Oligopoly: Market Domination and Its Impact on Consumers

Question 1

In a Nash equilibrium, each firm:

Accepted Answer

Selects the strategy that maximizes its profit, given the strategies of its rivals

Answer

Selects the strategy that maximizes its revenue

Answer

Selects the strategy that minimizes its costs

Answer

Cooperates with its rivals to maximize joint profits

Question 2

In a Stackelberg duopoly, the firm that moves first:

Accepted Answer

Has a strategic advantage in terms of market share

Answer

Is at a disadvantage compared to the second mover

Answer

Has no advantage or disadvantage relative to the second mover

Answer

Automatically achieves a monopoly position

Question 3

According to the Kinked Demand Curve model, firms in oligopoly are likely to:

Accepted Answer

Be cautious about changing prices due to the kink in the demand curve

Answer

Always set the highest possible price

Answer

Be more likely to engage in price wars

Answer

Always produce at maximum capacity

Question 4

A Cournot oligopoly involves firms primarily competing in:

Accepted Answer

Output

Answer

Price

Answer

Advertising

Answer

Innovation

Question 5

A Stackelberg leader firm:

Accepted Answer

Moves first in setting its output

Answer

Has the largest market share

Answer

Produces the lowest-cost product

Answer

Is the most technologically advanced

Question 6

The Herfindahl-Hirschman Index (HHI) is used to measure:

Accepted Answer

Market concentration

Answer

Consumer welfare

Answer

Firm profitability

Answer

Government regulation

Question 7

Which factor contributes to collusion in an oligopoly market?

Accepted Answer

High industry concentration

Answer

Differentiated products

Answer

Low barriers to entry

Answer

Government intervention

Question 8

How does product differentiation impact oligopolistic competition?

Accepted Answer

Reduces the intensity of price competition

Answer

Increases the likelihood of successful collusion

Answer

Makes demand more price-elastic

Answer

Has no significant effect on competition

Question 9

How do entry barriers affect the long-term equilibrium in an oligopoly market?

Accepted Answer

Higher barriers lead to higher prices and reduced output

Answer

Lower barriers encourage new entrants, increasing competition

Answer

Entry barriers have no impact on long-term market outcomes

Answer

High barriers lead to more efficient resource allocation

Question 10

Which fundamental assumption underpins the Bertrand model of oligopoly?

Accepted Answer

Identical products offered by firms

Answer

Revenue maximization as the primary goal of firms

Answer

Perfect information availability to all firms

Answer

Effective collusion among firms in pricing decisions

Question 11

In an oligopoly market structure, which of the following is a key defining characteristic?

Accepted Answer

Domination of the industry by just a few large firms

Answer

Perfect knowledge among all firms operating in the market

Answer

Low barriers to entry for new firms

Answer

Products that are highly differentiated from one another

Question 12

The Kinked Demand Curve model explains the phenomenon of price rigidity often observed in oligopoly markets. Which of the following is a primary reason for this rigidity?

Accepted Answer

Mutual interdependence and fear of retaliation among firms

Answer

High sunk costs associated with production

Answer

Government regulations and price controls

Answer

Low elasticity of demand for the products offered

Question 13

Which of the following potential welfare implications is commonly associated with oligopoly market structures?

Accepted Answer

Elevated prices and diminished consumer surplus

Answer

Increased innovation and technological advancements

Answer

Enhanced market stability and predictability

Answer

Improved allocative efficiency in the market

Question 14

The Herfindahl-Hirschman Index (HHI) is a metric used to:

Accepted Answer

Quantify the level of market concentration within an oligopoly

Answer

Determine the market power of individual firms

Answer

Calculate the elasticity of demand for products sold in an oligopoly

Answer

Predict future pricing behavior in oligopoly markets

Question 15

Which of the following industries is most likely to exhibit characteristics of an oligopoly market?

