Question 1

A supplier of paper napkins to the fast food industry is unlikely to have significant bargaining power.

Accepted Answer

A) True 
 B)False

Question 2

As word processing on personal computers expanded, sales of typewriters began to disappear. Which of Porter's competitive forces does this event demonstrate?

Accepted Answer

A)  the threat of competition from new entrants 
B)  bargaining power of suppliers 
C)  bargaining power of buyers 
D)  competition from substitute goods or services 
A)  the threat of competition from new entrants 
B)  bargaining power of suppliers 
C)  bargaining power of buyers 
D)  competition from substitute goods or services

Question 3

A set of actions that a firm takes to achieve a goal, such as maximizing profits, is called

Accepted Answer

A)  a business strategy. 
B)  a payoff matrix. 
C)  the Porter's Competitive Forces plan. 
D)  game theory. 
A)  a business strategy. 
B)  a payoff matrix. 
C)  the Porter's Competitive Forces plan. 
D)  game theory.

Question 4

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down. But reality teaches us that people and firms often cooperate successfully to achieve their goals. Why do the results from prisoner's dilemma games fail to predict real-world results?

Accepted Answer

A)  Prisoner's dilemma games do not permit people or firms from reneging on agreements, which often occurs in real-word situations. 
B)  The prisoner's dilemma does not apply to most business situations that are repeated over and over. 
C)  Prisoner's dilemma games predict the behavior of people and firms that engage in illegal activity; most people and firms do not resort to illegal activity. 
D)  Most real-world situations involve more than two people or firms; the prisoner's dilemma is only applicable to situations that involve two parties. 
A)  Prisoner's dilemma games do not permit people or firms from reneging on agreements, which often occurs in real-word situations. 
B)  The prisoner's dilemma does not apply to most business situations that are repeated over and over. 
C)  Prisoner's dilemma games predict the behavior of people and firms that engage in illegal activity; most people and firms do not resort to illegal activity. 
D)  Most real-world situations involve more than two people or firms; the prisoner's dilemma is only applicable to situations that involve two parties.

Question 5

What do Spotify and Apple have in common?

Accepted Answer

A)  Each achieved a dominant position in its industry because it owned a key input in the production of its product. 
B)  The industry in which each firm competes is an oligopoly because of government-imposed barriers to entry. 
C)  Each company was founded in the same state. 
D)  The profitability of each firm depends on its interactions with other firms. 
A)  Each achieved a dominant position in its industry because it owned a key input in the production of its product. 
B)  The industry in which each firm competes is an oligopoly because of government-imposed barriers to entry. 
C)  Each company was founded in the same state. 
D)  The profitability of each firm depends on its interactions with other firms.

Question 6

The prisoner's dilemma is used to analyze business situations in which one firm acts first and then other firms respond.

Accepted Answer

A) True 
 B)False

Question 7

When top managers of all four major airlines publicly stated that they intended to undertake only modest increases in capacity by buying additional planes or flying additional routes, the Department of Justice

Accepted Answer

A)  brought charges against the airlines for collusion. 
B)  stated that since this was an issue of capacity and not price, no collusion could have taken place. 
C)  forced the airlines to increase capacity and lower prices. 
D)  decided there was not enough evidence to charge the airlines with collusion. 
A)  brought charges against the airlines for collusion. 
B)  stated that since this was an issue of capacity and not price, no collusion could have taken place. 
C)  forced the airlines to increase capacity and lower prices. 
D)  decided there was not enough evidence to charge the airlines with collusion.

Question 8

When Wal-Mart decides to build a new retail store in a town, it will decide to build a large store rather than a small store if the large store is expected to earn a greater economic profit. What other motive would Wal-Mart have for choosing to build a large store?

Accepted Answer

A)  A larger store will help Wal-Mart maintain its position as the leading retail company in the world more than a smaller store would. 
B)  A larger store will give Wal-Mart greater political influence in the community. 
C)  A larger store may deter entry into the town by a rival firm. 
D)  Because of economies of scale, the average total cost of production is less for a larger store than a smaller store. 
A)  A larger store will help Wal-Mart maintain its position as the leading retail company in the world more than a smaller store would. 
B)  A larger store will give Wal-Mart greater political influence in the community. 
C)  A larger store may deter entry into the town by a rival firm. 
D)  Because of economies of scale, the average total cost of production is less for a larger store than a smaller store.

