Question 1

One framework used to analyze strategic choices is:

Accepted Answer

A) the tacit supply curve model. 
B) game theory. 
C) perfect competition. 
D) risk assessment. 
A) the tacit supply curve model. 
B) game theory. 
C) perfect competition. 
D) risk assessment.

Question 2

Nonprice competition is more prevalent in an oligopoly when there is/are:

Accepted Answer

A) a Nash equilibrium. 
B) complex products. 
C) tacit collusion. 
D) no product differentiations. 
A) a Nash equilibrium. 
B) complex products. 
C) tacit collusion. 
D) no product differentiations.

Question 3

The breakup of Microsoft in 2005 was one of the first applications of antitrust policy in the United States.

Accepted Answer

A) True 
 B)False

Question 4

Which factor would make it difficult for oligopolists to collude?

Accepted Answer

A) few firms 
B) few buyers 
C) similar costs of production 
D) a homogeneous product 
A) few firms 
B) few buyers 
C) similar costs of production 
D) a homogeneous product

Question 5

An attempt by a firm to convince buyers that its product is different from the products of other firms in the industry is product differentiation.

Accepted Answer

A) True 
 B)False

Question 6

If there are many firms in an industry,there is little incentive for firms to engage in tacit collusion because a smaller proportion of the units of the product sold are affected by the price effect if a firm increases output.

Accepted Answer

A) True 
 B)False

Question 7

Price leadership occurs if:

Accepted Answer

A) smaller firms in an industry silently agree to charge the same price as the largest firm. 
B) two or more firms in an industry agree to fix the price at a given level. 
C) competition among a large number of small firms generates a stable market price. 
D) competition among a large number of small firms generates similar but slightly different prices. 
A) smaller firms in an industry silently agree to charge the same price as the largest firm. 
B) two or more firms in an industry agree to fix the price at a given level. 
C) competition among a large number of small firms generates a stable market price. 
D) competition among a large number of small firms generates similar but slightly different prices.

Question 8

Suppose an oligopoly is composed of four firms.One firm has a 50% market share;another firm,35%;another,10%;and the fourth,5%.It will be easier for this industry to engage in tacit collusion than it would for an oligopoly each of whose four firms has 25% of the market.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that each of two prisoners has the independent choice of confessing to a crime or not confessing to a crime they were both alleged to commit.If neither confesses,both spend two years in prison;if both confess,both spend three years in prison.If one confesses and the other does not,the confessor gets off with one year but the other gets six years.According to game theory,the MOST likely strategy of the prisoners is that:

Accepted Answer

A) both will confess. 
B) neither will confess. 
C) one will confess and the other will not. 
D) both may or may not confess. 
A) both will confess. 
B) neither will confess. 
C) one will confess and the other will not. 
D) both may or may not confess.

Question 10

The effect of product differentiation is to decrease each firm's market share.

Accepted Answer

A) True 
 B)False

Question 11

If an industry initially has an HHI of 1,250,a merger between two of the largest (in terms of market share)firms in the industry:

Accepted Answer

A) would be allowed to occur since it would increase the competitive nature of the industry. 
B) would not likely be allowed since it most likely would reduce the competitive nature of the industry. 
C) would be allowed since this HHI represents a highly concentrated industry. 
D) is likely to be allowed since it moves the industry toward a socially optimal level of output. 
A) would be allowed to occur since it would increase the competitive nature of the industry. 
B) would not likely be allowed since it most likely would reduce the competitive nature of the industry. 
C) would be allowed since this HHI represents a highly concentrated industry. 
D) is likely to be allowed since it moves the industry toward a socially optimal level of output.

Question 12

A trust is formed when shareholders of the major companies in an industry place their shares in the hands of a board of trustees who control the companies and act as a single firm that can engage in monopoly pricing.

