Question 1

Which of the following best describes the main difference between oligopoly and monopolistic competition?

Accepted Answer

Oligopoly has few firms and significant barriers to entry, while monopolistic competition has many firms and no barriers to entry.

Question 2

In a duopoly with homogeneous products and Bertrand competition, if Firm A has a marginal cost of $$55 and Firm B has a marginal cost of 60$$, what will be the equilibrium price?

Accepted Answer

$55

Question 3

Which of the following is a characteristic of monopolistic competition?

Accepted Answer

Zero economic profits in the long run

Question 4

Suppose three firms in an industry have market shares of 50%, 30%, and 20%. What is the Herfindahl-Hirschman Index (HHI) for this industry?

Accepted Answer

$$HHI = 50^2$ + 30^2$ + 20^2$ = 2500 + 900 + 400 = 3800$$

Question 5

Why do firms in an oligopoly often use price match guarantees?

Accepted Answer

To warn competitors that price reductions will be matched, discouraging price wars

Question 6

If a monopolistically competitive firm is earning economic profits, what will happen in the long run?

Accepted Answer

New firms will enter, shifting the demand curve left and reducing profits to zero.

Question 7

Which of the following is NOT a way for an oligopolist to avoid a price war?

Accepted Answer

Ignoring competitors' actions

Question 8

In the context of oligopoly, what is the 'residual demand'?

Accepted Answer

The demand that remains after accounting for the supply of all firms except one, and is dependent on the prices of all firms.

Question 9

If a monopolistically competitive firm sets its price above average total cost ($$ATC$$), what is the outcome?

Accepted Answer

The firm earns economic profits.

Question 10

Which equation represents the profit-maximizing condition for both monopolists and monopolistic competitors?

Accepted Answer

$$MR = MC$$

Question 11

A cartel is most likely to succeed in maintaining high prices if:

Accepted Answer

There is an effective enforcement mechanism and long-run profits from not cheating outweigh short-run gains from cheating.

Question 12

In a market with monopolistic competition, what is the main trade-off for consumers?

Accepted Answer

Lower efficiency but more product choice

Question 13

If a perfectly competitive market and a monopolistically competitive market are compared, which is true regarding efficiency?

Accepted Answer

Perfect competition achieves higher efficiency because firms operate at minimum $$ATC.$$

Question 14

Which of the following is an example of an oligopoly with differentiated products?

Accepted Answer

Automobile industry

Question 15

If a firm in monopolistic competition is incurring losses, what is likely to happen in the long run?

Accepted Answer

Firms will exit the market, reducing losses and moving toward zero economic profits.

Question 16

Which formula is used to calculate the Herfindahl-Hirschman Index (HHI)?

Accepted Answer

$$HHI = \sum_{i=1}^{n} s_i^2$

Question 17

In the context of oligopoly, what is the 'prisoner's dilemma'?

Accepted Answer

A situation where firms have an incentive to cheat on collusion agreements, leading to lower profits for all.

Question 18

If Dealer C enters a market with Dealers A and B, all selling homogeneous products and engaging in Bertrand competition, and Dealer C has the lowest marginal cost, what will happen to the equilibrium price?

Accepted Answer

The equilibrium price will fall to Dealer C's marginal cost.

Question 19

Which of the following is a plausible reason for government regulation in markets with significant market power?

Accepted Answer

Suspected collusion among firms

Oligopoly and Monopolistic Competition: Market Structures in Microeconomics

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