Question 1

Which of the following best describes an oligopoly market structure?

Accepted Answer

A market with a small number of interdependent firms.

Question 2

Visa and MasterCard exercise control over the electronic payment processing market. This is an example of:

Accepted Answer

A duopoly.

Question 3

A cartel is a group of firms that act together to:

Accepted Answer

Limit output, raise price, and increase economic profit.

Question 4

Which scenario best illustrates the concept of interdependence in an oligopoly?

Accepted Answer

Firms must consider the reactions of rivals when making decisions.

Question 5

Suppose DeBeers controls 70% of the diamond market and the rest is shared by a few other companies. This market structure is best described as:

Accepted Answer

Oligopoly.

Question 6

If a cartel successfully limits output and raises price, what is the likely effect on economic profit?

Accepted Answer

Economic profit increases.

Question 7

Which of the following is NOT a characteristic of an oligopoly?

Accepted Answer

Firms are price takers.

Question 8

In a duopoly, if one firm lowers its price, what is the most likely response from the other firm?

Accepted Answer

The other firm will also lower its price.

Question 9

Which equation best represents the profit-maximizing condition for a firm in an oligopoly?

Accepted Answer

$$MR = MC$$

Question 10

If three cab companies dominate the market in Kelowna, what type of market structure is present?

Accepted Answer

Oligopoly.

Question 11

Which of the following is a common misconception about cartels?

Accepted Answer

Cartels always increase total market output.

Question 12

If a cartel sets a price above marginal cost, what is the likely result?

Accepted Answer

Deadweight loss occurs.

Question 13

Which of the following best explains why firms in an oligopoly might form a cartel?

Accepted Answer

To limit output and raise prices for higher profits.

Question 14

In an oligopoly, the actions of one firm:

Accepted Answer

Directly affect the profits and strategies of other firms.

Question 15

Which of the following is most likely to occur if a cartel agreement breaks down?

Accepted Answer

Firms will increase output and lower prices.

Oligopoly and Duopoly: Key Concepts in Microeconomics

Study Guide - Practice Questions