so consumers would buy less of the products of these firms.
7. Over the past 20 years, Dominator, Inc., a large firm in an oligopolistic industry, has changed prices a number of times. Each time it does so, the other firms in the industry follow suit. Dominator, Inc., is a
a. Monopoly.
b. Perfect competitor.
c. Price leader.
d. Price follower.
8. In the kinked demand curve model, starting from the initial price, the demand curve assumed to face a firm is relatively _________________ for price increases and relatively _________________ for price decreases.
a. Elastic; elastic
b. Elastic; inelastic
c. Inelastic; elastic
d. Inelastic; inelastic