Deck 24: Oligopoly

Question 1

Which one of these firms would be an oligopolist?

A)Proctor & Gamble
B)A family farm
C)A McDonald's restaurant in Manhattan
D)The only dentist in Hendry County,Florida

Answer 1

A

Question 2

The greater are the barriers to entry into an industry

A)the more elastic will be the demand curves for existing firms.
B)the more likely that existing firms will enjoy large profits in the long run.
C)the lower will be short-run profits.
D)the lower will be the average cost curves of existing firms.

Answer 2

B

Question 3

_____ is (are)legal in the United States.

A)Covert collusion
B)Cut throat competition
C)Cartels
D)None of these choices are true.

Answer 3

B

Question 4

If the market share of the largest firm in an industry is 40 percent,then theoretically,the highest possible Herfindahl-Hirschman Index for this industry would be

A)1,600.
B)3,600.
C)4,000.
D)6,400.

Question 5

Which statement is true?

A)Most oligopolies in the United States take the form of a cartel.
B)Covert collusion has probably never taken place among American oligopolists.
C)The cartel and the cut throat competitor are on opposite ends of the competitive spectrum.
D)None of these statements are true.

Question 6

Which statement is true?

A)Collusion is most likely in industries with high concentration ratios.
B)Collusion is most likely in industries with low concentration ratios.
C)There is no relationship between the likelihood of collusion and the size of the concentration ratio.

Question 7

A highly oligopolized industry would have a ______ Herfindahl-Hirschman Index and a ______ concentration ratio.

A)high;high
B)low;low
C)high;low
D)low;high

Question 8

Even with the big three textbook publishers (McGraw-Hill,Pearson,and Sage-Reuters)having a large market share,the textbook industry is still considered a ____________ model because of the high level of competition that exists.

A)cartel
B)cut throat competitor
C)open collusion
D)price leadership

Question 9

Which statement is false?

A)Growing automobile imports have made that industry's concentration ratio less relevant.
B)The Japanese automobile transplants have reduced the concentration ratio in that industry.
C)Most cars made in the United States are made by General Motors,Ford,and Chrysler.
D)None of these statements are false.

Question 10

The tobacco,healthcare wholesale,and beverage industries all have a concentration ratio of over ____.

A)10
B)50
C)80
D)100

Question 11

The market structure in which the behavior of any given firm depends on the behavior of the other firms in the industry is

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

Question 12

The concentration ratio is the percentage of ___ earned by the ___ largest firms in the industry.

A)sales;four
B)sales;ten
C)profits;four
D)profits;ten

Question 13

Which statement is false?

A)Cigarettes,motor vehicles,and pipelines are industries with high concentration ratios.
B)Oligopolized industries have higher concentration ratios than monopolistic competitors.
C)The Electric Machinery Conspiracy case involved covert collusion.
D)None of these statements are false.

Question 14

The demand curve facing an oligopoly will be less elastic

A)the larger its share of the market and the more differentiated the product.
B)the smaller its share of the market and the more differentiated the product.
C)the larger its share of the market and the less differentiated the product.
D)the smaller its share of the market and the less differentiated the product.

Question 15

$~~~~~~~\text { Industry } X \quad~~~~~~~~~~~~~ \text { Industry } Y \quad~~~~~~~~~~~ \text { Industry } Z$
$\begin{array}{cccccc}&\text { Market } && \text { Market } && \text { Market }\\\text { Firm } & \text { Share (\%) } & \text { Firm } & \text { Share (\%) } & \text { Firm } & \text { Share (\%) } \\1 & 60 & 1 & 40 & 1 & 50 \\2 & 10 & 2 & 25 & 2 & 10 \\3 & 10 & 3 & 15 & 3 & 10 \\4 & 5 & 4 & 10 & 4 & 10 \\5 & 5 & 5 & 5 & 5 & 10 \\6 & 5 & 6 & 5 & 6 & 10\\7&5\end{array}$

-The highest concentration ratio

A)is in Industry X.
B)is in Industry Y.
C)is in Industry Z.
D)cannot be determineD.

