Question 1

The five competitive forces model was developed by

Accepted Answer

A)  Michael Porter. 
B)  John Nash. 
C)  Michael Spence. 
D)  Porter Smith. 
A)  Michael Porter. 
B)  John Nash. 
C)  Michael Spence. 
D)  Porter Smith.

Question 2

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. What is the Nash equilibrium in this game?

Accepted Answer

A)  There is no Nash equilibrium. 
B)  LimoZeenz offers the discount, but AirPorter does not. 
C)  AirPorter offers the discount, but LimoZeenz does not. 
D)  Both LimoZeenz and AirPorter do not offer the discount. 
A)  There is no Nash equilibrium. 
B)  LimoZeenz offers the discount, but AirPorter does not. 
C)  AirPorter offers the discount, but LimoZeenz does not. 
D)  Both LimoZeenz and AirPorter do not offer the discount.

Question 3

A fundamental assumption in game theory is that players do not interact with each other.

Accepted Answer

A) True 
 B)False

Question 4

In 2017, the Educational Testing Service (ETS) charged $54.50 to take the Scholastic Aptitude Test (SAT) but $205 to take the Graduate Record Exam (GRE). One reason for this difference in price is

Accepted Answer

A)  more people took the SAT than the GRE in 2015. 
B)  the GRE is a longer test with more questions. 
C)  an average, those who take the GRE have higher incomes than those who take the SAT. 
D)  the ETS faces competition in the market for the SAT but no competition for the GRE. 
A)  more people took the SAT than the GRE in 2015. 
B)  the GRE is a longer test with more questions. 
C)  an average, those who take the GRE have higher incomes than those who take the SAT. 
D)  the ETS faces competition in the market for the SAT but no competition for the GRE.

Question 5

A member of a cartel like OPEC has an incentive to

Accepted Answer

A)  argue for larger production quotas for each member of the cartel. 
B)  agree to a low cartel production level and then produce more than its quota. 
C)  abide by its individual production quota. 
D)  support equal production quotas for each member. 
A)  argue for larger production quotas for each member of the cartel. 
B)  agree to a low cartel production level and then produce more than its quota. 
C)  abide by its individual production quota. 
D)  support equal production quotas for each member.

Question 6

The value of the four-firm concentration ratio that many economists consider indicative of the existence of an oligopoly in a particular industry is

Accepted Answer

A)  anything greater than 10 percent. 
B)  anything greater than 20 percent. 
C)  anything greater than 30 percent. 
D)  anything greater than 40 percent. 
A)  anything greater than 10 percent. 
B)  anything greater than 20 percent. 
C)  anything greater than 30 percent. 
D)  anything greater than 40 percent.

Question 7

Which of the following explains why two firms, Apex and Bongo, would engage in implicit collusion, rather than explicit collusion?

Accepted Answer

A)  Implicit collusion allows Apex to increase its profits at the expense of Bongo without Bongo knowing that collusion has occurred; if Apex engages in explicit collusion, Bongo will realize collusion has taken place and retaliate against Apex. 
B)  Implicit collusion is less costly to both firms than explicit collusion; therefore, profits will be greater for both firms if they engage in implicit collusion. 
C)  explicit collusion is illegal; if the managers of Apex and Bongo engage in implicit collusion they may be within the law. 
D)  Implicit collusion always has an enforcement mechanism that forces both firms to collude; explicit collusion does not have an enforcement mechanism. 
A)  Implicit collusion allows Apex to increase its profits at the expense of Bongo without Bongo knowing that collusion has occurred; if Apex engages in explicit collusion, Bongo will realize collusion has taken place and retaliate against Apex. 
B)  Implicit collusion is less costly to both firms than explicit collusion; therefore, profits will be greater for both firms if they engage in implicit collusion. 
C)  explicit collusion is illegal; if the managers of Apex and Bongo engage in implicit collusion they may be within the law. 
D)  Implicit collusion always has an enforcement mechanism that forces both firms to collude; explicit collusion does not have an enforcement mechanism.

Question 8

In which of the following cartels is total cartel profit likely to be the highest?

