Question 1

A reason why there is more competition in the restaurant industry than in the music streaming industry is that restaurants

Accepted Answer

A)  have to cater to a variety of consumer tastes while music streaming companies do not. 
B)  unlike music streaming companies, have to abide by government sanitation rules. 
C)  unlike music streaming companies, do not have significant economies of scale. 
D)  have more elastic demand for their product compared to music streaming companies. 
A)  have to cater to a variety of consumer tastes while music streaming companies do not. 
B)  unlike music streaming companies, have to abide by government sanitation rules. 
C)  unlike music streaming companies, do not have significant economies of scale. 
D)  have more elastic demand for their product compared to music streaming companies.

Question 2

Table 14-7   The payoff matrix shown above assumes that Perfect Plants and Floribunda Florist must decide whether to offer same-day delivery for their products. The matrix shows how much profit each firm will earn if it does or does not offer same-day delivery. The amount of profit for one firm depends on whether the other firm offers same-day delivery.
-Refer to Table 14-7. Which of the following statements is true?

Accepted Answer

A)  Given that Floribunda offers same-day delivery, Perfect's best strategy is to not offer same-day delivery. 
B)  Given that Perfect offers same-day delivery, Floribunda's best strategy is to offer same-day delivery. 
C)  Perfect and Floribunda will agree to collude in order to maximize their profits. 
D)  Neither Perfect nor Floribunda will offer same-day delivery; this decision will decrease their costs and allow each firm to earn more than $1,800 million in profits. 
A)  Given that Floribunda offers same-day delivery, Perfect's best strategy is to not offer same-day delivery. 
B)  Given that Perfect offers same-day delivery, Floribunda's best strategy is to offer same-day delivery. 
C)  Perfect and Floribunda will agree to collude in order to maximize their profits. 
D)  Neither Perfect nor Floribunda will offer same-day delivery; this decision will decrease their costs and allow each firm to earn more than $1,800 million in profits.

Question 3

If economies of scale are significant, the typical firm will not reach the minimum point on its long-run average cost curve until it has produced a large fraction of industry sales.

Accepted Answer

A) True 
 B)False

Question 4

The Organization of Petroleum Exporting Countries (OPEC) controls about 75 percent of the world's proven oil reserves. Economists refer to OPEC as a cartel because

Accepted Answer

A)  OPEC is a monopoly, but it is located outside of the boundaries of any one country. This is the definition of a cartel. 
B)  this is the term used for an oligopoly that is controlled by national governments rather than private firms. 
C)  it is a group of firms that collude to restrict output to increase prices and profits. 
D)  this is the term economists use to describe an oligopoly that sells a standardized product, such as oil, rather than a differentiated product, such as automobiles. 
A)  OPEC is a monopoly, but it is located outside of the boundaries of any one country. This is the definition of a cartel. 
B)  this is the term used for an oligopoly that is controlled by national governments rather than private firms. 
C)  it is a group of firms that collude to restrict output to increase prices and profits. 
D)  this is the term economists use to describe an oligopoly that sells a standardized product, such as oil, rather than a differentiated product, such as automobiles.

Question 5

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 Saudi Arabia and, if so, what is it?

Accepted Answer

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

Question 6

Which of the following economists did not help to develop game theory analysis?

Accepted Answer

A)  Adam Smith 
B)  John Nash 
C)  John von Neumann 
D)  Oskar Morgenstern 
A)  Adam Smith 
B)  John Nash 
C)  John von Neumann 
D)  Oskar Morgenstern

Question 7

Prices of PlayStation 4 game systems are similar at almost every large retailer and little price competition occurs among these retailers. An explanation for this is

Accepted Answer

A)  retailers are all price takers. 
B)  retailers have lobbied state governments to allow them to collude legally to set the prices of certain products. 
C)  pricing PlayStation 4 game systems is a repeated game. Over a long period of time, a cooperative equilibrium has been reached where retailers charge high prices for these systems. 
D)  retailers are in a prisoner's dilemma which causes them to all charge the same price for PlayStation 4 game systems. 
A)  retailers are all price takers. 
B)  retailers have lobbied state governments to allow them to collude legally to set the prices of certain products. 
C)  pricing PlayStation 4 game systems is a repeated game. Over a long period of time, a cooperative equilibrium has been reached where retailers charge high prices for these systems. 
D)  retailers are in a prisoner's dilemma which causes them to all charge the same price for PlayStation 4 game systems.

Question 8

The approach economists use to analyze competition among oligopolists is called

Accepted Answer

A)  marginal analysis. 
B)  game theory. 
C)  oligopoly theory. 
D)  competition among the few. 
A)  marginal analysis. 
B)  game theory. 
C)  oligopoly theory. 
D)  competition among the few.

Question 9

Explain how collusion makes firms better off. Given the incentives to collude, briefly explain why every industry does not become a cartel.

Accepted Answer

Collusion makes firms better off because

Question 10

What is a sequential game? How are decision trees used to analyze sequential games?

Accepted Answer

In a sequential game one player (firm) a

Question 11

Figure 14-6  
-Refer to Figure 14-6 Use the decision tree to determine whether Pizza Hut should deter Domino's from entering the market for pasta salad. Assume that each firm must earn a 25% return on investment to break even. Explain Pizza Hut's decision process.

