Question

1. Which of the following characteristics distinguishes oligopoly from other market structures?
   1. A horizontal demand curve
   2. A downward-sloping demand curve
   3. The production of homogeneous products
   4. The production of differentiated products
   5. Interdependence among firms in the industry

2. Which of the following is most likely produced in a monopolistically competitive market?
   1. Soybeans
   2. Autos
   3. Fast food
   4. Oil
   5. Local phone service

Answer 1

Question 1

e) Interdependence among the firms.

1. There is a lot of collusion between the oligopoly firms. The firms are few and interdependent. The action of one firm affects another firm. The firm will produce standardized or homongeneous products. The demand curve is downward sloping.

Question 2

c Fast food.

1. Large number of sellers

In monopolistic competition the number of sellers is large and no one seller can influence the price much. The products sold are close substitutes. No seller can dictate terms in the market. Collusion among firms is impossible. Each firm is a price maker.

2. Differentiated products

The products are differentiated. The differentiation can be due to the physical properties of the product. Differentiation can also be on the basis of location of the product, advertising, pricing, services provided.

3. Free entry and exit of firms. There are low barriers to entry and exit.

4. Monopolist competitive firms face a downward sloping demand curve which is elastic. It can sell more goods only by lowering the price. Profit maximization occurs at the intersection of MR and MC.

a) This choice is wrong as this is an example of perfect competition since the produce is homogeneous and the number of sellers are numerous.

b) is wrong as there are few sellers and it is an oligopoly.

d) and e) examples of oligopoly.