Microeconomics, 11e (Parkin)
Chapter 15 Oligopoly
1 What Is Oligopoly?
1) An oligopoly is a market structure in which there are
A) only a few buyers but many sellers.
B) only a few sellers selling either an identical or differentiated product.
C) many sellers selling a differentiated product.
D) a few products sold by many sellers.
Answer: B
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
2) Which of the following is a distinguishing characteristic of oligopoly?
A) A small number of firms compete.
B) No one firm's actions directly affect the actions of the other firms.
C) Firms are free to enter and exit the industry.
D) Natural barriers cannot prevent the entry of new firms.
Answer: A
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
3) When only a small number of producers compete with each other is a defining characteristic of
A) inelastic supply.
B) monopolistic competition.
C) efficient competition.
D) oligopoly.
Answer: D
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
4) In oligopolistic markets,
A) there are many firms.
B) there are no barriers to entry.
C) there are only a few firms.
D) all firms are price takers.
Answer: C
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
5) A market structure in which a small number of firms compete is called ________.
A) a monopoly
B) a small-number market
C) an oligopoly
D) monopolistic competition
Answer: C
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
6) The key feature of an oligopoly is that there
A) are many buyers and sellers.
B) is one seller.
C) exists product differentiation.
D) are only a few sellers.
Answer: D
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
7) In an oligopoly,
A) there are only a few firms.
B) there is no product differentiation.
C) there is free entry and exit.
D) firms' decisions are unrelated to each other.
Answer: A
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
8) A market structure in which a small number of producers compete against each other is
A) monopolistic competition.
B) oligopoly.
C) monopoly.
D) perfect competition.
Answer: B
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
9) If firms in an industry differentiated their products and made economic profits in the short-run, what other characteristic would be important to determine if this is an oligopoly or a monopolistically competitive market?
A) the number of firms in the market
B) the number of close substitutes for the good being produced
C) the number of buyers in the market
D) if the good being sold is a normal or inferior good
Answer: A
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
10) The distinguishing features of oligopoly are ________ and a ________ in the industry.
A) barriers to entry; large number of firms
B) no barriers to entry; few firms
C) barriers to entry; few firms
D) no barriers to entry; large number of firms
Answer: C
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
11) Oligopoly is
A) like monopoly because there are barriers to entry.
B) like perfect competition because oligopoly firms all sell homogeneous goods.
C) like monopolistic competition because oligopoly firms all sell differentiated goods.
D) like perfect competition because there are many firms in the industry.
Answer: A
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
12) Which of the following is a distinguishing characteristic of oligopoly?
A) A large number of firms compete.
B) No one firm's actions directly affect the actions of the other firms.
C) Firms are free to enter and exit the industry.
D) Natural or legal barriers prevent the entry of new firms.
Answer: D
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
13) Which of the following is a defining characteristic of oligopoly?
A) barriers to entry
B) selling a homogeneous good
C) selling a differentiated good
D) collusion
Answer: A
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
14) Natural oligopoly is a situation where
A) the level of demand can support only a few firms.
B) there is only one firm.
C) there are only two firms.
D) there are legal barriers to entry.
Answer: A
Topic: Natural Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
15) A natural oligopoly can form
A) if there are economies of scale.
B) only if firms sell a differentiated good.
C) only if firms sell a homogeneous good.
D) if there is only one firm in the industry.
Answer: A
Topic: Natural Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
16) In a small town the level of demand is capable of supporting only two gas stations. This market is
A) a natural duopoly.
B) perfectly competitive because a homogeneous good is being sold.
C) operating as if it was a monopoly.
D) an example of monopolistic competition.
Answer: A
Topic: Natural Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
17) Suppose that all pizza companies have the same costs and the minimum average total cost is $12 per pizza. The pizza companies have an efficient scale of 100 pies per night. In the small town of Coatsville, at the price of $12 per pizza the quantity demanded is approximately 300 pizzas per night. This market, therefore, can best be characterized as
A) perfectly competitive.
B) a natural monopoly.
C) a natural duopoly.
D) a natural oligopoly.
Answer: D
Topic: Natural Oligopoly
Skill: Analytical
Status: New
AACSB: Analytical Skills
18) One difference between oligopoly and monopolistic competition is that
A) a monopolistically competitive industry has fewer firms.
B) in monopolistic competition, the products are identical.
C) monopolistic competition has barriers to entry.
D) fewer firms compete in oligopoly than in monopolistic competition.
Answer: D
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
19) Which of the following is a distinguishing characteristic of oligopoly?
A) A large number of firms compete.
B) Each firm's actions influence the profits of all the other firms.
C) Firms are free to enter and exit the industry.
D) Natural barriers cannot prevent the entry of new firms.
