Question 1

What market structures other than oligopoly have the characteristic of one firm's actions affecting the actions of its competitors? Explain your answer.

Accepted Answer

No other market structure has the charac

Question 2

-Suppose the industry for washing machines has only four firms. The market shares are: Firm A, 40 percent; Firm B, 20 percent; Firm C 20, percent; and Firm D, 20 percent.
a) What is the Herfindahl-Hirschman Index (HHI)?
b) If Firms C and D were to announce a merger, would the Department of Justice oppose the merger?

Accepted Answer

a) The HHI is 2,800.
b) Yes, the Departm

Question 3

The outcome of a prisoners' dilemma game with a Nash equilibrium is that ________.

Accepted Answer

A)  both players deny 
B)  one player denies and one player confesses 
C)  both players confess 
D)  there is no equilibrium 
A)  both players deny 
B)  one player denies and one player confesses 
C)  both players confess 
D)  there is no equilibrium

Question 4

Iran called on OPEC in November 2008 to cut production by a further 1 million to 1.5 million barrels per day when it meets in Cairo later this month. Why would OPEC, a cartel, restrict production?

Accepted Answer

A)  to decrease demand 
B)  to increase supply 
C)  to decrease quantity supplied 
D)  to increase profits 
A)  to decrease demand 
B)  to increase supply 
C)  to decrease quantity supplied 
D)  to increase profits

Question 5

Which of the following is true regarding a collusive agreement? I. It is illegal in the United States.
II) Two or more producers agree to restrict output or raise prices.
III) Firms' profits are never maximized under this sort of agreement.

Accepted Answer

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

Question 6

Sears  
-Refer to the payoffs in the table above. Sears and Wal-Mart must decide whether to lower their prices based on the profits shown in the table. This game has

Accepted Answer

A)  no Nash equilibrium. 
B)  a Nash equilibrium: Sears keeps its prices high and Wal-Mart lowers its prices. 
C)  a Nash equilibrium: both Sears and Wal-Mart keep prices high. 
D)  a Nash equilibrium: both Sears and Wal-Mart lower prices. 
A)  no Nash equilibrium. 
B)  a Nash equilibrium: Sears keeps its prices high and Wal-Mart lowers its prices. 
C)  a Nash equilibrium: both Sears and Wal-Mart keep prices high. 
D)  a Nash equilibrium: both Sears and Wal-Mart lower prices.

Question 7

Which of the following is a distinguishing characteristic of oligopoly?

Accepted Answer

A)  A large number of firms compete. 
B)  No one firm's actions directly affect the actions of the other firms. 
C)  Firms are free to enter and exit the industry. 
D)  Natural or legal barriers prevent the entry of new firms. 
A)  A large number of firms compete. 
B)  No one firm's actions directly affect the actions of the other firms. 
C)  Firms are free to enter and exit the industry. 
D)  Natural or legal barriers prevent the entry of new firms.

Question 8

The Clayton Act of 1914 prohibits ________ if it substantially lessens competition or creates a monopoly.

Accepted Answer

A)  people from serving on the board of directors of competing firms 
B)  contracts that force other goods to be bought from the same firm 
C)  both of the above 
D)  neither of the above 
A)  people from serving on the board of directors of competing firms 
B)  contracts that force other goods to be bought from the same firm 
C)  both of the above 
D)  neither of the above

Question 9

Student 1  
-Two students are assigned a group project. Each has the option to work or not work to achieve a high grade. The payoffs are shown in the above table. Student 1 should

Accepted Answer

A)  work only if student 2 works. 
B)  work regardless of the decision made by student 2. 
C)  not work if student 2 works. 
D)  not work regardless of what student 2 decides. 
A)  work only if student 2 works. 
B)  work regardless of the decision made by student 2. 
C)  not work if student 2 works. 
D)  not work regardless of what student 2 decides.

Question 10

In a market with a Herfindahl-Hirschman Index of 2,000, according to their guidelines will the Department of Justice challenge a merger that would increase the index by 100?

Accepted Answer

Yes, according to their guidel

Question 11

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 the scenario above, the market is:

Accepted Answer

A)  A natural duopoly. 
B)  A natural oligopoly with three firms. 
C)  A natural monopoly. 
D)  Monopolistically competitive. 
A)  A natural duopoly. 
B)  A natural oligopoly with three firms. 
C)  A natural monopoly. 
D)  Monopolistically competitive.

Question 12

Suppose two firms are trying to decide how much to budget for research and development. Once a new discovery is made, each firm benefits regardless of which firm developed the innovation. In this R&D game of chicken, the Nash equilibrium will be that

Accepted Answer

A)  either both firms conduct the R&D or neither firm conducts the R&D. 
B)  only one firm conducts the R&D but which firm conducts the R&D cannot be determined. 
C)  both firms conduct the R&D. 
D)  neither firm conducts the R&D. 
A)  either both firms conduct the R&D or neither firm conducts the R&D. 
B)  only one firm conducts the R&D but which firm conducts the R&D cannot be determined. 
C)  both firms conduct the R&D. 
D)  neither firm conducts the R&D.

