Oligopoly: Market Structure, Models, and Price Determination

Question 1

What is a key feature of an oligopoly market?

Accepted Answer

Difficult entry for new firms

Answer

Many buyers and sellers

Answer

Identical products

Answer

Complete knowledge of the market

Question 2

How does game theory help us understand how firms interact in an oligopoly market?

Accepted Answer

It identifies strategic interactions and predicts outcomes.

Answer

It calculates market shares and industry profits.

Answer

It determines the optimal price and output levels for each firm.

Answer

It measures the efficiency of the market.

Question 3

Identify the characteristic NOT true for an oligopoly market structure?

Accepted Answer

Perfect competition

Answer

Dominated by a few large firms

Answer

Interdependence of firms

Answer

Barriers to entry and exit

Question 4

In a Cournot oligopoly model, firms strategically set their:

Accepted Answer

Output levels

Answer

Advertising budgets

Answer

Prices

Answer

Product quality

Question 5

In a Bertrand oligopoly model, firms compete primarily by setting their:

Accepted Answer

Prices

Answer

Research and development

Answer

Marketing campaigns

Answer

Output levels

Question 6

Which government policy is commonly employed to address possible negative effects of oligopoly?

Accepted Answer

Antitrust laws

Answer

Subsidies for new entrants

Answer

Price controls

Answer

Tax incentives for dominant firms

Question 7

In a concentrated oligopoly, firms typically have:

Accepted Answer

Large market shares

Answer

Homogeneous products

Answer

Perfect competition

Answer

Low barriers to entry

Question 8

Which of the following is NOT a characteristic of an oligopoly market structure?

Accepted Answer

Many small sellers

Answer

Mutual interdependence

Answer

High barriers to entry

Answer

Price-setting firms

Question 9

The Cournot model assumes that firms in an oligopoly market:

Accepted Answer

Compete on quantity, while price is determined by market demand

Answer

Produce identical products and compete on price

Answer

Collude to maximize joint profits

Answer

Have perfect knowledge of each other's demand curves

Question 10

In the Bertrand model of oligopoly, firms:

Accepted Answer

Compete on price, while quantity is determined by market demand

Answer

Face no barriers to entry or exit

Answer

Form cartels to control output and prices

Answer

Produce differentiated products and compete on quality

Question 11

Oligopoly firms are more likely to engage in price fixing than firms in other market structures because:

Accepted Answer

They have fewer competitors and less fear of detection

Answer

They have lower production costs

Answer

They produce identical products

Answer

They face significant economies of scale

Question 12

Which of the following is a potential cost of having an oligopoly market structure?

Accepted Answer

Higher prices due to reduced competition

Answer

Increased product variety

Answer

Improved product quality

Answer

Lower barriers to entry

Question 13

Oligopoly firms may use non-price competition strategies such as:

Accepted Answer

Advertising, product differentiation, and innovation

Answer

Cost leadership and economies of scale

Answer

Predatory pricing and market dominance

Answer

Collusion and price fixing

Question 14

In an oligopoly market, the kinked demand curve model suggests that:

Accepted Answer

Firms will be reluctant to lower prices due to fear of retaliation from competitors, but may raise prices without losing significant market share

Answer

Firms will engage in frequent price wars

Answer

Firms will always prefer to cooperate and maximize joint profits

Answer

Firms will have no incentive to advertise or differentiate their products

Question 15

Which of the following is a characteristic of an oligopoly market structure?

Accepted Answer

Few dominant firms

Answer

Many small buyers

Answer

Homogeneous products

Question 16

In the Cournot model, firms:

Accepted Answer

Produce identical products and compete in quantity, assuming other firms' output remains constant

Answer

Produce differentiated products and compete in price

Answer

Have perfect information about the market

Answer

Collude to set prices

Question 17

In the Bertrand model, firms:

Accepted Answer

Produce identical products and compete in price, matching any price cut by rivals

Answer

Produce differentiated products and compete in quantity

Answer

Collude to set output levels

Answer

Have imperfect information about the market

Question 18

Which of the following is a potential outcome of oligopolistic competition?

Accepted Answer

Price leadership, when one firm sets the price and others follow

Answer

Monopoly

Answer

Perfect competition

Answer

Perfect information

Question 19

A kinked demand curve occurs in oligopoly because:

Accepted Answer

Firms fear retaliation if they lower prices below the prevailing level, but face less resistance to raising prices

Answer

There are significant economies of scale

Answer

Consumers are highly price-sensitive

Question 20

Which of the following is an advantage of oligopoly for consumers?

Accepted Answer

Product differentiation, as firms compete to offer unique products

Answer

Low prices

Answer

Government subsidies

Answer

Perfect competition

Question 21

Which of the following is an example of an oligopoly market?

Accepted Answer

Automobile industry, with a few dominant manufacturers

Answer

Perfect competition, with numerous small firms

Answer

Price-taking industry, where firms have a negligible impact on market price

Answer

Monopoly, with a single dominant firm

Question 22

Which of the following is a fundamental characteristic of oligopoly?

Accepted Answer

Interdependence among firms

Answer

Zero barriers to entry

Answer

Numerous small firms

Answer

Perfect price competition

Question 23

Which factor is a significant determinant of market power in an oligopoly?

Accepted Answer

Concentration ratio

Answer

Consumer loyalty

Answer

Average cost of production

Answer

Government subsidies

Question 24

On what variable do firms primarily compete in a Bertrand duopoly model?

Accepted Answer

Price

Answer

Product differentiation

Answer

Marketing expenditure

Answer

Output quantity

Question 25

Which potential outcome is commonly associated with oligopolistic markets?