Question 16

Which statement is false?

A)Oligopolies are illegal in most states.
B)Most oligopolies engage in outright collusion.
C)Ford Motor Company is an oligopoly.
D)None of these statements are false.

Question 17

Oligopoly is characterized by

A)identical products only.
B)differentiated products only.
C)high barriers to entry.
D)many firms.

Question 18

The temptation for firms to collude in setting prices

A)is especially strong for perfect competitors because they have the most to gain from a restriction of output.
B)does not exist for monopolistic competitors because their products are identical.
C)is especially strong for undifferentiated oligopolists because the absence of product differentiation shuts off an important avenue of non-price competition.
D)is especially strong for vertically integrated oligopolists because they are producing beyond the point at which marginal revenue equals marginal cost.

Question 19

A Herfindahl-Hirschman Index of 10,000 would mean there is (are)how many firm(s)in the industry?

A)1
B)10
C)1,000
D)10,000

Question 20

The closer the industry concentration ratio is to 100,the more likely it is that

A)there are a reasonably large number of medium-sized firms.
B)this is an industry approaching perfect competition.
C)there is a small number of large firms.
D)price competition is being practiceD.

Question 21

Oligopolists have more control over prices than monopolistic competitors because

A)they can legally collude whereas monopolistic competitors may not.
B)their prices are always set by the government.
C)with fewer competitors,they are able to monitor and determine their own prices much easier.
D)since an oligopolist is the only competitor in the market,setting prices is no problem.

Question 22

Each of the following is an oligopoly except

A)General Motors.
B)Hertz (car rentals).
C)Phillip Morris (cigarettes).
D)Microsoft (computer operating systems).

Question 23

A cartel is

A)generally legal in the United States.
B)a group of firms acting under collusion to control output and maximize group profits.
C)similar to a monopolistically competitive industry.
D)a group of firms acting like a perfectly competitive industry.

Question 24

Which of the following kinds of markets most closely resembles a monopoly market in its price and output level?

A)A market in which firms are engaged in a price conspiracy.
B)A monopolistically competitive market.
C)An oligopoly market.
D)None of the choices will be similar in outcome.

Question 25

Which statement is true?

A)Industry X has a higher Herfindahl-Hirschman Index than Industry Y.
B)Industry Y has a higher Herfindahl-Hirschman Index than Industry Z.
C)Industry Z has a higher Herfindahl-Hirschman Index than Industry X.
D)Industries X,Y,and Z have the same Herfindahl-Hirschman Index.

Question 26

Every oligopolist

A)is part of a cartel.
B)colludes openly.
C)can ignore the actions of her competitors.
D)takes into account the actions of her competitors.

Question 27

If the Herfindahl-Hirschman Index for an industry is 100,then there must be ____ firms in that industry.

A)1
B)10
C)100
D)1,000
E)10,000

Question 28

Which statement is true?

A)Industry X is more concentrated than Industry Y.
B)Industry X is more concentrated than Industry Z.
C)Industry Z is more concentrated than Industry X.
D)Industries X,Y,and Z have the same concentration ratio.

Question 29

Oligopolies that produce identical products such as steel have

A)no control over the price of their product because of the availability of perfect substitutes.
B)no control over the price of their product because of the large number of buyers in the market.
C)some control over the price of their product because each firm sells a substantial share of the market.
D)some control over the price of their product because of the small number of buyers in the market.

Question 30

The strong interdependence of oligopolistic firms is shown by

A)their willingness to change prices frequently.
B)their reluctance to advertise.
C)their inability to form a price conspiracy.
D)the vulnerability of their sales to the actions of their rivals.

Question 31

If the market share of the largest firm in the dental insurance field were 20%,then theoretically the highest possible Herfindahl-Hirschman Index in this field would be

A)400.
B)1,000.
C)2,000.
D)4,000.
E)10,000.

Question 32

Which of the following is a legal way to reduce the price problems oligopolies face?

