b) There are barriers to entry into the market. a) kinked and steep d) The percentage of industries that are dominated by a group of four or fewer firms, c) The percentage of total industry sales accounted for by the four largest firms, What term means "cooperation with rivals?" a) Import competition c) high to receive a payout of $12 b. E) rivalry of the participants leads to the worst solution from their point of view. b) An outcome in the payoff matrix from which both firms want to deviate since the current strategy is not optimal for either firm. D) increase the amount they produce. Marilyn has been involved in negotiations between DTR and prospective lenders as DTR Oligopolistic behavior implies that oligopolists prefer competition ______. Thus, each firm gains a considerable market share with minimal potential profits. C) Firms in the cartel will want to raise the price. from a social viewpoint, monopolistic competition is better than perfect competition None of these Question 8 (1 point) A firm using advertising differs from a firm not using advertising in that the firm using advertising. Each firm is so large that its actions affect market conditions. Updated: Aug 16, 2022. command economy, economic system in which the means of production are publicly owned and economic activity is controlled by a central authority that assigns quantitative production goals and allots raw materials to productive enterprises. (Figure) summarizes the characteristics of each of these market structures. When the government grants patents to, for example, three different pharmaceutical companies that each has its own drug for reducing high blood pressure, those three firms may become an oligopoly. E) cheat on each other. D) the four-firm concentration ratio for the industry is small. E) Bud and Miller each have a dominant strategy. The amount of time (in seconds) needed to complete a critical task on an assembly line was measured for a sample of 50 assemblies. Oligopolistic firms do which of the following when they change their pricing strategies? Keep its price constant and thus decrease its market share C. Increase its price and thus increase its market share D. Decrease its price and thus decrease its market share C) the good produced in the market has been deemed a necessity C) equilibrium price will be sensitive to small cost changes but quantity will not. Also, they rely on free-market forces to earn higher profits than a competitive market. C) a perfectly competitive market. E) a cartel. C) a firm in monopolistic competition. Which is the simple form of oligopoly market? Marketers highlight the distinguishing features in the product commonly through packaging or a good design, which helps communicate the benefitting factors to the shoppers. 14) A duopoly occurs when ________. Oligopolists do not compete with each other. Why do the elements of structure, such as work specialization, formalization, span of control, chain of command, and centralization, have a tendency to change together? d) achieve greater allocative efficiency but lesser productive efficiency, c) give the appearance of increased competition d) ow to receive a payout of $12 *The game would eventually end in the Nash equilibrium (cell B or C). d) percentage of industries that are oligopolies, c) sales of the largest firms in an industry, Firms in oligopolistic industries are "price makers" because such firms ______. A type of implicit understanding used by oligopolists to coordinate prices without engaging in outright collusion is known as ______. b) OPEC These firms are large enough that their quantity influences the price and so impacts their rivals. a) Dominant strategy What happens to oligopolistic firms when a recession occurs? CFA And Chartered Financial Analyst Are Registered Trademarks Owned By CFA Institute. 5) According to the kinked demand curve theory of oligopoly, each firm believes that if it raises its price, 0. For example, it has been found out that insulin and the electrical industry are highly oligopolist in the US. c) its rivals match a price increase but ignore a price cut In first-degree price discrimination, a monopolist charge each customer the highest price the customer is willing to pay. B) both firms comply with the agreement. D) Dr. Smith advertises only if Dr. Jones advertises. For a particular industry there may be a low four-firm concentration ratio since it is measured on a nationwide scale, but there can still be a local oligopoly. D) 2,750. Impure oligopoly - have a differentiated product. a. small number of firms b. has some pricing power c. the firms are interdependent d. the good produced may be unique or not e. low barriers to entry; Which of the following is not a characteristic of an oligopolistic market structure? price rigidity Element of monopoly. e) is always upward sloping, a) depends on the actions of rivals to price changes, The four-firm concentration ratio understates the competition in the aluminum industry because aluminum competes with copper in many applications. c) give the appearance of increased competition East Asian regimes tend to have similar characteristics First they are orien. Artificial intelligence (AI) services are on the rise, with every industry readying to integrate the technology sooner or later. Firm 1 cost function is TC (9) = 20 + 12q + q, while firm 2 cost function is TC (9) = 50 +8q2 + q . D)There is more than one firm in the industry. 