Accepted Answer

Price collusion

Answer

Zero economic profit

Answer

Perfect competition

Answer

Natural monopoly

Question 26

Which of the following is NOT a common type of barrier to entry in oligopolistic markets?

Accepted Answer

Low capital requirements

Answer

Government regulations

Answer

Economies of scale

Answer

Network effects

Question 27

Which industry best exemplifies an oligopolistic market structure?

Accepted Answer

Automobile manufacturing

Answer

Grocery retail

Answer

Education services

Answer

Agriculture

Question 28

Which government tool is commonly employed to address concerns about anti-competitive behavior in oligopolistic markets?

Accepted Answer

Antitrust laws

Answer

Tax incentives

Answer

Subsidies

Answer

Price controls

Question 29

In an oligopolistic market, firms typically face a demand curve that is:

Accepted Answer

Less elastic than in perfect competition

Answer

Equal to elasticity in perfect competition

Answer

More elastic than in perfect competition

Answer

Unpredictable

Question 30

Which of the following presents a unique challenge for firms operating in oligopolistic markets?

Accepted Answer

Strategic interdependence and game theory complexity

Answer

Fluctuating input costs

Answer

Rapid technological advancements

Answer

Seasonal demand patterns

Question 31

Which of the following is NOT a characteristic of an oligopoly market?

Accepted Answer

Many firms with no market power

Answer

High barriers to entry

Answer

Interdependence between firms

Answer

Product differentiation

Question 32

In a Cournot model, firms compete by choosing their:

Accepted Answer

Quantity of output

Answer

Product features

Answer

Price

Answer

Advertising budget

Question 33

In a Bertrand model, firms compete by choosing their:

Accepted Answer

Price

Answer

Advertising strategy

Answer

Quantity of output

Answer

Quality of product

Question 34

What is the likely outcome of a price war in an oligopoly market?

Accepted Answer

Reduced profits for all firms

Answer

Increased profits for all firms

Answer

No impact on profits or market share

Answer

Increased market share for all firms

Question 35

Which of the following is an example of a collusive agreement in an oligopoly?

Accepted Answer

A cartel agreement to fix prices

Answer

A firm launching a new advertising campaign

Answer

A firm increasing its production capacity

Answer

A firm lowering its prices to attract customers

Question 36

What is the main challenge for firms attempting to collude in an oligopoly?

Accepted Answer

Incentives to cheat on the agreement

Answer

Low consumer demand

Answer

Lack of communication between firms

Answer

High barriers to entry

Question 37

The kinked demand curve model suggests that prices in an oligopoly are likely to be:

Accepted Answer

Sticky, meaning they are resistant to change

Answer

Set at the marginal cost of production

Answer

Determined solely by supply and demand

Answer

Highly volatile, fluctuating frequently

Question 38

Which of the following is NOT a potential benefit of an oligopoly market?

Accepted Answer

Increased consumer choice

Answer

Investment in research and development

Answer

Technological innovation

Answer

Economies of scale

Question 39

In the context of oligopoly, what is meant by 'strategic interdependence'?

Accepted Answer

Firms' actions are influenced by the expected actions of their rivals

Answer

Firms operate in perfect competition

Answer

Firms have no control over their pricing decisions

Question 40

Which of the following industries is most likely to be characterized as an oligopoly?

Accepted Answer

Automobile manufacturing

Answer

Grocery retailing

Answer

Agriculture

Answer

Hairdressing

Question 41

Which of these characteristics is NOT a feature of an oligopoly?

Accepted Answer

Many small firms

Answer

Significant market power

Answer

High barriers to entry

Answer

Interdependence of firms

Question 42

In the Cournot model of oligopoly, firms compete primarily on:

Accepted Answer

Quantity of output

Answer

Marketing and advertising

Answer

Product differentiation

Question 43

Which of the following is a likely outcome of collusion in an oligopoly?

Accepted Answer

Higher prices for consumers

Answer

Lower barriers to entry

Answer

Increased competition

Answer

Greater consumer surplus

Question 44

The kinked demand curve model helps to explain:

Accepted Answer

Price rigidity in oligopolies

Answer

Consumer preferences

Answer

Perfect competition

Answer

Constant returns to scale

Question 45

In the Bertrand model of oligopoly, firms set:

Accepted Answer

Price, assuming rivals' prices are fixed

Answer

Price and output simultaneously

Answer

Output, assuming rivals' output is fixed

Question 46

Which of the following is NOT a barrier to entry in an oligopoly?

Accepted Answer

Perfect information

Answer

Government regulations

Answer

Economies of scale

Answer

Brand loyalty

Question 47

Game theory is particularly useful for analyzing oligopolies because:

Accepted Answer

It models the strategic interdependence of firms

Answer

It assumes perfect competition

Answer

It ignores the role of consumer demand

Answer

It focuses on short-term profits only

Question 48

A dominant strategy in game theory is one that:

Accepted Answer

Yields the highest payoff for a player regardless of the other player's actions

Answer

Is based on cooperation and trust

Answer

Leads to a Nash equilibrium

Question 49

Price wars are more likely to occur in oligopolies when:

Accepted Answer

Products are homogeneous

Answer

Firms have strong brand loyalty

Answer

There are high barriers to entry

Answer

Firms can easily collude

Question 50

Which of the following is an example of non-price competition in an oligopoly?

Accepted Answer

Investing in advertising campaigns

Answer

Colluding with competitors to fix prices

Answer

Increasing the quantity supplied

Answer

Lowering the price of the product