Answer: B
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
20) Consider a market in which each firm must predict the price and quantity decisions of other firms, as well as how those price and quantity decisions will affect the first firm's revenue and profit. This market is best described as
A) an oligopoly.
B) monopolistic competition.
C) a monopoly.
D) perfect competition.
Answer: A
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
21) In ________ market structure, a firm's output depends ________.
A) an oligopoly; only on its own marginal revenue and marginal cost curves
B) a monopolistically competitive; in part on its competitors' price and quantity decisions
C) an oligopoly; in part on its competitors' price and quantity decisions
D) a monopolistically competitive; only on its marginal revenue curve
Answer: C
Topic: Oligopoly
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
22) If firms in an industry make output decisions that are partially based on the price and output decisions of their competitors, then these firms are in ________ market have ________ with the other firms in the market.
A) an oligopoly; interdependence
B) an oligopoly; no interdependence
C) an oligopoly or monopolistically competitive; interdependence
D) a monopolistically competitive; no interdependence
Answer: A
Topic: Oligopoly
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
23) The small town of Narberth has two pizza stores. Which of the following statements are correct?
I. The profits of each store depend on the price of the pizza at the other store.
II. Both stores would increase their profit if they cooperated in setting their prices.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
Answer: C
Topic: Oligopoly
Skill: Conceptual
Status: New
AACSB: Analytical Skills
24) Of the following market structures, which has the fewest number of firms competing against each other?
A) monopolistic competition
B) oligopoly
C) perfect competition
D) Both answers A and C are correct.
Answer: B
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
25) A duopoly occurs when ________.
A) there are only two producers of a particular good competing in the same market
B) there are two producers of two goods competing in an oligopoly market
C) there are numerous producers of two goods competing in a competitive market
D) the one producer of two goods sells the goods in a monopoly market
Answer: A
Topic: Duopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
26) A duopoly is a form of
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
Answer: C
Topic: Duopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
In the figure, D is the demand curve for taxi rides in a town, and ATC is the average total cost curve of a taxi company.
27) In the scenario above, the market is:
A) A natural duopoly.
B) A natural oligopoly with three firms.
C) A natural monopoly.
D) Monopolistically competitive.
Answer: A
Topic: Duopoly
Skill: Analytical
Status: Old
AACSB: Analytical Skills
28) In an oligopoly market, the Herfindahl-Hirschman Index is usually:
A) Greater than 1,000.
B) Below 1,000.
C) Between 100 and 1,000.
D) Between 200 and 2,000.
Answer: A
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
29) An market in which the Herfindahl-Hirschman Index (HHI) is 1,250 is considered to be
A) an oligopoly.
B) monopolistically competitive.
C) a monopoly.
D) perfectly competitive.
Answer: A
Topic: Oligopoly
Skill: Definition
Status: Old
AACSB: Analytical Skills
30) In the market for batteries, the four largest firms earn 90% of the total revenue and there are 35 firms in the industry. This industry is best described as
A) oligopoly.
B) monopoly.
C) monopolistic competition.
D) perfect competition.
Answer: A
Topic: Oligopoly
Skill: Analytical
Status: Old
AACSB: Analytical Skills
31) Of the following, the best example of oligopoly is
A) wheat farming.
B) the restaurant industry.
C) the cigarette industry.
D) the clothing industry.
Answer: C
Topic: Oligopoly
Skill: Analytical
Status: Old
AACSB: Analytical Skills
32) When producers agree to restrict output, raise the price, and increase profits, the agreement is called ________.
A) a pricing agreement
B) an oligopoly agreement
C) a collusive agreement
D) a monopoly agreement
Answer: C
Topic: Cartel
Skill: Definition
Status: Old
AACSB: Analytical Skills
33) ________ is a group of firms that have colluded to limit their output and raise their price.
A) A cartel
B) An oligopoly
C) A strategy
D) A duopoly
Answer: A
Topic: Cartel
Skill: Definition
Status: Old
AACSB: Analytical Skills
34) Which of the following is characteristic of oligopoly, but NOT of monopolistic competition?
A) The choices made by one firm have a significant effect on other firms.
B) Each firm faces a downward-sloping demand curve.
C) Firms are profit-maximizers.
D) There is more than one firm in the industry.
Answer: A
Topic: Study Guide Question, Oligopoly
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
35) A monopolistically competitive firm is like an oligopolistic firm insofar as
A) both face perfectly elastic demand.
B) both can earn an economic profit in the long run.
C) both have MR curves that lie beneath their demand curves.
D) neither is protected by high barriers to entry.
Answer: C
Topic: Study Guide Question, Oligopoly
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
2 Oligopoly Games
1) Game theory is most useful for analyzing
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
Answer: C
Topic: Game Theory
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
2) Game theory can be used for studying which of the following types of market structure?
