c.
increases, the market approaches the competitive market outcome.
d.
increases, the market approaches the monopoly outcome.
115. 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.
116. For cartels, as the number of firms (members of the cartel) increases,
a.
b.
c.
d.
117. 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.
118. 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.
119. 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.
120. 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.
121. 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.
122. 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.
123. 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.
124. 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.
125. Once a cartel is formed, the market is in effect served by
a.
a monopoly.
b.
an oligopoly.
c.
imperfect competition.
d.
monopolistic competition.
126. 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.
127. 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.
128. 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.
129. 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.
130. 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.
131. 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.
132. 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.
133. 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.
134. As the number of firms in an oligopoly increases, the price approaches
a.
zero.
b.
marginal cost.
c.
infinity.
d.
the monopoly price.
135. 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.
136. 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.
137. 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.
138. The theory of oligopoly provides another reason that free trade can benefit all countries because
a.
increased competition leads to larger deadweight losses.
b.
as the number of firms within a given market increases, the price of the good decreases.
c.
as the number of firms within a given market increases, the profit of each firm increases.
d.
All of the above are correct.
139. Firms do not need to be concerned about striking a balance between the price effect and the output effect when
making production decisions in which of the following types of markets?
a.
oligopoly
b.
duopoly
c.
monopoly
d.
competitive markets
140. If nations such as Germany, Japan, and the United States prohibited international trade in automobiles, a likely effect
would be that
a.
the price effect would become a more significant consideration for each firm that makes automobiles.
b.
the excess of price over marginal cost would become less pronounced in the automobile market.
c.
all countries would become better off.
d.
automobile producers in the U.S. would collude to produce a large number of cars.
141. The theory of oligopoly provides a reason why
a.
perfect competition is not a useful object of study.
b.
price is less than marginal cost for many firms.
c.
all countries can benefit from free trade among nations.
d.
firms do not want to capture larger shares of their markets.
142. During the 1990s, the members of OPEC operated independently from one another, causing the world market for
crude oil to become close to
a.
a monopoly market.
b.
an oligopoly market.
c.
a duopoly market.
d.
a competitive market.
143. OPEC is able to raise the price of its product by
a.
tying.
b.
setting production levels for each of its members.
c.
increasing the supply of oil above the competitive level.
d.
imposing resale price maintenance agreements on members.
144. The more firms an oligopoly has,
a.
the more likely it is to earn monopoly profits.
b.
the higher the price of the product.
c.
the farther the equilibrium quantity will be from the socially efficient quantity.
d.
the more likely the firms will charge a price close to the perfectly competitive price.
145. In an oligopoly, the total output produced in the market is
a.
higher than the total output that would be produced if the market were a monopoly and higher than the total
output that would be produced if the market were perfectly competitive.
b.
higher than the total output that would be produced if the market were a monopoly but lower than the total
output that would be produced if the market were perfectly competitive.
c.
lower than the total output that would be produced if the market were a monopoly but higher than the total
output that would be produced if the market were perfectly competitive.
d.
lower than the total output that would be produced if the market were a monopoly and lower than the total
output that would be produced if the market were perfectly competitive.
146. Cartels in the United States are
a.
legal if price is competitively determined.
b.
legal if all firms in the industry agree to the terms of the cartel.
c.
legal if all conditions of the cartel are made public.
d.
illegal.
147. Which of the following would be most likely to contribute to the breakdown of a cartel in a natural resource (e.g.,
bauxite) market?
a.
high prices
b.
low price elasticity of demand
c.
high compatibility of member interests
d.
unequal member ownership of the natural resource
148. An equilibrium in which each firm in an oligopoly maximizes profit, given the actions of its rivals, is called
a.
a general equilibrium.
b.
a dominant equilibrium.
c.
a Nash equilibrium.
d.
an oligopoly equilibrium.
149. An oligopoly would tend to restrict output and drive up price if
a.
barriers to entering the industry are negligible.
b.
firms engage in informative advertising.
c.
firms produce a standardized product.
d.
firms collude and behave like a monopoly.
150. If duopoly firms that are not colluding were able to successfully collude, then
a.
price and quantity would rise.
b.
price and quantity would fall.
c.
price would rise and quantity would fall.
d.
price would fall and quantity would rise.
151. If one firm left a duopoly market where the firms did not cooperate then
a.
price and quantity would rise
b.
price would rise and quantity would fall.
c.
quantity would rise and price would fall.
d.
quantity and price would fall.
152. If a market is a duopoly and additional firms enter and do not cooperate, then
a.
price and quantity fall.
b.
price and quantity rise.
c.
price falls and quantity rises.
d.
price rises and quantity falls.
153. Other things the same, in which case is the quantity produced the highest?
a.
There is one firm.
b.
There are two firms that successfully collude.
c.
There are two firms in Nash equilibrium.
d.
There are a very large number of firms.
154. If duopolists colluded but then stopped colluding,
a.
price and quantity would rise.
b.
price would rise and quantity would fall.
c.
price would fall and quantity would rise
d.
price and quantity would fall.
