Question 1

A situation in which each firm acts to raise the profits of its rivals (and of itself)without any formal agreement between firms is known as tacit collusion.

Accepted Answer

A) True 
 B)False

Question 2

An unwritten,unspoken agreement through which firms limit competition among themselves is called:

Accepted Answer

A) satisfying. 
B) tacit collusion. 
C) overt collusion. 
D) a cartel. 
A) satisfying. 
B) tacit collusion. 
C) overt collusion. 
D) a cartel.

Question 3

An industry is dominated by a few firms.Each of these firms acknowledges that its own choices affect the choices of its rivals.Each firm also recognizes that its rivals' choices affect the decisions it makes.This industry is an example of:

Accepted Answer

A) a monopoly. 
B) an oligopoly. 
C) monopolistic competition. 
D) perfect competition. 
A) a monopoly. 
B) an oligopoly. 
C) monopolistic competition. 
D) perfect competition.

Question 4

(Scenario: Two Identical Firms)Use Scenario: Two Identical Firms.Suppose the two firms decide to cooperate and collude,resulting in the same amount of production for each firm.What is the profit-maximizing price and output for the industry? Scenario: Two Identical Firms
Two identical firms make up an industry in which the market demand curve is represented by Q = 5,000 - 4P,where Q is the quantity demanded and P is price per unit.The marginal cost of producing the good in this industry is constant and equal to $650.Fixed cost is zero.

Accepted Answer

A) P = $400,Q = 5,000 
B) P = $950,Q = 1,200 
C) P = $600,Q = 1,500 
D) P = $300,Q = 2,000 
A) P = $400,Q = 5,000 
B) P = $950,Q = 1,200 
C) P = $600,Q = 1,500 
D) P = $300,Q = 2,000

Question 5

Large barriers to entry in the gas station business explain why the two only gas stations in a small town:

Accepted Answer

A) can earn an economic profit in the long run. 
B) must produce at the minimum average total cost in the long run. 
C) have no fixed costs in the long run. 
D) must produce a level of output such that MR = MC to maximize their profit. 
A) can earn an economic profit in the long run. 
B) must produce at the minimum average total cost in the long run. 
C) have no fixed costs in the long run. 
D) must produce a level of output such that MR = MC to maximize their profit.

Question 6

One of the most inefficient ways for duopolists to earn a profit is to engage in collusion or form a cartel.

Accepted Answer

A) True 
 B)False

Question 7

The purpose of the trusts established in the United States in the late 1800s was to:

Accepted Answer

A) engage in monopoly pricing. 
B) promote international trade. 
C) promote competition in the transportation industry. 
D) limit the involvement of government in providing health care. 
A) engage in monopoly pricing. 
B) promote international trade. 
C) promote competition in the transportation industry. 
D) limit the involvement of government in providing health care.

Question 8

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.If industry output is 300 gadgets produced by Margaret and 200 gadgets produced by Ray and if Ray decides to increase output by an additional 100 gadgets,industry price will be:

Accepted Answer

A) $4. 
B) $3. 
C) $2. 
D) $1. 
A) $4. 
B) $3. 
C) $2. 
D) $1.

Question 9

The owners of the gas stations in a town are trying to set up a cartel that will raise the price of gasoline.Which scenario will INCREASE the chances that the cartel will fail because of cheating by the owners?

Accepted Answer

A) All of the gas stations face the same costs. 
B) There are only a few gas stations. 
C) The gas stations are producing as much as they can. 
D) The gas stations vary in terms of the services that they provide. 
A) All of the gas stations face the same costs. 
B) There are only a few gas stations. 
C) The gas stations are producing as much as they can. 
D) The gas stations vary in terms of the services that they provide.

Question 10

(Scenario: Payoff Matrix for Firms X and Y)Use Scenario: Payoff Matrix for Firms X and Y.If firm Y were to choose its dominant strategy,it would: Scenario: Payoff Matrix for Firms X and Y
The following payoff matrix depicts the profits for the only two firms in this oligopolistic industry.

