Multiple Choice (Underline and bold the best Answer keys)

1. Oligopoly is a market model in which

A. there is a single firm.

B. there are a few firms that produce the entire industry output.

C. there are many firms but no single firm that dominates the industry.

D. there are a few interdependent firms, one or more of which may dominate the industry.

2. Which one of the following industries is notoligopolistic?

A. The automobile industry

B. The oil-refining industry

C. The clothing retailing industry

D. The aluminum industry

3. In an oligopoly, output is

A. greater than the output in perfect competition.

B. somewhere between the output in monopoly and that in perfect competition outcomes.

C. in all circumstances the same as the output in perfect competition.

D. less than the output in monopoly.

4. Inthehighlycompetitivesettingwhicholigopoly firmsoperate,which one ofthefollowings istypicaltemptationseachmayface?

A. tocooperatetogenerateandthendivide upmonopoly-likeprofits.

B. tocooperatetomutuallydecide whatpricetocharge.

C. tocooperatetomakedecisionsaboutwhatquantity toproduce.

D. all of the above.

5.In kinked-demand oligopoly, prices tend to be inflexible because

A. when prices increase, demand is elastic, and total revenue decreases.

B. firms are uncertain about what will happen if they change prices.

C. when prices decrease, demand is inelastic, and total revenue decreases.

D. both A and C.

6. Oligopolyfirmsacting individuallymayseektogainprofits .

A. byexpandinglevelsofoutput andcuttingprices

B. bysellingproductsthataredistinctiveinsomeway

C. byhavingamini monopolyonaparticularbrandname

D. byhavingamini-monopolyorthroughtoughcompetition

7. A cartel is a collusive agreement among a number of firms that is designed to

A. expand output and lower prices.

B. expand output and lower prices to a predatory level.

C. restrict output and raise prices.

D. restrict output and lower prices

8. Ifonefirmoperatinginanoligopolyraisesitspriceandother firmsdonotdoso,

A. thesalesofthefirmwiththehigherpricewilldecline slightly.

B.theegosofallthetopexecutiveswilleventuallyleadtocooperationatthathigher price.

C. thesalesofthefirmthatincreased itspricewilldeclinesharply.

D. thefirmwiththeincreased pricewillhaveitshigher profitssustainedthrough cooperation.

9. The kinked demand curve is associated with:

A. Sticky prices

B. Covert collusion. (over please)

C. OPEC.

D. None of the above.

10. According to the theory of the kinked demand curve, if one firm raises their price, its competitors would:

A. lower their price.

B. raise their price.

C. keep their price the same.

D. none of the above.

True/False (Underline and boldT or F)

11. T F Oligopoly is characterized by the dominance of a small group of firms in an industry.

12. T F There is little interdependency recognized in oligopolistic industries.

13. T F Almost all oligopolistic industries produce heterogenous products.

14. T F Costs of product differentiation may be a major barrier to entry into oligopolistic industries.

Short Answer Questions

15.Brieflydescribe thecircumstancesthatcouldallowoligopolists toearntheirhighestprofits.

16.What is the difference between a trust and a cartel? Which is more stable?