Accepted Answer

If Pizza Hut charges $7.49 for its pasta

Question 12

Oligopolies exist and do not attract new rivals because

Accepted Answer

A)  of competition. 
B)  of barriers to entry. 
C)  the firms keep profits and prices so low that no rivals are attracted. 
D)  there can be no product differentiation. 
A)  of competition. 
B)  of barriers to entry. 
C)  the firms keep profits and prices so low that no rivals are attracted. 
D)  there can be no product differentiation.

Question 13

In Michael Porter's five competitive forces model, what do the competitive forces determine?

Accepted Answer

The five competitive

Question 14

The justification for occupational licensing laws is that they protect the public from incompetent practitioners (for example, lawyers and medical doctors), but the laws also result in

Accepted Answer

A)  higher prices and restrictions on the number of people who can enter the professions affected by the laws. 
B)  economies of scale. 
C)  ownership of a key input. 
D)  an increase in the amount of output required to achieve minimum efficient scale. 
A)  higher prices and restrictions on the number of people who can enter the professions affected by the laws. 
B)  economies of scale. 
C)  ownership of a key input. 
D)  an increase in the amount of output required to achieve minimum efficient scale.

Question 15

The bargaining power of suppliers increases if

Accepted Answer

A)  the cost of switching suppliers is relatively low. 
B)  there are only a few competitors to the supplier. 
C)  the input in question is not a critical component of production. 
D)  the input supplied is relatively standardized. 
A)  the cost of switching suppliers is relatively low. 
B)  there are only a few competitors to the supplier. 
C)  the input in question is not a critical component of production. 
D)  the input supplied is relatively standardized.

Question 16

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

Accepted Answer

A)  an earnings table. 
B)  a payoff table. 
C)  a payoff matrix. 
D)  a strategic matrix. 
A)  an earnings table. 
B)  a payoff table. 
C)  a payoff matrix. 
D)  a strategic matrix.

Question 17

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. How are the firms in this game caught in a prisoner's dilemma?

Accepted Answer

A)  They are not in a prisoner's dilemma because there is one clear strategy for each. 
B)  They would be more profitable if they refrained from offering a student discount, but each fears that if it does not offer a student discount it will lose customers. 
C)  Since each firm is uncertain about the other's behavior, each will adopt a wait-and-see attitude which results in no increase in market share and no new customers. 
D)  Only the first mover is caught in a prisoner's dilemma because the second has a chance to observe and respond. 
A)  They are not in a prisoner's dilemma because there is one clear strategy for each. 
B)  They would be more profitable if they refrained from offering a student discount, but each fears that if it does not offer a student discount it will lose customers. 
C)  Since each firm is uncertain about the other's behavior, each will adopt a wait-and-see attitude which results in no increase in market share and no new customers. 
D)  Only the first mover is caught in a prisoner's dilemma because the second has a chance to observe and respond.

Question 18

Firms in an oligopoly are said to be interdependent. What does this mean?

Accepted Answer

Interdependence among firms means that t

Question 19

Sequential games are used to analyze

Accepted Answer

A)  firms that are subject to the prisoner's dilemma. 
B)  cartels. 
C)  second-price auctions. 
D)  situations in which one firm acts and other firms respond. 
A)  firms that are subject to the prisoner's dilemma. 
B)  cartels. 
C)  second-price auctions. 
D)  situations in which one firm acts and other firms respond.

Question 20

On January 2, 1971, all cigarette advertising was banned on U.S. television and radio stations. Assuming that advertising is a prisoner's dilemma, and that if one company advertises, its competitors will also choose to spend money to advertise, did this ban likely increase or decrease the profits of cigarette companies in 1971? Briefly explain.

Accepted Answer

If advertising is a prisoners'

Exam 14: Oligopoly: Firms in Less Competitive Markets

A reason why there is more competition in the restaurant industry than in the music streaming industry is that restaurants

If economies of scale are significant, the typical firm will not reach the minimum point on its long-run average cost curve until it has produced a large fraction of industry sales.

The Organization of Petroleum Exporting Countries (OPEC) controls about 75 percent of the world's proven oil reserves. Economists refer to OPEC as a cartel because

Which of the following economists did not help to develop game theory analysis?

Prices of PlayStation 4 game systems are similar at almost every large retailer and little price competition occurs among these retailers. An explanation for this is

The approach economists use to analyze competition among oligopolists is called

Explain how collusion makes firms better off. Given the incentives to collude, briefly explain why every industry does not become a cartel.

What is a sequential game? How are decision trees used to analyze sequential games?

Figure 14-6 -Refer to Figure 14-6 Use the decision tree to determine whether Pizza Hut should deter Domino's from entering the market for pasta salad. Assume that each firm must earn a 25% return on investment to break even. Explain Pizza Hut's decision process.

Oligopolies exist and do not attract new rivals because

In Michael Porter's five competitive forces model, what do the competitive forces determine?

The justification for occupational licensing laws is that they protect the public from incompetent practitioners (for example, lawyers and medical doctors), but the laws also result in

The bargaining power of suppliers increases if

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

Firms in an oligopoly are said to be interdependent. What does this mean?

Sequential games are used to analyze

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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