Question 1

Tacit collusion in an industry is limited by:

Accepted Answer

A)  a large number of firms. 
B)  simple products and pricing. 
C)  the bargaining power of buyers. 
D)  a large number of firms and the bargaining power of buyers. 
A)  a large number of firms. 
B)  simple products and pricing. 
C)  the bargaining power of buyers. 
D)  a large number of firms and the bargaining power of buyers.

Question 2

If a player has an incentive to cheat no matter what the other player does and if both players act in this manner, both players will be worse off. This is 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 3

A customer with significant buying power in an industry would:

Accepted Answer

A)  make a tacit price agreement more difficult to achieve. 
B)  make a tacit price agreement easier to achieve. 
C)  have no effect on tacit pricing agreement negotiations. 
D)  result in a kinked demand curve. 
A)  make a tacit price agreement more difficult to achieve. 
B)  make a tacit price agreement easier to achieve. 
C)  have no effect on tacit pricing agreement negotiations. 
D)  result in a kinked demand curve.

Question 4

The effect of product differentiation is to increase the firm's market power.

Accepted Answer

A) True 
 B)False

Question 5

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. Suppose that these two producers have formed a cartel, agreed to split production of output evenly and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets but Ray continues to sell 250 gadgets, Ray's profits will be:

Accepted Answer

A)  $1,400. 
B)  $1,250. 
C)  $1,000. 
D)  $400. 
A)  $1,400. 
B)  $1,250. 
C)  $1,000. 
D)  $400.

Question 6

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 and fixed cost of producing crude oil equals zero. Suppose that the two firms are maximizing industry profit and splitting the profit evenly. If firm 1 decides to cheat and increase production by 10 more barrels and firm 2 continues to produce 40 barrels, firm 2 will earn profits of:

Accepted Answer

A)  $6,400. 
B)  $6,300. 
C)  $3,500. 
D)  $2,800. 
A)  $6,400. 
B)  $6,300. 
C)  $3,500. 
D)  $2,800.

Question 7

The first law designed to curb monopoly power in the United States was the _____ Act.

Accepted Answer

A)  Sherman Antitrust 
B)  Clayton 
C)  Federal Trade Commission 
D)  Robinson-Patman 
A)  Sherman Antitrust 
B)  Clayton 
C)  Federal Trade Commission 
D)  Robinson-Patman

Question 8

_____ is the unwritten or unspoken agreement through which firms limit _____.

Accepted Answer

A)  A satisfying agreement; price increases 
B)  Tacit collusion; competition among themselves 
C)  Overt collusion; competition among rivals 
D)  A cartel; price changes 
A)  A satisfying agreement; price increases 
B)  Tacit collusion; competition among themselves 
C)  Overt collusion; competition among rivals 
D)  A cartel; price changes

Question 9

Use the following to answer questions:
Figure: Monopoly Profits in Duopoly  
-(Figure: Monopoly Profits in Duopoly) Suppose the duopoly industry illustrated in the figure Monopoly Profits in Duopoly produces a perishable good. If the industry is perfectly competitive, the market price will likely end up being _____, and the combined economic profits of the firms will be _____.

Accepted Answer

A)  P1; given by the area of the rectangle bounded by 0P1CQ4 
B)  P1; zero 
C)  P3; given by the area of the rectangle bounded by 0P3AQ1 
D)  P2; given by the area of the rectangle bounded by P1P2GB 
A)  P1; given by the area of the rectangle bounded by 0P1CQ4 
B)  P1; zero 
C)  P3; given by the area of the rectangle bounded by 0P3AQ1 
D)  P2; given by the area of the rectangle bounded by P1P2GB

Question 10

Use the following to answer questions:
Figure: Prisoners' Dilemma for Thelma and Louise  
-(Figure: Prisoners' Dilemma for Thelma and Louise) Look at the Figure Prisoners' Dilemma for Thelma and Louise. Thelma and Louise are arrested and jailed for murder. Given the payoff matrix in the figure, the optimal behavior for Thelma and Louise to minimize their joint sentence is for Thelma _____ and for Louise ____.

Accepted Answer

A)  to confess; not to confess 
B)  to confess; to confess 
C)  not to confess; to confess 
D)  not to confess; not to confess 
A)  to confess; not to confess 
B)  to confess; to confess 
C)  not to confess; to confess 
D)  not to confess; not to confess

Question 11

In the past, most of the cars sold in the United States were produced by the Big Three auto companies. General Motors would announce its prices for the new model year first, and then the other companies would match it. This practice was an example of:

Accepted Answer

A)  price leadership. 
B)  noncooperative behavior. 
C)  a kinked demand model. 
D)  a cartel. 
A)  price leadership. 
B)  noncooperative behavior. 
C)  a kinked demand model. 
D)  a cartel.

Question 12

When countries spend increasingly large amounts of funds on military production as a means of impressing an equally powerful antagonistic neighbor with possible military superiority, a prisoners' dilemma evolves, since both countries would be better off if they did not pursue such a strategy. This is an example of:

Accepted Answer

A)  a tacit agreement. 
B)  an arms race. 
C)  a price leadership model. 
D)  exclusive dealing. 
A)  a tacit agreement. 
B)  an arms race. 
C)  a price leadership model. 
D)  exclusive dealing.