Question 13

In a contestable market,

Accepted Answer

A)  the HHI is usually quite low. 
B)  the firm in the market usually earns a large economic profit. 
C)  the firm in the market may play an entry-deterrence game. 
D)  there are high barriers to entry. 
A)  the HHI is usually quite low. 
B)  the firm in the market usually earns a large economic profit. 
C)  the firm in the market may play an entry-deterrence game. 
D)  there are high barriers to entry.

Question 14

A duopoly occurs when ________.

Accepted Answer

A)  there are only two producers of a particular good competing in the same market 
B)  there are two producers of two goods competing in an oligopoly market 
C)  there are numerous producers of two goods competing in a competitive market 
D)  the one producer of two goods sells the goods in a monopoly market 
A)  there are only two producers of a particular good competing in the same market 
B)  there are two producers of two goods competing in an oligopoly market 
C)  there are numerous producers of two goods competing in a competitive market 
D)  the one producer of two goods sells the goods in a monopoly market

Question 15

In 2008, a former Intel engineer has been charged with stealing trade secrets worth $1 billion. Intel owns 80 percent of the worldwide market for microprocessors, AMD has the rest. Conducting R&D is very expensive so suppose that each of these firms can either steal R&D or develop their own R&D. If both firms develop their own R&D, economic profit will be $50 million each. If one company steals R&D, that firm earns $100 million in economic profit while the other firm earns $10 million. If both firms steal R&D, each firm breaks even. What is the outcome of this game?

Accepted Answer

A)  Both firms will conduct R&D. 
B)  Both firms will steal R&D. 
C)  The outcome will be a dominant strategy equilibrium. 
D)  Only one firm will conduct R&D, but we cannot predict which firm will conduct R&D. 
A)  Both firms will conduct R&D. 
B)  Both firms will steal R&D. 
C)  The outcome will be a dominant strategy equilibrium. 
D)  Only one firm will conduct R&D, but we cannot predict which firm will conduct R&D.

Question 16

A market structure in which a small number of producers compete against each other is

Accepted Answer

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

Question 17

A cooperative equilibrium is most likely to arise in a

Accepted Answer

A)  single-play game with a large number of players. 
B)  single-play game without communication. 
C)  repeated game with a large number of players. 
D)  repeated game with a small number of players. 
A)  single-play game with a large number of players. 
B)  single-play game without communication. 
C)  repeated game with a large number of players. 
D)  repeated game with a small number of players.

Question 18

Price wars can be the result of

Accepted Answer

A)  a cooperative equilibrium. 
B)  a firm playing a tit-for-tat strategy in which last period the competitors complied with a collusive agreement. 
C)  new firms entering the industry and immediately agreeing to abide by a collusive agreement. 
D)  new firms entering an industry and all firms then finding themselves in a prisoners' dilemma. 
A)  a cooperative equilibrium. 
B)  a firm playing a tit-for-tat strategy in which last period the competitors complied with a collusive agreement. 
C)  new firms entering the industry and immediately agreeing to abide by a collusive agreement. 
D)  new firms entering an industry and all firms then finding themselves in a prisoners' dilemma.

Question 19

If two duopolists can collude successfully, then both will

Accepted Answer

A)  earn greater profits than if they did not collude. 
B)  price at marginal cost. 
C)  price below average total cost. 
D)  lower their economic profits. 
A)  earn greater profits than if they did not collude. 
B)  price at marginal cost. 
C)  price below average total cost. 
D)  lower their economic profits.

Question 20

The small town of Narberth has two pizza stores. Which of the following statements are correct? I. The profits of each store depend on the price of the pizza at the other store.
II) Both stores would increase their profit if they cooperated in setting their prices.

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Exam 15: Oligopoly

What market structures other than oligopoly have the characteristic of one firm's actions affecting the actions of its competitors? Explain your answer.

The outcome of a prisoners' dilemma game with a Nash equilibrium is that ________.

Iran called on OPEC in November 2008 to cut production by a further 1 million to 1.5 million barrels per day when it meets in Cairo later this month. Why would OPEC, a cartel, restrict production?

Which of the following is true regarding a collusive agreement? I. It is illegal in the United States. II) Two or more producers agree to restrict output or raise prices. III) Firms' profits are never maximized under this sort of agreement.

Sears -Refer to the payoffs in the table above. Sears and Wal-Mart must decide whether to lower their prices based on the profits shown in the table. This game has

Which of the following is a distinguishing characteristic of oligopoly?

The Clayton Act of 1914 prohibits ________ if it substantially lessens competition or creates a monopoly.

Student 1 -Two students are assigned a group project. Each has the option to work or not work to achieve a high grade. The payoffs are shown in the above table. Student 1 should

In a market with a Herfindahl-Hirschman Index of 2,000, according to their guidelines will the Department of Justice challenge a merger that would increase the index by 100?

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 the scenario above, the market is:

Suppose two firms are trying to decide how much to budget for research and development. Once a new discovery is made, each firm benefits regardless of which firm developed the innovation. In this R&D game of chicken, the Nash equilibrium will be that

In a contestable market,

A duopoly occurs when ________.

A market structure in which a small number of producers compete against each other is

A cooperative equilibrium is most likely to arise in a

Price wars can be the result of

If two duopolists can collude successfully, then both will

The small town of Narberth has two pizza stores. Which of the following statements are correct? I. The profits of each store depend on the price of the pizza at the other store. II) Both stores would increase their profit if they cooperated in setting their prices.

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

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