CHAPTER 10

1. A market is composed of five firms, and their market shares are 30 percent, 25
percent, 20 percent, 15 percent, and 10 percent. What is the Herfindahl index for the
industry?
A) 100
B) 2,250
C) 6,116
D) 10,000
2. Which of the following is an oligopoly model where firms assume that their rivals will
hold their rates of production constant?
A) The kinked demand curve model
B) The Cournot model
C) The Bertrand model
D) The price leadership model
3. Which of the following is an oligopoly model where firms assume that their rivals will
hold their rate prices constant?
A) The kinked demand curve model
B) The Cournot model
C) The Bertrand model
D) The price leadership model
4. Which of the following is an oligopoly model where firms assume that their rivals will
match price cuts but not price increases?
A) The kinked demand curve model
B) The Cournot model
C) The Bertrand model
D) The price leadership model
5. Which of the following is an oligopoly model where firms respond to the behavior of a
dominant firm?
A) The kinked demand curve model
B) The Cournot model
C) The Bertrand model
D) The price leadership model

1 B 2 B 3 C 4 A 5 D

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 6. Refer to the kinked demand graph (Graph is present). If an oligopolistic firm with
constant unit cost equal to $40 faces this demand curve, then the firm will
A) produce 2 units of output.
B) produce 4 units of output.
C) produce 6 units of output.
D) None of the above is correct.
7. Refer to the kinked demand graph (Graph is present). If an oligopolistic firm with
constant unit cost equal to $40 faces this demand curve, then the firm will
A) charge $40.00 per unit.
B) charge $50.00 per unit.
C) charge $60.00 per unit.
D) None of the above is correct.

8. Refer to the graph of market demand and marginal revenue (Graph is present). Two
firms have formed a centralized cartel in order to maximize profit on the market. Their
marginal cost curves are given below:
MC1 = 5Q1 and MC2 = 10Q2
In order to maximize profit, the firms should produce
A) Q1 = 4, Q2 = 2, and charge P = 50.
B) Q1 = 8, Q2 = 0, and charge P = 40.
C) Q1 = 3, Q2 = 1, and charge P = 60.
D) None of the above is correct.

6 B
7 C
8 A

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 9. Refer to the graph of market demand and marginal revenue (Graph is present). Two
firms have formed a centralized cartel in order to maximize profit on the market. Their
marginal cost curves are given below:
MC1 = 10Q1 and MC2 = 30Q2
In order to maximize profit, the firms should produce
A) Q1 = 4, Q2 = 2, and charge P = 50.
B) Q1 = 8, Q2 = 0, and charge P = 40.
C) Q1 = 3, Q2 = 1, and charge P = 60.
D) None of the above is correct.
[Link] an oligopolist is attempting to maximize revenue, it should produce a quantity of
output where marginal revenue is
A) greater than marginal cost.
B) equal to zero.
C) equal to marginal cost.
D) None of the above is correct.
[Link] a monopolistically competitive firm is earning profits in the short run, then in the
long run the behavior of competing firms
A) will cause the firm's supply curve to shift to the left.
B) will cause the firm's supply curve to shift to the right.
C) will cause the firm's demand curve to shift to the left.
D) will cause the firm's demand curve to shift to the right.
[Link] firms that comprise an industry have decided to engage in collusion. They intend
to maximize their total collective profit, that is, to behave as a single monopolist. How
should they behave?
A) Both firms should increase their levels of output.
B) The firm with the higher marginal cost should reduce output and the firm with the
lower marginal cost should increase output.
C) The firm with the lower marginal cost should reduce output and the firm with the
higher marginal cost should increase output.
D) Both firms should reduce their levels of output.
[Link] economists have suggested that oligopolists tend to maintain stable prices when
there are changes in the demand for their products or in their costs of production.
Which of the following models provides an explanation for this type of behavior?
A) Price leadership
B) Centralized cartel
C) Prisoners' dilemma
D) Kinked demand curve
[Link] market for automobiles is an example of
A) monopolistic competition.
B) duopoly.
C) differentiated oligopoly.
D) pure oligopoly.

