Factors affecting the ability of oligopolistic firms

Question

Question 1: Barriers to entry in oligopolies may arise from

• diseconomies of scale.
• diminishing returns.
• economies of scale.
• patent expirations.

Question 2: When participants in a game take actions that are consistent with Nash equilibrium,

• no single participant has an incentive to change its action.
• each participant has chosen the best action possible, given what the others have chosen.
• no other set of actions could make ALL participants better off.
• both a and b.

Question 3: If significant economies of scale exist in an industry, then

• a firm that is large is able to produce at a lower unit cost than can a small firm.
• a firm that is large will have to charge a higher price than will a small firm.
• entry to that industry will be easy.
• firms must differentiate their products to earn economic profits.

Question 4: Which of the following statements is true about oligopolies?

• A firm must lower price in order to sell more output.
• Each firm faces a demand curve that depends on how the firm’s rivals behave.
• A few firms account for a large portion of industry sales.
• All of the above              

Question 5: Factors that affect the ability of oligopolistic firms to successfully engage in cooperation include

• number and size distribution of sellers.
• size and frequency of orders.
• extent of product heterogeneity.
• all of the above.             

Question 6: In game theory, a dominant strategy is defined as

• a strategy used by a large firm to compete against smaller firms.
• a strategy followed by the price leader.
• a strategy involving a high risk but also a high return.
• a strategy that leads to the best outcome no matter what a rival does.

Question 7: The kinked demand curve model was developed to help explain

• fluctuations of prices in pure competition.
• rigidities observed in prices in oligopolistic industries.
• fluctuations observed in prices in oligopolistic industries.
• none of the above.

Question 8: Mutual interdependence, a characteristic of oligopoly, arises because

• the products of firms in the industry are homogeneous.
• the products of firms in the industry are differentiated.
• a small number of firms control a large proportion of industry output or sales.
• the demand curves of firms in the industry are kinked at the prevailing price.

Question 9: A(n) ____ is characterized by a relatively small number of firms controlling most of the sales or production in an industry.

• monopoly
• syndicate
• cooperative
• oligopoly

Question 10: In markets characterized by oligopoly

• expectations on how rivals will respond are important considerations when a firm decides to change the price it charges its customers
• no firm controls more than a 10% share of the market
• products or services may be branded or unbranded
• both a and c               

Question 11: If a cartel seeks to maximize profits, the market share (or quota) for each firm should be set at a level such that the ____ of all firms is identical.

• average total cost
• average profit
• marginal profit
• marginal cost

Question 12: Under dominant firm price leadership

• the follower firms will set their own prices rather than follow the price it sets.
• the dominant firm accounts for the supply curve of follower firms when it determines its profit maximizing price.
• the follower firms are restricted in the amount they can supply.
• the dominant firm can ignore the presence of follower firms in the market.

Question 13: The largest problem faced in cartel pricing agreements, such as OPEC, is:

• detecting violations of quota barriers by cartel participants.
• arriving at a profit-maximizing price.
• attracting participants in the cartel.
• none of the above.

Question 14: The household appliance, automobile, and automobile tire industries are examples of:

• homogeneous oligopoly.
• pure oligopoly.
• pure monopoly.
• differentiated oligopoly.

Question 15: The profits of a firm in an oligopoly are interdependent with those of other firms in the industry because

• there are few firms in the market, so the actions of each can affect the demand for the other firms’ profits.
• the product is differentiated.
• industry sales are large.
• all of the above.