Question 1

When oligopolies seek to operate as a single-price monopoly,the firms produce at the point where

Accepted Answer

When oligopolies seek to operate as a single-price monopoly, they maximize profits by producing at the point where marginal revenue (MR) equals marginal cost (MC) because this is where additional units sold bring in just enough revenue to cover the additional cost of producing them, resulting in the highest possible profit. Therefore, the answer is B, MR=MC.

Question 2

When firms in an oligopoly successfully collude and do not cheat on a cartel agreement,they can make a long-run economic profit similar to

Accepted Answer

Successful collusion among firms in an oligopoly leads to a situation similar to a monopoly, where the firms can restrict output, charge higher prices, and earn long-run economic profits due to the barriers to entry. This is not possible in perfect competition, monopolistic competition, non-colluding oligopolies, or regulated industries.

Question 3

To determine if a market is an oligopoly,we need to determine if

Accepted Answer

An oligopoly market is characterized by a small number of firms, wherein each firm has a significant impact on the market. In such a market, firms recognize their mutual interdependencies and their actions significantly influence the pricing and profits of other firms in the market. Hence, option C is the correct choice. Option A is incorrect because the Herfindahl-Hirschman Index (HHI) is used to measure market concentration, and an oligopoly market can have a high or low HHI. Option B is incorrect because an oligopoly market may have a small number of firms. Option D is incorrect because oligopoly firms may produce either identical or differentiated products. Option E is incorrect because cartels, which are illegal in most countries, are a way that firms collude and is not an essential characteristic for an oligopoly market.

Question 4

-The above figure shows the market demand curve for long-distance land-based telephone calls.Suppose the marginal cost of a long-distance telephone call is 2¢ a minute for a call no matter how many minutes of calls are made and there are 3 firms in the industry.If the firms in the industry operate as perfect competitors,there are ________ minutes of calls made per hour.

Accepted Answer

The answer of 
-The above figure shows the market demand...

Question 5

The possible alternatives for an oligopoly range from the monopoly case with ________ to the perfectly competitive case with ________.

Accepted Answer

An oligopoly can range from a situation where firms produce a low level of output (similar to a monopoly) to a situation where firms produce a high level of output (similar to perfect competition). This is because in an oligopoly, firms have some degree of market power and can choose to cooperate or compete aggressively. However, in a perfectly competitive market, firms have no market power and must produce at the efficient level of output, resulting in high output. Thus, D is the best choice.

Question 6

The major dilemma facing Boeing and Airbus is the

Accepted Answer

The major dilemma facing Boeing and Airbus is the fact that if each firm separately tries to maximize its profit, it might wind up with less profit than otherwise. This is because both firms are in a duopoly market where their actions affect each other's profits. Therefore, they face a prisoner's dilemma, where each firm has an incentive to act in its own self-interest, but if they both do so, they will end up with lower profits than if they had cooperated.

Question 7

Imagine a duopoly in which two firms,A and B,produce the monopoly profit-maximizing output and equally share the economic profit.If firm A increases its output,the market price ________ and total economic profit of the two firms combined ________.

Accepted Answer

If firm A increases its output, the total output in the market will increase, leading to a decrease in the market price. As both firms equally share the economic profit, the increase in firm A's output would lead to a decrease in the economic profit of both firms combined. Therefore, the correct answer is A) falls; decreases.

Question 8

Imagine a duopoly in which two firms,A and B,produce the monopoly profit-maximizing output and equally share the economic profit.If firm A increases output,

Accepted Answer

The answer of Imagine a duopoly in which two firms,A...

Question 9

-The figure above shows a market that a cartel controls.If the firms in the cartel produce ________ units,they will ________.

Accepted Answer

A cartel maximizes joint profits by producing the quantity where marginal cost equals marginal revenue, which is typically less than the competitive quantity. In this case, producing 5 units would maximize joint profits.

Question 10

The range in which a duopoly's output falls is less than or equal to the output level in ________ and more than or equal to the output level in ________.

Accepted Answer

In a duopoly, the output level is typically more than that of a monopoly because there are two firms competing, leading to a higher combined output. However, it is less than the output level in perfect competition, where a large number of firms contribute to an even higher total output.

Question 11

If firms in an oligopolistic industry consistently cut their price to sell more output,what price and output will result?

Accepted Answer

In an oligopolistic industry, if firms consistently cut their prices to sell more output, they will eventually reach a point where the price and output resemble those of a perfectly competitive market. This is because continuous price cutting leads to a situation where firms can no longer sustain profits at a higher price level, thus moving towards the competitive equilibrium.

Question 12

Even though four firms can profitably sell hotdogs downtown,the government licenses only two firms.This market is a

Accepted Answer

This market is a legal duopoly because the government's licensing action restricts the number of firms that can operate, creating a duopoly through legal means rather than through natural market conditions.

Question 13

-Which of the following is true? In the above figure,if the market is

Accepted Answer

The answer of 
-Which of the following is true? In...

Question 14

In an oligopoly,output is

Accepted Answer

In an oligopoly, firms have some market power but are still competing with each other. Therefore, the output will be less than perfect competition but more than a monopoly. This means that the output will be somewhere between the output in monopoly and that in perfect competition outcomes.

Question 15

Which of the following statements is correct?

Accepted Answer

In an oligopoly, if firms act in their own self-interest without collusion, the total market output can exceed that of a monopoly, as each firm tries to capture a larger market share.

Question 16

-The above figure shows the market demand curve for long-distance land-based telephone calls.Suppose the marginal cost of a long-distance telephone call is 2¢ a minute for a call no matter how many minutes of calls are made and there are 3 firms in the industry.If the firms in the industry operate as a monopoly,there are ________ minutes of calls made per hour.

Accepted Answer

The answer of 
-The above figure shows the market demand...

Question 17

If firms in an oligopolistic industry successfully collude and form a cartel,what price and output will result?

Accepted Answer

When firms in an oligopolistic industry collude and form a cartel, they act like a monopoly and jointly determine the price and output levels. This results in a higher price and lower output than in a competitive market, but still less extreme than a pure monopoly. Therefore, the correct choice is A) the monopoly price and output.

Question 18

When oligopolies operate like firms in perfect competition,the firms produce at the point where the

Accepted Answer

When oligopolies operate like firms in perfect competition, they produce where marginal cost equals price, as this is the point of profit maximization. This is the same as in perfect competition, where firms also produce where marginal cost equals price.

Question 19

-The above figure shows the market demand curve for long-distance land-based telephone calls.Suppose the marginal cost of a long-distance telephone call is 2¢ a minute for a call no matter how many minutes of calls are made and there are 3 firms in the industry.If the firms in the industry operate as perfect competitors,the price of a call is ________ per minute and if the firms in the industry operate as a monopoly,the price of a call is ________ per minute.

Accepted Answer

In perfect competition, price equals marginal cost, so the price would be 2 cents per minute. As a monopoly, the firm would set a higher price to maximize profit, which would be more than 3 cents and less than 4 cents per minute, according to the demand curve.

Question 20

If one firm in a duopoly increases its production by one unit beyond the monopoly output,that firm's profit ________,the other firm's profit ________,and the total profit of the duopoly ________.

Accepted Answer

In a duopoly, if one firm increases its production beyond the monopoly output, its profit may increase due to selling more units, but the other firm's profit decreases due to increased competition and lower prices. The total profit of the duopoly decreases because the additional output drives down the market price, reducing overall profitability.

Quiz 18: Oligopoly