Question 1

Tacit collusion is difficult if:

Accepted Answer

A)  there are many firms in the industry. 
B)  the firms in the industry are producing differentiated products. 
C)  firms have common interests. 
D)  the oligopolists are selling to many small firms. 
A)  there are many firms in the industry. 
B)  the firms in the industry are producing differentiated products. 
C)  firms have common interests. 
D)  the oligopolists are selling to many small firms.

Question 2

Antitrust legislation was first passed in the United States in 1776.

Accepted Answer

A) True 
 B)False

Question 3

Use the following to answer questions:  
-(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. If these two producers formed a cartel, split the production of output equally, and acted to maximize total industry profits, each firm's output would be _____ and each firm's profit would be _____.

Accepted Answer

A)  500; $2,500 
B)  250; $1,250 
C)  1,000; $500 
D)  1,000; $10,000 
A)  500; $2,500 
B)  250; $1,250 
C)  1,000; $500 
D)  1,000; $10,000

Question 4

Use the following to answer questions:
Scenario: Two Identical Firms
Two identical firms make up an industry in which the market demand curve is represented by Q = 5,000 - 4P, where Q is the quantity demanded and P is price per unit. The marginal cost of producing the good in this industry is constant and equal to $650. Fixed cost is zero.
-(Scenario: Two Identical Firms) Suppose the two firms in the scenario Two Identical Firms decide to cooperate and collude, resulting in the same amount of production for each firm. What is the profit-maximizing price and output for the industry?

Accepted Answer

A)  P = $400; Q = 5,000 
B)  P = $950; Q = 1,200 
C)  P = $600; Q = 1,500 
D)  P = $300; Q = 2,000 
A)  P = $400; Q = 5,000 
B)  P = $950; Q = 1,200 
C)  P = $600; Q = 1,500 
D)  P = $300; Q = 2,000

Question 5

Cartels are illegal in the United States.

Accepted Answer

A) True 
 B)False

Question 6

The market structure characterized by a few interdependent firms and barriers to entry is called:

Accepted Answer

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

Question 7

A strategy in which players cooperate initially but then mimic what the other players do is referred to as a:

Accepted Answer

A)  prisoners' dilemma. 
B)  tit-for-tat strategy. 
C)  price leadership model. 
D)  kinked demand curve model. 
A)  prisoners' dilemma. 
B)  tit-for-tat strategy. 
C)  price leadership model. 
D)  kinked demand curve model.

Question 8

Use the following to answer questions:
Figure: Payoff Matrix II for Blue Spring and Purple Rain  
-(Figure: Payoff Matrix II for Blue Spring and Purple Rain) Payoff Matrix II for Blue Spring and Purple Rain describes two producers of bottled water. The Nash equilibrium in the figure is reached when Blue Spring charges a _____ price and Purple Rain charges a _____ price.

Accepted Answer

A)  high; high 
B)  low; low 
C)  high; low 
D)  low; high 
A)  high; high 
B)  low; low 
C)  high; low 
D)  low; high

Question 9

Use the following to answer questions:
Figure: Payoff Matrix for the United States and the European Union  
-(Figure: Payoff Matrix for the United States and the European Union) Look at the figure Payoff Matrix for the United States and the European Union. Suppose that the United States and the European Union both produce corn, and each region can make more profit if output is limited and the price of corn is high. The joint profit-maximizing combination is for the United States to produce a _____ output and the European Union to produce a _____ output.

Accepted Answer

A)  high; high 
B)  high; low 
C)  low; low 
D)  low; high 
A)  high; high 
B)  high; low 
C)  low; low 
D)  low; high

Question 10

Two electronic retailers, Biggest Buy and Connection City, are considering entering a small town. Biggest Buy is the larger and more profitable of the two rivals. Each firm can either enter the market or not. The table shows the payoff matrix. Profits in each cell of the payoff matrix are given as (Biggest Buy, Connection City). Are there any dominant strategies in the game? If this game is played only once and each firm makes the entry decision independently, what is the Nash equilibrium of this game? Explain your conclusions.

Accepted Answer

Biggest Buy has a dominant strategy of e

Question 11

Oligopolies are industries:

Accepted Answer

A)  dominated by one seller who shares market power equally with all other sellers. 
B)  made up of few firms, each with some market power and therefore aware of their interdependence with the other firms. 
C)  composed of many buyer and sellers, all of whom are price takers. 
D)  that are the same as monopolistically competitive industries except that they sell a standardized product. 
A)  dominated by one seller who shares market power equally with all other sellers. 
B)  made up of few firms, each with some market power and therefore aware of their interdependence with the other firms. 
C)  composed of many buyer and sellers, all of whom are price takers. 
D)  that are the same as monopolistically competitive industries except that they sell a standardized product.

Question 12

In a price war, firms in an oligopoly often push prices up to the monopoly level.

