TEST I: MULTIPLE CHOICE. Below are given questions along with their multiple choices’ answers.

Read the statement carefully and shade the letter that represents your best answers on the ANSWER
SHEET. (Erasures are not allowed)
1. The airline industry is an example of a(n) ________ industry.
A) perfectly competitive
B) monopolistic
C) monopolistically competitive
D) oligopolistic

2. In which of the four oligopolistic markets below is there considerable price competition?
A) music production industry
B) stent industry
C) airline industry
D) high-definition DVD industry

3. In
general, oligopolists compete
A) on price alone.
B) on many dimensions except for price.
C) on price, R&D, and marketing and advertising.
D) None of the above. There is no competition in oligopolistic industries.

4. One thing oligopolists must do in order to determine their optimal strategy is

A) anticipate the reaction of their customers to their strategy.
B) ignore the reaction of their rivals to their strategy.
C) ignore the reaction of their customers to their strategy.
D) produce a unique product which has no close substitutes.

5. A(n)________ industry is characterized by strategic behavior.

A) perfectly competitive
B) monopolistic
C) monopolistically competitive
D) oligopolistic

6. A(n) ________ industry has a single, unique product and blocked entry.
A) perfectly competitive
B) monopolistically competitive
C) monopolistic
D) oligopolistic

7. Aform of industry structure characterized by a few firms each large enough to influence
market price is
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.

8. Ofthe following, ________ is the best example of an oligopolistic industry.

A) retail grocery
B) automobiles production
C) electric power
D) soybean farming

9. Productsmay be homogeneous or differentiated in the ________ market structure.

A) perfectly competitive
B) monopolistic
C) monopolistically competitive
D) oligopolistic
10. A________ industry has a relatively small number of firms that dominate a market.
A) Cournot
B) contestable
C) concentrated
D) monopolistically competitive

11. The oligopolistic model in which firms produce exactly the same results as would exist if a
monopolist controlled the entire industry is called the ________ model.
A) Cournot
B) price leadership
C) maximin strategy
D) collusion

12. The colluding oligopoly will face market demand and produce up until the point at which
A) price and marginal cost are equal and price will be set equal to marginal cost.
B) marginal revenue and marginal cost are equal and price will be set above marginal cost.
C) price and marginal revenue are equal and price will be set below marginal cost.
D) marginal revenue and marginal cost are equal and price will be set below marginal cost.

13. Assume that firms in an oligopoly are currently colluding to set price and output to maximize
total industry profit. If the government forces the oligopolists to stop colluding, the price charged
by the oligopolies will ________ and the total output produced will ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

14. ________ is a group of firms colluding to make price and output decisions.
A) A concentrated industry
B) An oligopoly
C) A cartel
D) Price leadership

15. Inan oligopolistic industry, the price firms charge and the quantity they produce would be the
same as if the industry were a monopoly if
A) the market is contestable.
B) the oligopolists behave as Cournot assumed.
C) one of the oligopolists acts as a dominant firm price leader.
D) the oligopolists collude.

16. You read that 25 firms that grow and export peanuts to the United States decide to form a
cartel. The cartel aims to raise the price of peanuts and reduce output to increase profits for the
peanut growers. You predict that this cartel will probably
A) not be successful because the number of firms is unmanageable and there are a number of
good substitutes for peanuts.
B) not be successful because there are too few firms that are trying to organize the cartel.
C) be successful because the demand for peanuts is very elastic.
D) be successful because it will be very easy to enforce the rules among only 25 firms.

17. ________ occurs when price- and quantity-fixing agreements among producers are implicit.
A) Tacit collusion
B) A Cournot model
C) A price-leadership model
D) A monopoly

18. Tacit collusion

A) is legal under the U.S. antitrust laws.
B) occurs when firms engage in formal agreements to reduce output and increase prices in their
industry.
C) is more likely to be successful in increasing industry profits when there are a few, similar
firms in the industry.
D) is more likely to effectively raise prices in the industry when demand is elastic.

19. nthe Cournot model, when a new firm begins production it assumes its demand curve is
A) the market demand less the amount the other firm is selling.
B) the market demand plus the amount the other firm is selling.
C) the same as the competing firm's demand curve.
D) one-half of the competing firm's demand curve.

20. Which of the following is not an assumption of the Cournot model presented in the text?
A) There are two firms in an industry.
B) Each firm takes the output of the other firm as given.
C) Both firms maximize profits.
D) If the first firm cuts price, the second firm will follow and if the first raises price, the second
will not follow.

TEST II. TRUE or FALSE. Shade letter A if the statement is correct, shade letter B if it says otherwise.
(Erasures are not allowed)

21. Thesize of the firm is the only thing that differentiates oligopoly markets from the other three
market structure types (perfect competition, monopoly, and monopolistic competition). B

22. The fact that the behavior of one firm depends on the behavior of other firms is what
differentiates oligopoly markets from the other three market structure types (perfect competition,
monopoly, and monopolistic competition). A

23. Oligopolists compete on price but not quality. B

24. Oligopolists have market power. A

25. Traditionally, the airline industry has competed vigorously on price. A

26. Themore differentiated the products produced by oligopolists, the more their behavior will
resemble that of the monopolist. A

27. Markets in which entry and exit are difficult are known as contestable markets. B

28. The Five Forces Model illustrates the forces that determine the level of product differentiation
and price competition in an industry. B

29. The product differentiation of firms in an industry is an indicator of the size distribution of
firms. B

30. Products produced in oligopoly markets are always differentiated. B

31. An oligopoly with a dominant price leader will produce a level of output between that which
would prevail under competition and that which a monopolist would choose in the same
industry. A

32. Cartels, tacit collusion, and predatory pricing are all illegal under U.S. antitrust laws. A

33. Output in a Cournot duopoly is at a level between that in perfect competition and
monopolistic competition. B
34. The Cournot model assumes that the firms take their competitors output as fixed. A

35. Cartels are more successful when members play by the rules and the industry faces an
inelastic demand. A

36. Under the collusion model, the outcome in an oligopoly is the same as a monopoly. A

37. Explicit price- and quantity-fixing agreements are a form of tacit collusion. B

38. The United States is a member of the OPEC cartel. B

39. The Cournot model is based on two firms that produce identical products and collude to set
prices. B

40. Cartels practice explicit collusion. A