Accepted Answer

A) choose a low price. 
B) choose a high price. 
C) encounter a dilemma since there are two dominant strategies. 
D) allow firm X to dominate the industry. 
A) choose a low price. 
B) choose a high price. 
C) encounter a dilemma since there are two dominant strategies. 
D) allow firm X to dominate the industry.

Question 11

A price war occurs when tacit collusion breaks down and aggressive price competition causes prices to collapse.

Accepted Answer

A) True 
 B)False

Question 12

Microsoft sets prices for its new line of computers,and Dell and HP follow.This practice is known as:

Accepted Answer

A) antitrust pricing. 
B) price extortion. 
C) price leadership. 
D) kinked demand behavior. 
A) antitrust pricing. 
B) price extortion. 
C) price leadership. 
D) kinked demand behavior.

Question 13

In an oligopoly market,collusion between firms usually leads to higher profits than does noncooperative behavior.However,formal,overt collusion doesn't usually occur in the United States because: I.it is illegal.
II.there is an incentive for each firm to cheat on a collusive agreement.
III.an oligopolistic firm will typically prefer lower profits for itself if the only way to make higher collective profits in the industry is to improve the profit position of its rivals.

Accepted Answer

A) I only 
B) II only 
C) I and II 
D) II and III 
A) I only 
B) II only 
C) I and II 
D) II and III

Question 14

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 quantity effect will be a(n)_____ in profit of _____.

Accepted Answer

A) decrease;$100 
B) increase;$100 
C) increase;$300 
D) decrease;$300 
A) decrease;$100 
B) increase;$100 
C) increase;$300 
D) decrease;$300

Question 15

The noncooperative equilibrium of a prisoners' dilemma game can be avoided if the game is played repeatedly and firms engage in strategic behavior.

Accepted Answer

A) True 
 B)False

Question 16

Use the following to answer question:  
-(Table: Demand for Crude Oil)Use Table: Demand for Crude Oil.Assume that the crude oil industry is a duopoly and the marginal cost of producing crude oil is zero.Suppose that the two firms are maximizing industry profit and splitting the profit evenly.If firm 1 decides to cheat and increase production by 10 more barrels,total industry output will be _____ barrels.

Accepted Answer

A) 160 
B) 100 
C) 90 
D) 80 
A) 160 
B) 100 
C) 90 
D) 80

Question 17

Use the following to answer question:
Figure: Pricing Strategy in Cable TV Market I  
-(Figure: Pricing Strategy in Cable TV Market I)Use Figure: Pricing Strategy in Cable TV Market I.In the figure,the dominant strategy for CableNorth:

Accepted Answer

A) is to advertise. 
B) is not to advertise. 
C) is to do whatever CableSouth does. 
D) does not exist. 
A) is to advertise. 
B) is not to advertise. 
C) is to do whatever CableSouth does. 
D) does not exist.

Question 18

Oligopoly first became an issue in the United States in the second half of the nineteenth century,when the growth of railroads allowed for a national market for goods.

Accepted Answer

A) True 
 B)False

Question 19

Use the following to answer question:
Figure: Monopoly Profits in Duopoly  
-(Figure: Monopoly Profits in Duopoly)Use Figure: Monopoly Profits in Duopoly.The figure shows how an industry consisting of two firms that face identical demand curves (D1)can collude to increase profits.The market demand curve is D2. Which assumption is part of the analysis illustrated by the model?

Accepted Answer

A) The two firms have identical marginal cost but different average total cost. 
B) The two firms sell differentiated products. 
C) The MR curve is not relevant to either firm's choices. 
D) The firms can act as a cartel and maximize their combined economic profit. 
A) The two firms have identical marginal cost but different average total cost. 
B) The two firms sell differentiated products. 
C) The MR curve is not relevant to either firm's choices. 
D) The firms can act as a cartel and maximize their combined economic profit.

