Oligopoly

Question 1

The distinguishing features of an oligopoly are that:

Answer 1

Natural or legal barriers prevent the entry of new firms

A small number of firms compete

Question 2

Oligopoly markets share some characteristics of other market structures:

Answer 2

Oligopoly is similar to a monopoly in that each firm has market power to determine its own price

Oligopoly might be similar to monopolistic competition in that each firm makes a differentiated product, but this is not a necessary condition of monopoly

Question 3

The quantity sold by one firm in an oligopoly depends on

Answer 3

Each firms own price and the prices and quantities sold by all other firms

Question 4

The linked demand curve model of oligopoly is

Answer 4

based on the assumption that each firm believes that if it raises its price, others will not follow but that if it cuts its own price, so will other firms

Question 5

The demand curve that an oligopoly firm believes it faces has a kink at the current

Answer 5

Price and quantity

Question 6

Above the link demand is

Answer 6

Elastic because all other firms prices remain unchanged

Question 7

Below the kink demand is is

Answer 7

inelastic because all other firms prices change in the line with the price of the firm shown in the figure

Question 8

The kink in the demand curve means that

Answer 8

MR curve is discontinuous at the current quantity

Question 9

Fluctuations in MC that remain within the discontinuous portion of the MR curve leave the profit maximising quantity and price..

Answer 9

Unchanged

Question 10

If MC increases enough, all firms

Answer 10

Raise their prices and the kink vanishes