A)Collusion
B)Formation of cartels
C)Price leadership
D)Merging to become monopolists

Question 33

The largest firm in Industry Q has a 50% market share and the next five firms each has a market share of 10%.The largest firm in Industry R has a 40% market share and the next three firms each has a market share of 20%.Which statement is true?

A)Industry Q has a higher Herfindahl-Hirschman Index than Industry R.
B)Industry R has a higher Herfindahl-Hirschman Index than Industry Q.
C)The HHIs of these industries are equal.
D)None of these statements are true.

Question 34

Which statement is true?

A)Most firms in the United States are oligopolies.
B)Oligopoly is illegal in the United States.
C)Product differentiation is the most important characteristic of oligopoly.
D)Big business or industry in the United States typically refers to oligopolies.

Question 35

An example of an oligopoly market would be one in which ___ firm(s)sell(s)____% of the output.

A)1;95
B)3;10
C)4;80
D)250;35
E)1,000;99

Question 36

Which of the following represents an illegal control of prices?

A)Colluding
B)Following the leader without explicit agreements to do so
C)Following the price determined by an analysis of supply and demand
D)Accepting a government mandated price without contesting it

Question 37

Oligopolies are industries containing only a few large firms

A)whose decisions are consciously linked.
B)and each faces a horizontal demand curve.
C)that can ignore other firms' reactions as they price,produce,and market their goods.
D)but each firm is small relative to the market.
E)that maximize output rather than profits.

Question 38

Which of the following would hold true for all oligopolies?

A)Oligopolies sell a differentiated product
B)Oligopolies sell a large share of the market
C)Oligopolies face a horizontal demand curve
D)Oligopolies sell a product for which there are no close substitutes

Question 39

An oligopolist must be very sensitive to its rivals because

A)there are so many that their actions are unpredictable.
B)the government doesn't regulate oligopolists when it comes to colluding on prices and quantities.
C)there are so few that their behavior may well have consequences for the firm.
D)oligopolists try not to use non-price competition since it seems to be unfair to the consumer.
E)they have little else to do.

Question 40

$~~~~~~~\text { Industry } X \quad~~~~~~~~~~~~~ \text { Industry } Y \quad~~~~~~~~~~~ \text { Industry } Z$
$\begin{array}{cccccc}&\text { Market } && \text { Market } && \text { Market }\\\text { Firm } & \text { Share (\%) } & \text { Firm } & \text { Share (\%) } & \text { Firm } & \text { Share (\%) } \\1 & 60 & 1 & 40 & 1 & 50 \\2 & 10 & 2 & 25 & 2 & 10 \\3 & 10 & 3 & 15 & 3 & 10 \\4 & 5 & 4 & 10 & 4 & 10 \\5 & 5 & 5 & 5 & 5 & 10 \\6 & 5 & 6 & 5 & 6 & 10\\7&5\end{array}$

-The highest Herfindahl-Hirschman Index

A)is in Industry X.
B)is in Industry Y.
C)is in Industry Z.
D)cannot be determineD.

Question 41

Which is the most accurate statement?

A)The most important aspect of oligopoly is product differentiation.
B)An oligopolistic industry cannot have more than five firms.
C)There are virtually no oligopolies in the U.S.
D)There are a whole range of oligopolistic models,from a cartel to cutthroat competition.

Question 42

If the market share of the largest firm in an industry is 50%,then theoretically,the highest possible Herfindahl-Hirschman Index for this industry would be

A)2,500.
B)5,000.
C)10,000.
D)25,000.
E)50,000.

Question 43

Theoretically,what is the highest possible Herfindahl Index?

A)100
B)1,000
C)10,000
D)100,000

Question 44

An industry with four firms each having a 25% market share would have a Herfindahl-Hirschman Index (HHI)of

A)25.
B)100.
C)250.
D)1,000.
E)2,500.

