Chapter 11: Oligopoly Multiple Choice

Chapter 11: Oligopoly
MULTIPLE CHOICE
1.
a.
b.
c.
d.
e.
ANS: C
MSC: Factual
2.
a.
b.
c.
d.
e.
ANS: C
MSC: Factual
A market where there are only a few sellers is known as:

perfectly competitive.
monopolistically competitive.
oligopolistic.
monopolistic.
cartelized.
DIF: Easy
REF: 410
TOP: Oligopoly
In the model of oligopoly, there:

are many firms producing differentiated
products.
is one firm producing undifferentiated
products.
are a few firms producing differentiated or
undifferentiated products.
are many firms producing undifferentiated
products.
is one firm producing a highly differentiated
product.
DIF: Easy
REF: 410
TOP: Oligopoly
3.
When an economist says an oligopoly has a small number of firms, the
economist means:
a.
exactly 1.
b.
exactly 2, 3, or 4.
c.
few enough to allow for interdependence.
d.
few enough to allow for perfectly inelastic
demand curves.
e.
few enough to allow for four stages of
industry development.
ANS: C
MSC: Factual
4.
a.
b.
c.
d.
e.
ANS: D
MSC: Factual
DIF: Easy
REF: 410
TOP: Oligopoly
Oligopoly is a market structure that necessarily has:

cartels.
a large number of firms with homogeneous
products.
a large number of firms with slightly
different products.
a small number of firms but more than one.
only one firm.
DIF: Easy
REF: 410
TOP: Oligopoly
5.
a.
b.
c.
d.
e.
ANS: E
MSC: Factual
6.
a.
b.
c.
d.
e.
ANS: A
Behavior
MSC: Factual
7.
Oligopoly is the only market structure in which one finds:

barriers to entry.
competing brand names.
minimum average total cost pricing.
advertising.
firm interdependence.
DIF: Easy
DIF: Easy
REF: 411
TOP: Cooperative
A cartel is:
the name for firms in any oligopoly market.
a collusive organization.
an oligopolist that competes with other
oligopolists.
a group of firms using price leadership.
a group of firms using preemptive
strategies.
d.
e.
ANS: B
Behavior
MSC: Factual
8.
a.
b.
c.
d.
e.
ANS: E
Behavior
MSC: Factual
9.
e.
TOP: Oligopoly
In the United States most cartels were declared illegal by the:

Sherman Antitrust Act.
Interstate Commerce Commission.
Supreme Court.
Constitution.
Declaration of Independence.
a.
b.
c.
a.
b.
c.
d.
REF: 410
DIF: Easy
REF: 411
TOP: Cooperative
Profit-maximizing cartels choose price equal to:

marginal cost.
average total cost of the last unit.
marginal revenue.
the monopolistically competitive price.
the monopoly price.
DIF: Easy
REF: 411
TOP: Cooperative
Profit-maximizing cartels allocate sales according to:

precartel sales.
potential to cheat on the cartel.
geographic location.
quantities where all firms marginal
revenues are equal.
quantities where all firms marginal costs
are equal.
ANS: E
Behavior
MSC: Factual
DIF: Easy
REF: 411
TOP: Cooperative
10.
If the market described in the accompanying diagram is dominated by a
cartel, the loss in total surplus relative to perfectly competitive market conditions will be:
a.
b.
c.
d.
e.
$500.
$1,000.
$2,000.
$3,000.
$4,000.
ANS: A
Behavior
MSC: Applied
11.
DIF: Easy
TOP: Cooperative
Cartels can only exist:
a.
b.
c.
d.
e.
in oligopoly markets.
when products are homogeneous.
when products are not homogeneous.
in countries where they are legal.
when demand curves are perfectly inelastic.
ANS: A
Behavior
MSC: Conceptual
12.
diagram is:
REF: 411
DIF: Easy
REF: 411
TOP: Cooperative
The optimal output and price for the cartel shown in the accompanying
a.
b.
c.
d.
e.
ANS: A
Behavior
MSC: Conceptual
Q = 200 and P = $80.

Q = 260 and P = $60.
Q = 250 and P = $80.
Q = 500 and P = $75.
none of the above.
DIF: Easy
REF: 411
TOP: Cooperative
13.
If Gulfstream and Bombardier, both producers of upscale jet airplanes, were
to collude rather than compete, consumers could expect:
a.
higher prices and lower quantities offered
for sale.
b.
lower prices and lower quantities offered for
sale.
c.
higher prices and higher quantities offered
for sale.
d.
each firm to cheat on the cartel agreement.
e.
one firm to emerge as the price leader in the
oligopoly.
ANS: A
Behavior
MSC: Conceptual
DIF: Easy
REF: 411
TOP: Cooperative
14.
If the cartel described by the accompanying diagram is broken up and forced
into a perfectly competitive market situation, the optimal output and price will be:
a.
b.
c.
d.
e.
ANS: D
Behavior
MSC: Conceptual
Q = 200 and P = $80.

