23. Which of the following describes oligopolistic interdependence? a. Each olig

Question

23. Which of the following describes oligopolistic interdependence? a. Each oligopolist makes price and output policies with their effect on other firms in mind. b. There are important external diseconomies in an oligopolistic market. c. Each firm is unable to change the price determined in the marketplace, except through advertising. d. There is inevitably collusion between producers. e. Within each product group, each oligopolist’s product is identical.

24. The most frequently found barriers to entry in oligopoly include: a. the presence of large numbers of rival firms, firms that are price takers, and the likelihood of normal returns in the long run. b. inability to differentiate product, diseconomies of scale, and the need to advertise. c. mutual interdependence, collusion, and the likelihood of government regulation. d. the ambiguity of product groups and rising long-run average costs. e. patents, large initial and continuing financial requirements, access to basic inputs.

25. Game theory can most effectively be used to postulate behavior in: a. perfectly competitive markets. b. monopoly markets. c. monopolistically competitive markets. d. oligopolistic markets. e. monopsony markets.

26. When firms get together and agree on prices and output it is called: a. price leadership b. rule of reason. c. monopolistic competition. d. collusion. e. intermediation.

27. A cartel is: a. a formal collusive arrangement among firms. b. found most of the time in monopolistic competition. c. usually exempt from antitrust laws in the U.S. d. easier to maintain as the number of firms involved increases. e. all of the above.

28. In the U.S. most collusive agreements were declared illegal by the: a. Sherman Antitrust Act. b. Clayton Act. c. Robinson-Patman Act d. FTC Act e. Celler-Kefauver Act.

29. There is strong tendency for oligopolists to cheat on collusive agreements because: a. effective collusion rarely benefits any individual firm. b. a cheater can benefit both when all the other parties abide by the agreement and when other parties also cheat. c. when all firms abide by the agreement, the aggregate profits are reduced. d. collusion is a form of marginal cost pricing, whereas most firms benefit when price is above marginal cost. e. cheating is generally at the expense of the buyer and not the colluding sellers.

30. A process by which oligopolist coordinate their behavior without resorting to outright collusion is called price: a. discrimination b. escalation. c. stabilization. d. reform. e. leadership

31. Oligopolists prefer to compete through advertising and product differentiation because: a. the greater the degree of product differentiation in the mind of the consumer, the greater of interdependence among rivals. b. price wars are illegal according to existing antitrust statutes. c. advertising and product development enable them to realize greater profits without increasing market share. d. rivals may find it easier to respond to a price decrease than a style change or advertising campaign. e. it doesn’t pay to raise price when the demand curve is highly price inelastic.

Explanation / Answer

23)

A.Each oligopolist makes price and output policies with their effect on other firms in mind

The distinctive feature of an oligopoly is interdependence. Oligopolies aretypically composed of a few large firms. Each firm is so large that its actions affect marketconditions. Therefore the competing firms will be aware of a firm's market actions and willrespond appropriately. This means that in contemplating a market action, a firm must take intoconsideration the possible reactions of all competing firms and the firm's countermoves. It isvery much like a game of chess or pool in which a player must anticipate a whole sequence ofmoves and countermoves in determining how to achieve his objectives.

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