Question 45

Statement I.Collusion is most likely to succeed when there are many firms in the industry.
Statement II.Firms in an industry that divide a market by territory make price and output decisions similar to the way a monopolist would operate.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 46

The most important fact about an oligopolized industry is that

A)there are several very large firms.
B)there are a few firms.
C)the firms produce a differentiated product.
D)the firms produce an identical product.

Question 47

Which statement is the most accurate?

A)When we talk about big business in the U.S. ,we're talking about oligopoly.
B)All oligopolists are very large firms.
C)Oligopolists produce at the minimum points of their average total cost curves.
D)It is impossible to lose money under oligopoly.

Question 48

$~~~~~{ \text { Industry } \mathbf { X } } ~~~~~~~~~~~~~ { \text { Industry } \mathbf { Y } } \\\begin{array} { c c c c } & \text { Market }& & { \text { Market } } \\\text { Firm } &\text { Share } & \text { Firm } & \text { Share } \\1 & .40 & 1 & .30 \\2 & .20 & 2 & .30 \\3 & .10 & 3 & .30 \\4 & .10 & 4 & .05 \\5 & .10 & 5 & .03 \\6 & .10 & 6 & .02\end{array}$

-Using concentration ratios,which is the more concentrated industry?

A)Industry X with a concentration ratio of 80.
B)Industry Y with a concentration ratio of 95.
C)Both industries have the same concentration ratio of 100.
D)There is no way to determine which industry has the higher concentration ratio.

Question 49

$~~~~~{ \text { Industry } \mathbf { X } } ~~~~~~~~~~~~~ { \text { Industry } \mathbf { Y } } \\\begin{array} { c c c c } & \text { Market }& & { \text { Market } } \\\text { Firm } &\text { Share } & \text { Firm } & \text { Share } \\1 & .40 & 1 & .30 \\2 & .20 & 2 & .30 \\3 & .10 & 3 & .30 \\4 & .10 & 4 & .05 \\5 & .10 & 5 & .03 \\6 & .10 & 6 & .02\end{array}$

-Which statement is true?

A)Industry Y has a Herfindahl-Hirschman Index of 95.
B)Industry Y has an H-H-I of 100.
C)Industry Y has an H-H-I of 1,000.
D)Industry Y has an H-H-I of 2,738.

Question 50

The largest firm in Industry J has a 90% market share,while the remaining ten firms each has a one percent share.The largest firm in industry K has a 80% market share,while the other two firms each has a 10% share.Which statement is true?

A)Industry J has a higher concentration ratio than industry K.
B)Industry K has a higher concentration ratio than industry J.
C)The industries have the same concentration ratio.
D)None of these statements are true.

Question 51

Which statement is true?

A)The higher the concentration ratio,the higher the degree of oligopolization.
B)The lower the concentration ratio,the higher the degree of oligopolization.
C)The concentration ratio remains constant as the degree of oligopolization rises.
D)There is no relationship between the concentration ratio and the degree of oligopolization.

Question 52

$~~~~~{ \text { Industry } \mathbf { X } } ~~~~~~~~~~~~~ { \text { Industry } \mathbf { Y } } \\\begin{array} { c c c c } & \text { Market }& & { \text { Market } } \\\text { Firm } &\text { Share } & \text { Firm } & \text { Share } \\1 & .40 & 1 & .30 \\2 & .20 & 2 & .30 \\3 & .10 & 3 & .30 \\4 & .10 & 4 & .05 \\5 & .10 & 5 & .03 \\6 & .10 & 6 & .02\end{array}$

-Which statement is true?

A)Industry X has a Herfindahl-Hirschman Index of 2400.
B)Industry X has an H-H-I of 100.
C)Industry X has an H-H-I of 80.
D)Industry X has an H-H-I of 1,000.

Question 53

Statement I.The automobile industry is an oligopoly.
Statement II.The cigarette industry is an oligopoly.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 54

Which is the most accurate statement?

A)A concentration ratio of 100 would mean that just one firm has 100% of that industry's sales.
B)No industry in the U.S.has a concentration ratio of 100.
C)Food services like McDonald's and Wendy's have a concentration ratio of less than 50.
D)The lower the concentration ratio,the higher the degree of oligopolization.

