Q6 MW Sol

MECO 111 - Principles of Microeconomics
Fall 2018
Quiz 7 – December 5, 2018
Name: _______________________________________ Roll No: ________________
1. The oligopoly model is the only model that explicitly considers how the pricing and
output decisions of one firm affect other firms.
TRUE
Firms act independently in monopolistically competitive and perfectly competitive

industries. In monopolized industries, there are no rivals to be concerned about.
2. Implicit collusion occurs when oligopolistic firms negotiate a common price.
FALSE
Implicit collusion involves no explicit communication between firms.
3. The higher is an industry's concentration ratio, the more competitive is the industry.
FALSE
The concentration ratio represents the combined market share of the top firms in an
industry. The larger this market share, the less competitive the industry.
4. The Herfindahl index is calculated by adding the squared value of the market shares
of all the firms in the industry.
TRUE
This is the definition of the Herfindahl index.
5. The only way to judge monopoly is to use both structure and performance criterion
simultaneously.
FALSE
Government can use only one of these criteria at a time.
6. Strategic decision making is most likely to occur in which market structure?
A. Monopolistic
competition
B. Oligopol
y
C. Perfect
competition
This study source was downloaded by 100000770977133 from CourseHero.com on 10-23-2022 16:37:37 GMT -05:00
https://www.coursehero.com/file/61969493/Q6-MW-soldocx/
D. All firms engage in strategic decision
making.
An oligopolist is most likely to take into account a rival's expected response to a
decision it is making because firms can affect price and output in the market. In
monopolistic competition there are too many sellers to take into account rivals'
responses.
7. The central characteristic of oligopolistic industries is:
A. interdependent pricing
decisions.
B. flexible
prices.
C. price
competition.
D. few or no economies of
scale.
Oligopolistic industries contain a small number of firms whose actions affect one
another in obvious ways.
8. When OPEC reduces output to keep prices high, OPEC is acting as a:
A. carte
l.
B. price
taker.
C. producer in a contestable
market.
D. producer moving along a supply curve, cutting output as

price falls.
OPEC tries to act as a joint monopoly, which is what a cartel is.
9. Suppose an oligopolistic firm assumes that its rivals will ignore a price increase but
match a price cut. In this case, the firm perceives its demand curve to be:
A. kinked, being steeper above the going price than

below.
B. kinked, being steeper below the going price than

above.
C. linear, being less elastic at lower

prices.
D. linear, being more elastic at higher

prices.
If price cuts are matched, demand will not increase much, and so the firm's demand
curve will be steep below the going price. If price hikes are not matched, demand will
fall considerably, and so the firm's demand curve will be flatter above the going price.
10.
Refer to the graph shown, which shows an oligopolist facing a kinked demand curve.
The firm will not increase price when marginal costs fluctuate between which two
points?
A. a and
b.
B. b and
c.
C. c and
d.
D. a and
d.
When marginal costs shift in the gap in the marginal revenue curve shown by
segment bc, the oligopolist is unlikely to change price.
11. For a cartel to be successful in increasing economic profits for its members:
A. entry of new firms must be

blocked.
B. price must be set equal to marginal

cost.
C. individual firms must be encouraged to adjust output so as to maximize their own

profits at the cartel price.
D. price must be set equal to average

total cost.
Unless entry can be blocked, firms will be unable to raise price above average total
cost in the long run.
12. Predatory pricing:
A. will always work if markets are
contestable.
B. is always successful because it produces profits in the

long run.
C. is never successful because it produces losses in the

short run.
D. is likely to be successful only if firms cannot enter an

industry easily.
Predatory pricing can work only if barriers to entry keep other firms from entering a
market after prices are increased to recover short-run losses.
49. Oligopolistic firms:
A. may seek to drive competitors out of business for personal reasons, even at
great expense.
B. would not drive competitors out of business to gain control of
the market.
C. know that their competitors pay no attention to their pricing decisions and
therefore hope to gain market share by lowering price.
D. do not pay attention to a competitor's prices because there's nothing they can do
about them.
Because the competitors know one other, sometimes decisions are motivated by
personal, not business reasons.
14. The top four firms in the industry have 10 percent, 8 percent, 8 percent, and 6 percent
of the market. The four-firm concentration ratio of this market is:
A. 8
.
B. 32
.
C. 66
.
D. 264
.
The concentration ratio is calculated by summing the market shares of the top four
firms.
15. If an industry has exactly 20 firms with identical sales, the Herfindahl index must be:
A. less than
100.
B. greater than 100 but less than

200.
C. greater than 200 but less than

400.
D. greater than
400.
If the firms are of equal size, each firm has 5 percent of the market, and so the
Herfindahl index is 500.
Powered by TCPDF (www.tcpdf.org)

Q6 MW Sol

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Q6 MW Sol

Uploaded by

Copyright:

Available Formats

MECO 111 - Principles of Microeconomics

Name: _______________________ Roll No:

Firms act independently in monopolistically competitive and perfectly competitive

2. Implicit collusion occurs when oligopolistic firms negotiate a common price.

D. producer moving along a supply curve, cutting output as

A. kinked, being steeper above the going price than

B. kinked, being steeper below the going price than

C. linear, being less elastic at lower

D. linear, being more elastic at higher

A. entry of new firms must be

B. price must be set equal to marginal

C. individual firms must be encouraged to adjust output so as to maximize their own

D. price must be set equal to average

B. is always successful because it produces profits in the

C. is never successful because it produces losses in the

D. is likely to be successful only if firms cannot enter an

B. greater than 100 but less than

C. greater than 200 but less than

You might also like