Question 1

OPEC is a(n) _____ cartel that includes _____ national governments.

Accepted Answer

A)  illegal; 12 
B)  legal; 12 
C)  illegal; 11 
D)  legal; 8 
A)  illegal; 12 
B)  legal; 12 
C)  illegal; 11 
D)  legal; 8

Question 2

Use the following to answer questions:
Figure: Monopoly Profits in Duopoly  
-(Figure: Monopoly Profits in Duopoly) Look at the figure Monopoly Profits in Duopoly. Each firm faces an identical demand curve, D1, and the market demand curve is D2. The figure illustrates how firms can reap monopoly profits even in an industry with:

Accepted Answer

A)  free entry and exit. 
B)  two firms. 
C)  monopolistic competition. 
D)  a four-firm concentration ratio of 50. 
A)  free entry and exit. 
B)  two firms. 
C)  monopolistic competition. 
D)  a four-firm concentration ratio of 50.

Question 3

As the number of firms in an oligopoly decreases:

Accepted Answer

A)  barriers to entry are likely to shrink. 
B)  firms are less likely to engage in tacit collusion. 
C)  firms are more likely to engage in tacit collusion. 
D)  it becomes more difficult for the oligopoly to restrict output. 
A)  barriers to entry are likely to shrink. 
B)  firms are less likely to engage in tacit collusion. 
C)  firms are more likely to engage in tacit collusion. 
D)  it becomes more difficult for the oligopoly to restrict output.

Question 4

In the 1960s and 1970s, General Motors often set prices for the new model year and Ford and Chrysler would follow. This was a form of tacit collusion known as price leadership.

Accepted Answer

A) True 
 B)False

Question 5

The Herfindahl-Hirschman index equals _____ when _____ have (has) _____ of the market.

Accepted Answer

A)  10,000; four firms each; 25% 
B)  5,000; three firms each; 33% 
C)  5,000; two firms each; 50% 
D)  100,000; one firm; 100% 
A)  10,000; four firms each; 25% 
B)  5,000; three firms each; 33% 
C)  5,000; two firms each; 50% 
D)  100,000; one firm; 100%

Question 6

Use the following to answer questions:
Figure: Monopoly Profits in Duopoly  
-(Figure: Monopoly Profits in Duopoly) Given the duopoly industry illustrated in the figure Monopoly Profits in Duopoly, if each firm acted on the belief that it faced demand curve D2 and acted without consideration of the other, each firm would attempt to maximize economic profits by producing quantity _____ and setting price equal to _____.

Accepted Answer

A)  Q4; P1 
B)  Q4; P2 
C)  Q1; P4 
D)  Q2; P2 
A)  Q4; P1 
B)  Q4; P2 
C)  Q1; P4 
D)  Q2; P2

Question 7

The owners of the gas stations in a town are trying to set up a cartel that will raise the price of gasoline. Which of the following will INCREASE the chances that the cartel will fail because of cheating by the owners?

Accepted Answer

A)  All of the gas stations face the same costs. 
B)  There are only a few gas stations. 
C)  The gas stations are producing as much as they can. 
D)  The gas stations vary in terms of the services that they provide. 
A)  All of the gas stations face the same costs. 
B)  There are only a few gas stations. 
C)  The gas stations are producing as much as they can. 
D)  The gas stations vary in terms of the services that they provide.

Question 8

Price leadership occurs if:

Accepted Answer

A)  smaller firms in an industry silently agree to charge the same price as the largest firm. 
B)  two or more firms in an industry agree to fix the price at a given level. 
C)  competition among a large number of small firms generates a stable market price. 
D)  competition among a large number of small firms generates similar but slightly different prices. 
A)  smaller firms in an industry silently agree to charge the same price as the largest firm. 
B)  two or more firms in an industry agree to fix the price at a given level. 
C)  competition among a large number of small firms generates a stable market price. 
D)  competition among a large number of small firms generates similar but slightly different prices.

Question 9

If Coke is able to use price discrimination successfully, some customers may be willing to pay more for a Coke than another very similar soda.

Accepted Answer

A) True 
 B)False

Question 10

Use the following to answer questions:
Figure: Collusion  
-(Figure: Collusion) Look at the figure Collusion. The quantity of output produced by firm 2 when there is collusion in the industry is shown by:

Accepted Answer

A)  H. 
B)  J. 
C)  K. 
D)  L. 
A)  H. 
B)  J. 
C)  K. 
D)  L.

Question 11

Use the following to answer questions:
Figure: Pricing Strategy in Cable TV Market II  
-(Figure: Pricing Strategy in Cable TV Market II) Look at the figure Pricing Strategy in Cable TV Market II. If CableNorth followed a high-price strategy one month just to find it only earned $80,000 because CableSouth followed a low-price strategy, and CableNorth decided to lower prices for the next month, we would say that CableNorth is following:

Accepted Answer

A)  a kinked demand model. 
B)  a dominant strategy. 
C)  a tit-for-tat strategy. 
D)  a collusive strategy. 
A)  a kinked demand model. 
B)  a dominant strategy. 
C)  a tit-for-tat strategy. 
D)  a collusive strategy.

Question 12

Suppose that Walmart buys fresh roses from several hundred small backyard gardeners in California. These gardeners are very likely to be able to engage successfully in tacit collusion.

