Chp 13 - Oligopoly and Monopolistic Competition

Question 1

Suppose there is a relatively large number of​ firms, a high degree of product​ differentiation, and free entry. What market structure is most likely to​ form?

A) A competitive market
B) A monopolistically competitive market
C) An oligopolistic market
D) Either a monopolistic or competitive market

Answer 1

B) A monopolistically competitive market

Question 2

T/F: A monopolistic market is very similar to a competitive market.

Answer 2

True

Question 3

What is the key difference between monopolistic and competitive markets?

Answer 3

One is able to differentiate their products in a monopolistic market

Question 4

A competitive firm observing a rival firm raising its price​ will:

A) increase production because it knows that consumers will substitute toward its relatively less expensive product.
B) lower its price and capture the entire market.
C) increase its profits by also raising its price.
D) ignore its​ rival's action.

Answer 4

D) ignore its​ rival’s action.

Question 5

A cartel is likely to fail​ if:

A) there are only a small number of firms that can punish cheaters.
B) market share and pricing data are readily available to firms in the industry.
C) non-cartel members can supply consumers with large quantities of the good.
D) there are barriers to entry.

Answer 5

C) non-cartel members can supply consumers with large quantities of the good.

Question 6

A cartel maximizes industry profits by restricting output and charging a higher price.
This means they act like a ____.

Answer 6

monopolist

Question 7

Why does differentiating its product allow an oligopoly to charge a higher​ price?

When an oligopoly firm differentiates its​ product, it

A) makes supply less elastic.
B) reduces the average cost of production.
C) makes demand less elastic.
D) prevents new firms from entering its industry.
E) essentially gains the advantage of moving second in a sequential game.

Answer 7

C) makes demand less elastic.

Question 8

Will the price be lower if duopoly firms set price or if they set​ quantity? Under what conditions can you give a definitive answer to this​ question?

A) Price will always be the same regardless of whether duopoly firms set price or quantity.
B) Price will always be lower if duopoly firms set price.
C) If duopoly firms produce a heterogeneous​ good, then price will be lower if they set price​; if the goods are​ identical, then price will always be the same regardless of whether duopoly firms set price or quantity.
D) If duopoly firms produce a heterogenous ​good, then price will be lower if they set​ quantity; if the goods are identical​, then price will be lower if they set price.
E) If duopoly firms produce an identical​ good, then price will be lower if they set​ price; if the goods are​ heterogeneous, then the answer is indeterminate.

Answer 8

E) If duopoly firms produce an identical​ good, then price will be lower if they set​ price; if the goods are​ heterogeneous, then the answer is indeterminate.

Question 9

Does an oligopoly or a monopolistically competitive firm have a supply​ curve? Why or why​ not?

Oligopoly and monopolistically competitive firms

A) do not have supply curves because they each individually represent only a portion of market supply.
B) have supply curves that are equal to the lowest possible average cost of production.
C) have supply curves that are horizontal and equal to the market price.
D) do not have supply curves because there is no unique relationship between price and quantity supplied.
E) have supply curves that are​ upward-sloping and equal to marginal cost.

Answer 9

D) do not have supply curves because there is no unique relationship between price and quantity supplied.