Oligopoly (and Monopolisitic Competition)


1. Although a monopolistically competitive firm in long-run equilibrium is producing output at an average total cost higher than the minimum, economists are not greatly concerned about this inefficiency because:
A. additional firms may enter the industry and force price down.
B. consumers gain satisfaction from having a wide variety of products available.
C. consumers would unquestionably benefit from having fewer products produced more cheaply.
D. advertising may allow a firm to expand output.
E. firms are making zero economic profit.
2. In the long run, the profit-maximizing, monopolistically competitive firm fails to produce a level of output where:
A. MR = MC.
B. P = ATC.
C. P > MC.
D. MSB > MSC.
E. economic profits are realized.
3. Suppose your father, who is a potato farmer in Idaho, has decided that he grows the "best, damn potatoes in the world." In other words, he is claiming that his potatoes are different than potatoes grown by other farmers. If his claim is true (and he can convince consumers of this), then:
A. he can make profits in the long-run.
B. he can make profits in the short-run by increasing price and quantity.
C. he faces a downward sloping demand curve and his quantity decisions will have an effect on market price for his potatoes.
D. while he may make a profit in the short-run, in the long-run competition will still force his profits to zero.
E. c and d.
4. The demand curve that confronts a monopolistically competitive firms is:
A. less elastic than the demand curve that confronts the industry.
B. perfectly inelastic because of numerous substitutes for the firm's product.
C. less elastic than the demand curve facing a perfectly competitive firm.
D. horizontal, showing that MR = P.
E. perfectly elastic in the long-run, driving economic profits to zero.
5. In a monopolistically competitive industry, a firm in long-run equilibrium will be operating where price is:
A. greater than average total cost (ATC) but equal to marginal cost (MC).
B. greater than ATC and greater than MC.
C. equal to both ATC and MC.
D. equal to both marginal revenue and MC.
E. greater than MC but equal to ATC.
6. The important difference between the characteristics of perfectly competitive and monopolistically competitive markets is that firms in monopolistically competitive industries:
A. have a downward sloping and relatively inelastic demand (as compared to market demand.)
B. do not try to maximize profits by producing where MR = MC.
C. sell similar but not identical products.
D. have substantial barriers to deter the entry of competing firms while perfectly competitive firms do not.
E. are relatively few in number.
7. All of the following are methods that firms in an oligopolistic industry may use to create entry barriers except:
A. the proliferation of brands.
B. investing in advertising so that entering firms face a high cost of entering the market.
C. limit pricing.
D. substantial "natural" economies of scale in production.
E. all of the above are methods firms may use to deter entry.
8. A member of a cartel would be most likely to increase its profits by:
A. cheating on cartel output restrictions by under cutting the prices of other cartel members (assuming that it did not get caught cheating).
B. setting its price above that of other cartel members.
C. pursuing an aggressive non-price promotions policy.
D. restricting its output below the cartel-set production quota in order to drive price up.
E. insisting that the cartel continually raise the price it charges.
9. One of the identifying characteristics of oligopoly is sticky prices. When economists state that prices are sticky with respect to oligopolistic industries, they mean that:
A. prices are set by the market rather than the firm or, in other words, the firm is a price-taker rather than a price-setter.
B. the oligopolist sets product prices so that profits are maximized at all times.
C. prices are less responsive to changes in demand in oligopolies than in perfectly competitive markets.
D. oligopolies practice predatory pricing, so competition in the market is reduced.
E. prices are less responsive to changes in costs, either input prices or technology, than in perfectly competitive markets.
10. Which of the following is not a characteristic of an oligopolistic market structure?
A. zero economic profits in the long-run.
B. substantial barriers to entry.
C. domination of the industry by a relatively small number of firms.
D. awareness by individual firms that other firms will react to changes in their price.
11. According to limit pricing models of oligopolist pricing behavior, existing firms in an oligopolistic industry can deter the entry of new firms by:
A. setting lower prices and producing more than that which maximizes short-run profits, if economies of scale and capital costs are significant.
B. setting lower prices and producing more than competitive firms if economies of scale are insignificant and capital costs are small.
C. setting higher prices and producing less than a pure monopoly.
D. encouraging government regulation and licensing.
E. only by resorting to such illegal practices as price discrimination or setting price below marginal cost.
12. Legal barriers to entry do not include:
A. outright government prohibition of entry.
B. protection of inventions or creative works by patent and copyright law.
C. licensing and bonding restrictions.
D. substantial economies of scale in production.
E. all of the above are legal barriers to entry.
13. The doctrine of "conscious parallelism":
A. was developed to deal with the socially undesirable economic effects caused by oligopolies making similar pricing decisions.
B. was developed by the FTC to deal with collusive oligopoly behavior.
C. is used to deal with cartels in the U.S.
D. is based on written documents passed between oligopoly firms.
E. has its roots in existentialist philosophy.
14. The public-interest theory of regulation suggests that:
A. consumers and workers need protection from such things as monopoly power, externalities, business misrepresentations, and other abuses as well as protection from their own ignorance.
B. nearly all business activities need to be closely regulated due to monopoly power.
C. business firms may manipulate government regulation for their own ends.
D. only the federal government should correct failures of the market system.
15. "Good" monopolies or trusts were exempt from antitrust action under the:
A. "per se" approach to antitrust enforcement.
B. Webb-Pomerene doctrine.
C. Sherman Antitrust Act as amended by the Clayton Act.
D. acceptable behavior guideline developed in the Robinson-Patman Act.
E. "rule of reason" approach to antitrust enforcement.
16. If all monopolies and large firms were broken up into a larger number of small competing firms, the most likely result would be:
A. decreases in prices in these industries because large firms are invariably less efficient than small firms.
B. increases in prices in these industries because large firms are invariably more efficient than small firms.
C. lower prices because competition eliminates economic profit.
D. higher prices in industries which have large economies of scale.
17. The economic rationale for antitrust laws is that monopoly markets are inefficient and must be made to:
A. set output so that marginal social benefit exceeds marginal social cost.
B. set price and output as if the market were competitive.
C. reinvest profits into research and development of new technologies.
D. pay taxes that shrink concentrated wealth and power.
Previous Topic

Next Topic