Skip to main content

Table of Contents

  1. Chapter Nine: Imperfect Competition

Chapter Nine: Imperfect Competition

1
Question 1

In monopolistic competition, which one of the following is true?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is b) Each producer faces a downward sloping demand curve, sets MC=MR and makes no profit in the long run.Your answer has been saved.
Check your answer

2
Question 2

Which one of the following will not be true of profit maximizing firms under monopolistic competition when the industry is in long-run equilibrium?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is e) Each firm produces at the minimum point of its average total cost curve.Your answer has been saved.
Check your answer

3
Question 3

Which of the following is not an assumption used in the model of monopolistic competition?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is e) Each firm faces a perfectly elastic demand curve and is thus a price taker.Your answer has been saved.
Check your answer

4
Question 4

Which of the following is an accurate definition of oligopoly?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is a) A market structure in which there are a few big firms competing strategically with each other.Your answer has been saved.
Check your answer

5
Question 5

Which of the following defines the characteristics of a Nash equilibrium?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is c) Each player is doing the best that he/she can, given the strategies currently pursued by the other players.Your answer has been saved.
Check your answer

6
Question 6

Brand proliferation arises in some oligopolistic markets because:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is c) A variety of brands makes it harder for a new market entrant to gain market share for one specific new brand.Your answer has been saved.
Check your answer

7
Question 7

The concentration ratio measures the fraction of total sales in a nation that is controlled by some specified number of the industry's largest sellers (p181). To what extent does this measure provide an insight into changes in industrial concentration over time?

Hint: re-read the section 'Patterns of concentration in manufacturing' on pp181-182. Assuming that the industry of X firms and you are using a 5-firm concentration ratio (i.e. the proportion of total sales produced by the largest 5 firms), what might be happening over time to the top 5 firms and the bottom X-5 firms.Hint

8
Question 8

What are the main characteristics of imperfectly competitive market structures?

Hint: re-read the section 'Imperfectly competitive market structures' on pp182-185.Hint

9
Question 9

To what extent do take-away food outlets meet the criteria which define monopolistic competition? Can the same be said for breakfast cereals?

Hint: re-read the four key assumptions that characterise monopolistic competition within the section 'The theory' on pp185-186. Read also 'Empirical evidence' on pp186-87.Hint

10
Question 10

Is monopolistic competition inefficient?

Hint: re-read the section 'Is excess capacity wasteful?' on p186.Hint

11
Question 11

What specific assumptions make oligopoly different from:

(a) perfect competition;
(b) monopolistic competition and
(c) pure monopoly?

Hint: re-read the section 'Oligopoly' on p188. If you need to remind yourself of the assumptions that characterise Perfect Competition, Monopoly and Monopolistic Competition you should turn to pages 138, 160 and 185 respectively.Hint

12
Question 12

In the UK there are four main supermarket chains: Tesco, Sainsbury, Asda and Morrisons. They compete against each other as well as against smaller outlets such as corner shops. Based on your own day-today observations, think about ways in which supermarkets behave as classic textbook oligopolists.

Hint: re-read the section 'Oligopoly' on p188 and then think about the nature of such advertising, pricing in stores, customer loyalty schemes etc. If you want a few further ideas, turn to Box 9.4 on p194.Hint

13
Question 13

What is the difference between a zero sum game and a positive sum game

Hint: re-read the section 'Oligopoly as a game' pp190-195, focusing in particular on Box 9.3 (p192).Hint

14
Question 14

Using a simple Prisoner's Dilemma framework construct pay-off matrices that depict the following situations:

(a) two oligopolists choosing whether or not to engage in an expensive advertising campaign;
(b) countries considering whether they should sign up to an international agreement that places limits on greenhouse gas emissions;
(c) countries negotiating a policy to reduce the level of fishing within a sea where the depletion of fish stocks is currently greater than the stock's ability to re-generate itself.

Hint: re-read the section 'Oligopoly as a game' pp190-195. Think about the implications of your matrices in terms of the two 'players' choosing whether or not to co-operate.Hint

15
Question 15

Under what circumstances is an oligopolistic market 'contestable'?

Hint: re-read the section 'Contestable markets and potential entry' pp197-198Hint

16
Question 16

Why is an oligopolistic industry more likely to be innovative than an industry dominated by a single monopoly?

Hint: re-read the section 'Very long run competition' on pp198-199Hint

17
Question 17

Write out a list of industries which could be described as 'oligopolistic'.

Hint: you may find it helpful; to read the whole of Chapter 9 as it contains numerous examples within its pages.Hint