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Oligopoly 4273
98. Refer to Table 17-12. Suppose we observe that the price of a gallon of gasoline in Driveaway is
$5; we observe as well that a particular seller’s profit is $150. Given this observation, which of the
following scenarios is most likely?
a. The market for gasoline in Driveaway is a monopoly.
b. There are two identical sellers of gasoline in Driveaway, and the sellers collude.
c. There are two identical sellers of gasoline in Driveaway, and the sellers do not collude.
d. There are three identical sellers of gasoline in Driveaway, and the sellers collude.
99. Refer to Table 17-12. If there are exactly two sellers of gasoline in Driveaway and if they
collude, then which of the following outcomes is most likely?
a. Each seller will sell 50 gallons and charge a price of $7.
b. Each seller will sell 75 gallons and charge a price of $2.50.
c. Each seller will sell 75 gallons and charge a price of $5.
d. Each seller will sell 100 gallons and charge a price of $4.
4274 Oligopoly
100. Refer to Table 17-12. If there are exactly five sellers of gasoline in Driveaway and if they
collude, then which of the following outcomes is most likely?
a. Each seller will sell 50 gallons and charge a price of $3.
b. Each seller will sell 40 gallons and charge a price of $4.
c. Each seller will sell 30 gallons and charge a price of $4.
d. Each seller will sell 30 gallons and charge a price of $5.
101. Refer to Table 17-12. If there are exactly five sellers of gasoline in Driveaway and if they
collude, then which of the following outcomes is most likely?
a. Each seller will sell 20 gallons, charge a price of $6, and earn a profit of $80.
b. Each seller will sell 30 gallons, charge a price of $5, and earn a profit of $90.
c. Each seller will sell 40 gallons, charge a price of $4, and earn a profit of $120.
d. Each seller will sell 50 gallons, charge a price of $3, and earn a profit of $50.
Oligopoly 4275
102. Refer to Table 17-12. Suppose there are exactly two sellers of gasoline in Driveaway: Amogo
and Spilmerica. If Amogo sells 150 gallons and Spilmerica sells 100 gallons, then
a. Amogo’s profit is $150 and Spilmerica’s profit is $100.
b. Amogo’s profit is $100 and Spilmerica’s profit is $66.67.
c. Amogo’s profit is $75 and Spilmerica’s profit is $50.
d. there is an excess supply of gasoline in Driveaway.
103. Assuming that oligopolists do not have the opportunity to collude, once they have reached the
Nash equilibrium, it
a. is always in their best interest to supply more to the market.
b. is always in their best interest to supply less to the market.
c. is always in their best interest to leave their quantities supplied unchanged.
d. may be in their best interest to do any of the above, depending on market conditions.
4276 Oligopoly
104. A situation in which firms choose their best strategy given the strategies chosen by the other
firms in the market is called
a. a competitive equilibrium.
b. an open-market solution.
c. a socially-optimal solution.
d. a Nash equilibrium.
105. When an oligopoly market reaches a Nash equilibrium,
a. the market price will be different for each firm.
b. the firms will not have behaved as profit maximizers.
c. a firm will have chosen its best strategy, given the strategies chosen by other firms in the
market.
d. a firm will not take into account the strategies of competing firms.
Oligopoly 4277
106. In a duopoly situation, the logic of self-interest results in a total output level that
a. equals the output level that would prevail in a competitive market.
b. equals the output level that would prevail in a monopoly.
c. exceeds the monopoly level of output, but falls short of the competitive level of output.
d. falls short of the monopoly level of output.
107. As a group, oligopolists earn the highest profit when they
a. achieve a Nash equilibrium.
b. produce a total quantity of output that falls short of the Nash-equilibrium total quantity.
c. produce a total quantity of output that exceeds the Nash-equilibrium total quantity.
d. charge a price that falls short of the Nash-equilibrium price.
