NAME: ___________________________________________ DATE: ____ / ____ / ____
CHAPTER SIXTEEN PROBLEM SET
Give the best answer to each of the following questions.
1. State whether the following characteristics represent monopolistic competition, oligopoly, or
both.
a. Many sellers
b. Mutually interdependent decisions
c. Multiple dimensions to competition
d. Differentiated products
e. Few sellers
f.
Easy long-run entry and exit
2. Six firms in the pet grooming industry in a city have the following market shares:
Firm
A
B
C
D
E
F
Market Share
40
25
15
10
7
3
a. What is the four-firm concentration in this industry?
b. What is the Herfindahl index for the pet grooming industry?
c. What would be the four-firm concentration ratio if Firms B
and C decided to merge?
d. What would be the Herfindahl index if Firms B and C decided to merge?
e. Would the Justice Department likely review this merger closely? Why or why not?
3. Refer to the graph below that represents a monopolistically competitive firm to answer the
following questions.
a. What is the profit-maximizing level of
output? What price will it charge?
b. Is this monopolistically competitive
firm in long-run equilibrium? Why or why
not?
4. Consider the DVD rental market.
a. Do you think Blockbuster and Hollywood video consider the pricing of their competitor
Netflix when setting their prices? Why or why not?
b. What is the likely market structure of the video rental market?
c. Would you expect price to be high (close to the monopoly price) or low (close to the
perfectly competitive price)? Why do you think this?
5. State whether the following characteristics describe the cartel or the contestable market
model of oligopoly.
a. Firms act as if they were one firm.
b. Barriers to entry and exit, and not market structure, determine price.
c. Members assign output quotas.
d. Production decisions ensure joint profit-maximization.
e. A competitive price could result.