9) Which isnota characteristic of oligopoly? Oligopolists in an oligopolisticmarket structure agree not to raise their prices but match only price cuts to avoid price rigidity. The firms comprise an oligopolistic market, making it possible for already-existing smaller businesses to operate in a market dominated by a few. When two major players dominate a sector, the market becomes a duopolyDuopolyWhen there are two market leaders in any industry or service, this is referred to as a duopoly. c) harder Lets identify the oligarchy before identifying the characteristics of an oligopoly. *Prohibit the entry of new rivals. d) easier. 4) According to the kinked demand curve theory of oligopoly, each firm thinks that demand just below the price at the kink is A) less elastic than the demand just above the price at the kink. a) are less efficient due to competition c) through product development Marginal costMarginal CostMarginal cost formula helps in calculating the value of increase or decrease of the total production cost of the company during the period under consideration if there is a change in output by one extra unit. B) a market where two firms compete for profit and market share. This market structure can be competitive and sometimes less competitive. c) Localized markets Due to minimal competition, each of them influences the rest through their actions and decisions. e) It could be downward sloping or kinked. b) legal Pure (Perfect) Competition 2. Oligopolists do not stress competing with each other on the pricing front. 2. However, the cartel system is fragile and considered illegal in many parts of the world as it includes increased technical and quality standards, mutually agreed pricing or price-fixingPrice-fixingPrice fixing is an agreement between business competitors to increase (very often), reduce (perhaps for a short time), establish, or stabilize (rarely) prices, disregarding the prices governed by the market's flow of demand and supply.read more, etc. A small number of sellers. D) zero. Demand Curve is a graphical representation of the relationship between the prices of goods and demand quantity and is usually inversely proportionate. C) the HHI for the industry is small. 3) The Nash equilibrium for a sequential game in a contestable market with locked-in first stage prices results in b) product development and advertising are relatively difficult to copy As a result, each firm obligates to adhere to pre-determined price and quantity/output levels to maximize revenue. Characteristics: There are few firms in the market serving many consumers. True or false: Firms in an oligopoly always produce a homogeneous product. c) game theory 2) In the dominant firm model of oligopoly, the larger firm acts like The more concentrated a market is, the more likely it is to be oligopolistic. Firms in anoligopoly marketfocus on non-price competition and less innovation but ensure their brands are uniquely identifiable. c) threatens believes that DTRs debt to equity ratio of 1.6 is probably the minimum that lenders will accept. C) perfectly elastic. C) perfectly elastic demand. The land is in an area zoned only for *manipulating consumer preferences Price collusion caused by market transparency and other factors enables oligopolists to raise their barriers to market entry for new competitors, such as high capital requirements, legal obligations, and consumer loyalty. We reviewed their content and use your feedback to keep the quality high. a) Affect profits and influence the profits of rival firms The marginal revenue formula computesthe change in total revenue with more goods and units sold." Chapter 15: Monopolistic Competition and Olig, Pesticide Applicator Certification Core Manual, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman, Statistical Techniques in Business and Economics, Douglas A. Lind, Samuel A. Wathen, William G. Marchal. a) its rivals do not respond to either a price cut or price increase O D. Some barriers to entry. B) a contestable market. What are the 4 characteristics of oligopoly? C) 2. Consequently, the output and pricing policies of a particular company can affect market conditions. they will make more pricing low than if they both price high. c) horizontal or perfectly elastic c) less than or equal to 40% a) pricing theory B) predict that an increase in price by one firm is accompanied by price increases of other firms if every firm experiences a large enough increase in marginal cost. c) is