Question 1

Which of the following best describes an oligopoly market structure?

Accepted Answer

A market with a few large producers, each having some control over price and significant interdependence.

Question 2

Suppose two airlines, Uptown and RareAir, are deciding whether to set high or low prices. If both choose high prices, each earns $$12 million. If both choose low prices, each earns 6 $$million. If one chooses high and the other low, the low-price firm earns $$15 million and the high-price firm earns 6 $$million. What is the Nash equilibrium in this scenario?

Accepted Answer

Both airlines choose low prices.

Question 3

The kinked-demand curve model of oligopoly suggests that:

Accepted Answer

Firms will match price reductions but ignore price increases, leading to price inflexibility.

Question 4

Which of the following is a key feature of oligopolistic industries?

Accepted Answer

Firms are highly interdependent and often respond to each other's actions.

Question 5

If the four largest firms in an industry produce 85% of the total output, what is the concentration ratio?

Accepted Answer

$$CR_4 = 0.85$

Question 6

Which of the following is an example of overt collusion in an oligopoly?

Accepted Answer

A group of firms or nations openly agreeing to set prices and output levels, such as OPEC.

Question 7

In the context of game theory, a dominant strategy is:

Accepted Answer

A strategy that is optimal regardless of what the other players do.

Question 8

Which equation represents the profit-maximizing condition for an oligopolist?

Accepted Answer

$$MR = MC$$

Question 9

Why might advertising in oligopoly markets be considered both beneficial and manipulative?

Accepted Answer

Advertising provides information to consumers but can also mislead them with confusing claims.

Question 10

Which of the following is NOT a reason why oligopolies may be inefficient?

Accepted Answer

Oligopolies may face foreign competition and technological advance.

Question 11

In a repeated game, what strategy can help sustain collusion among oligopolists?

Accepted Answer

Reciprocating cooperation and punishing cheating.

Question 12

Which of the following best explains the concept of credible threats in oligopoly?

Accepted Answer

A threat that rivals believe will be carried out, helping to enforce collusive agreements.

Question 13

If an oligopolist faces a kinked-demand curve, what happens to marginal revenue when the firm raises its price?

Accepted Answer

Marginal revenue drops suddenly at the kink.

Question 14

Which of the following is a real-world example of a concentrated oligopoly industry?

Accepted Answer

The market for bottled water, where a few firms produce most of the output.

Question 15

What is the main reason price leadership occurs in oligopoly markets?

Accepted Answer

One dominant firm initiates price changes and other firms follow.

Question 16

Which formula is used to calculate the four-firm concentration ratio?

Accepted Answer

$$CR_4$$ = \frac{	ext{Output of 4 largest firms}}{	ext{Total industry output}}$$

Question 17

Which of the following is a plausible outcome of a price war in an oligopoly?

Accepted Answer

Prices fall, profits decrease, and firms may eventually return to higher prices.

Question 18

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

Accepted Answer

A situation where each firm has an incentive to cheat, leading to a worse outcome for all.

Question 19

Which of the following is a likely effect of advertising in oligopoly markets?

Accepted Answer

Advertising can provide information to consumers and promote technological progress.

Question 20

If an oligopoly is allocatively inefficient, which condition must hold?

Accepted Answer

$$P \u003e MC$$

Oligopoly and Strategic Behavior: Microeconomics Study Notes

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