4278 Oligopoly
108. To be successful, a cartel must
a. find a way to encourage members to produce more than they would otherwise produce.
b. agree on the total level of production for the cartel, but they need not agree on the amount
produced by each member.
c. agree on the total level of production and on the amount produced by each member.
d. agree on the prices charged by each member, but they need not agree on amounts produced.
109. In a particular town, Comvision and Veriview are the only two providers of cable TV service.
Comvision and Veriview constitute a
a. duopoly, whether they collude or not.
b. cartel, whether they collude or not.
c. Nash industry, whether they collude or not.
d. monopolistically competitive market if they charge the same price.
Oligopoly 4279
110. Which of these situations produces the largest profits for oligopolists?
a. The firms reach a Nash equilibrium.
b. The firms reach the monopoly outcome.
c. The firms reach the competitive outcome.
d. The firms produce a quantity of output that lies between the competitive outcome and the
monopoly outcome.
111. When firms have agreements among themselves on the quantity to produce and the price at
which to sell output, we refer to their form of organization as a
a. Nash arrangement.
b. cartel.
c. monopolistically competitive oligopoly.
d. perfectly competitive oligopoly.
4280 Oligopoly
112. The equilibrium quantity in markets characterized by oligopoly is
a. higher than in monopoly markets and higher than in perfectly competitive markets.
b. higher than in monopoly markets and lower than in perfectly competitive markets.
c. lower than in monopoly markets and higher than in perfectly competitive markets.
d. lower than in monopoly markets and lower than in perfectly competitive markets.
113. The equilibrium price in a market characterized by oligopoly is
a. higher than in monopoly markets and higher than in perfectly competitive markets.
b. higher than in monopoly markets and lower than in perfectly competitive markets.
c. lower than in monopoly markets and higher than in perfectly competitive markets.
d. lower than in monopoly markets and lower than in perfectly competitive markets.
Oligopoly 4281
114. When oligopolistic firms interacting with one another each choose their best strategy given the
strategies chosen by other firms in the market, we have
a. a cartel.
b. a group of oligopolists behaving as a monopoly.
c. a Nash equilibrium.
d. the perfectly competitive outcome.
115. As the number of firms in an oligopoly market
a. decreases, the price charged by firms likely decreases.
b. decreases, the market approaches the competitive market outcome.
c. increases, the market approaches the competitive market outcome.
d. increases, the market approaches the monopoly outcome.
4282 Oligopoly
116. Assume oligopoly firms are profit maximizers, they do not form a cartel, and they take other
firms' production levels as given. Then in equilibrium the output effect
a. must dominate the price effect.
b. must be smaller than the price effect.
c. must balance with the price effect.
d. can be larger or smaller than the price effect.
117. For cartels, as the number of firms (members of the cartel) increases,
a. the monopoly outcome becomes more likely.
b. the magnitude of the price effect decreases.
c. the more concerned each seller is about its own impact on the market price.
d. the easier it becomes to observe members violating their agreements.
Oligopoly 4283
118. Suppose a market is initially perfectly competitive with many firms selling an identical product.
Over time, however, suppose the merging of firms results in the market being served by only
three or four firms selling this same product. As a result, we would expect
a. an increase in market output and an increase in the price of the product.
b. an increase in market output and an decrease in the price of the product.
c. a decrease in market output and an increase in the price of the product.
d. a decrease in market output and a decrease in the price of the product.
119. Cartels are difficult to maintain because
a. antitrust laws are difficult to enforce.
b. cartel agreements are conducive to monopoly outcomes.
c. there is always tension between cooperation and self-interest in a cartel.
d. firms pay little attention to the decisions made by other firms.
4284 Oligopoly
120. There are two types of markets in which firms face some competition yet are still able to have
some control over the prices of their products. Those two types of market are
a. monopolistic competition and oligopoly.
b. duopoly and triopoly.
c. perfect competition and monopolistic competition.
d. duopoly and imperfect competition.
121. A group of firms that act in unison to maximize collective profits is called a
a. monopolistically competitive industry.
b. monopoly.
c. cartel.
d. Nash equilibrium market.
