question
Exceptions to the prohibition against cartels exist for which of the following?
a. Ocean shipping rates
b. Various agricultural products such as milk and oranges
c. Transoceanic airline routes
d. Cardboard box manufacturers
e. a through c
f. a through d
a. Ocean shipping rates
b. Various agricultural products such as milk and oranges
c. Transoceanic airline routes
d. Cardboard box manufacturers
e. a through c
f. a through d
answer
e. a through c
question
The kinked demand curve model helps to explain:
a. Fluctuations of prices in pure competition
b. Stabilities observed in prices in oligopolistic industries
c. Fluctuations observed in prices in oligopolistic industries
d. All of the above
e. None of the above
a. Fluctuations of prices in pure competition
b. Stabilities observed in prices in oligopolistic industries
c. Fluctuations observed in prices in oligopolistic industries
d. All of the above
e. None of the above
answer
b. Stabilities observed in prices in oligopolistic industries
question
An oligopoly is characterized by:
a. A relatively small number of firms
b. Either differentiated or undifferentiated products
c. Actions of any individual firm will affect sales of other firms in the industry
d. a and b
e. a, b, and c
a. A relatively small number of firms
b. Either differentiated or undifferentiated products
c. Actions of any individual firm will affect sales of other firms in the industry
d. a and b
e. a, b, and c
answer
e. a, b, and c
question
Which of the following is an example of an oligopolistic market structure?
a. Public utilities
b. Air transport industry
c. Liquor retailers
d. Wheat farmers
e. None of the above
a. Public utilities
b. Air transport industry
c. Liquor retailers
d. Wheat farmers
e. None of the above
answer
b. Air transport industry
question
In the Cournot duopoly model, each of the two firms, in determining its profit-maximizing price-output level, assumes that the other firm's ____ will not change.
a. Price
b. Output
c. Marketing strategy
d. Inventory
e. None of the above
a. Price
b. Output
c. Marketing strategy
d. Inventory
e. None of the above
answer
b. Output
question
If a cartel seeks to maximize profits, the market share (or quota) for each firm should be set at a level such that the ____ of all firms is identical.
a. Average total cost
b. Average profit
c. Marginal profit
d. Marginal cost
e. Marginal revenue
a. Average total cost
b. Average profit
c. Marginal profit
d. Marginal cost
e. Marginal revenue
answer
d. Marginal cost
question
In the absence of any legally binding enforcement mechanism, individual cartel producers may find it advantageous to cheat on the agreements and engage in secret price concessions.
a. True
b. False
a. True
b. False
answer
a. True
question
A(n) ____ is characterized by a relatively small number of firms producing a product.
a. Monopoly
b. Syndicate
c. Cooperative
d. Oligopoly
e. None of the above
a. Monopoly
b. Syndicate
c. Cooperative
d. Oligopoly
e. None of the above
answer
d. Oligopoly
question
The distinctive characteristic of an oligopolistic market structure is that there are recognizable interdependencies among the decisions of the firms.
a. True
b. False
a. True
b. False
answer
a. True
question
Factors that affect the ability of oligopolistic firms to successfully engage in cooperation include ____.
a. Number and size distribution of sellers
b. Size and frequency of orders
c. Product heterogeneity
d. a and b only
e. a, b, and c
a. Number and size distribution of sellers
b. Size and frequency of orders
c. Product heterogeneity
d. a and b only
e. a, b, and c
answer
e. a, b, and c
question
Effective oligopolistic collusion is more likely to occur when customer orders are small, frequent, and received on a regular basis as compared with large orders that are received infrequently at irregular intervals.
a. True
b. False
a. True
b. False
answer
a. True
question
Effective collusion generally is more difficult as the number of oligopolistic firms involved increases.
a. True
b. False
a. True
b. False
answer
a. True
question
The largest problem faced in cartel pricing agreements such as OPEC is:
a. Detecting violations of quota barriers by cartel participants
b. Arriving at a profit maximizing price
c. Attracting participants in the cartel
d. None of the above
a. Detecting violations of quota barriers by cartel participants
b. Arriving at a profit maximizing price
c. Attracting participants in the cartel
d. None of the above
answer
a. Detecting violations of quota barriers by cartel participants
question
Some market conditions make cartels MORE likely to succeed in collusion. Which of the following will make collusion more successful?
a. The products are heterogeneous
b. The orders are small and frequent
c. The firms are all about the same size
d. Costs differ across the firms
e. Firms are geographically widely scattered
a. The products are heterogeneous
b. The orders are small and frequent
c. The firms are all about the same size
d. Costs differ across the firms
e. Firms are geographically widely scattered
answer
b. The orders are small and frequent
question
Even ideal cartels tend to be unstable because
a. Firms typically prefer competition to collusion as competition, because it leads to more profits.
