Question 1

An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a

Accepted Answer

A)  cartel equilibrium. 
B)  noncooperative equilibrium. 
C)  prisoner's dilemma equilibrium. 
D)  dominant strategy equilibrium. 
A)  cartel equilibrium. 
B)  noncooperative equilibrium. 
C)  prisoner's dilemma equilibrium. 
D)  dominant strategy equilibrium.

Question 2

Figure 14-5   Netflix (N) was one of the first companies to offer streaming video services and is still considered a leader in the industry. Spotify (S) offers a music streaming service and in 2015 considered entering the video streaming business. At that point, Netflix had to decide whether or not to lower its subscription price in order to deter Spotify's entry into the market. Figure 14-5 shows a hypothetical decision tree for the Netflix-Spotify entry game.
-Refer to Figure 14-5. Does it make sense for Netflix to lower its price in order to deter Spotify's entry into the streaming video market?

Accepted Answer

A)  yes, because Netflix stands to make a profit of $7 million by lowering its price and keeping Spotify out of the market 
B)  no, because Netflix will make a higher profit by keeping its subscription price unchanged, whether Spotify enters the market or not 
C)  yes, because it is always profitable to remain a monopoly 
D)  no, because Spotify will enter the market regardless of Netflix's decision about its subscription price 
A)  yes, because Netflix stands to make a profit of $7 million by lowering its price and keeping Spotify out of the market 
B)  no, because Netflix will make a higher profit by keeping its subscription price unchanged, whether Spotify enters the market or not 
C)  yes, because it is always profitable to remain a monopoly 
D)  no, because Spotify will enter the market regardless of Netflix's decision about its subscription price

Question 3

Which of the following is the best example of an oligopolistic industry?

Accepted Answer

A)  the wheat market 
B)  the pharmaceutical industry 
C)  public education 
D)  the beauty products industry 
A)  the wheat market 
B)  the pharmaceutical industry 
C)  public education 
D)  the beauty products industry

Question 4

Why are decision trees useful to managers who plan business strategies?

Accepted Answer

A)  Decision trees explain the level of concentration in an industry. 
B)  Decision trees can be used to increase the amount of product differentiation; this enables managers to charge higher prices for their products. 
C)  Decision trees provide a systematic way of thinking through the implications of a strategy. 
D)  Using a decision tree always leads to a dominant strategy. 
A)  Decision trees explain the level of concentration in an industry. 
B)  Decision trees can be used to increase the amount of product differentiation; this enables managers to charge higher prices for their products. 
C)  Decision trees provide a systematic way of thinking through the implications of a strategy. 
D)  Using a decision tree always leads to a dominant strategy.

Question 5

The "Discount Department Stores" industry is highly concentrated. What does this mean?

Accepted Answer

A)  There are many large stores such as Wal-Mart, Target, Kohl's, in this industry. 
B)  A few large stores account for a significant portion of industry sales. 
C)  There is cut-throat competition in this industry because there are no entry barriers. 
D)  The sales volume in this industry is consistently high. 
A)  There are many large stores such as Wal-Mart, Target, Kohl's, in this industry. 
B)  A few large stores account for a significant portion of industry sales. 
C)  There is cut-throat competition in this industry because there are no entry barriers. 
D)  The sales volume in this industry is consistently high.

Question 6

Table 14-2   Table 14-2 shows the payoff matrix for Walmart and Target from every combination of pricing strategies for the popular PlayStation 4. At the start of the game each firm charges a low price and each earns a profit of $7,000.
-Refer to Table 14-2. Suppose pricing PlayStations is a repeated game in which Walmart and Target will be selling the game system in competition over a long period of time. In this case, what is the most likely outcome?

Accepted Answer

A)  a noncooperative equilibrium in which each firm charges the high price 
B)  a cooperative equilibrium in which each firm charges the high price 
C)  a noncooperative equilibrium in which each firm charges the low price 
D)  a cooperative equilibrium in which each firm charges the low price 
A)  a noncooperative equilibrium in which each firm charges the high price 
B)  a cooperative equilibrium in which each firm charges the high price 
C)  a noncooperative equilibrium in which each firm charges the low price 
D)  a cooperative equilibrium in which each firm charges the low price

Question 7

Collusion between two firms occurs when

Accepted Answer

A)  the firms independently pursue strategies that could hurt each other. 
B)  firms explicitly or implicitly agree to adopt a uniform business strategy. 
C)  announce that each will match its rival's market price. 
D)  firms act altruistically to bring about the economically efficient outcome. 
A)  the firms independently pursue strategies that could hurt each other. 
B)  firms explicitly or implicitly agree to adopt a uniform business strategy. 
C)  announce that each will match its rival's market price. 
D)  firms act altruistically to bring about the economically efficient outcome.

Question 8

Since 1972, the world price of oil has been largely determined by OPEC, which controls about 75 percent of the world's proven oil reserves. Since 1972 the price of oil has

Accepted Answer

A)  fluctuated. OPEC's situation is an example of a prisoner's dilemma. 
B)  risen slowly, but steadily. Members of OPEC fear that if they raise the price of oil too quickly this will lead oil-buying nations to accuse OPEC of price gouging, which is illegal under international law. 
C)  steadily fallen through the 1970s, then risen continually in the years since then. OPEC's actions are an example of implicit collusion. 
D)  been tied by OPEC to the rate of inflation in the United States. If, for example, the rate of inflation is 5 percent in one year, OPEC will raise the price of oil by 5 percent the next year. 
A)  fluctuated. OPEC's situation is an example of a prisoner's dilemma. 
B)  risen slowly, but steadily. Members of OPEC fear that if they raise the price of oil too quickly this will lead oil-buying nations to accuse OPEC of price gouging, which is illegal under international law. 
C)  steadily fallen through the 1970s, then risen continually in the years since then. OPEC's actions are an example of implicit collusion. 
D)  been tied by OPEC to the rate of inflation in the United States. If, for example, the rate of inflation is 5 percent in one year, OPEC will raise the price of oil by 5 percent the next year.