Accepted Answer

A) True 
 B)False

Question 13

Product differentiation is most likely to occur when firms:

Accepted Answer

A)  engage in price wars. 
B)  have tacit agreements not to engage in price wars. 
C)  behave in a Bertrand model environment. 
D)  follow a kinked demand curve model. 
A)  engage in price wars. 
B)  have tacit agreements not to engage in price wars. 
C)  behave in a Bertrand model environment. 
D)  follow a kinked demand curve model.

Question 14

For approximately the past 20 years, the European Union has enforced antitrust policies for its member countries.

Accepted Answer

A) True 
 B)False

Question 15

Tacit collusion is relatively unlikely to occur in an industry with 3 firms than in an industry with 10 firms.

Accepted Answer

A) True 
 B)False

Question 16

Use the following to answer questions:  
-(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that the crude oil industry is a duopoly and the marginal cost of producing crude oil is zero. If the two firms collude to share the market equally, the price of crude oil will be _____, firm 1 will produce _____ barrels, firm 2 will produce _____ barrels, and each firm will earn revenue equal to _____.

Accepted Answer

A)  $80; 80; 80; $6,400 
B)  $80; 40; 40; $3,200 
C)  $60; 50; 50; $3,000 
D)  $40; 60; 60; $2,400 
A)  $80; 80; 80; $6,400 
B)  $80; 40; 40; $3,200 
C)  $60; 50; 50; $3,000 
D)  $40; 60; 60; $2,400

Question 17

Tacit collusion is relatively easy for oligopolists if:

Accepted Answer

A)  they are producing many different products. 
B)  there are only a few firms in the industry. 
C)  they are selling their product to only a few large buyers. 
D)  barriers to entry into the industry are low. 
A)  they are producing many different products. 
B)  there are only a few firms in the industry. 
C)  they are selling their product to only a few large buyers. 
D)  barriers to entry into the industry are low.

Question 18

An industry is dominated by a few firms. Each of these firms acknowledges that its own choices affect the choices of its rivals. Each firm also recognizes that its rivals' choices affect the decisions it makes. This industry is an example of:

Accepted Answer

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

Question 19

Use the following to answer questions:  
-(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. If industry output is 700, each firm's profits will be _____ than they would be at the output of 500, which maximizes industry profit.

Accepted Answer

A)  $150 less 
B)  $150 more 
C)  $200 more 
D)  $200 less 
A)  $150 less 
B)  $150 more 
C)  $200 more 
D)  $200 less

Question 20

An industry is made up of five firms. Three of the firms make up 20% of the total market sales, one firm makes up 25%, and the remaining firm makes up 15%. What is the HHI for this industry?

Accepted Answer

A)  100 
B)  1,200 
C)  2,050 
D)  1,800 
A)  100 
B)  1,200 
C)  2,050 
D)  1,800

Tacit collusion is difficult if:

Antitrust legislation was first passed in the United States in 1776.

Cartels are illegal in the United States.

The market structure characterized by a few interdependent firms and barriers to entry is called:

A strategy in which players cooperate initially but then mimic what the other players do is referred to as a:

Oligopolies are industries:

In a price war, firms in an oligopoly often push prices up to the monopoly level.

Product differentiation is most likely to occur when firms:

For approximately the past 20 years, the European Union has enforced antitrust policies for its member countries.

Tacit collusion is relatively unlikely to occur in an industry with 3 firms than in an industry with 10 firms.

Tacit collusion is relatively easy for oligopolists if:

An industry is dominated by a few firms. Each of these firms acknowledges that its own choices affect the choices of its rivals. Each firm also recognizes that its rivals' choices affect the decisions it makes. This industry is an example of:

An industry is made up of five firms. Three of the firms make up 20% of the total market sales, one firm makes up 25%, and the remaining firm makes up 15%. What is the HHI for this industry?

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Exam 14: Oligopoly

Tacit collusion is difficult if:

Antitrust legislation was first passed in the United States in 1776.

Cartels are illegal in the United States.

The market structure characterized by a few interdependent firms and barriers to entry is called:

A strategy in which players cooperate initially but then mimic what the other players do is referred to as a:

Oligopolies are industries:

In a price war, firms in an oligopoly often push prices up to the monopoly level.

Product differentiation is most likely to occur when firms:

For approximately the past 20 years, the European Union has enforced antitrust policies for its member countries.

Tacit collusion is relatively unlikely to occur in an industry with 3 firms than in an industry with 10 firms.

Tacit collusion is relatively easy for oligopolists if:

An industry is dominated by a few firms. Each of these firms acknowledges that its own choices affect the choices of its rivals. Each firm also recognizes that its rivals' choices affect the decisions it makes. This industry is an example of:

An industry is made up of five firms. Three of the firms make up 20% of the total market sales, one firm makes up 25%, and the remaining firm makes up 15%. What is the HHI for this industry?

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters