Question 1

Why are firms in an oligopoly market considered interdependent?

Accepted Answer

Because each firm's actions influence the profits of all the other firms

Question 2

Suppose two firms in an oligopoly are deciding whether to lower prices. If Firm A lowers its price, Firm B's profit decreases. What concept does this scenario illustrate?

Accepted Answer

Interdependence

Question 3

Which of the following is a defining characteristic of an oligopoly?

Accepted Answer

Each firm's actions affect the profits of other firms

Question 4

In an oligopoly, if Firm X increases its advertising budget, what is the most likely response from its competitors?

Accepted Answer

Competitors will also increase their advertising budgets

Question 5

Consider the following profit function for Firm A in an oligopoly: $$ \pi_A = P(Q) \cdot q_A - C(q_A) $$, where $$ P(Q)  is $$the market price as a function of total output $$ Q $$, and $$ q_A  is $$Firm A's output. If Firm B increases its output, what happens to Firm A's profit?

Accepted Answer

Firm A's profit decreases

Question 6

Which of the following equations best represents the interdependence of firms in an oligopoly?

Accepted Answer

$$ \pi_i = f(q_1$, q_2$, ..., q_n) $$

Question 7

A local gasoline market is dominated by three firms. If one firm cuts its price, the others quickly follow. What market structure does this behavior best describe?

Accepted Answer

Oligopoly

Question 8

Which of the following is NOT a reason for interdependence among firms in an oligopoly?

Accepted Answer

Barriers to entry

Question 9

Suppose Firm A and Firm B are the only two firms in a market. If Firm A increases output, the market price falls. Which formula shows how Firm B's profit is affected?

Accepted Answer

$$ \pi_B = P(Q) \cdot q_B - C(q_B) $$

Question 10

In an oligopoly, why might firms avoid aggressive price competition?

Accepted Answer

Because it can trigger retaliatory actions and reduce profits for all firms

Question 11

If the market demand is $$ Q = 100 - 2P $$ and two firms in an oligopoly each produce $$ q_1$ $$ and $$ q_2$ $$, what is the total market output?

Accepted Answer

$$ Q = q_1$ + q_2$ $$

Question 12

Which of the following best explains why collusion is tempting in an oligopoly?

Accepted Answer

Collusion can increase joint profits by reducing competition

Question 13

A duopoly is a special case of oligopoly. If both firms set the same price, what is the likely outcome?

Accepted Answer

Both firms may earn higher profits than in price competition

Question 14

If Firm A's profit function is $$ \pi_A = P(Q) \cdot q_A - C(q_A) $$ and $$ Q = q_A + q_B $$, what happens to $$ \pi_A  if$$ $$ q_B $$ increases?

Accepted Answer

$$ \pi_A $$ decreases

Question 15

Which of the following is most likely to occur in an oligopoly market with high barriers to entry?

Accepted Answer

Firms are interdependent and may engage in strategic behavior

Question 16

In a real-world example, major airlines often match each other's fare reductions. What does this behavior demonstrate?

Accepted Answer

Interdependence in oligopoly

Question 17

If the average total cost curve is downward-sloping along the relevant range of output, what does this imply about the market structure?

Accepted Answer

It may be an oligopoly or monopoly due to economies of scale

Question 18

Which of the following statements is true about the relationship between firms in an oligopoly?

Accepted Answer

Firms are interdependent and must consider rivals' strategies

Question 19

Suppose the market consists of four firms, each producing 25% of the total output. If one firm increases its output, what is the likely effect on the market price?

Accepted Answer

Market price will decrease

Question 20

Which of the following best describes the strategic behavior of firms in an oligopoly?

Accepted Answer

Firms anticipate and react to competitors' actions

Oligopoly: Interdependence of Firms

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