ECON 528 - Mod 6 || QUESTIONS & ANSWERS 100%
SOLVED
Relative to a perfectly competitive market, a monopoly results in:
a. a gain in producer surplus equal to the loss in consumer surplus.
b. a gain in producer surplus less than the loss in consumer surplus.
c. greater economic efficiency.
d. a gain in producer surplus equal to the gain in consumer surplus. correct answers b. a gain
in producer surplus less than the loss in consumer surplus.
An oligopolistic industry is characterized by all of the following except
a. existence of entry barriers.
b. the possibility of reaping long run economic profits.
c. firms pursuing aggressive business strategies, independent of rivals' strategies.
d. production of standardized products. correct answers c. firms pursuing aggressive business
strategies, independent of rivals' strategies.
A member of a cartel like OPEC has an incentive to
a. abide by its individual production quota.
b. agree to a low cartel production level and then produce more than its quota.
c. argue for larger production quotas for each member of the cartel.
d. support equal production quotas for each member. correct answers b. agree to a low cartel
production level and then produce more than its quota.
"Tom and Jack are two local petrol stations. Although they have different constant marginal
costs, they both survive continued competition." Tom and Jack do not constitute:
a. a Cournot oligopoly.
b. a Bertrand oligopoly.
c. a Stackelberg oligopoly.
d. a monopolistically competitive industry. correct answers b. a Bertrand oligopoly.
Suppose that the duopolists competing in Cournot fashion agree to produce the collusive
output. Given that firm two commits to this collusive output, it pays firm one to
, a. cheat by producing a lower level of output.
b. cheat by producing a higher level of output.
c. cheat by raising prices.
d. none of the above. correct answers b. cheat by producing a higher level of output.
An industry has a 4-firm concentration ratio of 85. We would call this industry a:
a. monopoly
b. very competitive one
c. oligopoly
d. purely competitive industry correct answers c. oligopoly
A firm that is threatened by the potential entry of competitors into a market builds excess
production capacity. This is an example of
a. Bertrand competition
b. collusion or cartel
c. Cournot competition
d. Entry Barriers to prevent potential entrants correct answers d. Entry Barriers to prevent
potential entrants
Suppose two firms in a duopoly implicitly collude and charge a high price. How might each
firm benefit from advertising that it will match the lowest price offered by its competitor?
a. The advertisement is meant to suggest to consumers that the offered price is actually the
lowest price available
b. The offer to match prices is a way of deterring entry by other large firms, thereby keeping
the market share of the existing firms intact
c. The offer to match prices is a way of signaling to antitrust authorities that the firms are not
engaged in illegal collusion
d. The advertisement ensures that the other firm does not cheat. If a firm cheats on the
agreement and charges the lower price, the rival firm will retaliate by doing the same. correct
answers d. The advertisement ensures that the other firm does not cheat. If a firm cheats on
the agreement and charges the lower price, the rival firm will retaliate by doing the same.
Which of the following is an example of bundling?
SOLVED
Relative to a perfectly competitive market, a monopoly results in:
a. a gain in producer surplus equal to the loss in consumer surplus.
b. a gain in producer surplus less than the loss in consumer surplus.
c. greater economic efficiency.
d. a gain in producer surplus equal to the gain in consumer surplus. correct answers b. a gain
in producer surplus less than the loss in consumer surplus.
An oligopolistic industry is characterized by all of the following except
a. existence of entry barriers.
b. the possibility of reaping long run economic profits.
c. firms pursuing aggressive business strategies, independent of rivals' strategies.
d. production of standardized products. correct answers c. firms pursuing aggressive business
strategies, independent of rivals' strategies.
A member of a cartel like OPEC has an incentive to
a. abide by its individual production quota.
b. agree to a low cartel production level and then produce more than its quota.
c. argue for larger production quotas for each member of the cartel.
d. support equal production quotas for each member. correct answers b. agree to a low cartel
production level and then produce more than its quota.
"Tom and Jack are two local petrol stations. Although they have different constant marginal
costs, they both survive continued competition." Tom and Jack do not constitute:
a. a Cournot oligopoly.
b. a Bertrand oligopoly.
c. a Stackelberg oligopoly.
d. a monopolistically competitive industry. correct answers b. a Bertrand oligopoly.
Suppose that the duopolists competing in Cournot fashion agree to produce the collusive
output. Given that firm two commits to this collusive output, it pays firm one to
, a. cheat by producing a lower level of output.
b. cheat by producing a higher level of output.
c. cheat by raising prices.
d. none of the above. correct answers b. cheat by producing a higher level of output.
An industry has a 4-firm concentration ratio of 85. We would call this industry a:
a. monopoly
b. very competitive one
c. oligopoly
d. purely competitive industry correct answers c. oligopoly
A firm that is threatened by the potential entry of competitors into a market builds excess
production capacity. This is an example of
a. Bertrand competition
b. collusion or cartel
c. Cournot competition
d. Entry Barriers to prevent potential entrants correct answers d. Entry Barriers to prevent
potential entrants
Suppose two firms in a duopoly implicitly collude and charge a high price. How might each
firm benefit from advertising that it will match the lowest price offered by its competitor?
a. The advertisement is meant to suggest to consumers that the offered price is actually the
lowest price available
b. The offer to match prices is a way of deterring entry by other large firms, thereby keeping
the market share of the existing firms intact
c. The offer to match prices is a way of signaling to antitrust authorities that the firms are not
engaged in illegal collusion
d. The advertisement ensures that the other firm does not cheat. If a firm cheats on the
agreement and charges the lower price, the rival firm will retaliate by doing the same. correct
answers d. The advertisement ensures that the other firm does not cheat. If a firm cheats on
the agreement and charges the lower price, the rival firm will retaliate by doing the same.
Which of the following is an example of bundling?