Question 55

At one end of the competitive spectrum is cutthroat competition.At the other end is (the)

A)cartel.
B)open collusion.
C)covert collusion.
D)price leadership.
E)weak competition.

Question 56

As foreign imports become a greater percentage of sales in oligopolized industries,the concentration ratio

A)becomes more accurate as a measure of concentration.
B)becomes less accurate as a measure of concentration.
C)continues at the same level of accuracy.

Question 57

A concentration ratio of 100 would imply that the industry has __________.

A)one firm
B)no more than four firms
C)at least four firms
D)more than four firms
E)100 firms

Question 58

Corporate concentration can be measured by

A)only the concentration ratio.
B)only the Herfindahl-Hirschman index.
C)both the concentration ratio and the Herfindahl-Hirschman index.
D)neither the concentration ratio nor the Herfindahl index.

Question 59

$~~~~~{ \text { Industry } \mathbf { X } } ~~~~~~~~~~~~~ { \text { Industry } \mathbf { Y } } \\\begin{array} { c c c c } & \text { Market }& & { \text { Market } } \\\text { Firm } &\text { Share } & \text { Firm } & \text { Share } \\1 & .40 & 1 & .30 \\2 & .20 & 2 & .30 \\3 & .10 & 3 & .30 \\4 & .10 & 4 & .05 \\5 & .10 & 5 & .03 \\6 & .10 & 6 & .02\end{array}$

-According to the Herfindahl-Hirschman Index,which is the more concentrated industry?

A)Industry X with an index of 2,400.
B)Industry Y with an index of 2,738.
C)Both industries have the same indices.
D)There is no way to determine the Herfindahl Indices of these industries with this data.

Question 60

Statement I.Most cars sold in the United States were made in Japan or assembled in the United States by Japanese-owned companies.
Statement II.Imports of fuel-efficient cars made in Japan reduced the concentration ratio in the United States that was dominated by G.M. ,Ford,and Chrysler.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 61

The kinked demand curve depicts

A)cut-throat competition.
B)cartels.
C)collusive oligopoly.
D)price leadership.

Question 62

Sticky prices in oligopoly markets are

A)represented by the kinked demand curve model.
B)typical of cartels.
C)most common for highly differentiated products.
D)a result of price discrimination.

Question 63

This firm's its most efficient output level it would be

A)OJ.
B)OK.
C)OL.
D)OM.

Question 64

Prices are rigid at the kink of an oligopolist's demand curve because

A)changes in fixed costs have no impact on the profit-maximizing price.
B)changes in marginal cost in the discontinuous section of the marginal revenue curve do not alter the profit-maximizing price and output.
C)changes in supply are infrequent.
D)changes in average cost in the gapped section of the marginal revenue curve alter the profit-maximizing price and output.

Question 65

Assume that four oligopolists begin with a common price of p = $20.One of the firms lowers its price to $17.What are the other three firms likely to do,based on the theory of the kinked demand curve?

A)Lose $3 per unit
B)Make $3 more per unit than the firm that lowered price
C)Raise their prices above $20 to make up for the lost volume
D)Lower their prices to $17 so that they won't lose business to their competitor

Question 66

The most competitive industry is one that has

A)price leadership.
B)open collusion.
C)covert collusion.
D)a cartel.

Question 67

Which statement is true?

A)Industry X has a higher Herfindahl-Hirschman index than Industry Y.
B)Industry Y has a higher Herfindahl-Hirschman index than Industry Z.
C)Industry Z has a higher Herfindahl-Hirschman index than Industry X.
D)Industries X,Y,and Z have the same Herfindahl-Hirschman index.

Question 68

Assume that five oligopolists begin with a common price of p = $15.One of the firms raises its price to $18.What are the other four firms likely to do,based on the theory of the kinked demand curve?

