Question 1

A strategy of setting price below the monopoly profit-maximizing price but at the highest level that will still result in a loss for a potential entrant into the market is known as

Accepted Answer

A)  entry pricing. 
B)  contestable pricing. 
C)  limit pricing. 
D)  unlimited pricing. 
A)  entry pricing. 
B)  contestable pricing. 
C)  limit pricing. 
D)  unlimited pricing.

Question 2

The simplest prisoners' dilemma is a game that, in part, requires

Accepted Answer

A)  two players who are able to communicate with each other. 
B)  two players who are unable to communicate with each other. 
C)  monopolistic competition. 
D)  an oligopoly with one very large firm. 
A)  two players who are able to communicate with each other. 
B)  two players who are unable to communicate with each other. 
C)  monopolistic competition. 
D)  an oligopoly with one very large firm.

Question 3

Limit pricing in a contestable market sets the price at the highest level that

Accepted Answer

A)  maximizes the profit of an entrant. 
B)  maximizes the profit of the existing firm. 
C)  maximizes the profit of both the existing firm and the entering firm. 
D)  inflicts a loss on an entrant. 
A)  maximizes the profit of an entrant. 
B)  maximizes the profit of the existing firm. 
C)  maximizes the profit of both the existing firm and the entering firm. 
D)  inflicts a loss on an entrant.

Question 4

Consider the prisoner's dilemma model where two criminals have two options (confess or deny), and each criminal must make their decision without speaking to the other criminal first. If they both confess they each get 3 years, if only one confesses then he gets 1 and his partner gets 10, and if neither confesses then they each get 0. They are in fact both guilty. In this game, the Nash equilibrium is where

Accepted Answer

A)  both confess. 
B)  neither one confesses. 
C)  only one will confess. 
D)  It is impossible to say. 
A)  both confess. 
B)  neither one confesses. 
C)  only one will confess. 
D)  It is impossible to say.

Question 5

How is a contestable market similar to a perfectly competitive one?

Accepted Answer

A contestable market is similar to a per

Question 6

If McDonald's, Wendy's, and Burger King agree with each other not to sell hamburgers for less than $3.95 apiece, all three could be found guilty of

Accepted Answer

A)  an interlocking directorship under the Clayton Act. 
B)  price fixing under the Sherman Act. 
C)  a deceptive business practice under the Clayton Act. 
D)  None of the above answers is correct. 
A)  an interlocking directorship under the Clayton Act. 
B)  price fixing under the Sherman Act. 
C)  a deceptive business practice under the Clayton Act. 
D)  None of the above answers is correct.

Question 7

In 2008, a former Intel engineer has been charged with stealing trade secrets worth $1 billion. Intel owns 90 percent of the worldwide market for microprocessors, AMD has the rest. Conducting R&D is very expensive so suppose that each of these firms can either steal R&D or develop their own R&D. If both firms develop their own R&D, economic profit will be $50 million each. If one company steals R&D, that firm earns $100 million in economic profit while the other firm earns $10 million. If both firms steal R&D, each firm breaks even. What is the outcome of this game?

Accepted Answer

A)  Both firms will conduct R&D. 
B)  Both firms will steal R&D. 
C)  The outcome will be a dominant strategy equilibrium. 
D)  Only one firm will conduct R&D, but we cannot predict which firm will conduct R&D. 
A)  Both firms will conduct R&D. 
B)  Both firms will steal R&D. 
C)  The outcome will be a dominant strategy equilibrium. 
D)  Only one firm will conduct R&D, but we cannot predict which firm will conduct R&D.

Question 8

Which of the following statements about the Sherman Act is CORRECT?

Accepted Answer

A)  The Sherman Act was the second federal antitrust law. 
B)  The Sherman act legalized monopolization if the company behaved "reasonably" once it became a monopoly. 
C)  The Sherman Act outlawed natural monopolies. 
D)  The Sherman Act made restriction of interstate trade illegal. 
A)  The Sherman Act was the second federal antitrust law. 
B)  The Sherman act legalized monopolization if the company behaved "reasonably" once it became a monopoly. 
C)  The Sherman Act outlawed natural monopolies. 
D)  The Sherman Act made restriction of interstate trade illegal.

Question 9

Tying arrangements are always held to be illegal under U.S. antitrust law.

Accepted Answer

A) True 
 B)False

Question 10

Limit pricing is a strategy used by a firm to

Accepted Answer

A)  deter entry. 
B)  enhance short run profits. 
C)  raise its prices. 
D)  lower its costs. 
A)  deter entry. 
B)  enhance short run profits. 
C)  raise its prices. 
D)  lower its costs.

