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A Sample of multiple choice questions on natural monopolies, monopolistic

competition and oligopolies

1. All of the following are ways monopolistically competitive firms differentiate their
products EXCEPT
A. Selling with slightly different physical characteristics.
B. Selling products at different locations.
C. Offering different levels of service that come with a product.
D. Creating a special aura or image for the product with advertising.
E. None of the above are exceptions they are all ways of differentiating
2. According to the duopolists' dilemma,
A. Both firms both choose a high price, although both would be better
off with the low price.
B. Both firms choose a low price, although both would be better off with
the high price.
C. The firms are better off if one chooses a high price while the other
chooses a low price.
D. Both firms choose to cut production, although both would be better
off producing a larger output.
E. None of the above.
3. If a regulatory agency follows a policy of average cost pricing, then a natural
monopolist will
A. Be forced to shut down.
B. Have an incentive to decrease costs.
C. Earn economic profit greater than zero.
D. Produce more than it would if it were unregulated.
E. Earn more profit that it would if it were unregulated.
4. Oligopolists prefer
A. Price competition to non-price (product differentiation) competition
because consumers care more about price than other features.
B. To act independently in establishing their prices.
C. To compete in terms of product differentiation, because such changes
are more difficult and take longer to match than price changes.
D. To compete in terms of product differentiation because these changes
reduce costs and make consumer demand more elastic.
E. None of the above.
5. Tying agreements
A. Are legal under the Clayton Act.
B. Are contracts which require the purchase of one good in order to
purchase another.
C. Create a barrier to entry by giving firms control over essential raw
D. Are agreements which say that if one firm cheats on a price-fixing
agreement, the other will cheat on the agreement in the next month.
E. None of the above.
6. All of the following are ways in which oligopoly differs from monopoly and perfect
competition EXCEPT
A. Firms consider each others' actions when choosing price and
B. There are a few but not infinitely many firms in the industry.
C. Firms act strategically.
D. The firms are not subject to diminishing returns in the short-run.
E. There are no exceptions
7. Suppose Kevin offers to match his competitors' price in an oligopoly market. This
will have the effect of
A. Eliminating his competitors' incentive to reduce price if his threat is
B. Driving out his competition.
C. Increasing his competitors incentive to reduce price if his threat is
D. Triggering an antitrust investigation.
E. None of the above.
8. Which of following is an example of a monopolistically competitive firm?
A. Farmer Jones's wheat farm.
B. Post Breakfast Cereals.
C. TCI Cablevision, a supplier of cable T.V. services.
D. T.J.'s Clothes, a local retail clothing store.
E. None of the above.
9. Empirical studies indicate that entry
A. Decreases prices and profits.
B. Decreases price, but increases profits.
C. Increases price and profits.
D. Increases price and decreases profits.
E. Decreases profits but does not affect prices.
10. A four-firm concentration ratio of 75
A. Implies that this is a monopolistically competitive industry.
B. Means that the largest four firms in the industry earn 75 percent of the
industry's profits.
C. Indicates a high degree of product differentiation because the four
largest firms produce a total of 75 different brands of the product.
D. Indicates that this is a highly contestable market.
E. None of the above.
11. Which of the following statements about market performance is correct?
A. Because oligopolists have more managerial resources, they are likely
to be more careful in keeping costs to a minimum than perfectly
competitive firms.
B. The higher the industry concentration ratio, the more efficient the
industry in maximizing the total value of market transactions.
C. Unregulated monopolists and oligopolists will usually earn economics
profits; monopolistically competitive and perfectly competitive firms
will earn zero profit.
D. Perfectly competitive and monopolistically competitive firms are
more innovative than oligopolists and monopolists.
E. All of the above.
12. Cartel pricing
A. Is more likely to be maintained when there number of firms in the
cartel is large.
B. Increases both price and industry output.
C. Is most likely to be maintained when there is free entry into the
D. Establishes a price equal to the marginal cost of the average firm.
E. Is illegal under the terms of the Sherman Act.
Question 1 2 3 4 5 6 7 8 9 10 11 12

Answer E B D C B D A D A E C E