Question 1

Game theory is most useful for analyzing

Accepted Answer

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

Question 2

In an oligopoly price-fixing game, each player tries to

Accepted Answer

A)  minimize the market shares of its opponents. 
B)  maximize its own market share. 
C)  minimize the profits of its opponents. 
D)  maximize its own profit. 
A)  minimize the market shares of its opponents. 
B)  maximize its own market share. 
C)  minimize the profits of its opponents. 
D)  maximize its own profit.

Question 3

Cartels are typically subject to cheating by their members because

Accepted Answer

A)  if the other firms stick to the agreement, a firm can increase its profits by cutting its price. 
B)  barriers to entry do not exist so new entrants will join. 
C)  the U.S. Justice Department will punish any cartel agreement before the cartel has had a chance to operate. 
D)  product differentiation allows the firms in the cartel to cheat. 
A)  if the other firms stick to the agreement, a firm can increase its profits by cutting its price. 
B)  barriers to entry do not exist so new entrants will join. 
C)  the U.S. Justice Department will punish any cartel agreement before the cartel has had a chance to operate. 
D)  product differentiation allows the firms in the cartel to cheat.

Question 4

Explain what a cartel is and the difficulties faced in maintaining a cartel.

Accepted Answer

A cartel is a group of firms acting toge

Question 5

If firms in an industry differentiated their products and made economic profits in the short-run, what other characteristic would be important to determine if this is an oligopoly or a monopolistically competitive market?

Accepted Answer

A)  the number of firms in the market 
B)  the number of close substitutes for the good being produced 
C)  the number of buyers in the market 
D)  if the good being sold is a normal or inferior good 
A)  the number of firms in the market 
B)  the number of close substitutes for the good being produced 
C)  the number of buyers in the market 
D)  if the good being sold is a normal or inferior good

Question 6

Russia and Qatar made the first serious moves in October 2008 toward forming an OPEC-style cartel on natural gas. The two strategies these countries face are to comply with the cartel agreement or to cheat on the cartel agreement. If both countries comply, the economic profit for each will be $140 million. If one country cheats, that country earns $200 million in economic profit and the other country will have an economic loss of $10 million. If all countries cheat, they break even. What is the outcome of this game if it is only played once?

Accepted Answer

A)  Each country will comply with the cartel agreement. 
B)  Two countries will comply and one will cheat, but we cannot predict which one will cheat. 
C)  One country will comply and two will cheat, but we cannot predict which ones will cheat. 
D)  None of the countries will comply with the cartel agreement. 
A)  Each country will comply with the cartel agreement. 
B)  Two countries will comply and one will cheat, but we cannot predict which one will cheat. 
C)  One country will comply and two will cheat, but we cannot predict which ones will cheat. 
D)  None of the countries will comply with the cartel agreement.

Question 7

If firms in an industry make output decisions that are partially based on the price and output decisions of their competitors, then these firms are in ________ market have ________ with the other firms in the market.

Accepted Answer

A)  an oligopoly; interdependence 
B)  an oligopoly; no interdependence 
C)  an oligopoly or monopolistically competitive; interdependence 
D)  a monopolistically competitive; no interdependence 
A)  an oligopoly; interdependence 
B)  an oligopoly; no interdependence 
C)  an oligopoly or monopolistically competitive; interdependence 
D)  a monopolistically competitive; no interdependence

Question 8

The local pizza delivery industry currently has a Herfindahl-Hirschman index (HHI) value of 999 and two of the competing pizza shops have considered merging. Because the merger would raise the HHI by 55 points, the Federal Trade Commission would likely

Accepted Answer

A)  not challenge the merger. 
B)  challenge the merger. 
C)  allow the merger under the condition that HHI does not rise by more than 55 points as promised. 
D)  allow the merger under the condition that the HHI remain at the premerger level of 999. 
A)  not challenge the merger. 
B)  challenge the merger. 
C)  allow the merger under the condition that HHI does not rise by more than 55 points as promised. 
D)  allow the merger under the condition that the HHI remain at the premerger level of 999.

Question 9

Which of the following statements is TRUE about contestable markets?

Accepted Answer

A)  There are significant barriers to entry. 
B)  Firms earn large economic profits. 
C)  Each firm faces a perfectly elastic demand. 
D)  There are few firms in the industry. 
A)  There are significant barriers to entry. 
B)  Firms earn large economic profits. 
C)  Each firm faces a perfectly elastic demand. 
D)  There are few firms in the industry.

Question 10

What is the Sherman Act and what is its purpose?

Accepted Answer

The Sherman Act of 1890 was the first ma

Question 11

In a prisoners' dilemma game, in the Nash equilibrium

Accepted Answer

A)  both players have another outcome that does not occur but is more favorable. 
B)  neither player has another outcome that does not occur and is more favorable. 
C)  one player has another outcome that does not occur and is more favorable. 
D)  collusion would not alter the outcome. 
A)  both players have another outcome that does not occur but is more favorable. 
B)  neither player has another outcome that does not occur and is more favorable. 
C)  one player has another outcome that does not occur and is more favorable. 
D)  collusion would not alter the outcome.

Question 12

If McDonald's, Wendy's, and Burger King agree with each other not to sell hamburgers for less than $2.95 apiece, all three could be found guilty of

Accepted Answer

A)  an interlocking directorship under the Clayton Act. 
B)  price fixing under the Sherman Act. 
C)  a deceptive business practice under the Clayton Act. 
D)  None of the above answers is correct. 
A)  an interlocking directorship under the Clayton Act. 
B)  price fixing under the Sherman Act. 
C)  a deceptive business practice under the Clayton Act. 
D)  None of the above answers is correct.