always downward sloping D) products that are slightly different. D) monopolistic competition. For example, when a government grants a patent for an invention to one firm, it may create a monopoly. d) price leadership; kinked-demand, From society's standpoint, what are the effects of collusion in an oligopolistic industry? Collusion becomes more difficult as the number of firms ____. D) unit elastic demand. True or false: A cartel abides by a formally written agreement that specifies the output and price of each member firm and is a form of overt collusion. C) the HHI for the industry is small. a) They may produce homogeneous or differentiated products. . Even though the products of companies A and B are similar, there must be something that distinguishes them. A study based on over 9,0009,0009,000 U. S. residents b) competitively View full document. *The firm's demand curve will shift further to the left. E) marginal cost. Why Developing Countries Should Focus on International Trade? The number of suppliers in a market defines the market structure. B) raise the price of their products. 5. b) The Herfindahl model B) "Every time Sparrow's Donuts has a donut sale, so does Tim Horton's." d) straight and steep *Ownership and control of raw materials C) one prisoner has no chance to be acquitted since there is no other prisoner to support his testimony. Also, as there are few sellers in the market, every seller influences the behavior of the other firms and other firms influence it. e) straight. That is, the firm is myopic or short sighted not to learn from its past mistakes and take d 1 d'1, as if it will not shift. The concept serves to be useful for companies focusing on multiple product lines and operating more than one business unit at a time. You are free to use this image on your website, templates, etc., Please provide us with an attribution link. *world trade C) average total cost. C) is; the dominant firm is making an economic profit 36) Refer to Table 15.3.10. *To obtain lower input prices E) cheat on each other. A small number of sellers. It determines the law of demand i.e. 1) A cartel is a group of firms which agree to *Reduce inputs used in production b) strengthens It encompasses several industries, including banking and investment, consumer finance, mortgage, money markets, real estate, insurance, retail, etc. $3. Established firms in the market may take strategic actions to prevent new entries. d) independently, The shape of the demand curve for an oligopolistic firm ______. D) a prisoner has no incentive to confess to his crime, and stands a greater chance of not going to prison. *To decrease monopoly power As a result, the implementation of the policy has been marginalizing the rural settled peasant . read more, and marginal revenue is the product price. d. 2. . In the scenario above, the market is. The key characteristics of an oligopoly market structure include: Few firms : There are only a few firms in the market, which makes it easy for the firms to coordinate their behavior and to reach . 16) The firms Trick and Gear form a cartel to collude to maximize profit. Then the large firm may consider the other two firms are too small, hence ignore their reactions while taking decisions. E) the firms are interdependent. a) often b) The possibility of price wars diminishes, but profits might be lower. A monopoly occurs when. *providing misleading information A) in a single-play game or a repeated game. a) low to receive a payout of $15 b) Demand is highly elastic below the going price . B) it prevents or substantially lessens competition D) marginal revenue curve is discontinuous. A) there are fewer than 6 firms in a market c) A more efficient industry Gentleman's agreements are a type of covert collusion, occurring in social settings where a product's _____ is agreed upon and market shares are determined by _____ competition. E) marginal revenue curve is upward sloping. *It helps reduce demand for material products. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Copyright 2023 . characterized by the presence of a few large firms who produces d) its rivals match both a price cut and price increase, b) its rivals match a price cut but ignore a price increase, When members of an oligopoly meet to set prices to maximize profits it demonstrates the ______ and/or the ______ model. c) inflexible d) They do not achieve allocative efficiency because their price exceeds marginal cost. B) the firms may legally form a cartel. Following are the characteristics of oligopoly: Interdependence. Which of the following is not a characteristic of oligopoly? C) The sales of one firm will not have a significant effect on other firms. 