Deck 14: Oligopoly: Firms in Less Competitive Markets

Question 1

Which of the following is the best example of an oligopolistic industry?

A)the beef market
B)the pharmaceutical industry
C)public education
D)the beauty products industry

Answer 1

B

Question 2

Which of the following is not a reason why government officials are willing to impose entry barriers?

A)to raise revenue
B)to encourage innovation which may improve the standard of living in the long run
C)to increase economic efficiency
D)to promote an equitable distribution of income

Answer 2

D

Question 3

In an oligopoly market

A)the pricing decisions of all other firms have no effect on an individual firm.
B)individual firms pay no attention to the behavior of other firms.
C)advertising of one firm has no effect on all other firms.
D)one firm's pricing decision affects all the other firms.

Answer 3

D

Question 4

The "Discount Department Stores" industry is highly concentrated.What does this mean?

A)There are many large stores such as Walmart, Target, Kohl's, in this industry.
B)A few large stores account for a significant portion of industry sales.
C)There is cut-throat competition in this industry because there are no entry barriers.
D)The sales volume in this industry is consistently high.

Question 5

An oligopolistic industry is characterized by all of the following except

A)existence of entry barriers.
B)the possibility of reaping long-run economic profits.
C)firms pursuing aggressive business strategies, independent of rivals' strategies.
D)production of standardized or differentiated products.

Question 6

A four-firm concentration ratio measures

A)the fraction of an industry's sales accounted for by the four largest firms.
B)the production of any four firms in an industry.
C)how the four largest firms became so concentrated.
D)the fraction of employment of the four largest firms in an industry.

Question 7

Marginal revenue for an oligopolist is

A)identical to the demand for the firm's product.
B)difficult to determine because the firm's demand curve is typically unknown.
C)downward sloping beneath the firm's demand curve.
D)horizontal on a price-quantity diagram.

Question 8

A characteristic found only in oligopolies is

A)break-even level of profits.
B)interdependence of firms.
C)independence of firms.
D)products that are slightly different.

Question 9

Oligopolies are difficult to analyze because

A)the firms are so large.
B)demand and cost curves do not exist for these types of industries.
C)how firms respond to a price change by a rival is uncertain.
D)oligopolies are a recent development so economists have not had time to develop models.

Question 10

Which of the following is not part of an oligopolist's business strategy?

A)meeting worker health and safety standards required of all firms
B)deciding the level of total output of a new product
C)determining the amount of advertising a new product needs
D)setting the product's price after considering what rivals will do

Question 11

An oligopoly firm is similar to a monopolistically competitive firm in that

A)both firms face the prisoner's dilemma.
B)both operate in a market in which there are significant entry barriers.
C)both firms have market power.
D)both firms are in industries characterized by an interdependent firm.

Question 12

An oligopolist differs from a perfect competitor in that

A)there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power.
B)firms in an oligopoly do not produce homogeneous products while firms in perfect competition do.
C)the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry.
D)there are no entry barriers in perfect competition but there are entry barriers in oligopoly.

Question 13

Which of the following is not a shortcoming of the concentration ratio as a measure of the extent of competition in an industry?

A)Concentration ratios do not include sales in the United States by foreign firms.
B)Concentration ratios are calculated for the national market, even though the competition in some industries is mainly local.
C)Concentration ratios assign weights to only the four largest firms in an industry.
D)Concentration ratios do not address the fact that competition sometimes exists between firms in different industries.

Question 14

If an industry is made up of five identical firms, the four-firm concentration ratio is

A)5%.
B)20%.
C)80%.
D)100%.

Question 15

An oligopolist's demand curve is

A)identical to that of a perfectly competitive firm.
B)identical to that of a monopolistically competitive firm.
C)vertical on a price-quantity diagram.
D)unknown because a response of firms to price changes by rivals is uncertain.

Question 16

The music streaming industry, where a firm's profitability depends on its interactions with other firms, is an example of

A)perfect competition.
B)monopolistic competition.
C)oligopoly.
D)monopoly.

Question 17

All of the following are examples of oligopolistic markets except

A)the broadcasting industry
B)aircraft manufacture
C)college bookstores
D)seafood restaurant chains

Question 18

The value of the four-firm concentration ratio that many economists consider indicative of the existence of an oligopoly in a particular industry is

A)anything greater than 10 percent.
B)anything greater than 20 percent.
C)anything greater than 30 percent.
D)anything greater than 40 percent.

Question 19

Producing a differentiated product occurs in which of the following industries?

A)oligopoly, monopolistic competition, and perfect competition
B)monopolistic competition only
C)oligopoly only
D)monopolistic competition and oligopoly

Question 20

Producing a homogeneous product occurs in which of the following industries?