Question 13

Dr. Smith  
-Libertyville has two optometrists, Dr. Smith and Dr. Jones. Each optometrist can choose to advertise his service or not. The incomes of each optometrist, in thousands of dollars, are given in the payoff matrix above. Which of the following statements correctly describes Dr. Jones' strategy given what Dr. Smith may do?

Accepted Answer

A)  Dr. Jones should advertise no matter what Dr. Smith does. 
B)  Dr. Jones should not advertise no matter what Dr. Smith does. 
C)  Dr. Jones should advertise only if Dr. Smith doesn't advertise. 
D)  Dr. Jones should advertise only if Dr. Smith advertises. 
A)  Dr. Jones should advertise no matter what Dr. Smith does. 
B)  Dr. Jones should not advertise no matter what Dr. Smith does. 
C)  Dr. Jones should advertise only if Dr. Smith doesn't advertise. 
D)  Dr. Jones should advertise only if Dr. Smith advertises.

Question 14

Consider the prisoner's dilemma model where two criminals have two options (confess or deny), and each criminal must make their decision without speaking to the other criminal first. If they both confess they each get 3 years, if only one confesses then he gets 1 and his partner gets 10, and if neither confesses then they each get 0. They are in fact both guilty. In this game, the Nash equilibrium is where

Accepted Answer

A)  both confess. 
B)  neither one confesses. 
C)  only one will confess. 
D)  It is impossible to say. 
A)  both confess. 
B)  neither one confesses. 
C)  only one will confess. 
D)  It is impossible to say.

Question 15

Suppose that all pizza companies have the same costs and the minimum average total cost is $12 per pizza. The pizza companies have an efficient scale of 100 pies per night. In the small town of Coatsville, at the price of $12 per pizza the quantity demanded is approximately 300 pizzas per night. This market, therefore, can best be characterized as

Accepted Answer

A)  perfectly competitive. 
B)  a natural monopoly. 
C)  a natural duopoly. 
D)  a natural oligopoly. 
A)  perfectly competitive. 
B)  a natural monopoly. 
C)  a natural duopoly. 
D)  a natural oligopoly.

Question 16

The distinguishing features of oligopoly are ________ and a ________ in the industry.

Accepted Answer

A)  barriers to entry; large number of firms 
B)  no barriers to entry; few firms 
C)  barriers to entry; few firms 
D)  no barriers to entry; large number of firms 
A)  barriers to entry; large number of firms 
B)  no barriers to entry; few firms 
C)  barriers to entry; few firms 
D)  no barriers to entry; large number of firms

Question 17

A contestable market is similar to a perfectly competitive market in that there

Accepted Answer

A)  are barriers to entry. 
B)  are no barriers to entry. 
C)  can be only one firm in the market. 
D)  will be no entry if the existing firm earns an economic profit. 
A)  are barriers to entry. 
B)  are no barriers to entry. 
C)  can be only one firm in the market. 
D)  will be no entry if the existing firm earns an economic profit.

Question 18

A monopolistically competitive firm is like an oligopolistic firm insofar as

Accepted Answer

A)  both face perfectly elastic demand. 
B)  both can earn an economic profit in the long run. 
C)  both have MR curves that lie beneath their demand curves. 
D)  neither is protected by high barriers to entry. 
A)  both face perfectly elastic demand. 
B)  both can earn an economic profit in the long run. 
C)  both have MR curves that lie beneath their demand curves. 
D)  neither is protected by high barriers to entry.

Question 19

The first federal antitrust law ever passed was the Sherman Act.

Accepted Answer

A) True 
 B)False

Question 20

In the figure, D is the demand curve for taxi rides in a town, and ATC is the average total cost curve of a taxi company.
-In an oligopoly market, the Herfindahl-Hirschman Index is usually:

Accepted Answer

A)  Greater than 1,000. 
B)  Below 1,000. 
C)  Between 100 and 1,000. 
D)  Between 200 and 2,000. 
A)  Greater than 1,000. 
B)  Below 1,000. 
C)  Between 100 and 1,000. 
D)  Between 200 and 2,000.

Exam 15: Oligopoly

Game theory is most useful for analyzing

In an oligopoly price-fixing game, each player tries to

Cartels are typically subject to cheating by their members because

Explain what a cartel is and the difficulties faced in maintaining a cartel.

If firms in an industry differentiated their products and made economic profits in the short-run, what other characteristic would be important to determine if this is an oligopoly or a monopolistically competitive market?

If firms in an industry make output decisions that are partially based on the price and output decisions of their competitors, then these firms are in ________ market have ________ with the other firms in the market.

The local pizza delivery industry currently has a Herfindahl-Hirschman index (HHI) value of 999 and two of the competing pizza shops have considered merging. Because the merger would raise the HHI by 55 points, the Federal Trade Commission would likely

Which of the following statements is TRUE about contestable markets?

What is the Sherman Act and what is its purpose?

In a prisoners' dilemma game, in the Nash equilibrium

If McDonald's, Wendy's, and Burger King agree with each other not to sell hamburgers for less than $2.95 apiece, all three could be found guilty of

The distinguishing features of oligopoly are ________ and a ________ in the industry.

A contestable market is similar to a perfectly competitive market in that there

A monopolistically competitive firm is like an oligopolistic firm insofar as

The first federal antitrust law ever passed was the Sherman Act.

In the figure, D is the demand curve for taxi rides in a town, and ATC is the average total cost curve of a taxi company. -In an oligopoly market, the Herfindahl-Hirschman Index is usually:

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Public Choices and Public Goods

Externalities and the Environment

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Extension A: Review

Extension B: Review

Extension C: Review

Extension D: Review

Extension E: Review

Extension F: Review

Filters

If firms in an industry make output decisions that are partially based on the price and output decisions of their competitors, then these firms are in market have with the other firms in the market.

The distinguishing features of oligopoly are and a in the industry.