Chapter 11 Test Bank Key
1. Market power is the ability of a firm to
2. An industry’s market structure refers to
A. The number and size of the firms in the industry.
Topic: MARKET STRUCTURE
3. In which of the following market structures are entry barriers the highest?
A. Perfect competition.
4. There are many corn farmers, each of whom produces the same product. The corn market can best
5. Which of the following market structures is characterized by the absence of market power?
6. When firms are interdependent,
A. One firm can ignore other companies in the market when making decisions.
7. Which market structure is characterized by a few interdependent firms?
8. The only market structure in which there is significant interdependence among firms with regard to their
pricing and output decisions is
A. Monopolistic competition.
9. The number of firms in an oligopoly must be
A. Four.
10. Which of the following may not characterize an oligopoly?
11. Which of the following may not characterize an oligopoly?
A. A few firms.
12. Which of the following may characterize a monopoly?
A. Substantial market power.
13. It is most difficult for new firms to enter
14. It is easiest for new firms to enter a
15. The soft drink market is dominated by Coke, Pepsi, and very few other firms. The firms often start price
wars. The market can best be classified as
A. Perfect competition.
percent. Any industry with a concentration ratio above 60 percent is considered an oligopoly.
16. Which of the following is not a determinant of market power?
A. Number of producers.
17. The degree of market power exercised by a firm is related to all but
18. The correct ranking of degree of market power (from highest to lowest) is
A. Monopoly, monopolistic competition, perfect competition, oligopoly.
19. If an oligopoly market is contestable and new firms enter, the
A. Market power of the former oligopolists will be reduced.
20. A contestable market is
21. To keep a market from being contested, firms might
22. Each of the following is a determinant of market power but which is the critical determinant of market power?
23. The concentration ratio measures the
24. The goal of a company in an oligopoly industry is to
A. Increase market share and profits.
25. Concentration ratios tend to overstate the power of some corporations to influence economic
outcomes because they measure output
A. For single firms rather than markets.
26. A nationwide concentration ratio is likely to understate market power when
27. Which of the following industries is likely to have the highest concentration ratio?
28. Which of the following industries has the highest concentration ratio?
29. Which of the following industries has the highest concentration ratio?
30. The concentration ratio for an oligopoly is
31. Market share can be computed by dividing
A. The amount that a buyer buys by the total amount that is produced in the market.
32. Market share is the percentage of total
A. Market output produced by the largest firm in an industry.
33. Suppose there are only three firms in a market. The largest firm has sales of $500 million, the second–largest
has sales of $300 million, and the smallest has sales of $200 million. The market share of the largest firm is
A. 50 percent.
34. Suppose the larger firm of a duopoly has sales of $900 million and the smaller firm has sales of $100
million. The market share of the larger firm is
35. Suppose the larger firm of a duopoly has sales of $400 million and the smaller firm has sales of $100
million. The market share of the larger firm is
36. When a business advertises that its product has unique features that make it superior to other similar products,
it is engaging in
37. Product differentiation
A. Involves charging different prices to different customers.
38. If a firm in an oligopoly expands its market share at prevailing prices, its competitors
A. Lose market share.
39. If oligopolists start cutting prices to capture a larger market share, the result will be a
40. If oligopolists start cutting prices to capture a larger market share, the result will be
A. Lower prices, decreased output, and larger profits.
41. Which one of the following is not a danger of experimenting with pricing for an oligopoly?
42. RC Cola lost market share in the 1980s due to
A. Its decision not to advertise.
43. The kinked demand curve explains the observation that in oligopoly markets
44. The demand curve will be kinked if rival oligopolists
45. Which of the following is true about the kink in the demand curve?
46. The kinked demand curve explains
47. If a firm is producing at the kink in its demand curve and it decides to increase its price, according to the kinked
demand model
48. If a firm is producing at the kink in its demand curve and it decides to decrease its price, according to the
kinked demand model
49. A kinked demand curve indicates that rival oligopolists match all
50. What is the most likely response by rivals when an oligopolist cuts its price to increase its sales?
51. If an oligopolist is going to change its price or output, its initial concern is
52. If rival oligopolists completely ignore Mitchell’s Tool Company’s price changes, then Mitchell’s
Tool Company’s
A. Demand curve will not have a kink.
53. Game theory is
54. The study of how decisions are made when strategic interaction between firms exists is known as
A. Game theory.
55.
Given the payoff matrix in Table 25.1, if the probability of rivals matching a price reduction is 99 percent, what
is the expected payoff for a price cut by Company ABC?
56.
Given the payoff matrix in Table 25.1, if the probability of rivals reducing their price even though you don’t is 10
percent, what is the expected payoff for Company ABC not cutting prices?
57. A payoff matrix shows
A. The profits or losses that result from strategic decisions of one firm and another firm.
58. Oligopolists have a mutual interest in coordinating production decisions in order to maximize joint
59. The goal of an oligopoly is to maximize
A. Market share to achieve long-run economic profit.
60. If a market changes from oligopoly to perfect competition, then as a result
A. Output should increase in the long run.
61. Oligopolists will maximize total profits for all of the firms in the market at the rate of output where
A. TR = TC for the total market.
62. The potential for maximizing total industry profits is greater in oligopolies than in perfect competition
because
63. In an effort to maximize profits, oligopolists could participate in all of the following but
64. The pricing strategy in which there is an explicit agreement among producers regarding price is
called A. Price discrimination.
65. Oligopolists have an incentive to coordinate price because with coordination
A. The demand for each firm’s product is kinked.
66. A cartel is
67. Borden, Inc., which sold milk to Texas Tech University, public schools, and hospitals, paid $8 million in
fines for
68. General Electric and Westinghouse were convicted of
A. Price-fixing.
69. Price leadership is a method by which oligopolies can
A. Increase prices without explicit price-fixing.
70. Price leadership
71. Price leadership
A. Typically results in greater instability in oligopolistic markets.
72. The pricing strategy in which one firm is allowed to establish the market price for all firms in the market is
called
A. Price discrimination.
73. The pricing strategy in which one firm is allowed by its rivals to establish the market price for all firms in
the market is called
A. Overt collusion.
74. Open and explicit agreements concerning pricing and output shares transform an oligopoly into
75. Sky-High Skywriters raises its price, and the other four firms in the industry raise their prices in response.
Coordination in this industry is accomplished by
76. Temporary price reductions intended to drive out competition are referred to as
A. Predatory pricing.
77. Sky-High Skywriters temporarily reduces its price when a new firm called The Sky’s the Limit Skywriting enters
the industry. Sky-High Skywriters is practicing
78. Which of the following does not function as a barrier to entry into an oligopoly market?
79. For an oligopoly, a few firms cannot dominate in the long run unless
80. A firm cannot maintain above-normal profits over the long
run A. Without the existence of a cartel.
81. In the long run, an oligopolist is most likely to
82. Distribution control can be accomplished through all but which one of the following methods?
83. When U.S. government regulations that prevent goods from being imported are relaxed, this
A. Causes oligopoly profits to increase.
84. The most common form of nonprice competition is
85. How might an oligopolist increase total revenue without changing price?
A. Reduce output.
86. High training costs help firms maintain
87. If all of your friends use the same instant messaging service provider, you are likely to use it too. This
behavior may create
88.
Refer to Table 25.2. Assume there are only four firms in the pool sweeper industry. What is the market share
for North Star?