Accepted Answer

Automobile manufacturing

Answer

Local grocery stores

Answer

Individual farms

Answer

Schools

Question 16

The contestability of an oligopoly market refers to:

Accepted Answer

The ease with which new firms can enter the market

Answer

The extent of competition among existing firms

Answer

The ability of consumers to switch between competing products

Answer

The degree of regulatory power the government has over the industry

Question 17

Which characteristic is unique to an oligopoly market structure?

Accepted Answer

A few large firms dominate the industry

Answer

Firms produce identical products

Answer

Barriers to entry are low

Answer

Firms are price takers

Question 18

The "prisoner's dilemma" in oligopoly illustrates that:

Accepted Answer

Firms are tempted to cheat on cooperative agreements

Answer

Competition always leads to lower prices for consumers

Answer

Government intervention is always necessary to prevent collusion

Answer

Oligopoly markets are inherently unstable

Question 19

A potential welfare concern associated with oligopoly is:

Accepted Answer

Reduced consumer surplus

Answer

Increased technological innovation

Answer

Lower producer profits

Answer

Improved product quality

Question 20

The "kinked demand curve" model explains why:

Accepted Answer

Firms may be reluctant to change prices in either direction

Answer

Consumers are highly sensitive to price changes

Answer

Oligopoly firms always engage in price wars

Answer

Government intervention is effective in preventing price collusion

Question 21

Which government policy is primarily aimed at preventing anti-competitive behavior in oligopoly markets?

Accepted Answer

Antitrust laws

Answer

Price controls

Answer

Subsidies

Answer

Tax breaks

Question 22

Collusion in oligopoly refers to:

Accepted Answer

Cooperative behavior among firms to set prices and quantities

Answer

Aggressive competition between firms to gain market share

Answer

Government regulation of industry prices

Answer

Unfair practices used by firms to exclude new entrants

Question 23

Game theory is useful in analyzing oligopoly markets because:

Accepted Answer

It provides a framework for predicting firm behavior and interactions

Answer

It guarantees that firms will always reach an optimal outcome

Answer

It only applies to markets with a small number of large firms

Answer

It is only useful for predicting collusion

Question 24

Which model of oligopolistic behavior assumes that firms compete on price and will match each other's price changes?

Accepted Answer

Bertrand model

Answer

Cournot model

Answer

Stackelberg model

Answer

Kinked demand model

Question 25

What is the primary role of the Competition and Markets Authority (CMA) in relation to oligopoly?

Accepted Answer

To promote competition and prevent anti-competitive practices in markets, including oligopolies

Answer

To regulate prices and prevent excessive profits in oligopolistic markets

Answer

To support the formation of cartels in order to increase market efficiency

Answer

To provide financial assistance to small businesses in oligopolistic markets

Question 26

In a Cournot duopoly, the primary strategic decision for each firm is to:

Accepted Answer

Choose the optimal quantity of output to produce

Answer

Set the price for its product

Answer

Invest in advertising to increase market share

Answer

Collude with the rival firm to form a cartel

Question 27

What is the significance of the kinked demand curve in the kinked demand model of oligopoly?

Accepted Answer

It suggests that firms are reluctant to change their prices due to fear of triggering a price war

Answer

It implies that the demand for a firm's product is perfectly elastic at the kink point

Answer

It proves that oligopolistic markets are inherently stable and unlikely to experience price fluctuations

Answer

It indicates that firms have no control over the price of their products

Question 28

Which of the following is NOT a typical objective of government intervention in oligopoly markets?

Accepted Answer

Encouraging mergers and acquisitions

Answer

Promoting competition

Answer

Protecting consumers

Answer

Enhancing economic efficiency

Question 29

Evaluate the effectiveness of antitrust policies in promoting competition and curbing anti-competitive practices in oligopolistic markets.

Accepted Answer

Antitrust policies can be effective in fostering competition and curbing anti-competitive practices, but they may also have certain drawbacks.

Answer

Antitrust policies are highly effective in breaking up oligopolies and restoring perfect competition.

Answer

Antitrust policies are ineffective in preventing anti-competitive behavior and should be abandoned.

