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1. A distinguishing feature of an oligopolistic industry is the tension between
a.
profit maximization and cost minimization.
b.
cooperation and self interest.
c.
producing a small amount of output and charging a price above marginal cost.
d.
short-run decisions and long-run decisions.
2. In studying oligopolistic markets, economists assume that
a.
there is no conflict or tension between cooperation and self-interest.
b.
it is easy for a group of firms to cooperate and thereby establish and maintain a monopoly outcome.
c.
each oligopolist cares only about its own profit.
d.
strategic decisions do not play a role in such markets.
3. The simplest type of oligopoly is
a.
monopoly.
b.
duopoly.
c.
monopolistic competition.
d.
oligopolistic competition.
4. If two firms comprise the entire soft drink market, the market would be a(n)
a.
Nash equilibrium.
b.
monopolistically competitive market.
c.
oligopolistically competitive market.
d.
duopoly.
5. A special kind of imperfectly competitive market that has only two firms is called
a.
a two-tier competitive structure.
b.
an incidental monopoly.
c.
a doublet.
d.
a duopoly.
6. Game theory is necessary to understand which kinds of markets?
(i)
perfectly competitive
(ii)
monopolistically competitive
(iii)
oligopoly
(iv)
duopoly
(v)
monopoly
a.
(i) and (ii) only
b.
(iii), (iv), and (v) only
c.
(iii) and (iv) only
d.
(i), (ii), (iii), (iv), and (v)
7. If four firms comprise the entire golf club industry, the market would be
a.
competitive.
b.
characterized by interdependence of firms.
c.
a duopoly.
d.
a monopoly.
8. An agreement between two duopolists to function as a monopolist usually breaks down because
a.
they cannot agree on the price that a monopolist would charge.
b.
they cannot agree on the output that a monopolist would produce.
c.
each duopolist wants a larger share of the market to capture more profit.
d.
each duopolist wants to charge a higher price than the monopoly price.
9. An agreement among firms in a market about quantities to produce or prices to charge is called
a.
collusion.
b.
Nash equilibrium
c.
dominant strategy.
d.
behavioral economics.
10. Which of the following statements is correct?
a.
If duopolists successfully collude, then their combined output will be equal to the output that would be
observed if the market were a monopoly.
b.
Although the logic of self-interest decreases a duopoly’s price below the monopoly price, it does not push the
duopolists to reach the competitive price.
c.
Although the logic of self-interest increases a duopoly’s level of output above the monopoly level, it does not
push the duopolists to reach the competitive level.
d.
All of the above are correct.
11. Suppose that Bieber and Rihanna are duopolists in the music industry. In May, they agree to work together as a
monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By June, each
singer is considering breaking the agreement. What would you expect to happen next?
a.
Bieber and Rihanna will determine that it is in each singer’s self interest to maintain the agreement.
b.
Bieber and Rihanna will each break the agreement. Both singers’ profits will decrease.
c.
Bieber and Rihanna will each break the agreement. Both singers’ profits will increase.
d.
Bieber and Rihanna will each break the agreement. The new equilibrium quantity of songs will increase, and
the new equilibrium price also will increase.
12. As the number of firms in an oligopoly increases, the
a.
price approaches marginal cost, and the quantity approaches the socially efficient level.
b.
price and quantity approach the monopoly levels.
c.
price effect exceeds the output effect.
d.
individual firms’ profits increase.
13. If a certain market were a monopoly, then the monopolist would maximize its profit by producing 4,000 units of
output. If, instead, that market were a duopoly, then which of the following outcomes would be most likely if the
duopolists successfully collude?
a.
Each duopolist produces 4,000 units of output.
b.
Each duopolist produces 1,500 units of output.
c.
One duopolist produces 2,400 units of output and the other produces 1,600 units of output.
d.
One duopolist produces 3,000 units of output and the other produces 1,500 units of output.
14. Which of the following statements is correct?
a.
When duopoly firms reach a Nash equilibrium, their combined level of output is the monopoly level of output.
b.
When oligopoly firms collude, they are behaving as a cartel.
c.