Q = 260 and P = $60.
Q = 250 and P = $80.
Q = 250 and P = $75.
Q = 500 and P = $60.
DIF: Easy
REF: 411
TOP: Cooperative
15.
Duopolists A and B face the following demand curves: QA = 120 2PA + PB
and QB = 120 2PB + PA. If both firms have zero marginal cost and they form a cartel, what
is the profit-maximizing price and quantity?
a.
P = 30, Q = 180.
b.
P = 40, Q = 160.
c.
P = 60, Q = 120.
d.
P = 80, Q = 80.
e.
P = 75, Q = 90.
ANS: C
Behavior
MSC: Applied
DIF: Moderate
REF: 411
TOP: Cooperative
16.
Duopolists A and B face the following demand curves: QA = 150 5PA +
4PB and QB = 150 5PB + 4PA. If both firms have zero marginal cost and they form a cartel,
what is the profit-maximizing price and quantity?
a.
P = 25, Q = 250.
b.
P = 40, Q = 100.
c.
P = 60, Q = 120.
d.
P = 80, Q = 80.
e.
P = 75, Q = 150.
ANS: E
Behavior
MSC: Applied
DIF: Moderate
REF: 411
TOP: Cooperative
17.
Two firms (A and B) have marginal costs MCA and MCB, marginal revenues
MRA and MRB, and market marginal revenue MR. If both firms produce as a cartel, they
should produce so that:
a.
MCA = MCB = MR.
b.
MCA = MRA and MCB = MCB.
c.
MCA + MCB = MR.
d.
MCA + MCB = MRA + MRB, not

necessarily MCA = MRA.
e.
MCA = MCB = MRA + MRB.
a.
MCA = MCB = MR.
b.
MCA = MRA and MCB = MCB.
c.
MCA + MCB = MR.
d.
MCA + MCB = MRA + MRB, not

necessarily MCA = MRA.
e.
MCA = MCB = MRA + MRB.
ANS: A
Behavior
MSC: Conceptual
DIF: Moderate
REF: 411
TOP: Cooperative
18.
If a cartel is working properly, its firms will likely be producing where (MCi
is each firm is marginal cost, MR is market marginal revenue, and P is price):
a.
MCi = MR.
b.
MCi > MR.
c.
MCi < MR.
d.
e.
P = MR.
P < MR.
ANS: A
Behavior
MSC: Conceptual
19.
likely to be:
a.
b.
c.
d.
e.
DIF: Moderate
REF: 411
TOP: Cooperative
While a cartel is holding together, its individual members demand curves are
significantly elastic.
significantly inelastic.
close to unitary in elasticity.
kinked.
upward-sloping.
ANS: A
DIF: Moderate
REF: 413
TOP: The Breakdown of Collusive Agreements
MSC: Conceptual
20.
The OPEC oil cartel lost its market power and world oil prices fell in the
1980s because:
a.
OPEC expanded its membership to include
all international producers of oil.
b.
world consumers boycotted OPEC oil.
c.
a limit pricing strategy was pursued by
some members of the cartel.
d.
members began to cheat on cartel
agreements.
e.
the United States refused to buy oil from
OPEC.
ANS: D
DIF: Moderate
REF: 413
MSC: Conceptual
21.
What is the advantage to a particular firm of cheating on an otherwise
effective cartel?
a.
The industry can then act like a monopoly.
b.
It decreases risk.
c.
It enhances credibility.
d.
It always pays in the short run and may pay
in the long run.
e.
It always pays in the long run and may pay
in the short run.
a.
b.
c.
d.
The industry can then act like a monopoly.