A) monopoly
B) monopolistic competition
C) oligopoly
D) perfect competition
Answer: C
Topic: Game Theory
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
3) Game theory is most useful for determining the outcome when ________.
A) the market structure is oligopoly
B) monopolistic competition exists
C) prison terms are involved
D) the market is dominated by a monopoly
Answer: A
Topic: Game Theory
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
4) Game theory is used to explain firms' decisions in
A) a monopoly.
B) an oligopoly.
C) a perfectly competitive market.
D) a monopolistically competitive market.
Answer: B
Topic: Game Theory
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
5) Game theory is applicable to oligopoly behavior because oligopolists
A) use strategic behavior.
B) ignore rival firms.
C) are price takers.
D) can only be profitable if they collude.
Answer: A
Topic: Game Theory
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
6) Game theory is distinctive in that its elements are
A) costs, prices, and profits.
B) revenues, elasticity, and profits.
C) rules, strategies, payoffs, and outcomes.
D) patents, copyrights, and barriers to entry.
Answer: C
Topic: What Is a Game?
Skill: Definition
Status: Old
AACSB: Analytical Skills
7) Which group of features is shared by all games?
A) rules, strategies, payoffs, outcome
B) rules, profit, payoffs, outcome
C) profit, strategies, payoffs, cheating
D) rules, cheating, payoffs, outcome
Answer: A
Topic: What Is a Game?
Skill: Definition
Status: Old
AACSB: Analytical Skills
8) Game theory is a tool for studying ________.
A) Nash behavior
B) payoff dilemmas
C) rational dilemmas
D) strategic behavior
Answer: D
Topic: Game Theory
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
9) In game theory, strategies include ________.
A) all possible actions of each player
B) only the winning action of each player
C) all possible actions and payoffs of each player
D) the payoff matrix
Answer: A
Topic: Game Theory
Skill: Definition
Status: Old
AACSB: Analytical Skills
10) The prisoners' dilemma describes a single-play game that features
A) an outcome in which the participants collude.
B) a large number of rivals cooperating with each other.
C) a situation in which one player has better odds than the other.
D) two players who are unable to communicate with each other.
Answer: D
Topic: Prisoners' Dilemma
Skill: Definition
Status: Old
AACSB: Analytical Skills
11) The simplest prisoners' dilemma is a game that, in part, requires
A) two players who are able to communicate with each other.
B) two players who are unable to communicate with each other.
C) monopolistic competition.
D) an oligopoly with one very large firm.
Answer: B
Topic: Prisoners' Dilemma
Skill: Definition
Status: Old
AACSB: Analytical Skills
12) In the prisoners' dilemma game, each player
A) has only one possible strategy.
B) can choose from two strategies.
C) can choose from three strategies.
D) can choose from four strategies.
Answer: B
Topic: Prisoners' Dilemma
Skill: Definition
Status: Old
AACSB: Analytical Skills
13) In a prisoner's dilemma game, each person will pick
A) their best outcome given what the other person will do
B) their best outcome.
C) their worse outcome.
D) their best outcome after consulting with the other person.
Answer: A
Topic: Nash Equilibrium
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
14) In the prisoners' dilemma game, when each player takes the best possible action given the action of the other player, ________.
A) a competitive equilibrium is reached
B) one player denies and one player confesses
C) both players deny
D) a Nash equilibrium is reached
Answer: D
Topic: Prisoners' Dilemma
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
15) The outcome of a prisoners' dilemma game with a Nash equilibrium is that ________.
A) both players deny
B) one player denies and one player confesses
C) both players confess
D) there is no equilibrium
Answer: C
Topic: Prisoners' Dilemma
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
16) In a prisoner's dilemma, the Nash equilibrium occurs where
A) neither person ends up with their best outcome.
B) both end up with their best outcome.
C) only one ends up with his best outcome.
D) the one who goes first ends up with his best outcome.
Answer: A
Topic: Prisoners' Dilemma
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
17) The prisoners' dilemma has an equilibrium in which
A) both players deny.
B) both players confess.
C) the player who confesses wins.
D) the player who denies wins.
Answer: B
Topic: Prisoners' Dilemma
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
18) In a prisoners' dilemma game, which of the following strategies gives the best outcome for both prisoners?
A) Both deny (collusion).
B) Both confess (not collude).
C) One confesses while the other denies.
D) none of the above
Answer: A
Topic: Prisoners' Dilemma
Skill: Conceptual
Status: Old
AACSB: Analytical Skills
19) In a prisoners' dilemma game, in the Nash equilibrium
A) both players have another outcome that does not occur but is more favorable.
B) neither player has another outcome that does not occur and is more favorable.
C) one player has another outcome that does not occur and is more favorable.
D) collusion would not alter the outcome.