9 C 10 B 11 C 12 C 13 D 14 C

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 [Link] an industry is composed of four firms and their market shares are 40 percent, 30
percent, 20 percent, and 10 percent, then the Herfindahl index for the industry is
A) 100.
B) 200.
C) 5,000.
D) 10,000.
[Link] Herfindahl index will be largest for an industry that is
A) a monopoly.
B) perfectly competitive.
C) a duopoly.
D) monopolistically competitive.
[Link] Herfindahl index will be smallest for an industry that is
A) a monopoly.
B) perfectly competitive.
C) a duopoly.
D) a differentiated oligopoly.
[Link] to the Cournot model a firm will
A) assume that rival firms will keep their production constant.
B) produce the quantity where marginal revenue equals marginal cost.
C) respond to changes in production by rival firms by adjusting its production.
D) All of the above are correct.
[Link] to the Bertrand model, a firm will assume that rival firms will
A) keep their rates of production constant.
B) keep their prices constant.
C) match price cuts but not price increases.
D) match price increases but not price cuts.
[Link] to the kinked demand curve model, a firm will assume that rival firms will
A) keep their rates of production constant.
B) keep their prices constant.
C) match price cuts but not price increases.
D) match price increases but not price cuts.
[Link] refrigerator industry is an example of
A) monopolistic competition.
B) monopoly.
C) oligopoly.
D) perfect competition.
[Link] petroleum industry is an example of
A) monopolistic competition.
B) pure oligopoly.
C) duopoly.
D) differentiated oligopoly.

15 C 16 A 17 B 18 A 19 B 20 C 21 C 22 B

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 23.A cartel that gives each member the exclusive right to operate in a particular
geographic area is a
A) market-sharing cartel.
B) centralized cartel.
C) price leadership cartel.
D) None of the above is correct.
24.A cartel that operates like a multiplant monopolist is a
A) market-sharing cartel.
B) centralized cartel.
C) price leadership cartel.
D) None of the above is correct.
[Link] the dominant-firm price leadership model,
A) all firms but the dominant firm are price takers.
B) the dominant firm acts as the residual monopolistic supplier.
C) the demand curve faced by the dominant firm is flatter than the market demand
curve.
D) All of the above are correct.
[Link] firms can earn positive economic profits
A) in the short run, but not in the long run.
B) in the short run and in the long run.
C) in the long run, but not in the short run.
D) in neither the short run nor the long run.
[Link] of the following forms of market organization assumes that entry and exit of
firms is costless?
A) Differentiated oligopoly
B) Duopoly
C) Monopolistic competition
D) Pure oligopoly
[Link] sales maximization model assumes that imperfectly competitive firms will
produce a level of output where
A) marginal revenue is equal to zero.
B) marginal revenue is equal to marginal cost.
C) marginal revenue is equal to zero if profit is satisfactory.
D) they will break even.
[Link] growth of global oligopolists has been encouraged by
A) the development of new transportation and telecommunications technologies.
B) the globalization of tastes.
C) reductions in barriers to international trade and investment.
D) All of the above have encouraged the growth of global oligopolists.

23 A 24 B 25 D 26 B 27 C 28 C 29 D

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 [Link] in which of the following industries have used mergers and acquisitions to grow
and globalize?
A) Telecommunications
B) Entertainment and communications media
C) Consumer products
D) All of the above are correct.
[Link] to relationship enterprises, virtual corporations are more likely to be
A) lasting and stable.
B) short term and temporary.
C) global in scope.
D) oligopolistic.
[Link] several independent firms form a temporary network to take advantage of a
short-term business opportunity, the result is called a
A) collaborative firm.
B) relationship enterprise.
C) virtual corporation.
D) cartelized partnership.
[Link] ideal firm architecture includes all of the following except
A) a focus on core competencies.
B) the integration of physical and virtual systems.
C) a hierarchical, top-down management structure.
D) smaller, more flexible production facilities.
[Link]'s strategic framework identifies forces that influence an industry's
A) intensity of competition and profitability.
B) rate of growth.
C) popularity among consumers.
D) potential as an exporter within the global economy.
[Link] of the following is not a force identified by Porter's strategic framework?
A) Threat of entry
B) Intensity of rivalry
C) Government tax policy
D) Bargaining power of buyers
[Link] emphasis on design innovation is typical of
A) the knowledge economy.
B) the virtual corporation.
C) relationship enterprises.
D) the creative firm.
[Link] that the industry consists of 5 firms each with 20 percent of the market share.
If two of them merge, by how much does the Herfindahl index increase?
A) 800
B) 2,000
C) 2,500
D) 2,800

30 D 31 B 32 C 33 C 34 A 35 C 36 D 37 A

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 [Link] that the industry consists of 2 firms each with 50 percent of the market share.
If each of them is split into 2 smaller companies, by how much does the Herfindahl
index decrease?
A) 800
B) 2,000
C) 2,500
D) 2,800
[Link] most innovative firms are mostly from
A) Germany
B) Japan
C) China
D) United States

38 C 39 D

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