Question 13

Two large electronic retailers, Biggest Buy and Connection City, are considering entering a small town. 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

There are no dominant strategies. If Big

Question 14

Overt collusion exists if:

Accepted Answer

A)  firms agree openly on price and output and they jointly make other decisions aimed at achieving monopoly profits. 
B)  smaller firms in an industry tacitly agree to charge the same price as the largest firm. 
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)  firms agree openly on price and output and they jointly make other decisions aimed at achieving monopoly profits. 
B)  smaller firms in an industry tacitly agree to charge the same price as the largest firm. 
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 15

Suppose there are 10 identical firms in an industry and each produces 10% of the total market sales. The HHI for this industry would indicate that the industry is:

Accepted Answer

A)  competitive. 
B)  monopolistic. 
C)  oligopolistic. 
D)  Cannot be determined from the information provided. 
A)  competitive. 
B)  monopolistic. 
C)  oligopolistic. 
D)  Cannot be determined from the information provided.

Question 16

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 350 gadgets produced by Margaret and 250 gadgets produced by Ray and if Ray decides to increase output by 100, industry price will be:

Accepted Answer

A)  $3. 
B)  $2. 
C)  $1. 
D)  $0. 
A)  $3. 
B)  $2. 
C)  $1. 
D)  $0.

Question 17

In which of the following situations does overt collusion take place?

Accepted Answer

A)  Smaller firms in an industry have an unspoken agreement to charge the same price as the largest firm. 
B)  Firms in an industry agree openly on price and output, and they jointly make other decisions aimed at achieving monopoly profits. 
C)  Competition among a large number of small firms generates similar but slightly different prices. 
D)  Competition among a large number of small firms generates a stable market price. 
A)  Smaller firms in an industry have an unspoken agreement to charge the same price as the largest firm. 
B)  Firms in an industry agree openly on price and output, and they jointly make other decisions aimed at achieving monopoly profits. 
C)  Competition among a large number of small firms generates similar but slightly different prices. 
D)  Competition among a large number of small firms generates a stable market price.

Question 18

Which of the following characteristics make an industry more conducive to collusive behavior?

Accepted Answer

A)  Firms in the industry have very different marginal costs of production. 
B)  Firms in the industry produce goods with significantly different product attributes. 
C)  Firms in the industry are operating at a maximum productive capacity that cannot be easily altered in the short run. 
D)  Firms in the industry serve customers that can easily switch between firms as they search for the best price. 
A)  Firms in the industry have very different marginal costs of production. 
B)  Firms in the industry produce goods with significantly different product attributes. 
C)  Firms in the industry are operating at a maximum productive capacity that cannot be easily altered in the short run. 
D)  Firms in the industry serve customers that can easily switch between firms as they search for the best price.

Question 19

Use the following to answer questions:
Scenario: Payoff Matrix for Two Firms
The following table provides the payoff matrix for two firms, firm A and firm B. They are the only two firms in the industry and can either compete or cooperate with each other, with the following profit results reflecting their actions.  
-(Scenario: Payoff Matrix for Two Firms) In the scenario Payoff Matrix for Two Firms, firm B:

Accepted Answer

A)  has a dominant strategy to compete. 
B)  has a dominant strategy to cooperate. 
C)  has two dominant strategies. 
D)  has no dominant strategy. 
A)  has a dominant strategy to compete. 
B)  has a dominant strategy to cooperate. 
C)  has two dominant strategies. 
D)  has no dominant strategy.

Question 20

A price war occurs when tacit collusion breaks down and aggressive price competition causes prices to collapse.

Accepted Answer

A) True 
 B)False

Tacit collusion in an industry is limited by:

If a player has an incentive to cheat no matter what the other player does and if both players act in this manner, both players will be worse off. This is a:

A customer with significant buying power in an industry would:

The effect of product differentiation is to increase the firm's market power.

The first law designed to curb monopoly power in the United States was the _____ Act.

_ is the unwritten or unspoken agreement through which firms limit _.

In the past, most of the cars sold in the United States were produced by the Big Three auto companies. General Motors would announce its prices for the new model year first, and then the other companies would match it. This practice was an example of:

Overt collusion exists if:

Suppose there are 10 identical firms in an industry and each produces 10% of the total market sales. The HHI for this industry would indicate that the industry is:

In which of the following situations does overt collusion take place?

Which of the following characteristics make an industry more conducive to collusive behavior?

A price war occurs when tacit collusion breaks down and aggressive price competition causes prices to collapse.

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 in an industry is limited by:

If a player has an incentive to cheat no matter what the other player does and if both players act in this manner, both players will be worse off. This is a:

A customer with significant buying power in an industry would:

The effect of product differentiation is to increase the firm's market power.

The first law designed to curb monopoly power in the United States was the _____ Act.

_____ is the unwritten or unspoken agreement through which firms limit _____.

In the past, most of the cars sold in the United States were produced by the Big Three auto companies. General Motors would announce its prices for the new model year first, and then the other companies would match it. This practice was an example of:

Overt collusion exists if:

Suppose there are 10 identical firms in an industry and each produces 10% of the total market sales. The HHI for this industry would indicate that the industry is:

In which of the following situations does overt collusion take place?

Which of the following characteristics make an industry more conducive to collusive behavior?

A price war occurs when tacit collusion breaks down and aggressive price competition causes prices to collapse.

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

_ is the unwritten or unspoken agreement through which firms limit _.