Question 1

If an oligopoly is faced with a kinked-demand curve that is relatively elastic above, and relatively inelastic below, the going price, then it will

Accepted Answer

A)   increase total revenue by increasing price but lower total revenue by decreasing price.
B)   decrease total revenue by either increasing or decreasing price.
C)   increase total revenue by either increasing or decreasing price.
D)   increase total revenue by decreasing price but lower total revenue by increasing price.E) A) and D)
F) None of the above

Question 2

If output is set at the kink of the kinked-demand model, then there

Accepted Answer

A)   is a strong incentive for rivals to decrease prices.
B)   is a strong incentive for rivals to increase prices.
C)   is one price at which marginal revenue equals marginal cost.
D)   are several prices at which marginal revenue equals marginal cost.E) B) and C)
F) A) and B)

Question 3

Homogeneous oligopolists tend to advertise more than do differentiated oligopolists.

Accepted Answer

A) True 
 B)False

Question 4

A firm in an oligopoly is similar to a monopoly in that

Accepted Answer

A)   both firms do not face competition from others.
B)   both firms could have significant market power and control over price.
C)   both firms face very inelastic demand for their products.
D)   both firms do not need to advertise.E) B) and C)
F) A) and D)

Question 5

Nash equilibrium is an outcome of a game from which neither rival will want to deviate.

Accepted Answer

A) True 
 B)False

Question 6

If an oligopolist is faced with a marginal revenue curve that has a gap in it, we may assume that

Accepted Answer

A)   it is colluding with its rivals to maximize joint profits.
B)   its demand curve is kinked.
C)   it is selling a standardized product.
D)   it is selling a differentiated product.E) All of the above
F) B) and D)

Question 7

Collusive control over price may permit oligopolists to

Accepted Answer

A)   use new technology, achieve economies of scale, and get government subsidies.
B)   achieve economies of scale, reduce costs, and prevent price cheating.
C)   increase product demand, increase product supply, and lower cost.
D)   reduce uncertainty, increase profits, and possibly limit entry of new firms.E) A) and D)
F) All of the above

Question 8

Which constitutes an obstacle to collusion among oligopolists?

Accepted Answer

A)   a standardized product
B)   a large number of firms
C)   prosperous economic conditions
D)   trademarks and copyrightsE) B) and C)
F) A) and D)

Question 9

If an oligopolist's demand curve has a "kink" in it, then over some interval,

Accepted Answer

A)   the oligopolist's marginal cost curve will have a break in it.
B)   the oligopolist need not fear entry into the industry by new firms.
C)   the oligopolist's competitors will not react to its price changes, either up or down.
D)   changes in marginal cost will not cause a change in the profit-maximizing price.E) A) and D)
F) B) and C)

Question 10

Other things equal, cartels and similar collusive arrangements are easier to establish and maintain

Accepted Answer

A)   when there are ample opportunities for the firms to make secret price concessions to selected buyers.
B)   during periods of business-cycle stability and full employment.
C)   when the demand and cost conditions of the participating firms differ substantially.
D)   when the number of firms is relatively large.E) All of the above
F) B) and C)

Question 11

In the kinked-demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to

Accepted Answer

A)   decrease their prices.
B)   increase their prices.
C)   not change their prices.
D)   reduce their quantity.E) A) and B)
F) A) and C)

Question 12

A cartel of four firms that controls 100 percent of the sales in a market, and faces the same cost schedules of a monopolist, will set a price somewhat lower than the monopoly price for its product.

Accepted Answer

A) True 
 B)False

Question 13

If three or four homogeneous oligopolists collude, the resulting price and production outcomes will be similar to those of pure monopoly.

Accepted Answer

A) True 
 B)False

Question 14

Both collusive and noncollusive oligopoly models suggest that price changes will be relatively infrequent in these types of industries.

Accepted Answer

A) True 
 B)False

Question 15

Advertising increases the costs of firms and could be manipulative; therefore, it does not really have a positive economic effect.

Accepted Answer

A) True 
 B)False

Question 16

The copper, aluminum, cement, and industrial alcohol industries are examples of

Accepted Answer

A)   interproduct competition.
B)   homogeneous oligopoly.
C)   monopolistic competition.
D)   differentiated oligopoly.E) A) and B)
F) None of the above

Question 17

Informal collusion to restrict output and increase prices is sometimes referred to as a

Accepted Answer

A)   merger.
B)   cartel.
C)   tacit understanding.
D)   kinked-demand oligopoly.E) All of the above
F) C) and D)

Question 18

According to the definition of a positive-sum game, both players get positive payoffs.

Accepted Answer

A) True 
 B)False

Question 19

The first mover in a sequential game always has the advantage over the second mover.

Accepted Answer

A) True 
 B)False

Question 20

The kinked-demand curve model shows that oligopolistic firms tend to change their prices frequently.

Accepted Answer

A) True 
 B)False

Exam 14: Oligopoly and Strategic Behavior

The kinked-demand curve model shows that oligopolistic firms tend to change their prices frequently.

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A cartel of four firms that controls 100 percent of the sales in a market, and faces the same cost schedules of a monopolist, will set a price somewhat lower than the monopoly price for its product.

Correct AnswerverifiedShow Answer

A firm in an oligopoly is similar to a monopoly in that

Correct AnswerverifiedShow Answer

If an oligopolist's demand curve has a "kink" in it, then over some interval,

Correct AnswerverifiedShow Answer

The first mover in a sequential game always has the advantage over the second mover.

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If an oligopoly is faced with a kinked-demand curve that is relatively elastic above, and relatively inelastic below, the going price, then it will

Correct AnswerverifiedShow Answer

In the kinked-demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to

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Collusive control over price may permit oligopolists to

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If an oligopolist is faced with a marginal revenue curve that has a gap in it, we may assume that

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If output is set at the kink of the kinked-demand model, then there

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The copper, aluminum, cement, and industrial alcohol industries are examples of

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Which constitutes an obstacle to collusion among oligopolists?

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Nash equilibrium is an outcome of a game from which neither rival will want to deviate.

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Informal collusion to restrict output and increase prices is sometimes referred to as a

Correct AnswerverifiedShow Answer

Other things equal, cartels and similar collusive arrangements are easier to establish and maintain

Correct AnswerverifiedShow Answer

According to the definition of a positive-sum game, both players get positive payoffs.

Correct AnswerverifiedShow Answer

Both collusive and noncollusive oligopoly models suggest that price changes will be relatively infrequent in these types of industries.

Correct AnswerverifiedShow Answer

Advertising increases the costs of firms and could be manipulative; therefore, it does not really have a positive economic effect.

Correct AnswerverifiedShow Answer

If three or four homogeneous oligopolists collude, the resulting price and production outcomes will be similar to those of pure monopoly.

Correct AnswerverifiedShow Answer

Homogeneous oligopolists tend to advertise more than do differentiated oligopolists.

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