OLIGOPOLY Oligopoly is a market structure characterized by: a. differentiated pr
ID: 1120510 • Letter: O
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OLIGOPOLY Oligopoly is a market structure characterized by: a. differentiated products in all cases. b. identical products in all cases. c. a small number of large firms. d. a large number of small firms 2. Firms in oligopolistic markets: a. tend to earn zero economic profit in the long run due to high barriers to entry b. have no control over the price charged for their product. c. consider the reaction of other firms in the market when making a pricing and output decision. d. maximize profit where marginal revenue is equal to minimum marginal cost The characteristic that distinguishes oligopoly from the other market models is: a. the existence of barriers to entry. b. interdependence among firms in pricing and output decisions. c. product differentiation. d. the ability of firms to earn long-run economic profits 3. All of the following markets fit the characteristics of an oligopoly except a. Breakfast cereals b. Cell phones c. Automobiles d. Fresh fruit 4. 5. Which of the following is not true regarding economies of being established? a. The economic profit of well established firms is likely to equal zero in long run equilibrium It will be difficult for new firms to enter an industry dominated by well- established firms. Well-established firms may be able to earn positive economic profits in both the short run and the long run. The existence of well-established firms may create an obstacle that prevents new firms from entering the market. b. c. The Organization of Petroleum Exporting Countries (OPEC) is an example of a. a competitive oligopoly D. a cartel. c. tacit collusion. d. all of the above. Chapter 14 Assignments 301Explanation / Answer
1. c) a small number of large firms
Oligopoly is a market structure characterized by the presence of a few large firms who produces homogeneous or differentiated products intensely competing against each other and recognizing interdependence in their decision-making. Under this type of market, prices are normally rigid as firms are afraid of immediate reactions of the rival firms which may start price war. The demand curve facing an oligopoly firm is indeterminate because of high degree of interdependence and uncertainty among oligopolistic firms. The firm does not know how his rival firms react to its decisions. Sales and profits of the firms are affected by the rivals' firm's actions. Example: there are only a few auto-producers in the Indian market. Maruti, Tata, Ford, Fiat are some well-known brand names.
2. c) consider the reaction of other firms in the market when making a pricing and output decision.
3. b) interdependence among firms in pricing and output decisions.
4. d) Fresh fruit
5. a) The economic profit of well established firms is likely to equal zero in long run equilibrium.
Barriers in entry leads to normal profit of well established firm in the long run.
6. b) cartel
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