1. Which statement explains why strategic behavior occurs with oligopolies? a Ol

Question

1. Which statement explains why strategic behavior occurs with oligopolies?

a             Oligopolies will only increase or decrease their prices based on the reactions of consumers.

b             Oligopolies follow price increases but not price decreases of their competitors.

c             Oligopolies follow price decreases but not price increases of their competitors.

d             Oligopolies do not care about price increases and decreases of their competitors.

2. All of the following are characteristics of monopolistically competitive firms EXCEPT:

a             mutual interdependence.

b             differentiated products.

c             large number of firms.

d             free entry and exit.

3. True or False: Monopolistic competition has elements of monopolies and elements of competition.

A True; monopolistic competition has elements of monopolies. However, monopolies have barriers to entry whereas firms operating under monopolistic competition have free entry and exit.

B   True; both monopolies and monopolistic competition have barriers to entry.

C False; there are no similar characteristics between monopolistic competition and perfect competition.

D True; monopolistic competition has elements of monopolies because there are barriers to entry and

product differentiation.

4. Many product markets exhibit characteristics of both monopolistic competition and oligopolies, such as video game consoles and movie theater chains. What characteristics in each of these markets make it more monopolistically competitive? Which characteristics make it more like an oligopoly?

a             Large number of sellers with homogenous products

b             Single seller of a good or service and collusive agreements

c             Elastic demand with differentiated products

d             Differentiated products with mutual interdependence

Explanation / Answer

1. The correct answer is C.

2. The correct answer is A.

3. The correct answer is A.

4. The correct answer is D.

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