Question 1

Which of the following best describes the barriers to entry in an oligopoly market structure?

Accepted Answer

Barriers to entry are high, making it difficult for new firms to compete.

Question 2

In an oligopoly, firms often engage in strategic pricing. What does 'strategic pricing' mean in this context?

Accepted Answer

Firms consider the potential reactions of rival firms when setting prices.

Question 3

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

Accepted Answer

Cellphone providers

Question 4

In the long run, what is possible for firms in an oligopoly regarding economic profit?

Accepted Answer

Positive economic profit is possible due to high barriers to entry.

Question 5

If an oligopoly sets its price above marginal cost, which equation best represents this relationship?

Accepted Answer

$$P \u003e MC$$

Question 6

Suppose two cellphone providers in an oligopoly are considering a price cut. What is the most likely outcome if both cut prices?

Accepted Answer

Both firms will lose profits due to a price war.

Question 7

Which of the following best explains why oligopolies can sustain long-run profits?

Accepted Answer

They face little competition due to high barriers to entry.

Question 8

If the profit-maximizing quantity in an oligopoly is determined by strategic pricing, which concept is most relevant?

Accepted Answer

Game theory and reaction functions

Question 9

Which statement about the relation of price ($$P) $$and marginal revenue ($$MR) in an $$oligopoly is correct?

Accepted Answer

$$P \u003e MR$$

Question 10

A new firm wants to enter the cellphone provider market, which is an oligopoly. What is the most significant challenge it will face?

Accepted Answer

High barriers to entry

Question 11

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

Accepted Answer

Firms ignore competitors when making decisions

Question 12

If an oligopoly is earning positive long-run profits, what does this imply about the market structure?

Accepted Answer

Barriers to entry prevent new firms from entering.

Question 13

Which equation best represents the relationship between price and marginal revenue in an oligopoly?

Accepted Answer

$$P \u003e MR$$

Question 14

Why might an oligopoly not produce at the socially optimal quantity?

Accepted Answer

Because strategic pricing leads to lower output and higher prices.

Question 15

If the price in an oligopoly is set at $$P \u003e MC$$, what does this indicate about market efficiency?

Accepted Answer

There is allocative inefficiency.

Question 16

Which of the following is most likely to occur if an oligopoly faces a new competitor that overcomes the high barriers to entry?

Accepted Answer

Market prices may decrease due to increased competition.

Question 17

In an oligopoly, what is the primary reason firms do not always compete aggressively on price?

Accepted Answer

Aggressive price competition can lead to mutually destructive price wars.

Question 18

Which of the following best describes the profit-maximizing behavior of firms in an oligopoly?

Accepted Answer

Firms consider competitors' actions and may use game theory to inform decisions.

Question 19

If an oligopoly market is characterized by a few firms, which of the following is most likely true?

Accepted Answer

Each firm has significant market power.

Question 20

Suppose an oligopoly is considering collusion to maximize profits. What is a potential risk of this strategy?

Accepted Answer

Collusion can lead to legal penalties and antitrust action.

Summary of the Oligopoly Market Structure

Study Guide - Practice Questions