Accepted Answer

A) True 
 B)False

Question 13

Use the following to answer question:
Figure: Pricing Strategy in Cable TV Market II  
-(Figure: Pricing Strategy in Cable TV Market II)Use Figure: Pricing Strategy in Cable TV Market II.Suppose that,after one month,the cable providers follow a tit-for-tat strategy.Eventually,they will achieve a tacit collusive equilibrium at which:

Accepted Answer

A) both firms set a low price and each earns $90,000. 
B) both firms set a high price and each earns $100,000. 
C) CableNorth sets a high price and earns $80,000,and CableSouth sets a low price and earns $130,000. 
D) CableNorth sets a low price and earns $130,000,and CableSouth sets a high price and earns $80,000. 
A) both firms set a low price and each earns $90,000. 
B) both firms set a high price and each earns $100,000. 
C) CableNorth sets a high price and earns $80,000,and CableSouth sets a low price and earns $130,000. 
D) CableNorth sets a low price and earns $130,000,and CableSouth sets a high price and earns $80,000.

Question 14

A major application of the Sherman Antitrust Act was in _____ against _____.

Accepted Answer

A) 1880;the Ford Motor Company 
B) 1889;Bell 
C) 1911;Standard Oil 
D) 1889;Bell and Standard Oil 
A) 1880;the Ford Motor Company 
B) 1889;Bell 
C) 1911;Standard Oil 
D) 1889;Bell and Standard Oil

Question 15

The Herfindahl-Hirschman index is a measure of concentration found by:

Accepted Answer

A) squaring the percentage market share of each firm in the industry. 
B) squaring the percentage market share of each firm in the industry and then summing the squared market shares. 
C) summing the percentage market shares of each firm in the industry. 
D) squaring the sums of the concentration ratios found in an industry survey of the largest four and largest eight firms. 
A) squaring the percentage market share of each firm in the industry. 
B) squaring the percentage market share of each firm in the industry and then summing the squared market shares. 
C) summing the percentage market shares of each firm in the industry. 
D) squaring the sums of the concentration ratios found in an industry survey of the largest four and largest eight firms.

Question 16

Gary's Gas and Frank's Fuel are the only two providers of gasoline in their town.Gary and Frank decide to form a cartel.Later,Gary summarizes his pricing strategy as,"I'll cheat on the cartel because,regardless of what Frank does,cheating gives me the best payoff." This is an example of:

Accepted Answer

A) a dominant strategy. 
B) a tit-for-tat strategy. 
C) an irrational strategy. 
D) product differentiation. 
A) a dominant strategy. 
B) a tit-for-tat strategy. 
C) an irrational strategy. 
D) product differentiation.

Question 17

Cartels are illegal in the United States.

Accepted Answer

A) True 
 B)False

Question 18

Firms will choose a tit-for-tat strategy if they:

Accepted Answer

A) expect that price wars will ultimately provide benefits for the dominant firm. 
B) believe that the firms in the industry will be competing with each other for a long time. 
C) do not believe interdependence is a prominent characteristic of the industry. 
D) are sure that cheating behavior will go unnoticed. 
A) expect that price wars will ultimately provide benefits for the dominant firm. 
B) believe that the firms in the industry will be competing with each other for a long time. 
C) do not believe interdependence is a prominent characteristic of the industry. 
D) are sure that cheating behavior will go unnoticed.

Question 19

Use the following to answer question:  
-(Table: Demand Schedule of Gadgets)Use Table: Demand Schedule of Gadgets.The market for gadgets consists of two producers,Margaret and Ray.Each firm can produce gadgets at a marginal cost of $2 and no fixed cost.Suppose that these two producers have formed a cartel,agreed to split production of output evenly,and are maximizing total industry profits.If Margaret decides to cheat on the agreement and sell 100 more gadgets,Margaret's profit will be _____,and Ray's profit will be _____.

Accepted Answer

A) $1500;$1,000 
B) $900;$600 
C) $1,400;$1,000 
D) $1,000;$1,400 
A) $1500;$1,000 
B) $900;$600 
C) $1,400;$1,000 
D) $1,000;$1,400

Question 20

The Sherman Antitrust Act:

Accepted Answer

A) was aimed at preventing the establishment of more monopolies and was the beginning of antitrust policy. 
B) introduced the HHI measure to industries. 
C) initially allowed firms to collude legally. 
D) allowed the establishment of trusts. 
A) was aimed at preventing the establishment of more monopolies and was the beginning of antitrust policy. 
B) introduced the HHI measure to industries. 
C) initially allowed firms to collude legally. 
D) allowed the establishment of trusts.