Question 9

Selling baked goods out of your home or apartment is illegal in Wisconsin and New Jersey, but in recent years, California, Minnesota, and Texas have repealed their laws banning the sale of home-baked goods. The repeal of these laws will cause the revenues of commercial bakeries in these three states to ________ and their profits to ________.

Accepted Answer

A)  rise; increase 
B)  rise; decrease 
C)  fall; decrease 
D)  fall; increase 
A)  rise; increase 
B)  rise; decrease 
C)  fall; decrease 
D)  fall; increase

Question 10

In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use

Accepted Answer

A)  retaliation games. 
B)  follow-the-leader-games. 
C)  sequential games. 
D)  bargaining games. 
A)  retaliation games. 
B)  follow-the-leader-games. 
C)  sequential games. 
D)  bargaining games.

Question 11

An entry barrier exists when firms in an industry charge the lowest price possible for their products.

Accepted Answer

A) True 
 B)False

Question 12

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 AirPorter and if so, what is it?

Accepted Answer

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

Question 13

According to the textbook, of all barriers to entry, the most important are those that are due to

Accepted Answer

A)  ownership of a key input. 
B)  economies of scale. 
C)  government-imposed barriers. 
D)  the Herfindahl-Hirschman Index. 
A)  ownership of a key input. 
B)  economies of scale. 
C)  government-imposed barriers. 
D)  the Herfindahl-Hirschman Index.

Question 14

A cartel is

Accepted Answer

A)  a temporary storage facility for automobiles. 
B)  a group of firms that enter into an informal agreement to fix prices to maximize joint profits. 
C)  a group of firms that enter into a formal agreement to fix prices to maximize joint profits. 
D)  an example of a group of firms that collectively regulate a competitive industry. 
A)  a temporary storage facility for automobiles. 
B)  a group of firms that enter into an informal agreement to fix prices to maximize joint profits. 
C)  a group of firms that enter into a formal agreement to fix prices to maximize joint profits. 
D)  an example of a group of firms that collectively regulate a competitive industry.

Question 15

Oligopolies are difficult to analyze because

Accepted Answer

A)  the firms are so large. 
B)  demand and cost curves do not exist for these types of industries. 
C)  how firms respond to a price change by a rival is uncertain. 
D)  oligopolies are a recent development so economists have not had time to develop models. 
A)  the firms are so large. 
B)  demand and cost curves do not exist for these types of industries. 
C)  how firms respond to a price change by a rival is uncertain. 
D)  oligopolies are a recent development so economists have not had time to develop models.

Question 16

A prisoner's dilemma leads to a noncooperative equilibrium.

Accepted Answer

A) True 
 B)False

Exam 14: Oligopoly: Firms in Less Competitive Markets

A supplier of paper napkins to the fast food industry is unlikely to have significant bargaining power.

As word processing on personal computers expanded, sales of typewriters began to disappear. Which of Porter's competitive forces does this event demonstrate?

A set of actions that a firm takes to achieve a goal, such as maximizing profits, is called

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down. But reality teaches us that people and firms often cooperate successfully to achieve their goals. Why do the results from prisoner's dilemma games fail to predict real-world results?

What do Spotify and Apple have in common?

The prisoner's dilemma is used to analyze business situations in which one firm acts first and then other firms respond.

When top managers of all four major airlines publicly stated that they intended to undertake only modest increases in capacity by buying additional planes or flying additional routes, the Department of Justice

When Wal-Mart decides to build a new retail store in a town, it will decide to build a large store rather than a small store if the large store is expected to earn a greater economic profit. What other motive would Wal-Mart have for choosing to build a large store?

In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use

An entry barrier exists when firms in an industry charge the lowest price possible for their products.

According to the textbook, of all barriers to entry, the most important are those that are due to

A cartel is

Oligopolies are difficult to analyze because

A prisoner's dilemma leads to a noncooperative equilibrium.

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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