13) Complete the following sentence. d) their profits and sales will rise. b) By increasing recruiting expenses a) Import competition D) the four-firm concentration ratio for the industry is small. b) They achieve productive efficiency because their marginal revenue equals marginal cost. ), Oligopolists often compete through product development and advertising instead of price because ______. a) are monopolies An oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. Which statement is true about oligopolies? b) Its demand curve is downward-sloping *world trade d) monopolistically competitive market, The study of how one firm reacts to the actions taken by another firm or individual when implementing a strategy is called _____. What kind of game is it if the firms must choose their pricing strategies at the same time? c) Blue jean designer What kind of game is it when firms choose their optimal pricing strategy today without worrying about possible interactions in the future? Four characteristics of an oligopoly industry are: Few sellers. A. cutting prices c) They lose most of their excess-production capability. C) potential entrants entering and making zero economic profit. A) Dr. Smith advertises no matter what Dr. Jones does. D) All of the above. B. El valor de cambio del bien se mide segn el trabajo que este tiene incorporado. What does a demand curve look like for an oligopolistic firm? C) independence of firms. List the three steps followed under the gross profit method of estimating inventory. Sometimes there may be many firms but the large share of the industrys productive capacity is accounted for only by a few firms, the others share will be insignificant as far as the market is concerned. If productivity can be increased to $0.11 vans per labor hour, how many hours would the average laborer work that month? If one of the firms cheats on this agreement, what will happen? B) 1. What is the Nash equilibrium? b) Collusive pricing model a) over collusion 5) A market with a dominant firm and with weak barriers to entry ________ in long-run equilibrium because ________. a) their prices will be unchanged Businesses in such a market collaborate to dominate the rest of the players and maximize joint revenue. a market structure characterized by a small number of interdependent sellers is called a oligopoly Which of the following is NOT a common characteristic of oligopoly? B) Firms are profit-maximizers.C) The sales of one firm will not have a significant effect on other firms. a) Cartel A Computer Science portal for geeks. On the other hand, if an oligopolist reduces output by raising prices, the rest refrain from doing so. A) collusion of the participants leads to the best solution from their point of view. b) collusion model Our model focuses on the interactions of these banks within an imperfectly competitive loan market and the endogenous determination of equilibrium loan quantities for banks within each group, the total equilibrium amount in . d) Affect costs and influence the products of rival firms, a) Affect profits and influence the profits of rival firms, Which of the following is a model used to examine oligopolistic pricing? It is one of the four market structures that include perfect competition, monopoly, and monopolistic competition. Each firm is so large that its actions affect market conditions. 4) Which one of the following industries is the best example of an oligopoly? What would have been DTRs debt to equity ratio if the$10 million of stock had not been d) game theory. What is it called when firms reach a verbal or tacit agreement with rivals about price in a social setting like the golf course? E) only when there is no Nash equilibrium. D) firms in perfect competition. C) Art denies and Bob confesses. Marginal revenue = Change in total revenue/Change in quantity sold. $15. A duopoly is b) increasing monopoly power Cost of firm A is lower than firm B Profit maximizing price and quantity of firm A is PA and XA respectively. It is a reflection of quantity/output performance against cost/revenue performance. *To increase market share D) perfectly inelastic. Though, it is rare to find pure oligopoly situation, yet, cement, steel, aluminum and chemicals producing industries approach pure oligopoly. An oligopoly exists when a market is dominated by a small number of suppliers or firms. Experts are tested by Chegg as specialists in their subject area. Firms are more likely to cheat on a collusive agreement when the economy is experiencing a _____ (Enter one word). Based on the figure, if RareAir honors an agreement with Uptown to price high, and Uptown needs to increase profits due to stockholder pressure, Uptown will price ______. A) is; to comply regardless of the other firm's choice *dominant firms 5) Which one of the following characteristics applies to oligopolistic markets? B) the firms may legally form a cartel. The financial sector refers to businesses, firms, banks, and institutions providing financial services and supporting the economy. d) have interdependent pricing. found that the most prevalent disorder was b) high to receive a payout of $15 C) Parliament. In other words, when there are two or more than two, but not many, producers or sellers of a product, oligopoly is said to exist. c) By changing pricing strategies as the price increases, demand decreases keeping all other things equal.read more shifts. a) L-shaped b) greater than or equal to 50% d) strategic theory. It is calculated by dividing the change in the costs by the change in quantity.read more is the cost of productionCost Of ProductionProduction Cost is the total capital amount that a Company spends in producing finished goods or offering specific services. It is one of the four market situations, including perfect competitionPerfect CompetitionPerfect competition is a market in which there are a large number of buyers and sellers, all of whom initiate the buying and selling mechanism. 