Accepted Answer

A)  a cartel made up of equal sized firms each producing different quantities of a differentiated product 
B)  a cartel made up of firms of various sizes each producing different quantities of a homogeneous product 
C)  a cartel made up of firms of various sizes each producing the same quantity of a differentiated product 
D)  a cartel made up of identical firms each producing the same quantity of a homogeneous product 
A)  a cartel made up of equal sized firms each producing different quantities of a differentiated product 
B)  a cartel made up of firms of various sizes each producing different quantities of a homogeneous product 
C)  a cartel made up of firms of various sizes each producing the same quantity of a differentiated product 
D)  a cartel made up of identical firms each producing the same quantity of a homogeneous product

Question 9

Collusion makes firms better off because if they act as a single entity (a cartel) they can reduce output and increase their prices and profits. But some cartels have failed and others are unstable. Which of the following is a reason why cartels often break down?

Accepted Answer

A)  Most cartels do not have a dominant strategy. 
B)  When a cartel is profitable, the amount of competition it faces increases. 
C)  Members of a cartel may resent having to share their profits equally. 
D)  Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement. 
A)  Most cartels do not have a dominant strategy. 
B)  When a cartel is profitable, the amount of competition it faces increases. 
C)  Members of a cartel may resent having to share their profits equally. 
D)  Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement.

Question 10

A large majority of the personal computers (PCs) in the United States use an operating system purchased from Microsoft. Microsoft's relationship with PC manufacturers is an example of which of Porter's competitive forces?

Accepted Answer

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

Question 11

Doctors and lawyers in every state need a license to practice. This is an example of

Accepted Answer

A)  consumer protection laws. 
B)  consumer advocacy. 
C)  occupational licensing. 
D)  ownership of a key input. 
A)  consumer protection laws. 
B)  consumer advocacy. 
C)  occupational licensing. 
D)  ownership of a key input.

Question 12

OPEC periodically meets to agree to restrict the cartel's oil output, and yet almost every member of OPEC produces more than its own output quota. This suggests that OPEC has

Accepted Answer

A)  a cooperative equilibrium. 
B)  a noncooperative equilibrium. 
C)  new potential entrants. 
D)  a threat of substitute goods. 
A)  a cooperative equilibrium. 
B)  a noncooperative equilibrium. 
C)  new potential entrants. 
D)  a threat of substitute goods.

Question 13

Table 14-3   Suppose OPEC has only two producers, Saudi Arabia and Ecuador. Saudi Arabia has far more oil reserves and is the lower-cost producer compared to Ecuador. The payoff matrix in Table 14-3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota.
-Refer to Table 14-3. Is there a dominant strategy for Ecuador and, if so, what is it?

Accepted Answer

A)  Yes, it has a dominant strategy depending on what Saudi Arabia does. 
B)  No, there is no dominant strategy. 
C)  Yes, the dominant strategy is to produce a low output. 
D)  Yes, the dominant strategy is to produce a high output. 
A)  Yes, it has a dominant strategy depending on what Saudi Arabia does. 
B)  No, there is no dominant strategy. 
C)  Yes, the dominant strategy is to produce a low output. 
D)  Yes, the dominant strategy is to produce a high output.

Question 14

We can draw demand curves for firms in perfectly competitive and monopolistically competitive industries, but not for oligopoly firms. The reason for this is

Accepted Answer

A)  there are no barriers to entry in perfectly competitive and monopolistically competitive industries. There are high barriers to entry in oligopoly industries. 
B)  we can assume that the prices charged by perfectly competitive and monopolistically competitive firms have no impact on rival firms. For oligopoly this assumption is unrealistic. 
C)  that perfectly competitive and monopolistically competitive firms are price takers. Oligopoly firms are price makers. 
D)  perfectly competitive and monopolistically competitive firms sell standardized products. Oligopoly firms sell differentiated products. 
A)  there are no barriers to entry in perfectly competitive and monopolistically competitive industries. There are high barriers to entry in oligopoly industries. 
B)  we can assume that the prices charged by perfectly competitive and monopolistically competitive firms have no impact on rival firms. For oligopoly this assumption is unrealistic. 
C)  that perfectly competitive and monopolistically competitive firms are price takers. Oligopoly firms are price makers. 
D)  perfectly competitive and monopolistically competitive firms sell standardized products. Oligopoly firms sell differentiated products.

Question 15

The four-firm concentration ratio in the breakfast cereal industry is 80 percent. How does the five competitive forces model provide better insight into the degree of competition in the breakfast cereal industry than just observing the concentration ratio?

