Question 1

In a decision tree, the difference between a decision node and a terminal node is that

Accepted Answer

A)  at a decision node all participants are free to make individual decisions but at a terminal node they must agree on a collective decision. 
B)  at a decision node all participants make the same decision, while at a terminal node different players may make different decisions. 
C)  at a decision node a decision must be made, while a terminal node shows the payoff. 
D)  at a decision node a decision must be made, while at a terminal node the final decision must be made. 
A)  at a decision node all participants are free to make individual decisions but at a terminal node they must agree on a collective decision. 
B)  at a decision node all participants make the same decision, while at a terminal node different players may make different decisions. 
C)  at a decision node a decision must be made, while a terminal node shows the payoff. 
D)  at a decision node a decision must be made, while at a terminal node the final decision must be made.

Question 2

Which of the following is not necessarily a consequence of occupational licensing laws?

Accepted Answer

A)  They restrict competition. 
B)  Consumers pay higher prices for the services of licensed professions. 
C)  They result in a higher quality of service. 
D)  They ensure that licensed professionals meet some minimum qualifications. 
A)  They restrict competition. 
B)  Consumers pay higher prices for the services of licensed professions. 
C)  They result in a higher quality of service. 
D)  They ensure that licensed professionals meet some minimum qualifications.

Question 3

Does the strength of each of the five competitive forces from Michael Porter's model remain constant over time? Briefly explain.

Accepted Answer

The strength of these forces c

Question 4

If firms are protected by substantial barriers to entry, short-run profits can turn into long-run profits.

Accepted Answer

A) True 
 B)False

Question 5

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 two firms collude, is there an incentive for either to cheat on the collusion agreement?

Accepted Answer

A)  No, neither firm can gain by cheating. 
B)  Yes, but only Zuma is in a position to gain by cheating. 
C)  Yes, but only Wide Awake is in a position to gain by cheating. 
D)  Yes, either firm can gain if it, alone, cheats. 
A)  No, neither firm can gain by cheating. 
B)  Yes, but only Zuma is in a position to gain by cheating. 
C)  Yes, but only Wide Awake is in a position to gain by cheating. 
D)  Yes, either firm can gain if it, alone, cheats.

Question 6

Assume that the four-firm concentration ratio in an industry is 85 percent. Which of the following statements uses one of the five competitive forces to argue that this industry may be more competitive than its concentration ratio suggests?

Accepted Answer

A)  The high concentration may be due to patents owned by the largest firms but competition will increase when patent rights expire. 
B)  If high concentration is the result of large firms owning much of the available supply of a key input, the industry will become more competitive when new sources of the input are discovered by other firms. 
C)  Even though concentration is high, large firms in the industry may act competitively by spending large sums on advertising. 
D)  The threat of entry into this industry can cause firms in the industry to lower their prices and profits in order to deter entry. 
A)  The high concentration may be due to patents owned by the largest firms but competition will increase when patent rights expire. 
B)  If high concentration is the result of large firms owning much of the available supply of a key input, the industry will become more competitive when new sources of the input are discovered by other firms. 
C)  Even though concentration is high, large firms in the industry may act competitively by spending large sums on advertising. 
D)  The threat of entry into this industry can cause firms in the industry to lower their prices and profits in order to deter entry.

Question 7

Economists use game theory to analyze oligopolies because

Accepted Answer

A)  real markets are too complicated to analyze without using games. 
B)  it is more enjoyable for economists and students to learn by playing games. 
C)  game theory helps us to understand why interactions among firms are crucial in determining profitable business strategies. 
D)  game theory is useful in understanding the actions of firms that are price takers. 
A)  real markets are too complicated to analyze without using games. 
B)  it is more enjoyable for economists and students to learn by playing games. 
C)  game theory helps us to understand why interactions among firms are crucial in determining profitable business strategies. 
D)  game theory is useful in understanding the actions of firms that are price takers.

Question 8

A four-firm concentration ratio measures

Accepted Answer

A)  the fraction of an industry's sales accounted for by the four largest firms. 
B)  the production of any four firms in an industry. 
C)  how the four largest firms became so concentrated. 
D)  the fraction of employment of the four largest firms in an industry. 
A)  the fraction of an industry's sales accounted for by the four largest firms. 
B)  the production of any four firms in an industry. 
C)  how the four largest firms became so concentrated. 
D)  the fraction of employment of the four largest firms in an industry.

Question 9

Table 14-4   Alpha and Beta are the only firms selling gyros in the upscale town of Delphi. Each firm must decide on whether to offer a discount to students to compete for customers. If one firm offers a discount but the other does not, then the firm that offers the discount will increase its profit. Table 14-4 shows the payoff matrix for this game.
-Refer to Table 14-4. What is the Nash equilibrium in this game?

Accepted Answer

A)  There is no Nash equilibrium. 
B)  Beta offers a student discount but Alpha does not. 
C)  Alpha offers a student discount but Beta does not. 
D)  Both Alpha and Beta offer a student discount. 
A)  There is no Nash equilibrium. 
B)  Beta offers a student discount but Alpha does not. 
C)  Alpha offers a student discount but Beta does not. 
D)  Both Alpha and Beta offer a student discount.

Question 10

Decision trees can only be used to analyze sequential games.

Accepted Answer

A) True 
 B)False

Question 11

A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

Accepted Answer

A) True 
 B)False

Question 12

The music streaming industry, where a firm's profitability depends on its interactions with other firms, is an example of

Accepted Answer

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

Question 13

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. Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?