Question 20

Unwritten or unspoken understandings through which firms restrict competition are called:

Accepted Answer

A) cartel agreements. 
B) oligopoly agreements. 
C) overt collusion. 
D) tacit collusion. 
A) cartel agreements. 
B) oligopoly agreements. 
C) overt collusion. 
D) tacit collusion.

A situation in which each firm acts to raise the profits of its rivals (and of itself)without any formal agreement between firms is known as tacit collusion.

An unwritten,unspoken agreement through which firms limit competition among themselves is called:

An industry is dominated by a few firms.Each of these firms acknowledges that its own choices affect the choices of its rivals.Each firm also recognizes that its rivals' choices affect the decisions it makes.This industry is an example of:

Large barriers to entry in the gas station business explain why the two only gas stations in a small town:

One of the most inefficient ways for duopolists to earn a profit is to engage in collusion or form a cartel.

The purpose of the trusts established in the United States in the late 1800s was to:

The owners of the gas stations in a town are trying to set up a cartel that will raise the price of gasoline.Which scenario will INCREASE the chances that the cartel will fail because of cheating by the owners?

(Scenario: Payoff Matrix for Firms X and Y)Use Scenario: Payoff Matrix for Firms X and Y.If firm Y were to choose its dominant strategy,it would: Scenario: Payoff Matrix for Firms X and Y The following payoff matrix depicts the profits for the only two firms in this oligopolistic industry.

A price war occurs when tacit collusion breaks down and aggressive price competition causes prices to collapse.

Microsoft sets prices for its new line of computers,and Dell and HP follow.This practice is known as:

The noncooperative equilibrium of a prisoners' dilemma game can be avoided if the game is played repeatedly and firms engage in strategic behavior.

Use the following to answer question: Figure: Pricing Strategy in Cable TV Market I -(Figure: Pricing Strategy in Cable TV Market I)Use Figure: Pricing Strategy in Cable TV Market I.In the figure,the dominant strategy for CableNorth:

Oligopoly first became an issue in the United States in the second half of the nineteenth century,when the growth of railroads allowed for a national market for goods.

Unwritten or unspoken understandings through which firms restrict competition are called:

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

A situation in which each firm acts to raise the profits of its rivals (and of itself)without any formal agreement between firms is known as tacit collusion.

An unwritten,unspoken agreement through which firms limit competition among themselves is called:

An industry is dominated by a few firms.Each of these firms acknowledges that its own choices affect the choices of its rivals.Each firm also recognizes that its rivals' choices affect the decisions it makes.This industry is an example of:

Large barriers to entry in the gas station business explain why the two only gas stations in a small town:

One of the most inefficient ways for duopolists to earn a profit is to engage in collusion or form a cartel.

The purpose of the trusts established in the United States in the late 1800s was to:

The owners of the gas stations in a town are trying to set up a cartel that will raise the price of gasoline.Which scenario will INCREASE the chances that the cartel will fail because of cheating by the owners?

(Scenario: Payoff Matrix for Firms X and Y)Use Scenario: Payoff Matrix for Firms X and Y.If firm Y were to choose its dominant strategy,it would: Scenario: Payoff Matrix for Firms X and Y The following payoff matrix depicts the profits for the only two firms in this oligopolistic industry.

A price war occurs when tacit collusion breaks down and aggressive price competition causes prices to collapse.

Microsoft sets prices for its new line of computers,and Dell and HP follow.This practice is known as:

The noncooperative equilibrium of a prisoners' dilemma game can be avoided if the game is played repeatedly and firms engage in strategic behavior.

Use the following to answer question: Figure: Pricing Strategy in Cable TV Market I -(Figure: Pricing Strategy in Cable TV Market I)Use Figure: Pricing Strategy in Cable TV Market I.In the figure,the dominant strategy for CableNorth:

Oligopoly first became an issue in the United States in the second half of the nineteenth century,when the growth of railroads allowed for a national market for goods.

Unwritten or unspoken understandings through which firms restrict competition are called:

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