b. Collusion leads to lowest possible overall profits in the industry.
c. Oligopolistic managers are extremely risk loving.
d. Firms can benefit by secretly selling more than they promised the other firms
e. All of the above
a. Firms typically prefer competition to collusion as competition, because it leads to more profits.
b. Collusion leads to lowest possible overall profits in the industry.
c. Oligopolistic managers are extremely risk loving.
d. Firms can benefit by secretly selling more than they promised the other firms
e. All of the above
answer
d. Firms can benefit by secretly selling more than they promised the other firms
question
Suppose that in a perfectly competitive industry the equilibrium industry quantity is 10,000 units. Suppose that the monopoly output is 5,000. For a 2-firm Cournot Oligopoly (N =2) known as a duopoly, what is a likely Cournot QUANTITY for the industry?
a. 3,000 units
b. 5,000 units
c. 6,667 units
d. 10,000 units
e. 15,000 units
a. 3,000 units
b. 5,000 units
c. 6,667 units
d. 10,000 units
e. 15,000 units
answer
c. 6,667 units
question
A cartel is a situation where firms in the industry
a. Have an agreement to restrict output.
b. Agree to produce identical products.
c. Obey the rules of dominant firm price leadership.
d. Experience the pain of a kinked demand curve.
e. Have a barometric price leader
a. Have an agreement to restrict output.
b. Agree to produce identical products.
c. Obey the rules of dominant firm price leadership.
d. Experience the pain of a kinked demand curve.
e. Have a barometric price leader
answer
a. Have an agreement to restrict output.
question
In a kinked demand market, whenever one firm decides to lower its price,
a. Other firms will automatically follow.
b. None of the other firms will follow.
c. One half of the firms follow and one half of the firms don't follow the price cut.
d. Other firms all decide to exit the industry
e. All of the other firms raise their prices.
a. Other firms will automatically follow.
b. None of the other firms will follow.
c. One half of the firms follow and one half of the firms don't follow the price cut.
d. Other firms all decide to exit the industry
e. All of the other firms raise their prices.
answer
a. Other firms will automatically follow.
question
The existence of a kinked demand curve under oligopoly conditions may result in
a. Volatile prices
b. Competitive pricing.
c. Prices above the monopoly price.
d. An increase in the coefficient of variation of prices.
e. Stable prices
a. Volatile prices
b. Competitive pricing.
c. Prices above the monopoly price.
d. An increase in the coefficient of variation of prices.
e. Stable prices
answer
e. Stable prices
question
Barometric price leadership exists when
a. One firm in the industry initiates a price change and the others follow it as a signal of changes in cost or demand in the industry.
b. One firm imposes its best price on the rest of the industry.
c. All firms agree to change prices simultaneously.
d. One company forms a price umbrella for all others.
e. The firms are all colluding.
a. One firm in the industry initiates a price change and the others follow it as a signal of changes in cost or demand in the industry.
b. One firm imposes its best price on the rest of the industry.
c. All firms agree to change prices simultaneously.
d. One company forms a price umbrella for all others.
e. The firms are all colluding.
answer
a. One firm in the industry initiates a price change and the others follow it as a signal of changes in cost or demand in the industry.
question
In barometric price leadership, one firm announces a change in price
a. And the other firms follow
b. But the other firms refuse to follow
c. That it hopes will be accepted by others
d. Which is merely a test of the market
e. None of the above.
a. And the other firms follow
b. But the other firms refuse to follow
c. That it hopes will be accepted by others
d. Which is merely a test of the market
e. None of the above.
answer
c. That it hopes will be accepted by others
question
Regarding price leadership, which of the following is NOT true?
a. One firm may establish itself as the dominant firm
b. The dominant firm is frequently a larger size or has lower cost structure
c. Price leadership is a model of price-output determination
d. Once established, a barometric price leader will not change
e. Price leadership is a pricing strategy followed in many oligopolistic industries
a. One firm may establish itself as the dominant firm
b. The dominant firm is frequently a larger size or has lower cost structure
c. Price leadership is a model of price-output determination
d. Once established, a barometric price leader will not change
e. Price leadership is a pricing strategy followed in many oligopolistic industries
answer
d. Once established, a barometric price leader will not change
question
All of the following are possible ways to avoid price wars EXCEPT:
a. Customer segmentation with revenue management
b. Growing the market
c. Reference prices and framing effects
d. To not start one
e. a through c
f. a through d
a. Customer segmentation with revenue management
b. Growing the market
c. Reference prices and framing effects
d. To not start one
e. a through c
f. a through d
answer
f. a through d
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