True/False
Indicate whether the
sentence or statement is true or false.
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1.
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An oligopoly is a market structure in which many
firms sell products that are similar but not identical.
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2.
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The market for crude oil is an example of an
oligopolistic market.
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3.
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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.
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4.
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When firms cooperate with one another, it is
generally good for society as a whole.
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5.
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When firms cooperate with one another, it is
generally good for the cooperating firms.
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6.
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When oligopolists collude and form a cartel, the
outcome in the market is similar to that generated by a perfectly competitive market.
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7.
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The price and quantity generated by a Nash
equilibrium is closer to the competitive solution than the price and quantity generated by a
cartel.
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8.
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The greater the number of firms in the oligopoly,
the more the outcome of the market looks like that generated by a monopoly.
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9.
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Cooperation is easily maintained in an oligopoly
because cooperation maximizes each individual firm's profits.
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10.
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The prisoners' dilemma demonstrates why it is
difficult to maintain cooperation even when cooperation is mutually beneficial.
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11.
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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.
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12.
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The dominant strategy for an oligopolist is to
cooperate with the group and maintain low production regardless of what the other oligopolists
do.
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13.
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Antitrust laws require manufacturers to engage in
resale price maintenance or fair trade.
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14.
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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.
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15.
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If a prisoners' dilemma game is repeated, the
participants are more likely to independently maximize their profits and reach a Nash
equilibrium.
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Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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16.
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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. | b. | a monopoly. | c. | an
oligopoly. | d. | competitive. |
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17.
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A market structure in which many firms sell
products that are similar but not identical is known as
a. | monopolistic competition. | b. | monopoly. | c. | perfect
competition. | d. | oligopoly. |
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18.
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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. |
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19.
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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. |
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20.
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As the number of sellers in an oligopoly grows
larger, an oligopolistic market looks more like
a. | monopoly. | b. | a competitive market. | c. | monopolistic
competition. | d. | a collusion
solution. |
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21.
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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 produce by either monopoly or a
competitive market. | d. | more than the
level produced by either monopoly or a competitive market. |
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22.
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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. |
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23.
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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. |
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24.
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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. | b. | dominant strategy. | c. | cartel. | d. | collusion
solution. |
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25.
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| Figure 16-1 | | | | The table shows the demand schedule for tickets to watch amateur football
matches in a medium sized town. The local council provides the stadium, and the players play for free
so the marginal cost of providing games is zero. The council has authorized two companies to provide
football matches in two stadiums and the public considers the games in each stadium to be
equivalent. | | Price | Quantity | | | €6 | 0 | | | 5 | 1000 | | | 4 | 2000 | | | 3 | 3000 | | | 2 | 4000 | | | 1 | 5000 | | | 0 | 6000 | | | | |
Refer to Figure 16-1. Under
competition, the price and quantity in this market would bea. | €1; 5000. | b. | €2; 4000. | c. | €4;
2000. | d. | €0; 6000. | e. | €3; 3000. |
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26.
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| Figure 16-1 | | | | The table shows the demand schedule for tickets to watch amateur football
matches in a medium sized town. The local council provides the stadium, and the players play for free
so the marginal cost of providing games is zero. The council has authorized two companies to provide
football matches in two stadiums and the public considers the games in each stadium to be
equivalent. | | Price | Quantity | | | €6 | 0 | | | 5 | 1000 | | | 4 | 2000 | | | 3 | 3000 | | | 2 | 4000 | | | 1 | 5000 | | | 0 | 6000 | | | | |
Refer to Figure 16-1. If the
duopolists in this football market collude and successfully form a cartel, what is the price that
each should charge in order to maximize profits?
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27.
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| Figure 16-1 | | | | The table shows the demand schedule for tickets to watch amateur football
matches in a medium sized town. The local council provides the stadium, and the players play for free
so the marginal cost of providing games is zero. The council has authorized two companies to provide
football matches in two stadiums and the public considers the games in each stadium to be
equivalent. | | Price | Quantity | | | €6 | 0 | | | 5 | 1000 | | | 4 | 2000 | | | 3 | 3000 | | | 2 | 4000 | | | 1 | 5000 | | | 0 | 6000 | | | | |
Refer to Figure 16-1. If the
duopolists in this baseball market collude and successfully form a cartel, how much profit will each
earn?a. | €4,500 | b. | €4,000 | c. | €1,500 | d. | €9,000 | e. | €3,000 |
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28.
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| Figure 16-1 | | | | The table shows the demand schedule for tickets to watch amateur football
matches in a medium sized town. The local council provides the stadium, and the players play for free
so the marginal cost of providing games is zero. The council has authorized two companies to provide
football matches in two stadiums and the public considers the games in each stadium to be
equivalent. | | Price | Quantity | | | €6 | 0 | | | 5 | 1000 | | | 4 | 2000 | | | 3 | 3000 | | | 2 | 4000 | | | 1 | 5000 | | | 0 | 6000 | | | | |
Refer to Figure 16-1. If the
duopolists are unable to collude, how much profit will each earn when the market reaches a Nash
equilibrium?a. | €8,000 | b. | €9,000 | c. | €2,500 | d. | €4,000 | e. | €4,500 |
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29.
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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. |
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30.
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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. |
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31.
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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. |
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32.
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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. |
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33.
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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. |
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