A)oligopoly, monopolistic competition, and perfect competition
B)perfect competition only
C)oligopoly and perfect competition
D)monopolistic competition and perfect competition

Question 21

Patents, tariffs, and quotas are all examples of

A)government-imposed barriers.
B)economic regulations that increase efficiency.
C)entry barriers that improve a country's standard of living.
D)entry barriers that protect consumers.

Question 22

Interdependence of firms is most common in

A)monopolistically competitive industries.
B)monopolistic industries.
C)monopolistically competitive and oligopolistic industries.
D)oligopolistic industries.

Question 23

A four-firm concentration ratio measures

A)the extent to which industry sales are concentrated among the four largest firms in the industry.
B)the price elasticity of demand among the four largest firms in an industry.
C)the number of firms in an industry.
D)the price elasticity of demand in an industry.

Question 24

Which of the following is not a characteristic of oligopoly?

A)the ability to influence price
B)a small number of firms
C)low barriers to entry
D)interdependent firms

Question 25

One reason why, in the last four decades, the number of new auto makers in the world has been very small compared to the past is that

A)the automobile cannot be improved upon in any way by new producers.
B)new auto makers cannot obtain necessary inputs to produce new cars.
C)governments restrict who can produce automobiles.
D)new producers cannot match the economies of scale of existing auto makers.

Question 26

Oligopolies exist and do not attract new rivals because

A)of competition.
B)of barriers to entry.
C)the firms keep profits and prices so low that no rivals are attracted.
D)there can be no product differentiation.

Question 27

An example of a barrier to entry is

A)product differentiation.
B)high profits.
C)superior technological knowledge.
D)increasing marginal costs.

Question 28

Which of the following is not a barrier to entry?

A)an inelastic demand curve
B)economies of scale
C)ownership of a key input
D)a patent

Question 29

We can draw demand curves for firms in perfectly competitive and monopolistically competitive industries, but not for oligopoly firms.The reason for this is

A)there are no barriers to entry in perfectly competitive and monopolistically competitive industries. There are high barriers to entry in oligopoly industries.
B)we can assume that the prices charged by perfectly competitive and monopolistically competitive firms have no impact on rival firms. For oligopoly this assumption is unrealistic.
C)that perfectly competitive and monopolistically competitive firms are price takers. Oligopoly firms are price makers.
D)perfectly competitive and monopolistically competitive firms sell standardized products. Oligopoly firms sell differentiated products.

Question 30

Economies of scale can lead to an oligopolistic market structure because

A)if larger firms have lower costs, new small entrants will not be able to produce at the low costs achieved by the big established firms.
B)if economies of scale are insignificant, only a few firms are able to produce at the low costs achieved by the big established firms.
C)a few firms can force rivals to produce at low levels of output.
D)a few firms can use high profits to keep out new entrants.

Question 31

Which of the following is not part of an oligopolist's business strategy?

A)deciding on how to manage relations with suppliers
B)choosing what new technologies to adopt
C)selecting which new markets to enter
D)independently setting a product's price without consideration of its rivals' pricing policies

Question 32

The DeBeers Company of South Africa was able to block competition through

A)economies of scale.
B)ownership of an essential input.
C)government-imposed barriers.
D)differentiating its product.

Question 33

As a measure of competition in an industry, concentration ratios have several flaws.One of these flaws is that concentration ratios

A)assume that all industries have low barriers to entry.
B)assume that a ratio less than 40 percent means an industry is perfectly competitive.
C)assume there are only four firms in an industry.
D)are calculated for the national market, even though competition in some industries is mainly local.

Question 34

The fraction of an industry's sales that are accounted for by the largest firms is called

A)the four-firm competition ratio.
B)the four-firm concentration ratio.
C)the four-firm industry ratio.
D)the four-firm oligopoly ratio.

Question 35

A reason why there is more competition among restaurants than among large discount department stores is that restaurants

A)have to cater to a variety of consumer tastes while department stores do not.
B)unlike department stores, have to abide by government sanitation rules.
C)unlike department stores, do not have significant economies of scale.
D) have more elastic demand for their product compared to department stores.

Question 36

When large firms in oligopoly markets cut their prices

A)rival firms will also cut their prices to avoid losing sales.
B)rival firms will not change their prices because most of their customers have signed contracts that commit them to doing business with the same firms for the life of their contracts.
C)we don't know for sure how rival firms will respond.
D)rival firms will not cut their prices because they fear that the federal government will accuse them of collusion.

Question 37

What do Spotify and Apple have in common?

A)Each achieved a dominant position in its industry because it owned a key input in the production of its product.
B)The industry in which each firm competes is an oligopoly because of government-imposed barriers to entry.
C)Each company was founded in the same state.
D)The profitability of each firm depends on its interactions with other firms.