It decreases risk.
It enhances credibility.
It always pays in the short run and may pay
in the long run.
It always pays in the long run and may pay
in the short run.
e.
ANS: D
DIF: Moderate
REF: 413
22.
a.
b.
c.
d.
e.
ANS: B
MSC: Factual
MSC: Conceptual
With the price leadership strategy:

the many small firms set the market price,
and the large firm must follow their
behavior.
the large firm sets the market price, and the
many small firms must follow its behavior.
firms collude to determine optimal price
and output for the industry.
firms determine price and output
independent of one another.
firms are not profit maximizers.
DIF: Easy
REF: 414
TOP: Price Leadership
23.
Whopper Stoppers Inc. chooses a price for its sink stoppers, and other firms
always charge the same price. Whopper Stoppers Inc. is:
a.
colluding.
b.
losing money in the long run.
c.
threatening competitors.
d.
a price leader.
e.
preempting the competitors.
ANS: D
MSC: Factual
DIF: Easy
REF: 414
24.
Glyde Air Fresheners is the dominant firm in the solid room aromatizer
industry, which has a total market demand given by Q = 80 2P. Glyde has competition from
a fringe of four small firms that produce where their individual marginal costs equal the
market price. The fringe firms each have total costs given by TCi = 10Qi + 2Q2i. If Glydes
total costs are given by TCG = 100 + 6QG, what are the total profits of the fringe firms?
a.
$32.
b.
$64.
c.
$96.
d.
$128.
e.
$160.
ANS: A
MSC: Applied
DIF: Moderate
REF: 414
25.
market price. The fringe firms each have total costs given by TCi = 10Qi + 2Q2i . If Glydes
total costs are given by TCG = 100 + 6QG, what is Glydes maximum profit?
a.
$148.
b.
$184.
c.
$240.
d.
$332.
e.
$362.
a.
b.
c.
d.
e.
$148.
$184.
$240.
$332.
$362.
ANS: D
MSC: Applied
DIF: Moderate
REF: 414
26.
market price. The fringe firms each have total costs given by TCi = 10Qi + 2Q2i. If Glydes
total costs are given by TCG = 100 + 6QG, what price should Glyde establish for air
fresheners?
a.
$10.
b.
$12.
c.
$14.
d.
$16.
e.
$18.
ANS: E
MSC: Applied
27.
a.
b.
c.
d.
e.
DIF: Moderate
28.
DIF: Moderate
REF: 414
29.
c.
d.
e.
Duopolists who compete on the basis of price will:

end up with price equal to marginal cost.
charge a price greater than marginal cost.
charge a price less than marginal cost.
price discriminate.
charge a price equal to marginal revenue.
ANS: A
DIF: Easy
REF: 417
TOP: Possible Behavior in Markets with Few Rivals
a.
b.
The price leadership strategy is most appropriate when a market is:

perfectly competitive.
monopolistic.
monopolistic competitive.
oligopolistic.
all of the above.
ANS: D
MSC: Conceptual
a.
b.
c.
d.
e.
REF: 414
MSC: Factual
If duopolists engage in price competition, the result is:

always zero profits.
always zero profits unless the firms produce
differentiated products.
always zero profits unless the two goods are
perfect substitutes.
always zero profits unless the two firms
collude.
never zero profits.
ANS: B
DIF: Moderate
REF: 417
MSC: Factual
30.
Two local ready-mix cement manufacturers, Here and There, have combined
demand given by Q = 105 P. Their total costs are given by TCHere = 5QHere + 0.5Q2Here
and TCThere = 5QThere + 0.5Q2There. If they successfully collude, their total output will be:
a.
10 units.
b.
20 units.
c.
40 units.
d.
50 units.
e.
66.67 units.
ANS: C
DIF: Moderate
REF: 417
MSC: Applied
31.
and TCThere = 5QThere + 0.5Q2There. If they cannot successfully collude and instead
produce where the market price equals marginal cost, their total output will be:
a.
50.
b.
60.
c.
66.67.
d.
75.
e.
85.
ANS: C
DIF: Moderate
REF: 417
MSC: Applied
32.
and TCThere = 5QThere + 0.5Q2There. If they successfully collude, their maximum joint
profits will be:
a.
$500.
b.
$1,000.
c.
$1,600.
d.
$2,000.
e.
$2,500.
ANS: D
DIF: Moderate
REF: 417
33.
MSC: Applied
and TCThere = 5QThere + 0.5Q2There. If they cannot successfully collude and instead
produce where the market price equals marginal cost, each firms profits will be:
a.
$111.11.
b.
$222.22.
c.
$333.33.
d.
$444.44.
e.
$555.55.
ANS: E
DIF: Moderate
REF: 417
MSC: Applied
34.
Suppose duopolists in the market for spring water share a market demand
curve given by P = 50 0.02Q, where P is the price per gallon and Q is thousands of gallons
of water per day. The marginal cost of producing water is near zero for both firms. If firm A
produces zero, firm Bs best response is producing:
a.
0 gallons of water per day.
b.
c.
d.
1,250 gallons of water per day.
e.
ANS: D
DIF: Easy
REF: 423
MSC: Applied
35.
of water per day. The marginal cost of producing water is near zero for both firms. If one firm
acts as a first mover, the second firm will produce:
a.
0 gallons of water per day per firm.
b.
c.
d.
e.
ANS: A
DIF: Moderate
REF: 423
MSC: Applied
36.
of water per day. The marginal cost of producing water is near zero for both firms. Optimal
output for Cournot duopolists moving simultaneously is:
a.
b.
c.
d.
1,250 gallons of water per day per firm.
e.
2,500 gallons of water per day per firm.
ANS: C
DIF: Moderate
REF: 423
MSC: Applied
37.
5PB and QB = 120 3PB + 4PA. If both firms have zero marginal cost, what are the profitmaximizing prices and quantities?
a.
PA = 300, QA = 600, PB = 220, QB = 660.
b.
c.
d.
e.
PA = 200, QA = 400, PB = 200, QB = 400.