Accepted Answer

A)  No, it is not a Nash equilibrium because each firm can do better by charging the high price. The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000. 
B)  No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium. There is no Nash equilibrium in this game. 
C)  No, the current situation is not a Nash equilibrium. The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price. 
D)  Yes, the current situation is a Nash equilibrium. 
A)  No, it is not a Nash equilibrium because each firm can do better by charging the high price. The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000. 
B)  No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium. There is no Nash equilibrium in this game. 
C)  No, the current situation is not a Nash equilibrium. The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price. 
D)  Yes, the current situation is a Nash equilibrium.

Question 14

An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented. This entry barrier is known as

Accepted Answer

A)  a copyright. 
B)  a patent. 
C)  an exclusive marketing agreement. 
D)  a tariff. 
A)  a copyright. 
B)  a patent. 
C)  an exclusive marketing agreement. 
D)  a tariff.

Question 15

Competition from substitute goods is more of a threat when switching costs are high.

Accepted Answer

A) True 
 B)False

Question 16

Assume that two gyro restaurants, Alpha and Beta, are competing for customers and if they both offer a student discount, they would each earn $60,000 in profits. If neither offers a student discount, they each earn $100,000 in profits. If one offers a student discount and the other doesn't, the restaurant that offers the discount earns $80,000 in profit while the other earns $40,000 in profit.
a. Present the information above in the form of a payoff matrix. Let Beta be the row player and Alpha the column player.
b. Does each firm have a dominant strategy and if so what is it?
c. What is the Nash equilibrium?

Accepted Answer

a. See the table below. @#IMG-DLM& b. No, there is

Question 17

Oligopoly differs from perfect competition and monopolistic competition in that

Accepted Answer

A)  barriers to entry are lower in oligopoly industries than they are in perfectly competitive and monopolistically competitive industries. 
B)  demand and marginal revenue curves are more useful for analyzing oligopoly than they are for analyzing perfect competition and monopolistic competition. 
C)  because oligopoly firms often react when other firms in their industry change their prices, it is difficult to know what the oligopolist's demand curve looks like. 
D)  the concentration ratios of oligopoly industries are lower than they are for perfectly competitive and monopolistically competitive industries. 
A)  barriers to entry are lower in oligopoly industries than they are in perfectly competitive and monopolistically competitive industries. 
B)  demand and marginal revenue curves are more useful for analyzing oligopoly than they are for analyzing perfect competition and monopolistic competition. 
C)  because oligopoly firms often react when other firms in their industry change their prices, it is difficult to know what the oligopolist's demand curve looks like. 
D)  the concentration ratios of oligopoly industries are lower than they are for perfectly competitive and monopolistically competitive industries.

Question 18

Which of the following is most likely to exert the bargaining power of a buyer?

Accepted Answer

A)  Barnes and Noble purchases books from publishers for sale in its online stores. 
B)  Wal-Mart, the world's largest discount store, seeks vendors to supply products made exclusively for its stores. 
C)  Ground beef producers seek to purchase cattle from ranchers. 
D)  Cowgirl Creamery, a small cheese producer, seeks a dairy farm for its organic milk supplies. 
A)  Barnes and Noble purchases books from publishers for sale in its online stores. 
B)  Wal-Mart, the world's largest discount store, seeks vendors to supply products made exclusively for its stores. 
C)  Ground beef producers seek to purchase cattle from ranchers. 
D)  Cowgirl Creamery, a small cheese producer, seeks a dairy farm for its organic milk supplies.

Question 19

Explain the difference between a cooperative equilibrium and a noncooperative equilibrium in game theory.

Accepted Answer

A cooperative equilibrium is one in whic

Question 20

What is the dominant strategy in the prisoner's dilemma?

Accepted Answer

A)  Each prisoner confesses because this is the rational action to pursue. 
B)  Do nothing in the hope that the other prisoner will also do nothing. 
C)  Do not confess because the other prisoner will most likely confess. 
D)  There is no dominant strategy. 
A)  Each prisoner confesses because this is the rational action to pursue. 
B)  Do nothing in the hope that the other prisoner will also do nothing. 
C)  Do not confess because the other prisoner will most likely confess. 
D)  There is no dominant strategy.

Exam 14: Oligopoly: Firms in Less Competitive Markets

In a decision tree, the difference between a decision node and a terminal node is that

Which of the following is not necessarily a consequence of occupational licensing laws?

Does the strength of each of the five competitive forces from Michael Porter's model remain constant over time? Briefly explain.

If firms are protected by substantial barriers to entry, short-run profits can turn into long-run profits.

Assume that the four-firm concentration ratio in an industry is 85 percent. Which of the following statements uses one of the five competitive forces to argue that this industry may be more competitive than its concentration ratio suggests?

Economists use game theory to analyze oligopolies because

A four-firm concentration ratio measures

Decision trees can only be used to analyze sequential games.

A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

The music streaming industry, where a firm's profitability depends on its interactions with other firms, is an example of

An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented. This entry barrier is known as

Competition from substitute goods is more of a threat when switching costs are high.

Oligopoly differs from perfect competition and monopolistic competition in that

Which of the following is most likely to exert the bargaining power of a buyer?

Explain the difference between a cooperative equilibrium and a noncooperative equilibrium in game theory.

What is the dominant strategy in the prisoner's dilemma?

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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