Overview
26) In what way can an oligopolistic market structure be beneficial to society?
A) An oligopolistic market structure is most adaptive to today’s rapid rate of technological
change.
B) Oligopolistic firms are able to exploit all existing economies of scale and operate at the
minimum of long-run average costs, and thereby reduce the use of society’s resources.
C) An oligopolistic market structure is most conducive to non-competitive behaviour which
leads to lower prices for consumers in the long run.
D) Oligopolistic firms compete through advertising, which increases economic efficiency.
E) Oligopolistic firms compete through innovation, which is a driving force of economic growth
and increasing living standards.
Answer: E
Explanation: A) B) C) D) E)
27) One characteristic of oligopolistic markets is ;
A) a large number of firms in the industry.
B) ease of entry and exit.
C) zero profits in the long run.
D) a horizontal demand curve facing each individual firm.
E) mutual interdependence between firms.
Answer: E
Explanation: A) B) C) D) E)
28) Consider the following characteristics of a particular industry:
– there is freedom of entry and exit
– in long-run equilibrium, each firm is producing a level of output where there are increasing
returns to scale
This industry is likely to be
A) monopolistically competitive.
B) an oligopoly.
C) perfectly competitive.
D) a cartel.
E) highly concentrated.
Answer: A
Explanation: A) B) C) D) E) 15
29) Which of the following are products that differ from each other enough that they can be sold at different prices, but are similar enough that they can be considered the same product?
A) complementary products
B) standardized products
C) differentiated products
D) inferior products
E) necessary products
Answer: C
Explanation: A) B) C) D) E)
30) In an imperfectly competitive market, changes in market conditions are often signalled to the individual firms by a change in the
A) firm’s sales.
B) price of the product.
C) cost conditions.
D) elasticity of supply.
E) government policy.
Answer: A
Explanation: A) B) C) D) E)
31) One reason an oligopolistic firm may have market power is that
A) the market may be “contestable.”
B) there are many similar producers.
C) it produces a significant fraction of total industry output.
D) it has dis-economies of scale.
E) it always makes positive profits.
Answer: C
Explanation: A) B) C) D) E)
32) If a monopolistically competitive industry is in long-run equilibrium, then for each firm
)A) price equals MC at the minimum level of the firm’s LRAC curve.
B) the demand curve cuts the MC curve at the minimum level of the LRAC curve.
C) the MC curve intersects MR at the minimum level of its LRAC curve.
D) positive profits are being earned.
E) the demand curve is tangent to its LRAC curve.
Answer: E
Explanation: A) B) C) D) E)
33) Advertising by existing firms in an oligopolistic industry
A) only exists where natural entry barriers are weak.
B) maximizes joint profits for firms in the industry.
C) can be an effective entry barrier to potential entrants to the industry.
D) will increase the expected market share of new entrants to the industry.
E) allows easy entry to a new entrant with small sales.
Answer: C
Explanation: A) B) C) D) E)
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