Question 1

Which of the following best describes an oligopoly market structure?

Accepted Answer

A market with only a few firms, each having significant market power.

Question 2

Which of the following is NOT considered a barrier to entry in an oligopoly?

Accepted Answer

Perfect information about prices

Question 3

Suppose two airlines operate in an oligopolistic market. If both airlines increase their advertising budgets, what is the likely outcome according to game theory?

Accepted Answer

Both airlines may end up with lower profits due to higher costs, even though neither gains market share.

Question 4

In an oligopoly, profit maximization occurs where:

Accepted Answer

$$MR = MC$$

Question 5

Which of the following equations correctly represents the profit per unit for an oligopoly firm?

Accepted Answer

$$\frac{\pi}{q} = P - ATC$$

Question 6

Why can oligopoly firms sustain economic profits in the long run, unlike firms in perfectly competitive markets?

Accepted Answer

Because barriers to entry prevent new competitors from entering the market.

Question 7

Which of the following is an example of a government-created barrier to entry in an oligopoly?

Accepted Answer

Patent protection for a new drug

Question 8

In the context of game theory, what is a dominant strategy?

Accepted Answer

A strategy that maximizes profit regardless of what the competitor does.

Question 9

If both firms in a duopoly choose their dominant strategies, the resulting outcome is called:

Accepted Answer

A Nash Equilibrium

Question 10

Which of the following best explains why collusion is difficult to sustain in practice among oligopolists?

Accepted Answer

Firms have an incentive to be the first to break the agreement and capture more market share.

Question 11

Which of the following statements about deadweight loss in oligopoly is correct?

Accepted Answer

Deadweight loss is larger in oligopoly than in monopolistic competition due to a higher price markup.

Question 12

Which of the following is a real-world example of a barrier to entry due to limited ownership of a resource?

Accepted Answer

A company owning all the diamond mines in a country

Question 13

According to Joseph Schumpeter, why might oligopolies be beneficial for innovation?

Accepted Answer

Oligopolies can generate excess profits needed to fund research and development.

Question 14

Which of the following best describes a Nash Equilibrium in the context of the Advertising Game?

Accepted Answer

Both firms choose strategies that are best responses to each other, and neither has an incentive to change unilaterally.

Question 15

Suppose the price set by an oligopoly firm is $$P = 20$$, the marginal cost is $$MC = 15$$, and the average total cost is $$ATC = 17. $$What is the profit per unit?

Accepted Answer

$$P - ATC = 20 - 17 = 3$$

Question 16

Which of the following is an example of process innovation in an oligopoly?

Accepted Answer

Creating a more efficient manufacturing technique that reduces input costs

Question 17

Why might an oligopoly firm be forced to lower its price after a rival increases advertising and attracts more customers?

Accepted Answer

Because the firm's demand falls, leading to pressure to cut prices to regain market share.

Question 18

Which of the following is true about collusion and cartels?

Accepted Answer

Cartels are groups of firms that coordinate to increase prices or reduce costs.

Question 19

If a firm in an oligopoly is earning a loss per unit, what is the loss minimizing quantity?

Accepted Answer

The quantity where $$MR = MC$$

Oligopoly: Structure, Behaviour, and Welfare Implications

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