Question 9

Occupational licensing is an example of an entry barrier that improves a country's standard of living.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is important in determining the extent of competition in an industry?

Accepted Answer

A)  the minimum level of short-run average total costs of production 
B)  the minimum efficient scale of production relative to market demand 
C)  whether or not the industry product is differentiated or standardized 
D)  only the level of market demand for the industry's product 
A)  the minimum level of short-run average total costs of production 
B)  the minimum efficient scale of production relative to market demand 
C)  whether or not the industry product is differentiated or standardized 
D)  only the level of market demand for the industry's product

Question 11

An example of a barrier to entry is

Accepted Answer

A)  product differentiation. 
B)  high profits. 
C)  occupational licensing. 
D)  increasing marginal costs. 
A)  product differentiation. 
B)  high profits. 
C)  occupational licensing. 
D)  increasing marginal costs.

Question 12

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 cooperate, what prices will they select?

Accepted Answer

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

Question 13

The larger the number of firms in an industry

Accepted Answer

A)  the easier it is to implicitly collude to fix prices. 
B)  the more intense the rivalry among firms. 
C)  the greater the need for a price enforcement mechanism. 
D)  the larger the potential number of market segments. 
A)  the easier it is to implicitly collude to fix prices. 
B)  the more intense the rivalry among firms. 
C)  the greater the need for a price enforcement mechanism. 
D)  the larger the potential number of market segments.

Question 14

Competition in the form of advertising, better customer service, or longer warranties can also reduce profits by raising costs.

Accepted Answer

A) True 
 B)False

Question 15

Each member of OPEC can increase its income by selling more oil than its output quota because

Accepted Answer

A)  by selling more at OPEC's cartel price, a member will automatically earn more income. 
B)  each member's demand is more elastic than the total demand for oil. 
C)  the demand for oil is inelastic so total revenue increases. 
D)  the demand for oil is perfectly elastic. 
A)  by selling more at OPEC's cartel price, a member will automatically earn more income. 
B)  each member's demand is more elastic than the total demand for oil. 
C)  the demand for oil is inelastic so total revenue increases. 
D)  the demand for oil is perfectly elastic.

Question 16

A dominant strategy

Accepted Answer

A)  is one that is the best for a firm, no matter what strategies other firms use. 
B)  is one that a firm is forced into following by government policy. 
C)  involves colluding with rivals to maximize joint profits. 
D)  involves deciding what to do after all rivals have chosen their own strategies. 
A)  is one that is the best for a firm, no matter what strategies other firms use. 
B)  is one that a firm is forced into following by government policy. 
C)  involves colluding with rivals to maximize joint profits. 
D)  involves deciding what to do after all rivals have chosen their own strategies.

Question 17

An agreement among firms to charge the same price or otherwise not to compete is called

Accepted Answer

A)  a payoff matrix. 
B)  a subgame-perfect equilibrium. 
C)  a Nash equilibrium. 
D)  collusion. 
A)  a payoff matrix. 
B)  a subgame-perfect equilibrium. 
C)  a Nash equilibrium. 
D)  collusion.

Question 18

Patents, tariffs, and quotas are all examples of

Accepted Answer

A)  government-imposed barriers. 
B)  economic regulations that increase efficiency. 
C)  entry barriers that improve a country's standard of living. 
D)  entry barriers that protect consumers. 
A)  government-imposed barriers. 
B)  economic regulations that increase efficiency. 
C)  entry barriers that improve a country's standard of living. 
D)  entry barriers that protect consumers.

Question 19

Marginal revenue for an oligopolist is

Accepted Answer

A)  identical to the demand for the firm's product. 
B)  difficult to determine because the firm's demand curve is typically unknown. 
C)  downward sloping beneath the firm's demand curve. 
D)  horizontal on a price-quantity diagram. 
A)  identical to the demand for the firm's product. 
B)  difficult to determine because the firm's demand curve is typically unknown. 
C)  downward sloping beneath the firm's demand curve. 
D)  horizontal on a price-quantity diagram.

Question 20

A patent is a government-imposed entry barrier because

Accepted Answer

A)  it allows a firm to achieve economies of scale. 
B)  it is a key input owned by the firm that is granted the patent. 
C)  it limits the quantity of a good that can be imported into a country. 
D)  it gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented. 
A)  it allows a firm to achieve economies of scale. 
B)  it is a key input owned by the firm that is granted the patent. 
C)  it limits the quantity of a good that can be imported into a country. 
D)  it gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.

Exam 14: Oligopoly: Firms in Less Competitive Markets

An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a

Which of the following is the best example of an oligopolistic industry?

Why are decision trees useful to managers who plan business strategies?

The "Discount Department Stores" industry is highly concentrated. What does this mean?

Collusion between two firms occurs when

Since 1972, the world price of oil has been largely determined by OPEC, which controls about 75 percent of the world's proven oil reserves. Since 1972 the price of oil has

Occupational licensing is an example of an entry barrier that improves a country's standard of living.

Which of the following is important in determining the extent of competition in an industry?

An example of a barrier to entry is

The larger the number of firms in an industry

Competition in the form of advertising, better customer service, or longer warranties can also reduce profits by raising costs.

Each member of OPEC can increase its income by selling more oil than its output quota because

A dominant strategy

An agreement among firms to charge the same price or otherwise not to compete is called

Patents, tariffs, and quotas are all examples of

Marginal revenue for an oligopolist is

A patent is a government-imposed entry barrier because

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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