Answer

Antitrust policies are only effective if implemented with extreme strictness and severe penalties for violations.

Question 30

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

Accepted Answer

Firms are price-takers

Answer

A small number of large firms dominate the market

Answer

High barriers to entry protect incumbents

Answer

Products are often differentiated

Question 31

In a Bertrand oligopoly, firms primarily compete on:

Accepted Answer

Price

Answer

Quantity

Answer

Product differentiation

Answer

Advertising

Question 32

Which of the following is a characteristic of a perfectly contestable market?

Accepted Answer

Zero barriers to entry and exit

Answer

High sunk costs for firms

Answer

Presence of large incumbent firms

Answer

Extensive government regulation

Question 33

Under which conditions is a Stackelberg leader most likely to emerge in an oligopoly market?

Accepted Answer

When one firm has a significant cost advantage

Answer

When there is a high degree of product differentiation

Answer

When the market is highly fragmented

Answer

When there are no barriers to entry

Question 34

Which model is commonly used to analyze how firms in an oligopoly determine their output levels?

Accepted Answer

Cournot model

Answer

Perfect competition model

Answer

Monopoly model

Answer

Game theory model

Question 35

Consider a potential consequence of an oligopoly market structure:

Accepted Answer

Reduced innovation and product development

Answer

Increased consumer choice

Answer

Lower prices for consumers

Answer

Greater market efficiency

Question 36

Identify a factor that can contribute to the formation of an oligopoly:

Accepted Answer

High economies of scale in production

Answer

Low barriers to entry into the market

Answer

Government regulations favoring small businesses

Answer

Perfect information among market participants

Question 37

Identify the characteristic that is NOT applicable to oligopoly markets:

Accepted Answer

High level of competition

Answer

Interdependence among firms

Answer

High concentration ratio

Answer

Barriers to entry

Question 38

In oligopolistic markets, firms may engage in both:

Accepted Answer

Price and non-price competition

Answer

Only price competition

Answer

Only non-price competition

Question 39

Identify a potential welfare implication associated with oligopoly:

Accepted Answer

Higher prices and reduced consumer surplus

Answer

Lower prices

Answer

Increased efficiency

Answer

Increased product variety

Question 40

Which model describes the situation where a few firms dominate a market and face a kinked demand curve?

Accepted Answer

Kinked demand curve model

Answer

Cournot model

Answer

Bertrand model

Question 41

Which factor can contribute to the formation of an oligopoly market?

Accepted Answer

Economies of scale

Answer

Government intervention

Answer

High levels of competition

Answer

Low barriers to entry

Question 42

In a Bertrand oligopoly, firms primarily compete on:

Accepted Answer

Price

Answer

Advertising

Answer

Product quality

Question 43

What is the central focus of the Stackelberg model of oligopolistic behavior?

Accepted Answer

Leadership and followership

Answer

Product differentiation

Answer

Price competition

Answer

Collusion

Question 44

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

Accepted Answer

Interdependence among firms

Answer

Zero advertising expenditures

Answer

Perfect competition

Answer

Low barriers to entry

Question 45

The Herfindahl-Hirschman Index (HHI) is used to:

Accepted Answer

Quantify the level of concentration in an industry.

Answer

Assess the profitability of an industry

Answer

Predict the likelihood of collusion

Answer

Determine the market share of individual firms

Question 46

Which of the following is a benefit of government intervention in oligopolistic markets?

Accepted Answer

Promoting competition and preventing collusion

Answer

Allowing firms to merge and create monopolies

Answer

Reducing the number of firms in the industry

Answer

Increasing the barriers to entry

Question 47

Which of the following is a potential barrier to entry in an oligopolistic market?

Accepted Answer

Economies of scale achieved by incumbent firms

Answer

Low fixed costs

Answer

High demand

Question 48

The kinked demand curve model suggests that:

Accepted Answer

Oligopolists may hesitate to increase prices above a certain level due to fear of competition, but may decrease prices below that level.

Answer

Oligopolists will always maximize their profits by setting marginal revenue equal to marginal cost.