Question 11

Suppose that two soft drink manufacturers, Fizzy Pop and Spritzy Soda, agree to charge the same prices for their soft drinks. This practice is

Accepted Answer

A)  always legal under the antitrust laws. 
B)  legal as long as Herfindahl-Hirschman index is less than 1,000. 
C)  legal as long as the firms had a cost justification for setting prices. 
D)  always illegal under the antitrust laws. 
A)  always legal under the antitrust laws. 
B)  legal as long as Herfindahl-Hirschman index is less than 1,000. 
C)  legal as long as the firms had a cost justification for setting prices. 
D)  always illegal under the antitrust laws.

Question 12

The Sherman Act

Accepted Answer

A)  which deregulated banking, was enacted in 1890. 
B)  which deregulated banking, was enacted in 1980. 
C)  the first antitrust law, was enacted in 1890. 
D)  the first antitrust law, was enacted in 1980. 
A)  which deregulated banking, was enacted in 1890. 
B)  which deregulated banking, was enacted in 1980. 
C)  the first antitrust law, was enacted in 1890. 
D)  the first antitrust law, was enacted in 1980.

Question 13

The price in a contestable market is similar to that in a perfectly competitive market because

Accepted Answer

A)  there are barriers to entry. 
B)  there are no barriers to entry. 
C)  there are many firms in the market. 
D)  the firm can earn an economic profit in the long run. 
A)  there are barriers to entry. 
B)  there are no barriers to entry. 
C)  there are many firms in the market. 
D)  the firm can earn an economic profit in the long run.

Question 14

A trigger strategy is one in which a player

Accepted Answer

A)  cooperates in the current period if the other player cooperated in the previous period, but cheats in the current period only if the other player cheated in the previous period. 
B)  cheats in the current period if the other player cooperated in the previous period, but cooperates in the current period if the other player cheated in the previous period. 
C)  cooperates in the current period if the other player has always cooperated, but cheats forever if the other player ever cheats. 
D)  cheats in the current period if the other player has always cheated, but cooperates forever if the other player has ever cooperated. 
A)  cooperates in the current period if the other player cooperated in the previous period, but cheats in the current period only if the other player cheated in the previous period. 
B)  cheats in the current period if the other player cooperated in the previous period, but cooperates in the current period if the other player cheated in the previous period. 
C)  cooperates in the current period if the other player has always cooperated, but cheats forever if the other player ever cheats. 
D)  cheats in the current period if the other player has always cheated, but cooperates forever if the other player has ever cooperated.

Question 15

-Firms A and B can conduct research and development (R&D) or not conduct it. R&D is costly but can increase the quality of the product and increase sales. The payoff matrix is the economic profits of the two firms and is given above, where the numbers are millions of dollars. A's best strategy is to

Accepted Answer

A)  conduct R&D regardless of what B does. 
B)  not conduct R&D regardless of what B does. 
C)  conduct R&D only if B conducts R&D. 
D)  conduct R&D only if B does not conduction R&D. 
A)  conduct R&D regardless of what B does. 
B)  not conduct R&D regardless of what B does. 
C)  conduct R&D only if B conducts R&D. 
D)  conduct R&D only if B does not conduction R&D.

Question 16

Two duopoly firms form a cartel. They decide to collude and fix the price of their good. Each individual firm will earn the highest profit if

Accepted Answer

A)  it cheats and the other sticks with the agreement. 
B)  both stick with the agreement. 
C)  it sticks with the agreement and the other cheats. 
D)  they both cheat. 
A)  it cheats and the other sticks with the agreement. 
B)  both stick with the agreement. 
C)  it sticks with the agreement and the other cheats. 
D)  they both cheat.

Question 17

The EU's antitrust chief in November 2008 fined car glass producers Asahi, Pilkington, Saint-Gobain and Soliver more than 1.3 billion euros ($1.66 billion) for price-fixing, the largest sum ever levied by the EU for a cartel. What are the economic justifications of making price fixing illegal?

Accepted Answer

A)  Consumers suffer because of decreased consumer surplus and the outcome is inefficient because of deadweight loss. 
B)  An oligopoly cartel can maximize profit and behave like a natural monopoly. 
C)  The cartel increases quantity supplied in the market causing a shortage. 
D)  The cartel increases quantity supplied in the market causing a surplus and therefore harming other producers. 
A)  Consumers suffer because of decreased consumer surplus and the outcome is inefficient because of deadweight loss. 
B)  An oligopoly cartel can maximize profit and behave like a natural monopoly. 
C)  The cartel increases quantity supplied in the market causing a shortage. 
D)  The cartel increases quantity supplied in the market causing a surplus and therefore harming other producers.

