34) According to the PowerPoint Lecture Slides, the key feature that distinguish
ID: 1164570 • Letter: 3
Question
34)
According to the PowerPoint Lecture Slides, the key feature that distinguishes oligopoly from all the other market structures is the existence of
(2pts)
price discrimination
positive economic profits in the long run
mutual interdependence
economies of scale
product differentiation
27)
A four-firm concentration ratio would tend to overstate the true level of competition in an industry in which of the following cases?
(2pts)
Competition is local rather than national in nature.
There is competition from firms in other countries.
The product category is too narrowly defined.
All the above.
None of the above.
28)
A cartel is more likely to be stable in which of the following situations?
(2pts)
When the antitrust laws are vigorously enforced.
When the firms produce products that are differentiated from one another.
The fewer firms there are in the industry.
All the above
None of the above.
29)
A key prediction of the kinked demand curve model is that
(2pts)
rival firms will match price increases but not price cuts.
firms in an oligopoly will be able to earn positive profits in the long run.
product differentiation costs more than it is worth.
small changes in costs will have no effect on the price charged by the firm.
a kinked demand curve makes a cartel more stable.
Explanation / Answer
34) mutual interdependence
Oligopoly market condition has the most distinguishing feature i.e. mutual interdependence between the firms. Mutual interdependence occurs because :
1. Difficulty for the new firms to enter the market results in only few strong rival firms dominating the market. Due to this the firms are interdependent in the sense that all the firms compete with one another in increasing their market share.
2. Since price remains almost same in the market, interdependence occurs in another ways like providing extra incentives to the customer or improving the design of the products.
27) All of the above.
When competition is local rather than national in nature, the competition level increases due to existence of various small firms selling almost similar products. Also, when there is competition with firms in the other countries , oligopoly nature of market does not exist . This is because many firms enter the market in competition . When the product is narrowly defined, the demand curve becomes relatively elastic which signifies the existence of various substitutes in the market and therefore the increase in competition and free entry and exit of firms in the industry.
28) when fewer firms are there in the industry.
Cartel is a situation in the oligopoly market where producers form groups to work together for the benefits of their own interest. Cartels are more stable when there are fewer firms in the industry because:
1) there is difficulties for the other firms to enter the industry which makes the price almost stable
2) the producers will be able to be more loyal to one another with respect to pricing of the goods and in this way there will be non-price competition . This will help the producers to increase their supernormal profits in the long run.
29) Firms will be able to earn positive profits in the long run.
With kinked demand curve in the oligopoly market occurs due to mutual interdependence between the firms and this is the reason the firms experience a non price competition . They compete with one another on the basis of market share. The more the market share of a firm, the greater will be its supernormal profit in the long run.
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