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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. Since there are few dominating firms which are having full knowledge about the market, the decisions on the price and output of a firm depend on the reactions of other firms. A) a market where three dominant firms collude to decide the profit-maximizing price. Products traded or traded homogeneously become the second characteristic of oligopoly. 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 *Patents, Which are reasons that that firms merge? B) the firms may legally form a cartel. c. Competing firms can enter the industry easily. *The firm's demand curve will shift further to the right. C) firms in monopolistic competition. B) it prevents or substantially lessens competition Perfect competition is a market in which there are a large number of buyers and sellers, all of whom initiate the buying and selling mechanism. E 12) Because an oligopoly has a small number of firms A) each firm can act like a monopoly. Hence, undoubtedly it will react to the price reduction decision. A) price. 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. Save my name, email, and website in this browser for the next time I comment. As their products seem visually identical, both the brands have to make sure they offer customers something that the other does not. An oligopoly in economics refers to a market structure comprising multiple big companies that dominate a particular sector through restrictive trade practices, such as collusion and market sharing. Even though the products of companies A and B are similar, there must be something that distinguishes them. 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. *The firm is failing to produce at the profit-maximizing output. 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? Also, as there are few sellers in the market, every seller influences the behavior of the other firms and other firms influence it. You can calculate it by adding Direct Material cost, Direct Labor Cost, & Manufacturing Overhead Cost. What are the 4 characteristics of oligopoly? a) kinked and steep a) Import competition A situation where firms meet to fix prices, divide markets, or restrict competition is called ______. *Prohibit the entry of new rivals, *Reduce uncertainty They are *It enhances competition and reduces monopoly power. It is used as one of the strategies to increase the business firm's revenue and increase the market share. C)The sales of one firm will not have a significant effect on other firms. A) the government will impose price controls. An oligopolistic firm's marginal revenue curve is made up of two segments if ______. If one of the firms cheats on this agreement, what will happen? Economies of scale are the cost advantage a business achieves due to large-scale production and higher efficiency. Segn Ricardo no es posible que exista equidad en el mercado debido a que: A. c) They achieve allocative efficiency because they produce at minimum average total cost. d) elastic, An oligopoly firm's demand curve will be kinked if ______. Interdependence: The foremost characteristic of oligopoly is interdependence of the various firms in the decision making. Demand Curve is a graphical representation of the relationship between the prices of goods and demand quantity and is usually inversely proportionate. What kind of game is it when firms choose their optimal pricing strategy today without worrying about possible interactions in the future? a) are less efficient due to competition While AI integration in the medical, legal, and financial sectorsFinancial SectorsThe financial sector refers to businesses, firms, banks, and institutions providing financial services and supporting the economy. b) demand theory D) Gear cheats, while Trick complies with the agreement. For example, when a government grants a patent for an invention to one firm, it may create a monopoly. Meanwhile, all firms know that their decisions affect other firms sales and profit, hence they necessarily react against those decisions. Patent rights or accessibility to technology may exclude potential competitors. Which of the following is NOT a characteristic of an oligopoly? A cartel is a group of producers of goods or suppliers of services formed through an agreement amongst themselves to regulate the supply of goods or services with the basic intent to illegally regulate the prices or restrict competition regarding the said goods or services. C) one prisoner has no chance to be acquitted since there is no other prisoner to support his testimony. *It lowers search costs of information for consumers. Such companies have complete control of the market, earning high profits and gains in a specific sector or service. *The game would temporarily move to either cell B or cell C. ECO-FINALS_LESSON-1 - Read online for free. What does a demand curve look like for an oligopolistic firm? *manipulating consumer preferences. E) none of the above. A) rules c) The possibility of price wars increases, but profits are maximized. d) Its marginal revenue curve would consist of two segments, d) Its marginal revenue curve would consist of two segments In other words, Therefore, within the oligopoly market the "ordinary" producers must have careful preparation to follow the changes in a policy coming from the main producers. It is assumed that all of the sellers sellidentical or homogenous products. a) The possibility of price wars diminishes and profits are maximized. b) increasing monopoly power b) Interindustry competition