In an oligopoly, self-interest drives the market to the competitive outcome.
d.
An oligopoly is an example of monopolistic competition.
15. As the number of firms in an oligopoly increases, the magnitude of the
a.
output effect increases.
b.
output effect decreases.
c.
price effect increases.
d.
price effect decreases.
16. As the number of sellers in an oligopoly becomes very large,
a.
the quantity of output approaches the socially efficient quantity.
b.
the price approaches marginal cost.
c.
the price effect is diminished.
d.
All of the above are correct.
17. In markets characterized by oligopoly,
a.
the oligopolists earn the highest profit when they cooperate and behave like a monopolist.
b.
collusive agreements will always prevail.
c.
collective profits are always lower with cartel arrangements than they are without cartel arrangements.
d.
pursuit of self-interest by profit-maximizing firms always maximizes collective profits in the market.
18. As a group, oligopolists would always be better off if they would act collectively
a.
as if they were each seeking to maximize their own individual profits.
b.
in a manner that would prohibit collusive agreements.
c.
as a single monopolist.
d.
as a single perfectly competitive firm.
19. As a group, oligopolists would always earn the highest profit if they would
a.
produce the perfectly competitive quantity of output.
b.
produce more than the perfectly competitive quantity of output.
c.
charge the same price that a monopolist would charge if the market were a monopoly.
d.
operate according to their own individual self-interests.
20. Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together,
a.
they are unable to maintain the same degree of monopoly power enjoyed by a monopolist.
b.
each firm's profit always ends up being zero.
c.
society is worse off as a result.
d.
Both a and c are correct.
Table 17-1
Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each
week Rochelle and Alec work together to decide how many gallons of water to pump. They bring the water to town and
sell it at whatever price the market will bear. To keep things simple, suppose that Rochelle and Alec can pump as much
water as they want without cost so that the marginal cost of water equals zero. The town's weekly demand schedule and
total revenue schedule for water is shown in the table below:
Quantity
(in gallons)
Price
Total Revenue
(and Total Profit)
0
$60
$0
100
55
5,500
200
50
10,000
300
45
13,500
400
40
16,000
500
35
17,500
600
30
18,000
700
25
17,500
800
20
16,000
900
15
13,500
1,000
10
10,000
1,100
5
5,500
1,200
0
0
21. Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, what
price will they charge?
a.
$25
b.
$30
c.
$35
d.
$40
22. Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, how
many gallons of water will be produced and sold?
a.
0
b.
500
c.
600
d.
1,200
23. Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, how
much profit will each of them earn, assuming that the two producers split the market equally?
a.
$8,750
b.
$9,000
c.
$12,000
d.
$18,000
24. Refer to Table 17-1. If the market for water were perfectly competitive instead of monopolistic, how many gallons of
water would be produced and sold?
a.
0 gallons
b.
600 gallons
c.
900 gallons
d.
1,200 gallons
25. Refer to Table 17-1. What is the socially efficient quantity of water?
a.
0 gallons
b.
600 gallons
c.
900 gallons
d.
1,200 gallons
26. Refer to Table 17-1. If this market for water were perfectly competitive instead of monopolistic, what price would be
charged?
a.
$0
b.
$30
c.
$40
d.
$60
27. Refer to Table 17-1. Suppose the town enacts new antitrust laws that prohibit Rochelle and Alec from operating as a
monopoly. What will be the price of water once Rochelle and Alec reach a Nash equilibrium?
a.
$15
b.
$20
c.
$25
d.
$30
28. Refer to Table 17-1. Suppose the town enacts new antitrust laws that prohibit Rochelle and Alec from operating as a
monopoly. How many gallons of water will be produced and sold once Rochelle and Alec reach a Nash equilibrium?
a.
600
b.
700
c.
800
d.
900
Table 17-2
Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each
week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at
whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they
want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for
water is shown in the table below:
Quantity
(in gallons)
Price
Total Revenue
(and Total Profit)
0
$12
$0
1
$11
$11
2
$10
$20
3
$9
$27
4
$8
$32
5
$7
$35
6
$6
$36
7
$5
$35
8
$4
$32
9
$3
$27
10
$2
$20
11
$1
$11
12
$0
$0
29. Refer to Table 17-2. Suppose that Abby and Brad work together to operate as a profit-maximizing monopolist. What
price will they charge for water?
a.
