Essay on Monopoly and Perfectly Competitive Firm

Submitted By jazzboy777
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Pages: 6
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Name: __________________________ Date: _____________ Monopoly and Oligopoly Review Packet

|1. |Oligopoly is a market structure that is characterized by a: |
|A) |small number of interdependent firms producing identical or differentiated products. |
|B) |small number of independent firms producing identical or differentiated products. |
|C) |large number of relatively small independent firms producing differentiated products. |
|D) |large number of relatively small independent firms producing identical products. |

|2. |In oligopoly, a firm must realize that: |
|A) |what it does has no effect on the other firms in the industry. |
|B) |it must pursue policies while always remembering those policies will be ignored by other firms in the industry. |
|C) |it is in an industry in which another major firm may dominate, and the firm will need to judge its actions accordingly. |
|D) |collusion was made legal in 2004. |

|3. |An oligopoly knows that its ________ affect its ________ and that the ________ of its rivals will affect it. |
|A) |actions; rivals; reactions |
|B) |price changes; total revenue in a positive way; reactions |
|C) |actions rarely; rivals; actions |
|D) |price increases; total revenue in the long run only; large but not small price changes |

|4. |Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by: |
|A) |producing more output than the quantity that maximizes joint cartel profits. |
|B) |producing less output than the quantity that maximizes joint cartel profits. |
|C) |increasing the price above the price that maximizes joint cartel profits. |
|D) |engaging in less advertising than the level of advertising that maximizes joint cartel profits. |

Use the following to answer questions 5-6:

[pic]
|5. |The table shows the demand for wooden stakes in the town of Sunnyvale. The only two firms producing wooden stakes, Spike Inc. |
| |and Buffy Co., agree to produce only 50 stakes, with each firm producing only 25. By how much does Buffy's profit rise if she |
| |cheats on the agreement and produces 30 stakes? |
| A) |$300 B) $270 C) $20 D) $50 |

|6. The table shows the demand for wooden stakes in the town of Sunnyvale. The only two firms producing wooden stakes, Spike Inc.|
|and Buffy Co., agree to form a cartel. What price will the cartel charge and how many stakes will the cartel sell? |
|A) $10; 50 B) $11; 45 C) $9; 55 D) $8; 60 |

|7. |The Orlando, Florida, theme-park industry tends to follow a price leadership model. This means that: |
|A) |each theme park sets its own price and
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