Question 1

Which of the following best describes a barrier to entry in an oligopoly market?

Accepted Answer

A factor that prevents or discourages new firms from entering the market, allowing existing firms to maintain market power.

Question 2

Suppose De Beers controlled nearly all diamond mines for decades. What type of market structure does this scenario best illustrate?

Accepted Answer

Monopoly

Question 3

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

Accepted Answer

Patents that grant exclusive production rights for twenty years

Question 4

If an industry is an oligopoly, which of the following is most likely true?

Accepted Answer

A few large firms dominate the market and barriers to entry are high.

Question 5

Which of the following equations best represents the profit-maximizing condition for a firm in an oligopoly?

Accepted Answer

$MR = MC$

Question 6

A patent gives a firm exclusive rights to produce a good for twenty years. What is the most likely effect of this on the market?

Accepted Answer

It creates a legal barrier to entry, potentially leading to monopoly power.

Question 7

Suppose the minimum efficient scale of production in an industry is large relative to market demand. What market structure is most likely to result?

Accepted Answer

Oligopoly

Question 8

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

Accepted Answer

There are many sellers, each with a small market share.

Question 9

If a firm in an oligopoly market lowers its price, what is the most likely response from its competitors?

Accepted Answer

Competitors will also lower their prices to maintain market share.

Question 10

Which of the following best explains why high fixed costs can act as a barrier to entry in an oligopoly?

Accepted Answer

High fixed costs require large initial investments, discouraging potential entrants.

Question 11

A government regulation requires all new pharmaceutical drugs to be approved before sale. What effect does this have on market structure?

Accepted Answer

It creates a barrier to entry, potentially leading to fewer firms and more market power for incumbents.

Question 12

Suppose three firms dominate the aluminum industry and coordinate their output to maximize joint profits. What is this arrangement called?

Accepted Answer

Cartel

Question 13

Which of the following is a real-world example of a natural barrier to entry?

Accepted Answer

Control of a scarce resource, such as diamond mines

Question 14

If the demand curve facing an oligopolist is kinked, what does this imply about the firm's pricing behavior?

Accepted Answer

The firm faces a discontinuity in marginal revenue, making it reluctant to change prices.

Question 15

Which of the following best describes the relationship between economies of scale and barriers to entry?

Accepted Answer

Economies of scale allow large firms to produce at lower average costs, making it difficult for new entrants to compete.

Question 16

Suppose a new technology reduces the minimum efficient scale in an industry. What is the likely effect on market structure?

Accepted Answer

It lowers barriers to entry, potentially increasing the number of firms and competition.

Question 17

Which of the following is most likely to occur if an oligopolist attempts to increase its market share through aggressive advertising?

Accepted Answer

Other firms will respond with their own advertising, leading to higher costs but little change in market shares.

Question 18

If the profit-maximizing output for a firm is where $MR = MC$, and the firm's marginal cost is given by $MC = 2Q$, while marginal revenue is $MR = 100 - 4Q$, what is the profit-maximizing quantity?

Accepted Answer

$Q = 25$

Question 19

Which of the following best explains why collusion is difficult to sustain in an oligopoly?

Accepted Answer

There are legal penalties for collusion and incentives for firms to undercut each other.

Question 20

Suppose the government grants exclusive rights to a firm to operate in a market. What is the most likely long-term effect on consumer prices?

Accepted Answer

Consumer prices are likely to increase due to reduced competition.

Oligopoly: Barriers to Entry, Market Structure, and Government Regulation

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