$8
b.
$7
c.
$6
d.
$4
30. Refer to Table 17-2. Suppose that Abby and Brad work together to operate as a profit-maximizing monopolist. How
many gallons of water will be produced and sold?
a.
4 gallons
b.
5 gallons
c.
6 gallons
d.
8 gallons
31. Refer to Table 17-2. If this market for water were perfectly competitive instead of monopolistic, what would be the
price for water?
a.
$0
b.
$4
c.
$6
d.
$12
32. Refer to Table 17-2. If this market for water were perfectly competitive instead of monopolistic, how many gallons of
water would be produced and sold?
a.
12 gallons
b.
8 gallons
c.
6 gallons
d.
0 gallons
33. Refer to Table 17-2. Suppose the town enacts new antitrust laws that prohibit Abby and Brad from operating as a
monopoly. What will be the price of water once Abby and Brad reach a Nash equilibrium?
a.
$12
b.
$8
c.
$6
d.
$4
34. Refer to Table 17-2. Suppose the town enacts new antitrust laws that prohibit Abby and Brad from operating as a
monopoly. How much profit will Abby and Brad each earn once they reach a Nash equilibrium?
a.
$36
b.
$32
c.
$18
d.
$16
Table 17-3
Imagine a small town in a remote area where only two residents, Maria and Miguel, own dairies that produce milk that is
safe to drink. Each week Maria and Miguel work together to decide how many gallons of milk to produce. They bring
milk to town and sell it at whatever price the market will bear. To keep things simple, suppose that Maria and Miguel can
produce as much milk as they want without cost so that the marginal cost is zero. The weekly town demand schedule and
total revenue schedule for milk is shown in the table below:
Quantity
(in gallons)
Price
Total Revenue
(and Total Profit)
0
$24
$0
1
$22
$22
2
$20
$40
3
$18
$54
4
$16
$64
5
$14
$70
6
$12
$72
7
$10
$70
8
$8
$64
9
$6
$54
10
$4
$40
11
$2
$22
12
$0
$0
35. Refer to Table 17-3. Suppose that Maria and Miguel work together in order to operate as a profit-maximizing
monopolist. What price will they charge for milk?
a.
$14
b.
$12
c.
$10
d.
$8
36. Refer to Table 17-3. Suppose that Maria and Miguel work together in order to operate as a profit-maximizing
monopolist. How many gallons of milk will be produced and sold?
a.
5 gallons
b.
6 gallons
c.
7 gallons
d.
8 gallons
37. Refer to Table 17-3. If this market for milk were perfectly competitive instead of monopolistic, what would be the
price for milk?
a.
$0
b.
$10
c.
$12
d.
$16
38. Refer to Table 17-3. If this market for milk were perfectly competitive instead of monopolistic, how many gallons of
milk would be produced and sold?
a.
12 gallons
b.
8 gallons
c.
6 gallons
d.
0 gallons
39. Refer to Table 17-3. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel from operating as a
monopoly. What will be the price of milk once Maria and Miguel reach a Nash equilibrium?
a.
$14
b.
$12
c.
$10
d.
$8
40. Refer to Table 17-3. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel from operating as a
monopoly. How much profit will Miguel and Maria each earn once they reach a Nash equilibrium?
a.
$40
b.
$36
c.
$32
d.
$30
Table 17-4
The table shows the town of Mauston’s demand schedule for gasoline. For simplicity, assume the town’s gasoline seller(s)
incur no costs in selling gasoline.
Quantity
(in gallons)
Price
Total Revenue
(and total profit)
0
$10
$0
50
9
450
100
8
800
150
7
1,050
200
6
1,200
250
5
1,250
300
4
1,200
350
3
1,050
400
2
800
450
1
450
500
0
0
41. Refer to Table 17-4. If the market for gasoline in Mauston is perfectly competitive, then the equilibrium price of
gasoline is
a.
