Multiple Choice
Which of the following best represents the pricing behavior of firms in an oligopolistic market?
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14. Oligopoly
Characteristics of Oligopoly
Multiple Choice
Which of the following statements about oligopolies is NOT correct?
A
Firms in an oligopoly may engage in collusion to maximize joint profits.
B
Firms in an oligopoly market always act independently and do not consider the actions of their rivals.
C
Oligopoly markets are characterized by a small number of large firms.
D
Barriers to entry are typically high in oligopoly markets.
Verified step by step guidance1
Step 1: Understand the definition of an oligopoly. An oligopoly is a market structure characterized by a small number of large firms that dominate the market, often leading to interdependent decision-making.
Step 2: Analyze the statement 'Firms in an oligopoly may engage in collusion to maximize joint profits.' This is generally true because firms in oligopolies can cooperate (form cartels) to increase their combined profits.
Step 3: Examine the statement 'Oligopoly markets are characterized by a small number of large firms.' This is a defining feature of oligopolies, so this statement is correct.
Step 4: Consider the statement 'Barriers to entry are typically high in oligopoly markets.' High barriers to entry prevent new competitors from easily entering the market, which is typical in oligopolies, making this statement correct.
Step 5: Evaluate the statement 'Firms in an oligopoly market always act independently and do not consider the actions of their rivals.' This is NOT correct because firms in oligopolies are interdependent and must consider rivals' actions when making decisions.
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