Oligopoly 4285
122. An agreement among firms regarding price and/or production levels is called
a. an antitrust market.
b. a free-trade arrangement.
c. collusion.
d. a Nash agreement.
123. If duopolists individually pursue their own self-interest when deciding how much to produce, the
amount they will produce collectively will
a. be less than the monopoly quantity.
b. be equal to the monopoly quantity.
c. be greater than the monopoly quantity.
d. Any of the above are possible.
4286 Oligopoly
124. If duopolists individually pursue their own self-interest when deciding how much to produce, the
profit-maximizing price they will charge for their product will be
a. less than the monopoly price.
b. equal to the perfectly competitive market price.
c. greater than the monopoly price.
d. possibly less than or greater than the monopoly price.
125. To increase their individual profits, members of a cartel have an incentive to
a. charge a higher price than the other members of the cartel.
b. increase production above the level agreed upon.
c. ignore the choices made by the other firms and act as a monopolist.
d. charge the same price a monopolist would charge.
Oligopoly 4287
126. Once a cartel is formed, the market is in effect served by
a. a monopoly.
b. an oligopoly.
c. imperfect competition.
d. monopolistic competition.
127. If an oligopolist is part of a cartel that is collectively producing the monopoly level of output, then
that oligopolist has the incentive to increase production with the aim of
a. increasing prices.
b. increasing profits for the group of firms as a whole.
c. increasing profits for itself, regardless of the impact on profits for the group of firms as a
whole.
d. decreasing costs of production.
4288 Oligopoly
128. When price is above marginal cost, selling one more unit at the current price will increase profit.
This concept is known as the
a. income effect.
b. price effect.
c. output effect.
d. cartel effect.
129. In imperfectly competitive markets, increasing production will decrease the price of all units sold.
This concept is known as the
a. income effect.
b. cost effect.
c. output effect.
d. price effect.
Oligopoly 4289
130. In a typical cartel agreement, the cartel maximizes profit when it
a. behaves as a monopolist.
b. behaves as a duopolist.
c. is flexible in enforcing production targets.
d. behaves as a perfectly competitive firm.
131. All cartels are inherently reliant on
a. a horizontal demand curve.
b. an inelastic demand for their product.
c. the cooperation of their members.
d. enforcement of antitrust laws.
132. An oligopolist will increase production if the output effect is
a. less than the price effect.
b. equal to the price effect.
c. greater than the price effect.
d. The oligopolist never has an incentive to increase production.
4290 Oligopoly
133. As the number of firms in an oligopoly increases,
a. each seller becomes more concerned about its impact on the market price.
b. the output effect decreases.
c. the total quantity of output produced by firms in the market gets closer to the socially efficient
quantity.
d. the oligopoly has more market power and firms earn a greater profit.
134. As the number of firms in the oligopoly grows very large, the
a. output effect disappears.
b. price effect disappears.
c. output effect equals the price effect.
d. price of the product greatly exceeds marginal cost.
Oligopoly 4291
135. As the number of firms in an oligopoly increases, the price approaches
a. zero.
b. marginal cost.
c. infinity.
d. the monopoly price.
136. Like monopolists, oligopolists are aware that an increase in the quantity of output always
a. reduces the price of their product.
b. reduces their profit.
c. reduces their revenue.
d. reduces productivity.
4292 Oligopoly
137. Oligopolies would like to act like a
a. duopoly, but self-interest often drives them closer to the perfectly competitive outcome.
b. competitive firm, but self-interest often drives them closer to the duopoly outcome.
c. monopoly, but self-interest often drives them to charge a higher price than would be charged
by a monopoly.
d. monopoly, but self-interest often drives them closer to the perfectly competitive outcome.
138. Oligopolies can end up looking like competitive markets if the number of firms is
a. large and they all cooperate.
b. large and they do not cooperate.
c. small and they all cooperate.
d. small and they do not cooperate.