A)Raise their prices also,but by less than $3
B)Raise their prices by $3
C)Keep their prices the same
D)Lower their prices by less than $3
E)Lower their prices by $3

Question 69

If each firm in an oligopolistic market matches price decreases but does not match price increases

A)prices become flexible.
B)prices become rigid where the marginal revenue and average cost curves intersect.
C)price wars ensue,and economic profits fall to zero.
D)prices become rigid at the prevailing market price.

Question 70

A monopoly would have a concentration ratio of

A)1.
B)4.
C)100.
D)1,000.

Question 71

This oligopolist is a ___.

A)cut-throat competitor making a profit
B)cut-throat competitor taking a loss
C)colluder making a profit
D)colluder taking a loss

Question 72

The higher the degree of oligopolization

A)the greater the likelihood of collusion.
B)the smaller the likelihood of collusion.
C)the greater the likelihood of product differentiation.
D)the greater the likelihood of cut-throat competition.

Question 73

Statement I.Most of American industry is engaged in cutthroat competition.
Statement II.The cigarette and auto industries have high concentration ratios.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 74

Which statement is true?

A)Industry X is more concentrated than Industry Y.
B)Industry Y is more concentrated than Industry Z.
C)Industry Z is more concentrated than Industry X.
D)Industries X,Y,and Z have the same concentration ratio.

Question 75

$~~~~~~~\text { Industry } X ~~~~~~~~~~~~~~~~~~~ \text { Industry } Y ~~~~~~~~~~~~~~~~ \text { Industry } Z\\\begin{array}{cccccc}&\text { Market } && \text { Market } && \text { Market }\\\text { Firm } & \text { Share (\%) } & \text { Firm } & \text { Share (\%) } & \text { Firm } & \text { Share (\%) } \\1 & 25 & 1 & 30 & 1 & 30 \\2 & 20 & 2 & 20 & 2 & 30 \\3 & 15 & 3 & 15 & 3 & 15 \\4 & 10 & 4 & 15 & 4 & 10 \\5 & 10 & 5 & 10 & 5 & 10 \\6 & 10 & 6 & 5 & 6 & 5 \\7 & 10 & 7 & 5 & &\end{array}$

-The highest concentration ratio

A)is in Industry X.
B)is in Industry Y.
C)is in Industry Z.
D)cannot be determined.

Question 76

If your competitors will follow your price cuts and ignore price hikes,your firm

A)faces perfect competition.
B)faces a kinked demand curve.
C)is the marginal price leader of an oligopoly.
D)must be the most efficient firm in the industry.

Question 77

This profit-maximizing firm charges a price of

A)OV.
B)OW.
C)OX.
D)OY.
E)OZ.

Question 78

$~~~~~~~\text { Industry } X ~~~~~~~~~~~~~~~~~~~ \text { Industry } Y ~~~~~~~~~~~~~~~~ \text { Industry } Z\\\begin{array}{cccccc}&\text { Market } && \text { Market } && \text { Market }\\\text { Firm } & \text { Share (\%) } & \text { Firm } & \text { Share (\%) } & \text { Firm } & \text { Share (\%) } \\1 & 25 & 1 & 30 & 1 & 30 \\2 & 20 & 2 & 20 & 2 & 30 \\3 & 15 & 3 & 15 & 3 & 15 \\4 & 10 & 4 & 15 & 4 & 10 \\5 & 10 & 5 & 10 & 5 & 10 \\6 & 10 & 6 & 5 & 6 & 5 \\7 & 10 & 7 & 5 & &\end{array}$

-The highest Herfindahl-Hirschman index

A)is in Industry X.
B)is in Industry Y.
C)is in Industry Z.
D)cannot be determined.

Question 79

Which statement is false?

A)The kinked demand curve represents oligopoly with collusion.
B)The kinked demand curve is associated with sticky prices.
C)Administered prices occur more frequently under oligopoly than under other forms of competition.
D)None of these statements are false.

Question 80

This profit-maximizing firm's output is

A)OJ.
B)OK.
C)OL.
D)OM.