Question 1

When an oligopolist individually chooses its level of production to maximize its profits, it charges a price that is

Accepted Answer

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. 
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

Question 2

Explain the practice of resale price maintenance and discuss why it is controversial.

Accepted Answer

Resale price maintenance is a requirement by producers that retailers sell their product for a price specified by the manufacturer. It is controversial because on the surface it appears to limit the ability of retailers to compete on the basis of price. However, if the manufacturer does not exercise resale price maintenance a free-rider problem may become evident among the retailers and ultimately lead to lower profits for the manufacturer.

Question 3

When firms cooperate with one another, it is generally good for the cooperating firms.

Accepted Answer

A) True 
 B)False  True

Question 4

A dominant strategy is one that

Accepted Answer

A)  makes every player better off. 
B)  makes at least one player better off without hurting the competitiveness of any other player. 
C)  increases the total pay-off for the player concerned. 
D)  is best for the player concerned, regardless of what strategy other players follow. 
A)  makes every player better off. 
B)  makes at least one player better off without hurting the competitiveness of any other player. 
C)  increases the total pay-off for the player concerned. 
D)  is best for the player concerned, regardless of what strategy other players follow.

Question 5

When an oligopolist individually chooses its level of production to maximize its profits, it produces an output that is

Accepted Answer

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. 
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.

Question 6

Figure 1 $\begin{array}{|c|c|}
\hline \text { Price } & \text { Quantity } \
\hline € 6 & 0 \
\hline 5 & 1000 \
\hline 4 & 2000 \
\hline 3 & 3000 \
\hline 2 & 4000 \
\hline 1 & 5000 \
\hline 0 & 6000 \
\hline
\end{array}$
-Refer to Figure 1. If the duopolists in this football market collude and successfully form a cartel, how much profit will each earn?

Accepted Answer

A)  €4,500 
B)  €4,000 
C)  €1,500 
D)  €9,000 
E)  €3,000 
A)  €4,500 
B)  €4,000 
C)  €1,500 
D)  €9,000 
E)  €3,000

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

The primary purpose of competition legislation is to

Accepted Answer

A)  protect small businesses. 
B)  protect consumers. 
C)  ensure firms earn only a fair profit. 
D)  All of the above. 
A)  protect small businesses. 
B)  protect consumers. 
C)  ensure firms earn only a fair profit. 
D)  All of the above.

Question 10

As a group, oligopolists would always be better off if they would act collectively

Accepted Answer

A)  as if they were each seeking to maximize their own individual profits. 
B)  in a manner that would prohibit collusive agreements. 
C)  as a single monopolist. 
D)  as a single perfectly competitive firm. 
A)  as if they were each seeking to maximize their own individual profits. 
B)  in a manner that would prohibit collusive agreements. 
C)  as a single monopolist. 
D)  as a single perfectly competitive firm.

Question 11

The price and quantity generated by a Nash equilibrium is closer to the competitive solution than the price and quantity generated by a cartel.

Accepted Answer

A) True 
 B)False

Question 12

Many economists argue that resale price maintenance

Accepted Answer

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. 
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.

Question 13

If oligopolists engage in collusion and successfully form a cartel, the market outcome is

Accepted Answer

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. 
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.

Question 14

Resale price maintenance may be justified if

Accepted Answer

A)  a manufacturer wishes to ensure that its retailers are able to provide knowledgeable sales staff to advise consumers. 
B)  a manufacturer wishes to ensure that its retailers are able to pay a high price for its products. 
C)  a manufacturer wishes to ensure that its retailers do not compete with each other. 
D)  a manufacturer's product is one that has a long life, 
E) g. cars. 
A)  a manufacturer wishes to ensure that its retailers are able to provide knowledgeable sales staff to advise consumers. 
B)  a manufacturer wishes to ensure that its retailers are able to pay a high price for its products. 
C)  a manufacturer wishes to ensure that its retailers do not compete with each other. 
D)  a manufacturer's product is one that has a long life, 
E) g. cars.

Question 15

As the concentration ratio decreases, an oligopolistic market looks more like

Accepted Answer

A)  monopoly. 
B)  duopoly. 
C)  monopolistic competition. 
D)  a collusion solution. 
A)  monopoly. 
B)  duopoly. 
C)  monopolistic competition. 
D)  a collusion solution.

Question 16

Figure 1 $\begin{array}{|c|c|}
\hline \text { Price } & \text { Quantity } \
\hline € 6 & 0 \
\hline 5 & 1000 \
\hline 4 & 2000 \
\hline 3 & 3000 \
\hline 2 & 4000 \
\hline 1 & 5000 \
\hline 0 & 6000 \
\hline
\end{array}$
-Refer to Figure 1. If the duopolists are unable to collude, how much profit will each earn when the market reaches a Nash equilibrium?

Accepted Answer

A)  €8,000 
B)  €9,000 
C)  €2,500 
D)  €4,000 
E)  €4,500 
A)  €8,000 
B)  €9,000 
C)  €2,500 
D)  €4,000 
E)  €4,500

Question 17

Explain how the output effect and the price effect influence the production decision of the individual oligopolist.

Accepted Answer

Since the individual oligopolist faces a

Question 18

Even when allowed to collude, firms in an oligopoly may choose to cheat on their agreements with the rest of the cartel. Why?

Accepted Answer

Individual profits can be incr

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

As the number of firms in an oligopoly increases, the

Accepted Answer

A)  price approaches marginal cost, and the quantity approaches the socially efficient level. 
B)  price and quantity approach the monopoly levels. 
C)  price effect exceeds the output effect. 
D)  individual firms' profits increase. 
A)  price approaches marginal cost, and the quantity approaches the socially efficient level. 
B)  price and quantity approach the monopoly levels. 
C)  price effect exceeds the output effect. 
D)  individual firms' profits increase.

Exam 16: Market Structures Iii: Oligopoly

When an oligopolist individually chooses its level of production to maximize its profits, it charges a price that is

Explain the practice of resale price maintenance and discuss why it is controversial.

When firms cooperate with one another, it is generally good for the cooperating firms.

A dominant strategy is one that

When an oligopolist individually chooses its level of production to maximize its profits, it produces an output that is

Figure 1 Price Quantity 6 0 5 1000 4 2000 3 3000 2 4000 1 5000 0 6000 -Refer to Figure 1. If the duopolists in this football market collude and successfully form a cartel, how much profit will each earn?

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.

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.

The primary purpose of competition legislation is to

As a group, oligopolists would always be better off if they would act collectively

The price and quantity generated by a Nash equilibrium is closer to the competitive solution than the price and quantity generated by a cartel.

Many economists argue that resale price maintenance

If oligopolists engage in collusion and successfully form a cartel, the market outcome is

Resale price maintenance may be justified if

As the concentration ratio decreases, an oligopolistic market looks more like

Figure 1 Price Quantity 6 0 5 1000 4 2000 3 3000 2 4000 1 5000 0 6000 -Refer to Figure 1. If the duopolists are unable to collude, how much profit will each earn when the market reaches a Nash equilibrium?

Explain how the output effect and the price effect influence the production decision of the individual oligopolist.

Even when allowed to collude, firms in an oligopoly may choose to cheat on their agreements with the rest of the cartel. Why?

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.

As the number of firms in an oligopoly increases, the

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Elasticity and Its Applications

Background to Demand: Consumer Choices

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Public Goods, Common Resources and Merit Goods

Market Failure and Externalities

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

Issues in Financial Markets

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Supply-Side Policies

Common Currency Areas and European Monetary Union

The Financial Crisis and Sovereign Debt

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