$7 and the equilibrium quantity is 150 gallons.
b.
$5 and the equilibrium quantity is 250 gallons.
c.
$3 and the equilibrium quantity is 350 gallons.
d.
$0 and the equilibrium quantity is 500 gallons.
42. Refer to Table 17-4. If the market for gasoline in Mauston is a monopoly, then the profit-maximizing monopolist will
charge a price of
a.
$7 and sell 150 gallons.
b.
$5 and sell 250 gallons.
c.
$3 and sell 350 gallons.
d.
$0 and sell 500 gallons.
43. Refer to Table 17-4. If there are exactly two sellers of gasoline in Mauston and if they collude, then which of the
following outcomes is most likely?
a.
Each seller will sell 250 gallons and charge a price of $5.
b.
Each seller will sell 175 gallons and charge a price of $3.
c.
Each seller will sell 125 gallons and charge a price of $2.5.
d.
Each seller will sell 125 gallons and charge a price of $5.
44. Refer to Table 17-4. If there are exactly four sellers of gasoline in Mauston and if they collude, then which of the
following outcomes is most likely?
a.
Each seller will sell 62.5 gallons and charge a price of $1.25.
b.
Each seller will sell 62.5 gallons and charge a price of $5.
c.
Each seller will sell 100 gallons and charge a price of $2.
d.
Each seller will sell 250 gallons and charge a price of $0.
45. Refer to Table 17-4. Suppose there are exactly two sellers of gasoline in Mauston: Shellon and Standstop. If Shellon
sells 150 gallons and Standstop sells 200 gallons, then
a.
Shellon’s profit is $450 and Standstop’s profit is $600.
b.
Shellon’s profit is $1,050 and Standstop’s profit is $1,200.
c.
the two firms are colluding and earn monopoly profits.
d.
consumers in Mauston are worse off than they would be if the two firms colluded.
Table 17-5
The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small
urban market. Assume that each digital cable TV operator pays a fixed cost of $200,000 (per year) to provide premium
digital channels in the market area and that the marginal cost of providing the premium channel service to a household is
zero.
Quantity
Price (per year)
0
$180
1500
$165
3,000
$150
4,500
$135
6,000
$120
7500
$105
9,000
$90
10,500
$75
12,000
$60
13,500
$45
15,000
$30
16,500
$15
18,000
$ 0
46. Refer to Table 17-5. If there is only one digital cable TV company in this market, what price would it charge for a
premium digital channel subscription to maximize its profit?
a.
$30
b.
$60
c.
$90
d.
$150
47. Refer to Table 17-5. Assume there are two digital cable TV companies operating in this market. If they are able to
collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions, then their
agreement will stipulate that
a.
each firm will charge a price of $90 and each firm will sell 4,500 subscriptions.
b.
each firm will charge a price of $90 and each firm will sell 9,000 subscriptions.
c.
each firm will charge a price of $120 and each firm will sell 3,000 subscriptions.
d.
each firm will charge a price of $150 and each firm will sell 1,500 subscriptions.
48. Refer to Table 17-5. Assume there are two profit-maximizing digital cable TV companies operating in this market.
Further assume that they are able to collude on the quantity of subscriptions that will be sold and on the price that will be
charged for subscriptions. How much profit will each company earn, given that the two firms split the market equally?
a.
$610,000
b.
$550,000
c.
$405,000
d.
$205,000
49. Refer to Table 17-5. Assume there are two profit-maximizing digital cable TV companies operating in this market.
Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell.
How many premium digital channel cable TV subscriptions will be sold altogether when this market reaches a Nash
equilibrium?
a.
6,000
b.
9,000
c.
12,000
d.
15,000
50. Refer to Table 17-5. Assume there are two profit-maximizing digital cable TV companies operating in this market.
Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell.
What price will premium digital channel cable TV subscriptions be sold at when this market reaches a Nash equilibrium?
a.
$30
b.
$60
c.
$90
d.
