Question 1

A supplier of an input is unlikely to have bargaining power if

Accepted Answer

A)  the input supplied is specialized. 
B)  many firms can supply the input. 
C)  it is the sole supplier of the input. 
D)  it has a patent on the input. 
A)  the input supplied is specialized. 
B)  many firms can supply the input. 
C)  it is the sole supplier of the input. 
D)  it has a patent on the input. B

Question 2

In a Nash equilibrium, all players select non-dominant strategies.

Accepted Answer

A) True 
 B)False  False

Question 3

When an oligopoly is in a Nash equilibrium

Accepted Answer

A)  firms have colluded to set their prices. 
B)  firms will not behave as profit maximizers. 
C)  a firm will not take into account the strategies of its rivals. 
D)  a firm will choose its best pricing strategy, given the strategies that it observes other firms have taken. 
A)  firms have colluded to set their prices. 
B)  firms will not behave as profit maximizers. 
C)  a firm will not take into account the strategies of its rivals. 
D)  a firm will choose its best pricing strategy, given the strategies that it observes other firms have taken. D

Question 4

In economics, the study of the decisions of firms in industries where the profits of each firm depend on its interactions with other firms is called

Accepted Answer

A)  decision theory. 
B)  game theory. 
C)  market structure analysis. 
D)  profit analysis. 
A)  decision theory. 
B)  game theory. 
C)  market structure analysis. 
D)  profit analysis.

Question 5

Table 14-1   LimoZeenz and AirPorter and are the only two airport shuttle and limousine rental service companies in the mid-sized town of Shady Shores. Each firm must decide on whether to offer its customers a mid-week discount for airport transportation. Table 14-1 shows the payoff matrix for profits earned by each company based on either offering or not offering the discount.
-Refer to Table 14-1. Is there a dominant strategy for LimoZeenz and if so, what is it?

Accepted Answer

A)  No, its outcome depends on what AirPorter does. 
B)  Yes, LimoZeenz should offer the mid-week discount. 
C)  Yes, LimoZeenz should not offer the mid-week discount. 
D)  Yes, LimoZeenz dominant strategy is to collude with AirPorter. 
A)  No, its outcome depends on what AirPorter does. 
B)  Yes, LimoZeenz should offer the mid-week discount. 
C)  Yes, LimoZeenz should not offer the mid-week discount. 
D)  Yes, LimoZeenz dominant strategy is to collude with AirPorter.

Question 6

In Porter's Five Competitive Forces model, "competition from substitute goods or services" refers to

Accepted Answer

A)  substitute products that come from outside the industry. 
B)  substitute products that come from domestic competitors in the same industry. 
C)  substitute products that come from foreign competitors in the same industry. 
D)  competition from producers of substitutes who outsource their production. 
A)  substitute products that come from outside the industry. 
B)  substitute products that come from domestic competitors in the same industry. 
C)  substitute products that come from foreign competitors in the same industry. 
D)  competition from producers of substitutes who outsource their production.

Question 7

An oligopolist differs from a perfect competitor in that

Accepted Answer

A)  there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power. 
B)  firms in an oligopoly do not produce homogeneous products while firms in perfect competition do. 
C)  the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry. 
D)  there are no entry barriers in perfect competition but there are entry barriers in oligopoly. 
A)  there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power. 
B)  firms in an oligopoly do not produce homogeneous products while firms in perfect competition do. 
C)  the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry. 
D)  there are no entry barriers in perfect competition but there are entry barriers in oligopoly.

Question 8

Two firms would sometimes be better off if they got together and agreed to charge a high price, rather than to compete and risk having to charge a lower, competitive price. What is the greatest deterrent to this strategy?

Accepted Answer

A)  The firms may find that the price they charge is greater than the price that would maximize their profits. 
B)  An agreement by firms to charge high prices is illegal. The government can fine the firms and send their managers to jail. 
C)  Consumers may resent having to pay high prices and not buy from either of the firms. 
D)  One of the firms may decide to lower its price and take business away from the firm that charged the high price. 
A)  The firms may find that the price they charge is greater than the price that would maximize their profits. 
B)  An agreement by firms to charge high prices is illegal. The government can fine the firms and send their managers to jail. 
C)  Consumers may resent having to pay high prices and not buy from either of the firms. 
D)  One of the firms may decide to lower its price and take business away from the firm that charged the high price.

