Question

1. Check each of the following that could be classified as products made by an oligopolistic competitor.

		cigarettes
		breakfast cereals
		airlines
		cotton
		cell phones
		motor vehicles

2. (Check each of the correct answers) Game theory suggests that firms in oligopoly:

		would resist offering a low price because other firms would match the price and their advantage would no longer exist.
		would resist offering a high price because fewer buyers would purchase from that firm
		should choose to cooperate with other sellers in maintaining the price within a "moderate" zone
		will seek to "gouge" their customers by charging the highest possible prices

3. Check each of the following that characterizes oligopolies.

		ownership of raw materials by one firm
		government restrictions may exist on the number of producers
		advertising is not important
		economies of scale restrict the number of producers
		unique products
		ownership of raw materials by a few firms

4. Check all of the following that determine the elasticity of demand for monopolistic producers.

		the incomes of consumers
		demand for the unique products sold by monopolies
		the number of competing firms selling similar products
		customer perception of the similarity or uniqueness for the product or service.

5. Check each of the following that may lead to unfair competition within monopoly.

		dumping
		economies of being established
		reciprocation agreements
		ownership of essential resources

Answer 1

1. Products possibly made by an oligopolistic competitor:

cigarettes

breakfast cereals

cell phones

Oligopolistic market is characterized by few large sellers and differentiated products. As per definition, these products fall under oligopoly.

2. c. should choose to cooperate with other sellers in maintaining the price within a "moderate" zone.

Game theory demonstrates that a price rise is followed by none firm but a price fall is followed by all firms. Thus firms choose to cooperate and maintain price within a range to avoid price wars in oligopoly.

3. Characteristics of oligopoly:

economies of scale restrict the number of producers- this acts as a barrier to entry

unique products - differentiated products to build brand loyalty

ownership of raw materials by a few firms - acts as a deterrence for new firm

4. Determinants the elasticity of demand for monopolistic producers:

the incomes of consumers - affects their ability to buy

the number of competing firms selling similar products - affects the substitutability and hence the price elasticity

5. Unfair competition within monopoly could be due to:

economies of being established

ownership of essential resources