Question 38

Which of the following is not necessarily a consequence of occupational licensing laws?

A)They restrict competition.
B)Consumers pay higher prices for the services of licensed professions.
C)They result in a higher quality of service.
D)They ensure that licensed professionals meet some minimum qualifications.

Question 39

Oligopoly differs from perfect competition and monopolistic competition in that

A)barriers to entry are lower in oligopoly industries than they are in perfectly competitive and monopolistically competitive industries.
B)demand and marginal revenue curves are more useful for analyzing oligopoly than they are for analyzing perfect competition and monopolistic competition.
C)because oligopoly firms often react when other firms in their industry change their prices, it is difficult to know what the oligopolist's demand curve looks like.
D)the concentration ratios of oligopoly industries are lower than they are for perfectly competitive and monopolistically competitive industries.

Question 40

Which of the following is important in determining the extent of competition in an industry?

A)the minimum level of short-run average total costs of production
B)the minimum efficient scale of production relative to market demand
C)whether or not the industry product is differentiated or standardized
D)the level of market demand for the industry's product

Question 41

Of all barriers to entry, the most important are those that are due to

A)ownership of a key input.
B)economies of scale.
C)government-imposed barriers.
D)the Herfindahl-Hirschman Index.

Question 42

An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.This entry barrier is known as

A)a copyright.
B)a patent.
C)an exclusive marketing agreement.
D)a tariff.

Question 43

Economies of scale will create a barrier to entry in an oligopoly industry when

A)a firm's minimum efficient scale occurs where long-run average total costs are constant.
B)the typical firm's long-run average total cost curve reaches a minimum at a level of output that is a large fraction of total industry sales.
C)the typical firm's long-run average total cost curve reaches a minimum at a level of output that is a small fraction of total industry sales.
D)the industry's four-firm concentration ratio is less than 40 percent.

Question 44

Because of the shortcomings of concentration ratios, some economists prefer another measure of competition called

A)the Competition Index.
B)the Marginal Revenue-Marginal Cost Index.
C)the Economic Profit Index.
D)the Herfindahl-Hirschman Index.

Question 45

The profit-maximizing level of output and the profit-maximizing price for an oligopolist cannot be calculated when we don't know

A)what the concentration ratio for the oligopolist's industry is.
B)what the minimum efficient scale in the oligopolist's industry is.
C)the demand curve and the marginal revenue curve of the oligopolist.
D)the type of barrier to entry that exists in the oligopolist's industry.

Question 46

A patent is an example of

A)how ownership of a key input creates a barrier to entry.
B)a government-imposed barrier to entry.
C)occupational licensing.
D)how market failure can lead to oligopoly.

Question 47

If economies of scale are relatively unimportant in an industry, the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales.The industry will be ________.

A)large; competitive
B)large; an oligopoly
C)small; competitive
D)small; an oligopoly

Question 48

The De Beers Company blocked competition

A)in the diamond market by controlling the output of most of the world's diamond mines.
B)by controlling the supply of most of the world's high-quality bauxite, the mineral used to produce aluminum.
C)in the market for fresh and frozen cranberries because it controls about 80 percent of the cranberry crop.
D)because it has lower production costs than other department stores due to economies of scale.

Question 49

Which industry has the highest four-firm concentration ratio?

A)discount department stores
B)college bookstores
C)retail gasoline stations
D)cigarettes

Question 50

The justification for occupational licensing laws is that they protect the public from incompetent practitioners (for example, lawyers and medical doctors), but the laws also result in

A)higher prices and restrictions on the number of people who can enter the professions affected by the laws.
B)economies of scale.
C)ownership of a key input.
D)an increase in the amount of output required to achieve minimum efficient scale.

Question 51

Doctors and lawyers in every state need a license to practice.This is an example of

A)consumer protection laws.
B)consumer advocacy.
C)occupational licensing.
D)ownership of a key input.

Question 52

If economies of scale are relatively important in an industry, the typical firm's

A)marginal cost curve will decline continuously until it reaches minimum efficient scale.
B)long-run average cost curve will begin rising before it reaches minimum efficient scale.
C)long-run average cost curve will reach a minimum at a level of output that leaves room for a large number of firms to enter the industry.
D)long-run average cost curve will reach a minimum at a level of output that is a relatively large fraction of total industry sales.

Question 53

For many years the Aluminum Company of America (Alcoa)controlled most of the world's supply of high quality bauxite, the ore needed to produce aluminum.What type of entry barrier was responsible for Alcoa's position in the aluminum industry?

A)ownership of a key input
B)a government-imposed barrier
C)a patent on the manufacture of aluminum
D)economies of scale

Question 54

Hewlett-Packard will not raise the prices of its personal computers without first considering how Dell might respond.This is evidence of

A)interdependence.
B)collusion.
C)cutthroat competition.
D)price fixing.