Question 9

Economies of scale can lead to an oligopolistic market structure because

Accepted Answer

A)  if larger firms have lower costs, new small entrants will not be able to produce at the low costs achieved by the big established firms. 
B)  if economies of scale are insignificant, only a few firms are able to produce at the low costs achieved by the big established firms. 
C)  a few firms can force rivals to produce at low levels of output. 
D)  a few firms can use high profits to keep out new entrants. 
A)  if larger firms have lower costs, new small entrants will not be able to produce at the low costs achieved by the big established firms. 
B)  if economies of scale are insignificant, only a few firms are able to produce at the low costs achieved by the big established firms. 
C)  a few firms can force rivals to produce at low levels of output. 
D)  a few firms can use high profits to keep out new entrants.

Question 10

The study of how people make decisions in situations in which attaining their goals depends on their interactions with others is called

Accepted Answer

A)  game theory. 
B)  oligopoly. 
C)  competitive analysis. 
D)  strategic analysis. 
A)  game theory. 
B)  oligopoly. 
C)  competitive analysis. 
D)  strategic analysis.

Question 11

What is an oligopoly? Give two examples of oligopolistic industries in the United States.

Accepted Answer

Oligopoly is a market structure in which

Question 12

A cooperative equilibrium results when firms

Accepted Answer

A)  choose the best strategy regardless of what other players do. 
B)  choose the strategy that maximizes the total game payoff. 
C)  choose the strategy that minimizes the payoff to other players. 
D)  choose a strategy by random chance. 
A)  choose the best strategy regardless of what other players do. 
B)  choose the strategy that maximizes the total game payoff. 
C)  choose the strategy that minimizes the payoff to other players. 
D)  choose a strategy by random chance.

Question 13

Table 14-9  
-Refer to Table 14-9. Saudi Arabia and Ecuador must decide how much oil to produce. Since the demand for oil is inelastic, relatively low production rates drive up prices and profits. Saudi Arabia, the world's largest and lowest-cost producer, is able to influence market price; it has an incentive to keep output low. Ecuador, on the other hand, is a relatively high-cost producer with much smaller reserves. Use the payoff matrix in Table 14-9 to answer the following questions.
a. What is the dominant strategy for Saudi Arabia?
b. What is the dominant strategy for Ecuador?
c. What is the Nash equilibrium?

Accepted Answer

a. Saudi Arabia's dominant strategy is t

Question 14

Table 14-8   Two rival oligopolists in the coffee industry, Wide Awake and Zuma, have to decide on their pricing strategy. Each can choose either a high price or a low price. Table 14-8 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts.
-Refer to Table 14-8. If the firms act out of individual self-interest, which prices will they select?

Accepted Answer

A)  Both firms will select a high price. 
B)  Zuma will select a high price and Wide Awake will select a low price. 
C)  Zuma will select a low price and Wide Awake will select a high price. 
D)  Both firms will select a low price. 
A)  Both firms will select a high price. 
B)  Zuma will select a high price and Wide Awake will select a low price. 
C)  Zuma will select a low price and Wide Awake will select a high price. 
D)  Both firms will select a low price.

Question 15

What is the incentive for a firm to join a cartel?

Accepted Answer

A)  to be able to earn profits in the long run but not in the short run 
B)  to be able to earn larger profits than if it was not part of the cartel 
C)  to completely insulate itself from competition 
D)  to produce a larger amount of output than if it was not part of the cartel 
A)  to be able to earn profits in the long run but not in the short run 
B)  to be able to earn larger profits than if it was not part of the cartel 
C)  to completely insulate itself from competition 
D)  to produce a larger amount of output than if it was not part of the cartel

Question 16

An equilibrium in a game in which players pursue their own self-interest is called

Accepted Answer

A)  a Nash equilibrium. 
B)  a cooperative equilibrium. 
C)  a noncooperative equilibrium. 
D)  a prisoner's dilemma. 
A)  a Nash equilibrium. 
B)  a cooperative equilibrium. 
C)  a noncooperative equilibrium. 
D)  a prisoner's dilemma.

