Multiple Choice Identify the
choice that best completes the statement or answers the question.
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1.
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Which of the following is unique to oligopoly among all the market
structures?
a. | product differentiation | b. | profit maximization | c. | mutual
interdependence between firms | d. | advertising | e. | long-run economic
profits |
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2.
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An oligopoly can be identified because
a. | each firm’s strategy depends on each of the small number of other
firms. | b. | there is only one firm, but it has no barriers to entry | c. | a large number of
small firms | d. | while there is a small number of firms, each firm’s makes decisions without
regard for what the other firms do. | e. | a large number of very large
firms. |
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3.
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The automobile, breakfast cereal, and tobacco industries are examples of
a. | monopolistic competition | b. | oligopoly | c. | perfect
competition | d. | monopoly | e. | monopsony |
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4.
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The defining characteristic of oligopoly is that each firm
a. | produces the same output as its rivals | b. | acts independently of its
rivals | c. | is mutually interdependent | d. | is atomistic | e. | advertises how its
products are different from its rivals' products |
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5.
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The movie industry (“Hollywood”) consists of just a few very large
studios who control the distribution of all major motion pictures. Hollywood is constantly
“buzzing” with rumors about what each studio is planning to release and when.
Hollywood studios have been frequent targets of anti-trust lawsuits in the past. What market
structure best describes this industry?
a. | perfect competition | b. | monopolistic competition | c. | monopoly | d. | oligopoly | e. | monopsony |
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6.
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Consider the beer industry. Despite the large number of brands and
flavors, and despite the emergence of so-called “micro breweries”, it is increasingly
becoming dominated by a small number of large brewing companies. At one time, every major city
had it’s own local brewer and sometimes several. But, as of 2004, a wave of mergers in the
world-wide brewing industry meant that over 50% of all beer sold is now brewed by less than 10
companies. The beer industry is moving from _________ to being ____________.
a. | perfect competition; monopoly | b. | monopolistic competition;
oligopoly | c. | monopoly; oligopoly | d. | oligopoly; monopolistic
competition | e. | monopolistic competition; perfect competition |
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7.
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Two heavy equipment manufacturers might collude in an effort to do all of the
following except one. Which is the exception?
a. | determine a more advantageous price and quantity | b. | prevent new entry
into the market | c. | take advantage of the legal benefits that U.S. cartels receive | d. | increase their
combined profits | e. | predict the behavior of other competitors in the heavy equipment market with greater
certainty |
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8.
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Collusion occurs when
a. | a firm chooses a level of output to maximize its own profit | b. | firms get together
to maximize joint profits | c. | firms refuse to follow their price
leaders | d. | firms petition their U.S. senators for favors | e. | two firms'
price and output decisions come into conflict |
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9.
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A cartel is an organization of firms
a. | dominated by one firm, which is usually referred to as the price
leader. | b. | that attempts to increase total (or industry) demand for their
product. | c. | that reduces output and increases price in an effort to increase joint
profits. | d. | that deliberately attempts to disrupt the market for political
reasons. |
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10.
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If all six suppliers of cement to Metropolis sign an agreement that establishes
an agreed-upon price of $45 per ton, this would be
a. | a legal contract | b. | price discrimination | c. | cost-plus
pricing | d. | a cartel | e. | beneficial to
consumers |
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11.
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Strategic behavior, the situation where each decision-maker’s decisions
directly affects the other decision-makers’ outcomes, is analyzed in economics using
a. | the P=MR=MC model | b. | game theory. | c. | production
theory. | d. | consumer theory. | e. | monetary
dynamics |
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12.
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The principal advantage of the game theory approach is that it allows us
to
a. | take all possible information into consideration before developing a
theory | b. | better understand why the firm in a competitive industry avoids
games | c. | better understand how the government should regulate a natural
monopoly | d. | better understand decision making when one persons choices affect another persons
choices | e. | understand the relationship between the firm and the industry demand
curves |
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13.
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The "prisoner's dilemma" game illustrates a case in which
a. | individually rational behavior leads to a collectively inefficient
outcome. | b. | what is irrational individual behavior turns out to be ultra-irrational group
behavior. | c. | the whole is greater than the sum of the parts. | d. | you can do better by
yourself if you do worse by others. | e. | none of the
above |
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14.
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In the prisoner's dilemma, each prisoner chooses to ________ because
it is __________ . The eventual outcome is __________.
a. | confess; the best for them individually; the best possible joint
outcome. | b. | confess; the best for the group; the worst possible joint
outcome. | c. | confess; the best for them individually; the worst possible joint
outcome. | d. | not confess; the best for them individually; the best possible joint
outcome. | e. | not confess; the best for the group; the best possible joint
outcome. | f. | not confess; the best for them individually; the worst possible joint
outcome. |
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15.
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The prisoner's dilemma provides an explanation for
a. | the lack of price competition in oligopoly | b. | the ability of firms
in an oligopoly to extract the entire consumer surplus | c. | why monopoly firms are
profitable | d. | the failure of firms in non-competitive industries to maximize
profits | e. | why firms in oligopoly may find it difficult to act as a “shared
monopoly” |
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16.
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The outcome of competition in oligopoly is
a. | harder to predict than in other market structures | b. | very likely to be
the same as in perfect competition | c. | nearly always the same outcome as
monopoly | d. | easier to predict than in any other market structure | e. | determined by
government planning |
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17.
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Oligopoly often leads to firm strategies that are inefficient and harmful to
consumers. Examples of such strategies include
a. | collusion | b. | product differentiation | c. | price-fixing | d. | a and b only | e. | a and c
only |
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