Click the card to flip Definition 1 / 84 d) its rivals match price decreases but ignore price increases, d) its rivals match price decreases but ignore price increases, Which of the following is true about the oligopolist if rivals match a price cut but ignore a price increase? The competing firms are few in number but each one is large enough so as to be able to control the total industry output and a moderate. b) By increasing recruiting expenses A market is deemed oligopolistic or extremely concentrated when it is shared between a few common companies. In a(n) _____ game one firm moves first, committing to a strategy and then the rival firm responds. Which of the following is not a characteristic of oligopoly? Characteristics of an oligopoly The market has been shared equally by firms A and B The cost of firm A is lower than firm B Profit maximizing the output of firms A is XA and the price is PA Firm B adopts this price and sells XB (=XA) amount. 0. A)Each firm faces a downward -sloping demand curve. E) entry into the industry of rival firms will raise cartel profit as long as the new firms join the cartel. c) through product development This represents what kind of problem with the four-firm concentration ratio? Oligopolies are typically composed of a few large firms. The other two share the rest (20%). One of theoligopoly characteristicsis the focus of its members on improving the product quality or offering benefits to make their brand unique. *dominant firms c) It will always be kinked because it is a price maker. b) The Herfindahl model . B) in a single-play game but not a repeated game. Here, they focus on each other and try to exceed customer expectations in every possible way. A) Each firm faces a downward-sloping demand curve. E) the firms are interdependent. In such a system, determining the proportion of total product used for investment . *Increase profits c) have no rivals C) is; the dominant firm is making an economic profit b) price leadership; collusion c) regulated monopoly A) Each firm has an incentive to collude. A) behave competitively. 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. *Preemptive pricing a) The outcomes for all firms are negative. Firms in the industry make price and output decisions with an eye to the decisions and policies of other firms in the industry. a) over collusion C) "Construction prices in this town seem to be always set by Big Jim's Dandy Construction Company." E) specify what happens if costs change. a) The number of average-sized firms in an industry needed to produce sales equivalent to the four largest firms A dominant-bank oligopoly confronting a competitive fringe There are two sets of banks: dominant banks and fringe banks. What kind of game is it if the firms must choose their pricing strategies at the same time? B) raise the price of their products. The main Characteristics of oligopoly are as follows: A few sellers There will be a few sellers in an oligopoly. c) All oligopolists' or imperfect competitors' demand curves are down-sloping because they are price makers. When firm X increases its price. The distinctive feature of an oligopoly is interdependence. Mr. mann's science students were experimenting with speed. 6. It thus limits the competition to only those already in the group. 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 . b) high to receive a payout of $15 Oligopoly is a market structure characterized by a few firms. a) low to receive a payout of $15 Besides, high capital requirements, licensing, patents, market demand, economies of scale, limit-pricing, and customer loyalty restrict the entry of new businesses. 2. e) through cartels, c) through product development C) average total cost. ADVERTISEMENTS: This fact is recognized by all the firms in an oligopolistic industry. Each firm faces a downward-sloping demand curve. d) ow to receive a payout of $12 D) marginal revenue curve is discontinuous. Oligopoly as a market structure is distinctly different from other market forms. D) There is more than one firm in the industry. c) An outcome in the payoff matrix from which neither firm wants to deviate since the current strategy is optimal given the rival's strategic choice. D) All of the above. What happens to oligopolistic firms when a recession occurs? Oligopolistic behavior implies that oligopolists prefer competition ______. d) easier. In second-degree price discrimination the monopolist offers a menu of quantity-based pricing options designed to induce customers to self-select based on how highly they value the product. c) it will prevent a price war Mutual interdependence among the firms in decision making is the essential feature of the oligopolistic market. That means higher the price, lower the demand. b) Strategies are chosen for a single time period. they set up a 1 meter (100 cm) track. 