Question 17

If economies of scale are relatively important in an industry, the typical firm's

Accepted Answer

A)  marginal cost curve will decline continuously until it reaches minimum efficient scale. 
B)  long-run average cost curve will begin rising before it reaches minimum efficient scale. 
C)  long-run average cost curve will reach a minimum at a level of output that leaves room for a large number of firms to enter the industry. 
D)  long-run average cost curve will reach a minimum at a level of output that is a relatively large fraction of total industry sales. 
A)  marginal cost curve will decline continuously until it reaches minimum efficient scale. 
B)  long-run average cost curve will begin rising before it reaches minimum efficient scale. 
C)  long-run average cost curve will reach a minimum at a level of output that leaves room for a large number of firms to enter the industry. 
D)  long-run average cost curve will reach a minimum at a level of output that is a relatively large fraction of total industry sales.

Question 18

In an oligopoly, firms can increase their market power by

Accepted Answer

A)  selling to buyers who have market power. 
B)  pursuing dominant strategies. 
C)  colluding to set prices. 
D)  undertaking heavy advertising expenditure. 
A)  selling to buyers who have market power. 
B)  pursuing dominant strategies. 
C)  colluding to set prices. 
D)  undertaking heavy advertising expenditure.

Question 19

Table 14-5   Martin and Lewis each run one of the two bingo parlors in Schenectady. Both consider offering free rides to and from the parlors. Table 14-5 shows the payoff matrix containing the expected weekly profits for each bingo parlor.
-Refer to Table 14-5. Does Lewis have a dominant strategy? If yes, what is it?

Accepted Answer

A)  Yes, Lewis's dominant strategy is to not offer free rides. 
B)  Yes, Lewis's dominant strategy is to offer free rides. 
C)  No, Lewis does not have a dominant strategy - his best outcome depends on what Martin does. 
D)  Yes, Lewis's dominant strategy is to wait and see what Martin does first. 
A)  Yes, Lewis's dominant strategy is to not offer free rides. 
B)  Yes, Lewis's dominant strategy is to offer free rides. 
C)  No, Lewis does not have a dominant strategy - his best outcome depends on what Martin does. 
D)  Yes, Lewis's dominant strategy is to wait and see what Martin does first.

Question 20

Because of the flaws of the concentration ratio as a measure of the extent of competition in an industry, some economists prefer another measure of competition, the Herfindahl-Hirschman Index.

Accepted Answer

A) True 
 B)False

Exam 14: Oligopoly: Firms in Less Competitive Markets

A supplier of an input is unlikely to have bargaining power if

In a Nash equilibrium, all players select non-dominant strategies.

When an oligopoly is in a Nash equilibrium

In economics, the study of the decisions of firms in industries where the profits of each firm depend on its interactions with other firms is called

In Porter's Five Competitive Forces model, "competition from substitute goods or services" refers to

An oligopolist differs from a perfect competitor in that

Two firms would sometimes be better off if they got together and agreed to charge a high price, rather than to compete and risk having to charge a lower, competitive price. What is the greatest deterrent to this strategy?

Economies of scale can lead to an oligopolistic market structure because

The study of how people make decisions in situations in which attaining their goals depends on their interactions with others is called

What is an oligopoly? Give two examples of oligopolistic industries in the United States.

A cooperative equilibrium results when firms

What is the incentive for a firm to join a cartel?

An equilibrium in a game in which players pursue their own self-interest is called

If economies of scale are relatively important in an industry, the typical firm's

In an oligopoly, firms can increase their market power by

Because of the flaws of the concentration ratio as a measure of the extent of competition in an industry, some economists prefer another measure of competition, the Herfindahl-Hirschman Index.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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