One framework used to analyze strategic choices is:

Nonprice competition is more prevalent in an oligopoly when there is/are:

The breakup of Microsoft in 2005 was one of the first applications of antitrust policy in the United States.

Which factor would make it difficult for oligopolists to collude?

An attempt by a firm to convince buyers that its product is different from the products of other firms in the industry is product differentiation.

If there are many firms in an industry,there is little incentive for firms to engage in tacit collusion because a smaller proportion of the units of the product sold are affected by the price effect if a firm increases output.

Price leadership occurs if:

Suppose an oligopoly is composed of four firms.One firm has a 50% market share;another firm,35%;another,10%;and the fourth,5%.It will be easier for this industry to engage in tacit collusion than it would for an oligopoly each of whose four firms has 25% of the market.

The effect of product differentiation is to decrease each firm's market share.

If an industry initially has an HHI of 1,250,a merger between two of the largest (in terms of market share)firms in the industry:

A trust is formed when shareholders of the major companies in an industry place their shares in the hands of a board of trustees who control the companies and act as a single firm that can engage in monopoly pricing.

A major application of the Sherman Antitrust Act was in _ against _.

The Herfindahl-Hirschman index is a measure of concentration found by:

Gary's Gas and Frank's Fuel are the only two providers of gasoline in their town.Gary and Frank decide to form a cartel.Later,Gary summarizes his pricing strategy as,"I'll cheat on the cartel because,regardless of what Frank does,cheating gives me the best payoff." This is an example of:

Cartels are illegal in the United States.

Firms will choose a tit-for-tat strategy if they:

The Sherman Antitrust Act:

First Principles

Economic Models: Trade-Offs and Trade

Consumer and Producer Surplus

Supply and Demand

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals and Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods and Common Resources

The Economics of the Welfare State

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Graphs in Economics

Consumer Preferences and Consumer Choice

Filters

Exam 14: Oligopoly

One framework used to analyze strategic choices is:

Nonprice competition is more prevalent in an oligopoly when there is/are:

The breakup of Microsoft in 2005 was one of the first applications of antitrust policy in the United States.

Which factor would make it difficult for oligopolists to collude?

An attempt by a firm to convince buyers that its product is different from the products of other firms in the industry is product differentiation.

If there are many firms in an industry,there is little incentive for firms to engage in tacit collusion because a smaller proportion of the units of the product sold are affected by the price effect if a firm increases output.

Price leadership occurs if:

Suppose an oligopoly is composed of four firms.One firm has a 50% market share;another firm,35%;another,10%;and the fourth,5%.It will be easier for this industry to engage in tacit collusion than it would for an oligopoly each of whose four firms has 25% of the market.

The effect of product differentiation is to decrease each firm's market share.

If an industry initially has an HHI of 1,250,a merger between two of the largest (in terms of market share)firms in the industry:

A trust is formed when shareholders of the major companies in an industry place their shares in the hands of a board of trustees who control the companies and act as a single firm that can engage in monopoly pricing.

A major application of the Sherman Antitrust Act was in _____ against _____.

The Herfindahl-Hirschman index is a measure of concentration found by:

Gary's Gas and Frank's Fuel are the only two providers of gasoline in their town.Gary and Frank decide to form a cartel.Later,Gary summarizes his pricing strategy as,"I'll cheat on the cartel because,regardless of what Frank does,cheating gives me the best payoff." This is an example of:

Cartels are illegal in the United States.

Firms will choose a tit-for-tat strategy if they:

The Sherman Antitrust Act:

First Principles

Economic Models: Trade-Offs and Trade

Consumer and Producer Surplus

Supply and Demand

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals and Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods and Common Resources

The Economics of the Welfare State

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Graphs in Economics

Consumer Preferences and Consumer Choice

Filters

A major application of the Sherman Antitrust Act was in _ against _.