5.3.5 Apply Concepts of Oligopoly and Oligopoly Models .pdf. . C) is; to cheat regardless of the other firm's choice A single 8) Firm X is competing in an oligopolistic industry. It can be also called as one form. D) a firm in perfect competition. However, firm B follows the leaders price and equilibrium quantity in order to avoid the uncertainty that can be arisen. c) product development and advertising are relatively inexpensive Features: Many and small sellers, so that no one can affect the market 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. believes that DTRs debt to equity ratio of 1.6 is probably the minimum that lenders will accept. ), Which of the following is true about the oligopolist if rivals match a price cut but ignore a price increase? Oligopoly is one of the four market structures and identified by a small number of big businesses operating in a particular industry. e) undefined, In the graph, the price elasticity of demand is highly ______ above the price of P0. What are the 4 characteristics of oligopoly? E) downward-sloping demand curve with no kink. D) products that are slightly different. c) The percentage of total industry sales accounted for by the four largest firms 9) Which isnota characteristic of oligopoly? Oligopolists offer comparable products or services, so they control prices rather than the market. D)There is more than one firm in the industry. B) equilibrium price and quantity will be insensitive to small cost changes. d) Localized markets, Suppose the rivals of an oligopolistic firm ignore both a price increase and decrease. E) a competitive market produces two goods. 11) Because an oligopoly has a small number of firms. List the three steps followed under the gross profit method of estimating inventory. In an oligopoly, dominant market players are influential enough to decide on the price of products and services. c) its rivals match a price increase but ignore a price cut D) equilibrium quantity will be sensitive to small cost changes but price will not. Pure (Perfect) Competition. A. B) perfectly inelastic demand. . Oligopoly Models: 1. c) The supply curve model An oligopoly in economics refers to a market structure comprising multiple big companies that dominate a particular sector through restrictive trade practices, such as collusion and market sharing. d) The firms in the industry are interdependent. Mutual interdependence solely means that they base their decisions on how they think their rivals will react. *Ownership and control of raw materials The concept serves to be useful for companies focusing on multiple product lines and operating more than one business unit at a time. Nokia, however, offers Android phones with the same features and almost similar prices. B) of barriers to entry. d) Firms choose strategies at the same time. Therefore, the competing firms will be aware of a firm's market actions and will respond appropriately. c) its rivals ignore price increases and price decreases If Marilyn believes that the $10 million stock issue was undertaken only to improve DTRs Price 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. Such companies have complete control of the market, earning high profits and gains in a specific sector or service. . We reviewed their content and use your feedback to keep the quality high. D) assumes that competitors will match price cuts and ignore price increases. An oligopoly (from Greek , oligos "few" and , polein "to sell") is a market form wherein a market or industry is dominated by a small group of large sellers (oligopolists). c) Firms earn zero economic profits in the long-run. $15. Have you a question about something that I covered. b) Collusive pricing model a) are monopolies Monopolistic Competition and Economic Efficiency, Monopolistic Competition Equilibrium| Long-run, Short-run, What is Inflation Mean | Definitions, Types, Causes, How to Calculate the GDP [Definition & Formula], Main Theories of Inflation (With Diagram), Indifference Curve Q&A [Download Indifference Curve Pdf]. b) flexible *Reduce inputs used in production *Reduce uncertainty 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. Which of the following represents the problem with the four-firm concentration ratio? Which of the following statements correctly describes Dr. Smith's strategy given what Dr. Jones may do? c) losses; prices; increase, What is it called when a group of producers creates a formal written agreement stating the level of output by each firm and the prices that must be charged? 0. 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? 13) A dominant firm oligopoly might be one for which the Herfindahl-Hirschman Index is 1) A cartel is a group of firms which agree to A) behave competitively. Pure oligopoly - have a homogenous product. D) increase the amount they produce. They do so through collusion that results in higher prices and fewer production or product choices for customers. You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Oligopoly (wallstreetmojo.com). b) kinked demand a) fewer firms than monopolistic competition. Oligopoly is said to prevail when there are few firms or sellers in the market producing or selling a product. c) allocative efficiency but not productive efficiency Which one of the following is the most important reason? 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?" B) a contestable market. d) price changes are often difficult to match B) 1. *The firm's demand curve will shift further to the left. A) Each firm faces a downward-sloping demand curve. An oligopoly is a market state where there is a limited amount of competition available for consumers to consider. Based on her experience with past negotiations, Marilyn knows that lenders are concerned about DTRs debt to equity When there are two firms, the market structure is called duopoly, The number of buyers will be quite large as in other market models, If the products of all firms are homogeneous, then it is called , If the products are differentiated, then it is called , The nature of products of the firms is crucial in making price and output decisions. C. Some market power. E) a cartel. E) None of the above. C) equilibrium price will be sensitive to small cost changes but quantity will not. 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