Accepted Answer

The concentration ratio only measures th

Question 16

For years, economists believed that market structure explained the ability of some firms to earn economic profits. Today, economists and business strategists put greater emphasis on

Accepted Answer

A)  the number of years a firm has been in business and the average price of the products sold by the firm. 
B)  the number of countries in which a firm conducts business and the number of employees the firm has in each country. 
C)  the characteristics of individual firms and the strategies their managements use to continue to earn economic profits. 
D)  the size of a firm relative to the industry average and the number of firms in the domestic industry. 
A)  the number of years a firm has been in business and the average price of the products sold by the firm. 
B)  the number of countries in which a firm conducts business and the number of employees the firm has in each country. 
C)  the characteristics of individual firms and the strategies their managements use to continue to earn economic profits. 
D)  the size of a firm relative to the industry average and the number of firms in the domestic industry.

Question 17

The DeBeers Company of South Africa was able to block competition through

Accepted Answer

A)  economies of scale. 
B)  ownership of an essential input. 
C)  government-imposed barriers. 
D)  differentiating its product. 
A)  economies of scale. 
B)  ownership of an essential input. 
C)  government-imposed barriers. 
D)  differentiating its product.

Question 18

All of the following are ways by which existing firms can deter the entry of new firms into an industry except

Accepted Answer

A)  continuously producing new and improved products. 
B)  earning less than maximum profit. 
C)  advertising products aggressively. 
D)  threatening to raise prices. 
A)  continuously producing new and improved products. 
B)  earning less than maximum profit. 
C)  advertising products aggressively. 
D)  threatening to raise prices.

Question 19

Collusion is common in oligopoly and monopolistically competitive industries.

Accepted Answer

A) True 
 B)False

Question 20

Article Summary
Inventories of SUVs, the most popular class of automobile in the United States, have been growing, and automakers have been increasing incentives to reduce the supply. According to J.D. Power and Associates, incentives on SUVs rose an average of 24 percent from 2016 to 2017. Specials for President's Day included no-money-down leases, cash rebates, and zero-interest loans on many SUV models from automakers including Ford, General Motors, Fiat Chrysler, Toyota, and Honda. Automakers have been able to afford larger incentives on SUVs due to the profitability of that segment of the auto market, but according to data from J.D. Power,  while incentives are rising, the average sales price of SUVs has also started to decline.

-Refer to the Article Summary. What happens to the profit a car company makes on each car sold if it offers incentives such as cash rebates, low-interest loans, or lease incentives to customers? How might a car company decide which of these strategies to use?

Accepted Answer

Offering cash rebates, low-interest loan

Exam 14: Oligopoly: Firms in Less Competitive Markets

The five competitive forces model was developed by

A fundamental assumption in game theory is that players do not interact with each other.

In 2017, the Educational Testing Service (ETS) charged $54.50 to take the Scholastic Aptitude Test (SAT) but $205 to take the Graduate Record Exam (GRE). One reason for this difference in price is

A member of a cartel like OPEC has an incentive to

The value of the four-firm concentration ratio that many economists consider indicative of the existence of an oligopoly in a particular industry is

Which of the following explains why two firms, Apex and Bongo, would engage in implicit collusion, rather than explicit collusion?

In which of the following cartels is total cartel profit likely to be the highest?

Collusion makes firms better off because if they act as a single entity (a cartel) they can reduce output and increase their prices and profits. But some cartels have failed and others are unstable. Which of the following is a reason why cartels often break down?

A large majority of the personal computers (PCs) in the United States use an operating system purchased from Microsoft. Microsoft's relationship with PC manufacturers is an example of which of Porter's competitive forces?

Doctors and lawyers in every state need a license to practice. This is an example of

OPEC periodically meets to agree to restrict the cartel's oil output, and yet almost every member of OPEC produces more than its own output quota. This suggests that OPEC has

We can draw demand curves for firms in perfectly competitive and monopolistically competitive industries, but not for oligopoly firms. The reason for this is

The four-firm concentration ratio in the breakfast cereal industry is 80 percent. How does the five competitive forces model provide better insight into the degree of competition in the breakfast cereal industry than just observing the concentration ratio?

For years, economists believed that market structure explained the ability of some firms to earn economic profits. Today, economists and business strategists put greater emphasis on

The DeBeers Company of South Africa was able to block competition through

All of the following are ways by which existing firms can deter the entry of new firms into an industry except

Collusion is common in oligopoly and monopolistically competitive industries.

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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