155. In which case do firms have some control over their price?
a.
monopolistic competition and perfect competition
b.
oligopoly but not perfect competition
c.
perfect competition but not monopoly
d.
neither monopolistic competition nor oligopoly
156. The oligopoly price will be greater than marginal cost but less than the monopoly price when
a.
the oligopolists collude by jointly choosing a quantity to produce and maintaining their agreement.
b.
the oligopolists collude by jointly choosing a price to charge and maintaining their agreement.
c.
each oligopolist individually chooses a quantity to produce to maximize profit.
d.
each oligopolist’s objective is minimization of average total cost, rather than maximization of profit.
157. In pursing its own interest, an oligopoly firm will decide to increase production by 1 unit as long as
a.
there is no output effect.
b.
there is no price effect.
c.
the output effect is larger than the price effect.
d.
the price effect is larger than the output effect.
158. Suppose that Barack and Michelle are duopolists. Barack is producing 300 units of output, and Michelle is producing
400 units of output. When Michelle produces 400 units, Barack maximizes profit by producing 300 units. When Barack
produces 300 units of output, Michelle maximizes profit by producing 400 units. Barack and Michelle are
a.
in a competitive market.
b.
at a Nash equilibrium.
c.
producing with no deadweight loss.
d.
selling at a price higher than the monopoly price.
159. Suppose that Thierry and Abdul are duopolists. Thierry is producing 700 units of output, and Abdul is producing 500
units of output. When Abdul produces 500 units, Thierry maximizes profit by producing 700 units. When Thierry
produces 700 units of output, Abdul maximizes profit by producing 500 units. Thierry and Abdul are
a.
pricing at the minimum of marginal cost.
b.
in a competitive market.
c.
at a Nash equilibrium.
d.
engaging in mark-up pricing.
160. Cartels are difficult to maintain because
a.
the monopoly output is very difficult to determine.
b.
the number of firms is always large.
c.
costs to the firms in a cartel are continually rising.
d.
each firm has an incentive to deviate from its agreed output level.
161. In an oligopoly market, the Nash Equilibrium
a.
is a stable outcome despite providing a lower total profit level.
b.
leads to zero economic profit once the equilibrium is reached.
c.
results in a output level below that for a monopoly.
d.
always result in the maximum profit for all firms.
Table 17–36
The information in the table shows the total demand for water service in Takoma. Assume that there are two companies
operating in Takoma. Each company that provides these services incurs an annual fixed cost of $400 and that the
marginal cost of providing the service to each customer is exactly $2.00. Figures listed are for an annual service contract.
Quantity
Price
0
60
100
55
200
50
300
45
400
40
500
35
600
30
700
25
800
20
900
15
1000
10
1100
5
1200
0
162. Refer to Table 17-36. If there were only one water service provide in this market, and this single firm maximizes
profits, the company will
a.
sell 500 service contracts and charge a price of $35 for each contract.
b.
sell 600 service contracts and charge a price of $30 for each contract.
c.
sell 700 service contracts and charge a price of $25 for each contract.
d.
sell 800 service contracts and charge a price of $20 for each contract.
163. Refer to Table 17-36. The two water service providers in Takoma are able to form a successful cartel. If they
collude on the quantity of service contracts each sells and split the market equally,
a.
each firm will charge a price of $15 and each firm will sell 450 service contracts.
b.
each firm will charge a price of $20 and each firm will sell 400 service contracts.
c.
each firm will charge a price of $25 and each firm will sell 350 service contracts.
d.
each firm will charge a price of $30 and each firm will sell 300 service contracts.
164. Refer to Table 17-36. Suppose that this is a perfectly competitive market. What would total output be?
a.
0
b.
1000
c.
1100
d.
1200
165. Refer to Table 17-36. Assume there are two profit-maximizing water service providers in this market who had
formed a successful cartel. Now assume that the cartel breaks down, so that they are not able to collude on the price and
quantity of service contracts to sell. How many service contracts will be sold in total when this market reaches a Nash
equilibrium?
a.
500.
b.
600.
c.
700.
d.
800.
166. Refer to Table 17-36. Assume there are two profit-maximizing water service providers in this market who had
formed a successful cartel. Now assume that the cartel breaks down, so that they are not able to collude on the price and
quantity of service contracts to sell. How much profit will each firm earn when this market reaches a Nash equilibrium?
a.
$6500.
b.
$8800.
c.
$6800.
d.
$8000.
167. Assume that two firms in an oligopoly market are unable to collude. Once the Nash Equilibrium is reached
a.
it is always possible for one firm to increase its profits by producing more output.
b.
the two firms are jointly earning monopoly profit.
c.
neither firm is able to improve its outcome on its own.
d.
the outcome is equivalent to a competitive equilibrium.
168. Whenever a cartel in a duopoly breaks down,
a.
both firms obtain higher profits.
b.
total output in the market will rise.
c.
price in the market will rise.
d.
the socially optimal output will be produced.