$120
51. Refer to Table 17-5. Assume that there are two profit-maximizing digital cable TV companies operating in this
market. Further assume that they are not able to collude on the price and quantity of premium digital channel
subscriptions to sell. How much profit will each firm earn when this market reaches a Nash equilibrium?
a.
$25,000
b.
$90,000
c.
$160,000
d.
$215,000
Table 17-6
Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week
Kunal and Naj work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at
whatever price the market will bear. Assume Kunal and Naj can pump as much water as they want without cost so that the
marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water are shown in the table below.
Weekly
Quantity
(in gallons)
Price
Weekly
Total Revenue
(and Total Profit)
0
$12
$ 0
25
11
275
50
10
500
75
9
675
100
8
800
125
7
875
150
6
900
175
5
875
200
4
800
225
3
675
250
2
500
275
1
275
300
0
0
52. Refer to Table 17-6. Since Kunal and Naj operate as a profit-maximizing monopoly in the market for water, what
price will they charge for water?
a.
$2
b.
$4
c.
$6
d.
$7
53. Refer to Table 17-6. If the market for water were perfectly competitive instead of monopolistic, how many gallons of
water would be produced and sold?
a.
25
b.
100
c.
200
d.
300
54. Refer to Table 17-6. As long as Kunal and Naj operate as a profit-maximizing monopoly, what will their combined
weekly revenue amount to?
a.
$450
b.
$675
c.
$875
d.
$900
55. Refer to Table 17-6. The socially efficient level of water supplied to the market would be
a.
50 gallons.
b.
150 gallons.
c.
225 gallons.
d.
300 gallons.
56. Refer to Table 17-6. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a
monopolist. What will the new price of water be once the Nash equilibrium is reached?
a.
$3
b.
$4
c.
$5
d.
$6
57. Refer to Table 17-6. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a
monopolist. What will quantity of water will each of them produce once the Nash equilibrium is reached?
a.
Each will produce 50 gallons, for a total of 100 gallons.
b.
Each will produce 75 gallons, for a total of 150 gallons.
c.
Each will produce 100 gallons, for a total of 200 gallons.
d.
Each will produce 125 gallons, for a total of 250 gallons.
58. Refer to Table 17-6. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a
monopolist. Once the Nash equilibrium is reached, how much profit will each producer earn?
a.
$400.00
b.
$437.50
c.
$450.00
d.
$800.00
Table 17-7
The information in the table below shows the total demand for internet radio subscriptions in a small urban market.
Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year) and that the
marginal cost of providing an additional subscription is always $16.
Quantity
Price (per year)
0
$64
500
$60
1,000
$56
1,500
$52
2,000
$48
25,00
$44
3,000
$40
3,500
$36
4,000
$32
4,500
$28
5,000
$24
5,500
$20
6,000
$16
6,500
$12
7,000
$8
7,500
$4
8,000
$0
59. Refer to Table 17-7. Suppose there is only one internet radio provider in this market and it seeks to maximize its
profit. The company will
a.
sell 2,000 subscriptions and charge a price of $48 for each subscription.
b.
sell 3,000 subscriptions and charge a price of $40 for each subscription.
c.
sell 4,000 subscriptions and charge a price of $32 for each subscription.
d.
sell 5,000 subscriptions and charge a price of $24 for each subscription.
60. Refer to Table 17-7. Assume there are two internet radio providers that operate in this market. If they are able to
collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions, then their
agreement will stipulate that
a.
each firm will charge a price of $40 and each firm will sell 3,000 subscriptions.
b.
each firm will charge a price of $40 and each firm will sell 1,500 subscriptions.
c.
each firm will charge a price of $32 and each firm will sell 2,000 subscriptions.
d.
each firm will charge a price of $20 and each firm will sell 3,000 subscriptions.
61. Refer to Table 17-7. Assume there are two profit-maximizing internet radio providers operating in this market.
Further assume that they are able to collude on the quantity of subscriptions that will be sold and on the price that will be
charged for subscriptions. If the firms divide the market evenly, how much profit will each company earn?
a.
$12,000
b.
$16,000
c.
$44,000
d.
$60,000
