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Chapter 17 Oligopoly TRUE/FALSE 1. The essence of an oligopolistic market is that there are only a few sellers. ANS: T DIF: 1 REF: 17-0 NAT: Analytic LOC: Oligopoly TOP: Oligopoly MSC: Definitional 2. Game theory is just as necessary for understanding competitive or monopoly markets as it is for understanding oligopolistic markets. ANS: F DIF: 2 REF: 17-0 NAT: Analytic LOC: Oligopoly TOP: Oligopoly | Game theory MSC: Interpretive 3. In a competitive market, strategic interactions among the firms are not important. ANS: T DIF: 1 REF: 17-0 NAT: Analytic LOC: Oligopoly TOP: Game theory | Competitive markets MSC: Interpretive 4. For a firm, strategic interactions with other firms in the market become more important as the number of firms in the market becomes larger. ANS: F DIF: 2 REF: 17-0 NAT: Analytic LOC: Oligopoly TOP: Oligopoly | Game theory MSC: Interpretive 5. Suppose three firms form a cartel and agree to charge a specific price for their output. Each individual firm has an incentive to maintain the agreement because the firm’s individual profits will be the greatest under the cartel arrangement. ANS: F DIF: 2 REF: 17-1 NAT: Analytic LOC: Oligopoly TOP: Collusion MSC: Interpretive 6. If firms in an oligopoly agree to produce according to the monopoly outcome, they will produce the same level of output as they would produce in a Nash equilibrium. ANS: F DIF: 1 REF: 17-1 NAT: Analytic LOC: Oligopoly TOP: Oligopoly | Cooperation MSC: Interpretive 7. Whether an oligopoly consists of 3 firms or 10 firms, the level of output likely will be the same. ANS: F DIF: 2 REF: 17-1 NAT: Analytic LOC: Oligopoly TOP: Oligopoly MSC: Interpretive 8. Cartels with a small number of firms have a greater probability of reaching the monopoly outcome than do cartels with a larger number of firms. ANS: T DIF: 1 REF: 17-1 NAT: Analytic LOC: Oligopoly TOP: Cartels MSC: Interpretive 9. As the number of firms in an oligopoly becomes very large, the price effect disappears. ANS: T DIF: 2 R