8) Which of the following quotes shows a contestable market in the widget industry? All right then. Their differences can range from. Pure or Perfect Oligopoly: If the firms produce homogeneous products, then it is called pure or perfect oligopoly. In December, General Motors produced 6,600 customized vans at its plant in Detroit. 2003-2023 Chegg Inc. All rights reserved. While it is true that strategic behavior and mutual interdependence characterize oligopolies, this is not the reason why they are price makers. Suppose that one of the two firms decided to reduce the price of its product by some amount resulting 20 % increase in its sales. Your email address will not be published. A) rules A. firms have no control over their price B. firms may sell a differentiated product C. firms have market power D. firms may sell a standardized product E. the market contains a few large products A, C In an oligopolistic market, the two types of retaliation include. *The firm is failing to produce at the profit-maximizing output. Select one: O a. there are a few firms that are mutually interdependent O b. when one firm in an oligopoly raises its price, other firms will follow O c. firms may collude in order to act like a monopoly O d. barriers to entry exist to limit the entrance of new firms C) rules, strategies, profit, and outcome. E) None of the above. *To increase control over the product's price Which of the following is not a characteristic of oligopoly? e) Price leadership model, In the _______ model of oligopoly, firms react to price decreases but ignore price increases by other firms. 1) A cartel is a group of firms which agree to A) behave competitively. Raised barriers to entry, price-making power, non-price competition, the interdependence of firms, and product differentiation are alloligopoly characteristics. B) raise the price of their products. What are the four characteristics of market structure? a) Demand is highly elastic below the going price This is different compared to the perfectly competitive market and the monopolistic market that consist of a large number of sellers whereas there is only one sole seller in the monopoly market. D. Th; Which of the following is a characteristic of an oligopoly market structure? A situation where firms meet to fix prices, divide markets, or restrict competition is called ______. Marginal revenue = Change in total revenue/Change in quantity sold. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. A dominant-bank oligopoly confronting a competitive fringe There are two sets of banks: dominant banks and fringe banks. B) assumes marginal cost is constant. The demand curve will look kinked to reflect the fact that rivals will match price *decreases* but ignore price *increases*. What are three models used to study pricing and output by oligopolies? What are the 4 characteristics of oligopoly? B. b) its rivals match price increases and price decreases A Which of the following is not a characteristic of oligopoly? a) By decreasing total suppliers d) The advertising model, To reduce uncertainty or increase profits, oligopolists may change their prices ______. It can be also called as one form. E) none of the above. Types of Market Structure Economists group industries into four distinct market structures: 1. *Large capital investment A single Welcome to EconTips, your number one source for all things about economics. 0) If the efficient scale of production only allows three firms to supply a market, the market is a. d) through advertising The market has been shared equally by firms A and B, The cost of firm A is lower than firm BProfit maximizing the output of firms A is XA and the price is PA. Firm B adopts this price and sells XB(=XA) amount. The firms in the oligopolistic market are having full knowledge about the market particularly about their rival firms. D) its profit will rise by the same percentage. a) greater than or equal to 40% A) This game has no dominant strategies. c) have no rivals 14) The kinked demand curve model c) dominant firms *It enhances competition and reduces monopoly power. Here we discuss how does Oligopoly market work in economics along with its characteristics. Firm B adopts this price and sells XB(