ECO 202 Exam Review Flashcards

Flashcards on Oligopolistic and Monopolistic Competition

What is an oligopolistic market?

C) A market dominated by a few large firms.

Which company is a homogeneous oligopolist in a highly concentrated industry?

D) Pittsburgh Plate Glass

If there are significant economies of scale in an industry, what is the implication for large vs. small firms?

D) a firm that is large may be able to produce at a lower unit cost than can a small firm.

Why is oligopoly more difficult to analyze than other market models?

A) Mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models.

Which industry is an illustration of a differentiated oligopoly?

B) The auto industry

Which set of numbers for the four-firm concentration ratio and Herfindahl index is most suggestive of an oligopoly?

A) 95 and 8,582

Which of the following industries is an illustration of a differentiated oligopoly?

C) Retail stores in small cities.

Which of the following is NOT a basic characteristic of monopolistic competition?

B) Recognized mutual interdependence

What does nonprice competition refer to?

B) Advertising, product promotion, and changes in the real or perceived characteristics of a product.

How does a monopolistically competitive firm's marginal-revenue curve look?

B) Is downsloping and lies below the demand curve.

What does the term oligopoly indicate?

C) A few firms producing either a differentiated or a homogeneous product.

In which market model do demand and marginal revenue not diverge?

A) Pure competition

What are you calculating if you sum the squares of the market shares of each firm in an industry?

A) Herfindahl Index

If the four-firm concentration ratio for industry X is 80, what does that mean?

B) The four largest firms account for 80 percent of total sales.

Differentiated oligopoly exists where a small number of firms are doing what?

B) Producing goods that differ in terms of quality and design.

A monopolistically competitive industry combines elements of both competition and monopoly. Where does the monopoly element come from?

C) Product differentiation.

Refer to the data. If Firm B merged with Firm E, the industry's four-firm concentration ratio would _ and its Herfindahl index would _.

A) Rise; rise

Which set of characteristics best describes the basic features of monopolistic competition?

A) Easy entry, many firms, and differentiated products

What is monopolistic competition characterized by?

D) A large number of firms and product differentiation.

Homogeneous oligopoly exists where a small number of firms are doing what?

B) Producing virtually identical products.

If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes, what happens?

B) The industry would more closely approximate pure competition.

What characterizes oligopolistic industries?

A) A few dominant firms and substantial entry barriers.

Under monopolistic competition, how difficult is entry to the industry?

B) More difficult than under pure competition but not nearly as difficult as under pure monopoly.

In monopolistic competition, what would make an individual firm's demand curve less elastic?

C) Increased brand loyalty toward the firm's product.

What is monopolistic competition characterized by?

B) A large number of firms and low entry barriers.

Monopolistically competitive and purely competitive industries are similar in what way?

D) There are few, if any, barriers to entry.

In the long run, what happens to a monopolistically competitive firm?

C) Breaks even.

What does the Herfindahl index do?

D) Gives much greater weight to larger firms than to smaller firms in an industry.

If an industry evolves from oligopoly to monopolistic competition, what would we expect to happen to the four-firm concentration ratio?

B) The four-firm concentration ratio to decrease.

What does monopolistic competition mean?

B) Many firms producing differentiated products.

What is a significant difference between a monopolistically competitive firm and a purely competitive firm?

B) The latter’s demand curve is perfectly elastic.

Why does the mutual interdependence that characterizes oligopoly arise?

B) Each firm in an oligopoly depends on its own pricing strategy and that of its rivals.

Which of the following is a unique feature of oligopoly?

D) Mutual interdependence

How does monopolistic competition resemble pure competition?

A) In both industries barriers to entry are either weak or nonexistent.

If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, what is the Herfindahl index?

B) 2,500

Why are monopolistically competitive industries inefficient?

C) They are overpopulated with firms whose plants are underutilized.

Assume the top six firms comprising an industry have market shares of 10, 8, 8, 5, 5, and 4 percent. The remaining 30 firms each have market shares of 2 percent. What is the Herfindahl index for this industry?

B) 414

The following are the respective numbers for the four-firm concentration ratio and Herfindahl index in an industry. Which set of numbers is most suggestive that the industry is purely competitive?

B) 2 and 20

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. If this firm is currently producing and selling 140 units of output, what can we conclude?

C) Is earning economic profits that could be increased by lowering price and raising output.

The economic inefficiencies of monopolistic competition may be offset by which factor?

D) Consumers have increased product variety.

Assume the top six firms comprising an industry have market shares of 24, 22, 8, 6, 5, and 5 percent. The remaining 10 firms each have market shares of 3 percent. What is the Herfindahl index for this industry?

C) 1,300

Which of these continuums of degrees of competition (highest to lowest) is monopolistic competition properly placed?

A) Pure competition, monopolistic competition, oligopoly, pure monopoly

Which of the following is a measure of the degree of industry concentration?

C) Herfindahl index

The restaurant, legal assistance, and clothing industries are each examples of which market type?

D) Monopolistic competition

Which of the following companies most closely approximates a differentiated oligopolist in a highly concentrated industry?

A) Ford Motor Company

Given firm market shares of A 22%, B 20%, C 20%, D 20%, E 18%, what is the Herfindahl Index for this industry?

C) 2,008

What is a significant difference between a monopolistically competitive firm and a purely competitive firm?

C) Former sells similar, although not identical, products.

In which of these continuums of degrees of competition (lowest to highest) is oligopoly properly placed?

B) Pure monopoly, oligopoly, monopolistic competition, pure competition

What type of products exist in an oligopolistic market?

B) Products may be standardized or differentiated.

Which of the following is the best example of oligopoly?

A) Automobile manufacturing

A monopolistically competitive industry combines elements of both competition and monopoly. Where does the competition element come from?

B) Low entry barriers.

The automobile, household appliance, and automobile tire industries are all illustrations of which market type?

D) Differentiated oligopoly.

If the four-firm concentration ratio for industry X is 60, what does that mean?

D) The four largest firms account for 60 percent of total sales.

How does the price elasticity of a monopolistically competitive firm's demand curve vary?

A) Directly with the number of competitors but inversely with the degree of product differentiation.

Which industry would be best characterized as monopolistically competitive?

B) Web design consulting

Differentiated oligopoly exists where a small number of firms are what?

B) Producing goods that differ in terms of quality and design.

A successful advertising campaign by a monopolistically competitive firm will cause its demand curve to shift how?

D) A to B and become less elastic.

Where are prices likely to be least flexible?

C) In oligopoly.

What is the goal of product differentiation and advertising in monopolistic competition?

C) Price less of a factor and product differences more of a factor in consumer purchases.

Firm Market Share (%): A 40, B 30, C 20, D 5, E 5 Refer to the data. If Firm B merged with Firm E, the industry's four-firm concentration ratio would _ and its Herfindahl index would _.

B)Rise; rise