Unit 7: Oligopoly - Practice Quiz

DEECO515 60 Questions
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1 An oligopoly is a market structure characterized by:

meaning and sources Easy
A. Only two buyers of a product
B. A few large sellers dominating the market
C. A very large number of small sellers
D. A single seller of a product

2 A key feature of oligopoly is:

meaning and sources Easy
A. Interdependence among firms
B. A large number of buyers only
C. Absence of any competition
D. Complete independence of firms

3 An oligopoly with exactly two firms is specifically called a:

meaning and sources Easy
A. Duopsony
B. Monopsony
C. Monopoly
D. Duopoly

4 Which of the following is a major source of oligopoly?

meaning and sources Easy
A. Economies of scale
B. Perfect information for all buyers
C. Free entry for all firms
D. Very low fixed costs

5 In an oligopoly selling identical products (like steel or cement), the market is termed:

meaning and sources Easy
A. Monopolistic competition
B. Pure or perfect oligopoly
C. Differentiated oligopoly
D. Bilateral monopoly

6 An oligopoly in which firms sell differentiated products (like automobiles) is called a:

meaning and sources Easy
A. Pure oligopoly
B. Differentiated oligopoly
C. Perfect competition
D. Monopoly

7 Which of the following typically acts as a barrier to entry in an oligopoly?

meaning and sources Easy
A. Control over key raw materials
B. Low capital requirements
C. Perfect substitutes availability
D. Absence of patents

8 A common feature of oligopoly markets is:

meaning and sources Easy
A. Zero advertising expenditure
B. Price rigidity or sticky prices
C. Prices set by government only
D. Frequent and easy price changes

9 Heavy expenditure on advertising and selling costs is most common in which market?

meaning and sources Easy
A. Perfect competition
B. Pure monopoly
C. Oligopoly
D. Monopsony

10 A cartel is best described as:

cartelization and price leadership under oligopoly Easy
A. A government agency regulating prices
B. A single firm controlling the whole market
C. A formal agreement among firms to fix prices or output
D. A group of consumers bargaining together

11 The main objective of forming a cartel is to:

cartelization and price leadership under oligopoly Easy
A. Increase competition among members
B. Maximize joint profits of member firms
C. Reduce prices for consumers
D. Eliminate all profits

12 Which of the following is a well-known real-world example of a cartel?

cartelization and price leadership under oligopoly Easy
A. UNICEF
B. OPEC
C. IMF
D. WTO

13 When firms in a cartel act together, they effectively behave like a:

cartelization and price leadership under oligopoly Easy
A. Non-profit body
B. Monopolist
C. Price taker
D. Perfect competitor

14 A major reason cartels often break down is:

cartelization and price leadership under oligopoly Easy
A. Absence of any profit motive
B. Perfect trust among all members
C. The temptation of members to cheat on the agreement
D. Government support for cartels

15 Price leadership in oligopoly refers to a situation where:

cartelization and price leadership under oligopoly Easy
A. One firm sets the price and others follow
B. Consumers decide the market price
C. Each firm sets its own price independently
D. The government fixes all prices

16 Price leadership is an example of:

cartelization and price leadership under oligopoly Easy
A. Free entry pricing
B. Formal government regulation
C. Tacit or informal collusion
D. Perfect competition

17 When the largest firm in an industry sets the price and smaller firms follow, it is called:

cartelization and price leadership under oligopoly Easy
A. Collusive cartel pricing
B. Random price setting
C. Dominant firm price leadership
D. Barometric price leadership

18 Barometric price leadership occurs when the price is set by:

cartelization and price leadership under oligopoly Easy
A. The firm best able to read market conditions
B. The smallest firm in the market
C. A government committee
D. The firm with the highest costs

19 Which of the following is a form of collusion among oligopoly firms?

cartelization and price leadership under oligopoly Easy
A. Independent output cuts
B. Cartel agreements
C. Random discounts
D. Price wars
E. Random advertising

20 In many countries, formal cartels are generally:

cartelization and price leadership under oligopoly Easy
A. Illegal and restricted by law
B. Legal and encouraged
C. Managed by consumers
D. Required by trade unions

21 A market has four large firms that together control about 85% of total industry sales, with the remaining share split among many tiny sellers. This market structure is best classified as:

meaning and sources Medium
A. Perfect competition
B. Monopolistic competition
C. Oligopoly
D. Pure monopoly

22 The central feature that distinguishes oligopoly from other market structures is:

meaning and sources Medium
A. Complete freedom of entry and exit at zero cost
B. Sale of a perfectly homogeneous product only
C. The presence of a single seller with full pricing power
D. Mutual interdependence among firms in their decisions

23 Which of the following is a genuine source of oligopoly?

meaning and sources Medium
A. Economies of scale that make large-scale production essential for low costs
B. Absence of any barriers to entry
C. Perfectly elastic demand facing each firm
D. Firms producing at the minimum point of a flat cost curve