PA = 200, QA = 700, PB = 200, QB = 320.
PA = 300, QA = 750, PB = 250, QB = 570.
PA = 300, QA = 1,250, PB = 350, QB = 270.
ANS: A
DIF: Easy
REF: 435
TOP: Duopolists and Price Competition with Differentiated Products
MSC: Applied
38.
2PB and QB = 100 2PB + 2PA. If both firms have zero marginal cost, what are the profitmaximizing prices and quantities?
a.
PA = 100, QA = 60, PB = 80, QB = 140.
b.
PA = 25, QA = 100, PB = 25, QB = 100.

PA = 50, QA = 80, PB = 40, QB = 120.
c.
d.
PA = 50, QA = 100, PB = 50, QB = 100.

PA = 60, QA = 60, PB = 40, QB = 140.
e.
ANS: D
DIF: Easy
REF: 435
TOP: Duopolists and Price Competition with Differentiated Products
MSC: Applied
39.
An oligopolist that faces a kinked demand curve is charging price P = 6.
Demand for an increase in price is Q = 280 40P and demand for a decrease in price is Q =
100 10P. Over what range of marginal cost would the optimal price remain unchanged?
a.
Between 3 and 5.
b.
Between 2 and 5.
c.
Between 1 and 4.
d.
Between 2 and 4.
e.
Between 3 and 4.
ANS: B
DIF: Easy
TOP: The Sticky Pricing of Managers
40.
a.
b.
c.
d.
e.
Sticky prices are an outcome of the kinked demand model because:

firms in an oligopoly will collude to hold
prices fixed.
marginal costs are constant in oligopolistic
industries.
marginal costs can vary to some extent, but
firms will have no incentive to change their
prices in oligopolistic industries.
demand is perfectly elastic in oligopolistic
industries.
firms will set price equal to marginal cost in
oligopolistic industries.
ANS: C
DIF: Moderate
41.
a.
b.
c.
d.
e.
REF: 439
MSC: Conceptual
REF: 439
MSC: Factual
The kinked demand model assumes firms will:

ignore the price increases of rivals.
follow the price decreases of rivals.
ignore all price changes of rivals.
follow all price changes of rivals.
a and b
ANS: E
DIF: Moderate
REF: 439
MSC: Factual

Chapter 11: Oligopoly Multiple Choice

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Chapter 11: Oligopoly Multiple Choice

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Chapter 11: Oligopoly

A market where there are only a few sellers is known as:

In the model of oligopoly, there:

Oligopoly is a market structure that necessarily has:

Oligopoly is the only market structure in which one finds:

In the United States most cartels were declared illegal by the:

Profit-maximizing cartels choose price equal to:

Profit-maximizing cartels allocate sales according to:

Cartels can only exist:

Q = 200 and P = $80.

Q = 200 and P = $80.

MCA = MRA and MCB = MCB.

MCA + MCB = MR.

MCA + MCB = MRA + MRB, not

MCA = MCB = MRA + MRB.

MCA = MCB = MR.

MCA = MRA and MCB = MCB.

MCA + MCB = MR.

MCA + MCB = MRA + MRB, not

MCA = MCB = MRA + MRB.

MCi > MR.

MCi < MR.

The industry can then act like a monopoly.

With the price leadership strategy:

TOP: Price Leadership

TOP: Price Leadership

TOP: Price Leadership

TOP: Price Leadership

TOP: Price Leadership

Duopolists who compete on the basis of price will:

TOP: Price Leadership

The price leadership strategy is most appropriate when a market is:

If duopolists engage in price competition, the result is:

PA = 200, QA = 400, PB = 200, QB = 400.

PA = 25, QA = 100, PB = 25, QB = 100.

PA = 50, QA = 100, PB = 50, QB = 100.

Sticky prices are an outcome of the kinked demand model because:

The kinked demand model assumes firms will:

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