Accepted Answer

A) True 
 B)False

Question 13

To be called an oligopoly, an industry must have:

Accepted Answer

A)  independence in decision making. 
B)  a horizontal demand curve. 
C)  a small number of interdependent firms. 
D)  relatively easy entry and exit. 
A)  independence in decision making. 
B)  a horizontal demand curve. 
C)  a small number of interdependent firms. 
D)  relatively easy entry and exit.

Question 14

Use the following to answer questions:
Figure: Payoff Matrix for Jake and Zoe  
-(Figure: Payoff Matrix for Jake and Zoe) Look at the figure Payoff Matrix for Jake and Zoe, the only producers of slushies in their tourist town. Each week, each decides whether to price high or price low for the following week. The figure shows the profit per week earned by their two firms. According to the Nash equilibrium, Jake prices _____ and Zoe prices _____.

Accepted Answer

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

Question 15

An attempt by a firm to convince buyers that its product is different from the products of other firms in the industry is tacit collusion.

Accepted Answer

A) True 
 B)False

Question 16

In the U.S. economy, oligopoly is rare.

Accepted Answer

A) True 
 B)False

Question 17

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 and fixed cost of producing crude oil equals zero. Suppose that the two firms are maximizing industry profit and splitting the profit evenly. If both firms engage in noncooperative behavior, the industry output will be _____ barrels, and the price of crude oil will be _____.

Accepted Answer

A)  0; $160 
B)  80; $80 
C)  100; $60 
D)  160; $0 
A)  0; $160 
B)  80; $80 
C)  100; $60 
D)  160; $0

Question 18

Market power in the United States was often gained in the latter part of the nineteenth century by:

Accepted Answer

A)  forming trusts. 
B)  the growth of competition. 
C)  international arrangements with Russian and Japanese firms. 
D)  opening up more industries to international trade. 
A)  forming trusts. 
B)  the growth of competition. 
C)  international arrangements with Russian and Japanese firms. 
D)  opening up more industries to international trade.

Question 19

Use the following to answer questions:
Figure: Payoff Matrix for Ajinomoto and ADM  
-(Figure: Payoff Matrix for Ajinomoto and ADM) Look at the figure Payoff Matrix for Ajinomoto and ADM. The optimal combination for maximum combined profit occurs when ADM produces _____ million pounds and Ajinomoto produces _____ million pounds.

Accepted Answer

A)  30; 30 
B)  40; 40 
C)  30; 40 
D)  40; 30 
A)  30; 30 
B)  40; 40 
C)  30; 40 
D)  40; 30

Question 20

Suppose that each of the two firms in a duopoly has the independent choice of advertising or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million and the other gets profit of $2 million. According to game theory, if the firms collude to maximize joint profits:

Accepted Answer

A)  both may or may not advertise. 
B)  one will advertise and the other will not. 
C)  both will advertise. 
D)  neither will advertise. 
A)  both may or may not advertise. 
B)  one will advertise and the other will not. 
C)  both will advertise. 
D)  neither will advertise.

OPEC is a(n) _ cartel that includes _ national governments.

As the number of firms in an oligopoly decreases:

In the 1960s and 1970s, General Motors often set prices for the new model year and Ford and Chrysler would follow. This was a form of tacit collusion known as price leadership.

The Herfindahl-Hirschman index equals ___ when _ have (has) ___ of the market.

The owners of the gas stations in a town are trying to set up a cartel that will raise the price of gasoline. Which of the following will INCREASE the chances that the cartel will fail because of cheating by the owners?

Price leadership occurs if:

If Coke is able to use price discrimination successfully, some customers may be willing to pay more for a Coke than another very similar soda.

Use the following to answer questions: Figure: Collusion -(Figure: Collusion) Look at the figure Collusion. The quantity of output produced by firm 2 when there is collusion in the industry is shown by:

Suppose that Walmart buys fresh roses from several hundred small backyard gardeners in California. These gardeners are very likely to be able to engage successfully in tacit collusion.

To be called an oligopoly, an industry must have:

An attempt by a firm to convince buyers that its product is different from the products of other firms in the industry is tacit collusion.

In the U.S. economy, oligopoly is rare.

Market power in the United States was often gained in the latter part of the nineteenth century by:

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

OPEC is a(n) _____ cartel that includes _____ national governments.

As the number of firms in an oligopoly decreases:

In the 1960s and 1970s, General Motors often set prices for the new model year and Ford and Chrysler would follow. This was a form of tacit collusion known as price leadership.

The Herfindahl-Hirschman index equals _____ when _____ have (has) _____ of the market.

The owners of the gas stations in a town are trying to set up a cartel that will raise the price of gasoline. Which of the following will INCREASE the chances that the cartel will fail because of cheating by the owners?

Price leadership occurs if:

If Coke is able to use price discrimination successfully, some customers may be willing to pay more for a Coke than another very similar soda.

Use the following to answer questions: Figure: Collusion -(Figure: Collusion) Look at the figure Collusion. The quantity of output produced by firm 2 when there is collusion in the industry is shown by:

Suppose that Walmart buys fresh roses from several hundred small backyard gardeners in California. These gardeners are very likely to be able to engage successfully in tacit collusion.

To be called an oligopoly, an industry must have:

An attempt by a firm to convince buyers that its product is different from the products of other firms in the industry is tacit collusion.

In the U.S. economy, oligopoly is rare.

Market power in the United States was often gained in the latter part of the nineteenth century by:

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

OPEC is a(n) _ cartel that includes _ national governments.

The Herfindahl-Hirschman index equals ___ when _ have (has) ___ of the market.