24 An oligopoly in which firms produce a standardized, undifferentiated product such as steel or cement is termed a:

meaning and sources Medium
A. Monopolistic oligopoly
B. Bilateral oligopoly
C. Pure (perfect) oligopoly
D. Differentiated oligopoly

25 The kinked demand curve model is used mainly to explain which observed feature of oligopoly markets?

meaning and sources Medium
A. Continuous and frequent price wars
B. Zero economic profit in the long run
C. Perfectly competitive pricing outcomes
D. Price rigidity despite changes in costs

26 Which factor would most likely reduce the tendency of an industry to become an oligopoly?

meaning and sources Medium
A. Low fixed costs and easy access to technology by new entrants
B. A government licensing rule limiting the number of firms
C. Control of a scarce raw material by two firms
D. A patent held by one dominant producer

27 In an oligopoly, firms often prefer non-price competition (advertising, product features) over price competition mainly because:

meaning and sources Medium
A. Advertising has no effect on the firm's demand
B. Consumers ignore product quality and respond only to price
C. Non-price competition is prohibited by law in most countries
D. Price cuts are easily matched by rivals, eroding gains for everyone

28 A cartel that seeks to maximize the joint profit of its members will set the industry output where:

cartelization and price leadership under oligopoly Medium
A. Industry marginal revenue equals the marginal cost of production
B. Price equals average variable cost
C. Each firm's price equals its own average cost
D. Total revenue is at its maximum

29 Under a centralized cartel that minimizes total cost, output is allocated across member firms so that:

cartelization and price leadership under oligopoly Medium
A. Every firm produces an identical quantity
B. Each firm's average revenue is equalized
C. The marginal cost of every member firm is equal
D. The firm with the highest cost produces the most

30 The strongest incentive for an individual member to cheat on a cartel agreement arises because:

cartelization and price leadership under oligopoly Medium
A. The cartel price is always below each firm's marginal cost
B. Members are legally required to expand output
C. At the cartel price, each member can raise its own profit by secretly selling more output
D. Cheating reduces the cheater's revenue immediately

31 In the dominant-firm price leadership model, the dominant firm sets its output by:

cartelization and price leadership under oligopoly Medium
A. Producing wherever total revenue is maximized
B. Equating its marginal cost with the marginal revenue derived from its residual demand
C. Equating market price with the industry's average cost
D. Matching the total output of all follower firms combined

32 In dominant-firm price leadership, the smaller follower firms typically behave as:

cartelization and price leadership under oligopoly Medium
A. Joint profit maximizers coordinating with the leader
B. Price setters who undercut the leader aggressively
C. Firms that always produce zero output
D. Price takers who sell all they wish at the leader's announced price

33 A cartel decides to raise the market price. This action is most likely to succeed in the long run when:

cartelization and price leadership under oligopoly Medium
A. Members frequently cheat on their quotas
B. The product's demand is inelastic and entry of new firms is difficult
C. Demand is highly elastic and substitutes are plentiful
D. Entry into the industry is quick and cheap

34 Which of the following best describes barometric price leadership?

cartelization and price leadership under oligopoly Medium
A. A firm recognized for reading market conditions initiates price changes that others follow
B. The largest firm forces smaller firms to accept its price
C. Firms secretly agree on identical prices in advance
D. The government fixes the price for all firms in the industry

35 Two firms form a cartel. Firm A has and Firm B has at their current outputs. To minimize the cartel's total cost for the same total output, the cartel should:

cartelization and price leadership under oligopoly Medium
A. Shift production from Firm A toward Firm B
B. Shut down Firm A entirely
C. Shift production from Firm B toward Firm A
D. Keep the current allocation unchanged

36 OPEC is a well-known real-world example of which oligopoly arrangement?

cartelization and price leadership under oligopoly Medium
A. A contestable market with free entry
B. A barometric price leader
C. An international cartel coordinating output and price
D. A monopolistically competitive industry

37 A cartel faces market demand and constant marginal cost . Acting as a joint monopolist, the profit-maximizing output is:

cartelization and price leadership under oligopoly Medium
A.
B.
C.
D.

38 Using demand , , and the cartel output , the price charged by the cartel is:

cartelization and price leadership under oligopoly Medium
A.
B.
C.
D.

39 Which condition would most weaken the stability of a cartel?

cartelization and price leadership under oligopoly Medium
A. A small number of members producing an identical product
B. Inelastic industry demand with no close substitutes
C. Strong legal enforcement of the cartel agreement
D. A large number of members with differing cost structures making monitoring hard

40 A key difference between price leadership and a formal cartel is that price leadership:

cartelization and price leadership under oligopoly Medium
A. Involves fixing output quotas for every firm in writing
B. Always requires a legally enforceable contract between members
C. Coordinates prices without an explicit binding agreement among firms
D. Guarantees equal profit shares to all participating firms

41 In a Cournot duopoly with market demand and constant marginal cost for both firms, what is the equilibrium output of each firm?

meaning and sources Hard
A.
B.
C.
D.

42 A key structural feature that distinguishes oligopoly from monopolistic competition is:

meaning and sources Hard
A. Production of a homogeneous product only
B. A large number of firms each with negligible market share
C. The complete absence of any barriers to entry
D. Mutual interdependence in decision-making among a few firms

43 In a Bertrand duopoly with identical products and constant marginal cost , the Nash equilibrium price is:

meaning and sources Hard
A. The monopoly price
B.
C.
D.

44 Which of the following is the most fundamental source of oligopoly among the options below?

meaning and sources Hard
A. Absence of any advertising expenditure
B. Economies of scale relative to market size
C. Uniform product pricing across firms
D. Perfectly elastic market demand

45 A cartel of two firms faces demand with marginal cost . If they jointly maximize profit like a monopolist and split output equally, each firm produces:

cartelization and price leadership under oligopoly Hard
A.
B.
C.
D.

46 Under the dominant-firm price leadership model, the dominant firm sets price by:

cartelization and price leadership under oligopoly Hard
A. Maximizing the combined profit of the fringe firms
B. Equating its marginal revenue from residual demand to its marginal cost
C. Setting price equal to the fringe firms' marginal cost
D. Equating market demand to total industry supply

47 The primary incentive that makes cartel agreements inherently unstable is:

cartelization and price leadership under oligopoly Hard
A. Each member gains by secretly cheating and expanding output at the cartel price
B. Marginal cost rises to infinity for all members
C. Market demand becomes perfectly inelastic after agreement
D. Members are legally required to lower output every period

48 In the dominant-firm model, market demand is and the competitive fringe supplies . The dominant firm's residual demand is:

cartelization and price leadership under oligopoly Hard
A.
B.
C.
D.

49 The kinked demand curve model of oligopoly explains:

meaning and sources Hard
A. How cartels determine the profit-maximizing output
B. Why oligopoly always converges to perfect competition
C. Why prices continuously fluctuate in oligopoly
D. Price rigidity despite changes in marginal cost within a range

50 A three-firm cartel maximizes joint profit efficiently by allocating output so that:

cartelization and price leadership under oligopoly Hard
A. The firm with lowest cost produces the entire cartel output
B. The average cost of each member is minimized independently
C. Each member produces an identical quantity regardless of costs
D. The marginal cost of each member is equal to the common marginal revenue

51 Barometric price leadership differs from dominant-firm price leadership in that the barometric leader:

cartelization and price leadership under oligopoly Hard
A. Is legally appointed to enforce cartel discipline
B. Merely signals cost or demand changes that others voluntarily follow
C. Sets price equal to its own marginal cost only
D. Controls the largest share and forces others to accept its price

52 Two firms form a cartel facing with and . To minimize total cost of the joint output, the cartel should:

cartelization and price leadership under oligopoly Hard
A. Split output equally between the two firms
B. Assign all initial production to firm 1 until its MC rises to match firm 2
C. Assign all output to firm 2 since it entered later
D. Set both firms' output where average costs are equal

53 In a Stackelberg duopoly with and , the leader's output is:

meaning and sources Hard
A.
B.
C.
D.

54 In the dominant-firm model with residual demand and dominant firm , the dominant firm's output is:

cartelization and price leadership under oligopoly Hard
A.
B.
C.
D.

55 Which condition most strongly promotes successful cartel formation and stability?

cartelization and price leadership under oligopoly Hard
A. Few firms with similar costs and easily detected cheating
B. Homogeneous product but no way to monitor sales
C. Many firms with widely differing cost structures
D. Rapidly changing demand and secret price negotiations

56 The concentration ratio measures:

meaning and sources Hard
A. The number of firms needed for perfect competition
B. The combined market share of the four largest firms
C. The elasticity of demand faced by the leading firm
D. The ratio of price to marginal cost in the industry

57 A cartel faces with combined constant . Compared to the competitive outcome, cartelization changes total output from the competitive level to:

cartelization and price leadership under oligopoly Hard
A. From to
B. From to
C. From to
D. From to

58 Under repeated interaction, cartel discipline is best sustained by:

cartelization and price leadership under oligopoly Hard
A. Credible threats to punish defectors with reversion to competitive pricing
B. Allowing members to renegotiate price every day
C. Random allocation of quotas each period
D. A one-time promise never to change output again

59 A Herfindahl-Hirschman Index (HHI) of in an industry most likely indicates:

meaning and sources Hard
A. A highly concentrated oligopolistic market
B. A perfectly competitive market
C. A monopoly with a single seller only
D. A market with thousands of equal-sized firms

60 In the dominant-firm model, as the competitive fringe grows larger over time, the dominant firm's residual demand and market power tend to:

cartelization and price leadership under oligopoly Hard
A. Increase demand but reduce fringe output to zero
B. Remain unchanged regardless of fringe size
C. Both expand, raising the dominant firm's markup
D. Both shrink, pushing price toward the competitive level