14-1
Chapter 14 Oligopoly and Strategic Behavior Answer Key
Multiple Choice Questions
1.
In which of these continuums of degrees of competition (lowest to highest) is oligopoly
properly placed?
A.
pure monopoly, monopolistic competition, oligopoly, pure competition
2.
The term oligopoly indicates
A.
a one-firm industry.
3.
In an oligopolistic market,
A. one firm is always dominant.
14-2
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Di f fi cu lt y:
02 Medium
Learning Objective: 14–01 Describe the characteristics of oligopoly.
Test Bank: I
Topic:
Oligopoly
4.
Oligopolistic industries are characterized by
D.
a few dominant firms and low entry barriers.
5.
The automobile, household appliance, and automobile tire industries are all illustrations of
A.
homogeneous oligopoly.
6.
Use your basic knowledge and your understanding of market structures to answer this
question. Which of the following companies most closely approximates a differentiated
oligopolist in a highly concentrated industry?
A.
Subway Sandwiches
14-3
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Ac ce ss ibi li ty :
Keyboard Navigation
Blooms: Understand
Di f fi cu lt y:
02 Medium
Learning Objective: 14–01 Describe the characteristics of oligopoly.
Test Bank: I
Topic:
Oligopoly
7.
Use your basic knowledge and your understanding of market structures to answer this
question. Which of the following companies most closely approximates a homogeneous
oligopolist in a highly concentrated industry?
D.
Starbucks Coffee
8.
The mutual interdependence that characterizes oligopoly arises because
A.
the products of various firms are homogeneous.
9.
The copper, aluminum, cement, and industrial alcohol industries are examples of
A. interproduct competition.
14-4
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
C.
monopolistic competition.
D.
differentiated oligopoly.
AACSB: Knowledge Application
Ac ce ss ibi li ty :
Keyboard Navigation
Blooms: Understand
Di f fi cu lt y:
02 Medium
Learning Objective: 14–01 Describe the characteristics of oligopoly.
Test Bank: I
Topic:
Oligopoly
10.
Which of the following is the best example of oligopoly?
A. women‘s dress manufacturing
11.
If there are significant economies of scale in an industry, then
D.
firms must differentiate their products to earn economic profits.
12.
In which of the following market models do demand and marginal revenue not diverge?
14-5
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
B.
monopolistic competition
C.
pure monopoly
D.
oligopoly
13.
Oligopoly is more difficult to analyze than other market models because
other market models.
D. unlike the firms of other market models, it cannot be assumed that oligopolists are profit
maximizers.
14.
Which of the following is an illustration of differentiated oligopoly?
A.
the aluminum industry
15.
Which of the following industries is an illustration of homogeneous oligopoly?
A.
household laundry products
16.
Differentiated oligopoly exists where a small number of firms are
D.
producing virtually identical products.
17.
Homogeneous oligopoly exists where a small number of firms are
D.
producing differentiated products.
Topic:
Oligopoly
18.
Which of the following is a unique feature of oligopoly?
D.
nonprice competition
19.
Prices are likely to be least flexible
D.
in pure competition.
20.
Mutual interdependence means that each oligopolistic firm
D.
produces a product similar but not identical to the products of its rivals.
Test Bank: I
Topic:
Oligopoly
21.
Clear-cut mutual interdependence with respect to the price-output policies exists in
D.
pure competition.
22.
Concentration ratios measure the
D. dependence of an industry on its resource suppliers.
23.
If the four-firm concentration ratio for industry X is 60,
D.
the industry is monopolistically competitive, but on the threshold of being an oligopoly.
Learning Objective: 14–01 Describe the characteristics of oligopoly.
Test Bank: I
Topic:
Oligopoly
24.
An industry having a four-firm concentration ratio of 85 percent
A.
approximates pure competition.
25.
As a general rule, oligopoly exists when the four-firm concentration ratio
A.
equals the Herfindahl index.
26.
Aluminum competes with copper in the market for power transmission lines. This
illustrates
A.
mutual interdependence.
14–10
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Understand
Di f fi cu lt y:
02 Medium
Learning Objective: 14–01 Describe the characteristics of oligopoly.
Test Bank: I
Topic:
Oligopoly
27.
Industries X and Y both have four-firm concentration ratios of 70 percent, but the
Herfindahl index for X is 2,500, while that for Y is 2,000. These data suggest
D.
that price competition is stronger in X than in Y.
28.
Suppose that total sales in an industry in a particular year are $600 million and sales by the
top four sellers are $200 million, $150 million, $100 million, and $50 million,
respectively.
We can conclude that
A. price leadership exists in this industry.
29.
The four-firm concentration ratio for an industry measures the
A. profitability of the four largest firms in the industry.
14–11
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D.
degree of product variation in the industry.
AACSB: Knowledge Application
Ac ce ss ibi li ty :
Keyboard Navigation
Blooms: Understand
Di f fi cu lt y:
02 Medium
Learning Objective: 14–01 Describe the characteristics of oligopoly.
Test Bank: I
Topic:
Oligopoly
30.
Concentration ratios
A.
may overstate the degree of competition because they ignore imported products.
31.
If a product such as cement or bricks is costly to ship and, therefore, markets are very
localized, the national concentration ratio for that industry
A. will be greater than 50 percent.
32.
Concentration ratios may be inaccurate indicators of the degree of monopoly power in an
industry because
14–12
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A. they include interindustry competition.
B. foreign competition is not considered.
C.
they are only calculated for local and regional markets.
D.
they do not distinguish between normal and economic profit.
33.
If an industry evolves from monopolistic competition to oligopoly, we would expect
A. the four-firm concentration ratio to decrease.
34.
Interindustry competition means that
D.
in most industries, there are usually a number of firms producing identical products.
Test Bank: I
Topic:
Oligopoly
35.
If the four-firm concentration ratio in an oligopolistic five-firm industry is 80 percent, and
each firm has an equal percentage of sales, the Herfindahl index is
A. 8,000.
36.
Assume six firms composing an industry have market shares of 30, 30, 10, 10, 10, and 10
percent. The Herfindahl index for this industry is
A. 2,000.
37.
Suppose the Herfindahl indexes for industries A, B, and C are 7,200, 5,000, and 1,500,
respectively. These data imply
A.
that market power is greatest in industry C.
14–14
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Ac ce ss ibi li ty :
Keyboard Navigation
Blooms: Understand
Di f fi cu lt y:
02 Medium
Learning Objective: 14–01 Describe the characteristics of oligopoly.
Test Bank: I
Topic:
Oligopoly
38.
Firm
Market Share (%)
A
20
B
20
C
20
D
20
E
10
F
10
The industry characterized by these data is
D.
a pure monopoly.
39.
Firm
Market Share (%)
A
20
B
20
C
20
D
20
E
10
F
10
14–15
The four-firm concentration ratio for the industry described in this table is
A.
100 percent.
40.
Firm
Market Share (%)
A
20
B
20
C
20
D
20
E
10
F
10
The Herfindahl index for the industry described in this table is
A. 80.
41.
Firm
Market Share (%)
A
20
B
20
C
20
D
20
E
10
F
10
If firms E and Fin this table merged into a single firm, the Herfindahl index would
A.
not change.
42.
Firm
Market Share (%)
A
20
B
20
C
20
D
20
E
10
F
10
Suppose that firms A and F in this table merged into a single firm. The four–firm concentration
ratio and the Herfindahl index would
A.
remain unchanged and rise, respectively.
14–17
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
C.
both fall.
D. both rise.
AACSB: Knowledge Application
Blooms: Understand
Di f fi cu lt y:
02 Medium
Learning Objective: 14–01 Describe the characteristics of oligopoly.
Test Bank: I
Topic:
Oligopoly
Type: Table
43.
Firm
Market Share (%)
A
20
B
20
C
20
D
20
E
10
F
10
Refer to the data. Suppose that firms A and F merged into a single firm. The four-firm
concentration ratio and the Herfindahl index would be
A.
90 percent and 2,100, respectively.
44.
Firm
Market Share (%)
A
40
B
30
C
20
D
5
E
5
Suppose that Firm B in this table was found guilty of antitrust violations and split into two
firms with equal market share.This would cause the Herfindahl index to
D.
rise to 2,450.
Type: Table
45.
Firm
Market Share(%)
A
40
B
30
C
20
D
5
E
5
Refer to the data. Suppose that enforcement of antitrust laws resulted in any firm in this
industry with market share above 20 percent to be split into two firms, with each having equal
market share. That would cause this industry to
A.
remain monopolistically competitive.
14–19
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Blooms: Understand
Di f fi cu lt y:
02 Medium
Learning Objective: 14–01 Describe the characteristics of oligopoly.
Test Bank: I
Topic:
Oligopoly
Type: Table
46.
Firm
Market Share(%)
A
40
B
30
C
20
D
5
E
5
This industry shown in this table illustrates
A.
pure competition.
47.
Firm
Market Share(%)
A
40
B
30
C
20
D
5
E
5
If enforcement of antitrust laws caused the two largest firms in this table to be divided in half,
with each half having equal market share, the industry‘s four-firm concentration ratio
would
and its Herfindahl index would .
C.
remain the same; rise
D.
remain the same; fall
48.
Game theory
D.
reveals that price-fixing among firms reduces profits.
49.
The study of how people (or firms) behave in strategic situations is called
A.
cost-benefit analysis.