Question 55

A patent is a government-imposed entry barrier because

A)it allows a firm to achieve economies of scale.
B)it is a key input owned by the firm that is granted the patent.
C)it limits the quantity of a good that can be imported into a country.
D)it gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.

Question 56

Which government agency publishes four-firm concentration ratios?

A)the Economic Council
B)the Federal Reserve System
C)the U.S. Bureau of the Census
D)the Treasury Department

Question 57

The people firms hire to attempt to convince state legislators and members of Congress to pass laws that are favorable to the economic interests of the firms are called

A)economic advisors.
B)legislative assistants.
C)government bureaucrats.
D)lobbyists.

Question 58

Which of the following is not an example of a government-imposed entry barrier?

A)patents
B)occupational licensing
C)barriers to international trade
D)antitrust legislation

Question 59

Ocean Spray is considered to be an oligopoly firm because, until the 1990s, it faced little competition in the market for fresh and frozen cranberries.Why?

A)Ocean Spray had a patent on the production of cranberries that gave the company the exclusive right to market its product for 20 years. The 20-year period ended in the 1990s.
B)Until the 1990s, Ocean Spray controlled almost the entire supply of cranberries.
C)Ocean Spray was able to achieve significant economies of scale in the production of cranberries. Beginning in the 1990s, other firms finally achieved economies of scale as well, but Ocean Spray still controls about 80 percent of the cranberry market.
D)The federal government imposed a high tariff on cranberry imports. During the 1990s the tariff was eliminated, but Ocean Spray still controls about 80 percent of the cranberry market.

Question 60

Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6,000 units of output.In this case, this industry would be

A)perfectly competitive if the market quantity demanded is 20,000 units.
B)monopolistically competitive if the market quantity demanded is 12,000 units.
C)an oligopoly if the market quantity demanded is 18,000 units.
D)an oligopoly if the four-firm concentration ratio is more than 10 percent.

Question 61

An oligopolistic industry is characterized by a few large firms acting independently.

Question 62

How does the demand curve for an oligopoly firm differ from the demand curves for firms in competitive market structures?

Question 63

What is meant by the term "government-imposed barrier to entry"? Why would a government be willing to impose barriers to entering an industry?

Question 64

In an oligopoly, minimum efficient scale is likely to occur at a level of output that is a large fraction of industry sales.

Question 65

The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.

Question 66

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

Question 67

Because of the flaws of the concentration ratio as a measure of the extent of competition in an industry, some economists prefer another measure of competition, the Herfindahl-Hirschman Index.

Question 68

The four-firm concentration ratio of the aircraft industry is over 80 percent.Most economists would consider this industry an oligopoly.

Question 69

In 1976 New Jersey voters passed a referendum to legalize gambling.Several gambling casinos opened in Atlantic City beginning in 1978 and were initially very profitable, attracting people from the Mid-Atlantic and Northeastern states.Entrepreneurs in these states were unable to compete with the Atlantic City casinos because casino gambling was illegal in their states.For these entrepreneurs in the other states, the barrier to entry they were facing was

A)due to economies of scale.
B)due to ownership of a key resource.
C)government imposed.
D)self imposed.

Question 70

A consequence of the quota that has been imposed on the importation of sugar into the United States is

A)consumers are protected from eating unsafe products made from cheap imported sugar.
B)competition in the U.S. sugar market is reduced.
C)the cost of producing cereal, chocolate, and candy products in the United States is reduced.
D)the market for sugar in the United States has become monopolistically competitive rather than oligopolistic.

Question 71

If firms are protected by substantial barriers to entry, short-run profits can turn into long-run profits.

Question 72

An entry barrier exists when firms in an industry charge the lowest price possible for their products.

Question 73

Most economists are concerned about entry barriers.Why is this so important to them?

Question 74

The most important barrier to entry is economies of scale.

Question 75

Occupational licensing is an example of an entry barrier that improves a country's standard of living.

Question 76

As several eastern states began to legalize casino gambling, the revenues of casinos in Atlantic City began to ________ and their profits ________.

A)rise; increased
B)rise; decreased
C)fall; decreased
D)fall; increased

Question 77

What is an oligopoly? Give two examples of oligopolistic industries in the United States.

Question 78

Firms in an oligopoly are said to be interdependent.What does this mean?

Question 79

If economies of scale are significant, the typical firm will not reach the minimum point on its long-run average cost curve until it has produced a large fraction of industry sales.

Question 80

The breakfast cereal industry has a four-firm concentration ratio of 80 percent.Is this enough information to classify the industry as an oligopoly? Is a high concentration ratio evidence that an industry is not competitive?