Question 1

Which of the following best describes the kinked demand curve model in oligopoly markets?

Accepted Answer

It suggests that firms face a demand curve that is more elastic for price increases and less elastic for price decreases.

Question 2

Suppose Firm A in an oligopoly raises its price. According to the kinked demand curve theory, what is the most likely response from its rivals?

Accepted Answer

Rivals will keep their prices constant, causing Firm A to lose market share.

Question 3

In the context of oligopoly, what is the main purpose of collusion among firms?

Accepted Answer

To overcome uncertainty about rivals' behavior and maximize joint profits.

Question 4

Which of the following is a characteristic of overt collusion?

Accepted Answer

Firms openly make agreements to control prices and output.

Question 5

A cartel is most likely to form under which type of collusion?

Accepted Answer

Overt/formal collusion

Question 6

If a firm in an oligopoly lowers its price, what does the kinked demand curve model predict about the reaction of other firms?

Accepted Answer

Other firms will also lower their prices to prevent loss of market share.

Question 7

Which of the following best explains why the demand curve is 'kinked' in the kinked demand curve model?

Accepted Answer

Because firms expect rivals to match price decreases but not price increases.

Question 8

Suppose two firms in an oligopoly are considering whether to collude or compete. Which concept from game theory helps explain their strategic decision-making?

Accepted Answer

Interdependence and payoff matrices

Question 9

Which of the following is NOT a feature of a collusive oligopoly?

Accepted Answer

Firms compete aggressively without any agreements.

Question 10

In a competitive (non-collusive) oligopoly, what is the typical behavior of firms?

Accepted Answer

Firms compete amongst themselves, often reacting to rivals' price changes.

Question 11

If the demand curve for a firm in an oligopoly is more elastic for a price rise, what does this imply about consumer behavior?

Accepted Answer

Consumers are more likely to switch to rivals if prices rise.

Question 12

Which of the following scenarios best illustrates a second-mover advantage in oligopoly?

Accepted Answer

A firm waits for rivals to launch a new product, then improves upon it.

Question 13

Suppose the market demand curve for a product is given by $$ Q = 100 - 2P . If a $$firm in an oligopoly raises its price from $$ P = 20  to$$ $$ P = 30 $$, what is the change in quantity demanded?

Accepted Answer

$$ Q $$ decreases by 20 units

Question 14

Which of the following is most likely to be illegal under antitrust laws?

Accepted Answer

Overt collusion resulting in a cartel

Question 15

If a firm in an oligopoly faces a kinked demand curve, what is the likely effect on its marginal revenue curve?

Accepted Answer

The marginal revenue curve will have a discontinuity (a gap) at the kink.

Question 16

Which of the following best describes covert collusion?

Accepted Answer

Firms secretly cooperate to limit competition, avoiding detection by authorities.

Question 17

A firm in an oligopoly is considering whether to go first or second in launching a new product. Which strategic advantage might it gain by going second?

Accepted Answer

It can observe rivals' strategies and improve upon them.

Question 18

Suppose three firms in an oligopoly agree to set prices and output together. What is this arrangement called?

Accepted Answer

A cartel

Question 19

If the kinked demand curve model holds, what is the likely effect of a small cost increase on the market price?

Accepted Answer

Market price will remain relatively stable due to the discontinuity in marginal revenue.

Question 20

Which of the following is a real-world example of overt collusion?

Accepted Answer

Major airlines publicly announcing identical fuel surcharges.

Oligopoly, Kinked Demand Curve, and Collusion in Microeconomics

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