Question 18

-Disney and Fox must decide when to release their next films. The revenues received by each studio depend in part on when the other studio releases its film. Each studio can release its film at Thanksgiving or at Christmas. The revenues received by each studio, in millions of dollars, are depicted in the payoff matrix above. Which of the following statements CORRECTLY describes Disney's strategy given what Fox's release choice may be?

Accepted Answer

A)  If Fox chooses a Thanksgiving release, Disney should choose a Christmas release. 
B)  If Fox chooses a Christmas release, Disney should choose a Thanksgiving release. 
C)  Disney should release on Thanksgiving regardless of what Fox does. 
D)  Both answers A and B are correct. 
A)  If Fox chooses a Thanksgiving release, Disney should choose a Christmas release. 
B)  If Fox chooses a Christmas release, Disney should choose a Thanksgiving release. 
C)  Disney should release on Thanksgiving regardless of what Fox does. 
D)  Both answers A and B are correct.

Question 19

In ________ market structure, a firm's output depends ________.

Accepted Answer

A)  an oligopoly; only on its own marginal revenue and marginal cost curves 
B)  a monopolistically competitive; in part on its competitors' price and quantity decisions 
C)  an oligopoly; in part on its competitors' price and quantity decisions 
D)  a monopolistically competitive; only on its marginal revenue curve 
A)  an oligopoly; only on its own marginal revenue and marginal cost curves 
B)  a monopolistically competitive; in part on its competitors' price and quantity decisions 
C)  an oligopoly; in part on its competitors' price and quantity decisions 
D)  a monopolistically competitive; only on its marginal revenue curve

Question 20

-Libertyville has two optometrists, Dr. Smith and Dr. Jones. Each optometrist can choose to advertise his service or not. The incomes of each optometrist, in thousands of dollars, are given in the payoff matrix above. Which of the following statements CORRECTLY describes Dr. Jones' strategy given what Dr. Smith may do?

Accepted Answer

A)  Dr. Jones should advertise no matter what Dr. Smith does. 
B)  Dr. Jones should not advertise no matter what Dr. Smith does. 
C)  Dr. Jones should advertise only if Dr. Smith doesn't advertise. 
D)  Dr. Jones should advertise only if Dr. Smith advertises. 
A)  Dr. Jones should advertise no matter what Dr. Smith does. 
B)  Dr. Jones should not advertise no matter what Dr. Smith does. 
C)  Dr. Jones should advertise only if Dr. Smith doesn't advertise. 
D)  Dr. Jones should advertise only if Dr. Smith advertises.

A strategy of setting price below the monopoly profit-maximizing price but at the highest level that will still result in a loss for a potential entrant into the market is known as

The simplest prisoners' dilemma is a game that, in part, requires

Limit pricing in a contestable market sets the price at the highest level that

How is a contestable market similar to a perfectly competitive one?

If McDonald's, Wendy's, and Burger King agree with each other not to sell hamburgers for less than $3.95 apiece, all three could be found guilty of

Which of the following statements about the Sherman Act is CORRECT?

Tying arrangements are always held to be illegal under U.S. antitrust law.

Limit pricing is a strategy used by a firm to

Suppose that two soft drink manufacturers, Fizzy Pop and Spritzy Soda, agree to charge the same prices for their soft drinks. This practice is

The Sherman Act

The price in a contestable market is similar to that in a perfectly competitive market because

A trigger strategy is one in which a player

-Firms A and B can conduct research and development (R&D) or not conduct it. R&D is costly but can increase the quality of the product and increase sales. The payoff matrix is the economic profits of the two firms and is given above, where the numbers are millions of dollars. A's best strategy is to

Two duopoly firms form a cartel. They decide to collude and fix the price of their good. Each individual firm will earn the highest profit if

The EU's antitrust chief in November 2008 fined car glass producers Asahi, Pilkington, Saint-Gobain and Soliver more than 1.3 billion euros ($1.66 billion) for price-fixing, the largest sum ever levied by the EU for a cartel. What are the economic justifications of making price fixing illegal?

In market structure, a firm's output depends .

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Public Choices, Public Goods, and Healthcare

Externalities

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Filters

Exam 15: Oligopoly

A strategy of setting price below the monopoly profit-maximizing price but at the highest level that will still result in a loss for a potential entrant into the market is known as

The simplest prisoners' dilemma is a game that, in part, requires

Limit pricing in a contestable market sets the price at the highest level that

How is a contestable market similar to a perfectly competitive one?

If McDonald's, Wendy's, and Burger King agree with each other not to sell hamburgers for less than $3.95 apiece, all three could be found guilty of

Which of the following statements about the Sherman Act is CORRECT?

Tying arrangements are always held to be illegal under U.S. antitrust law.

Limit pricing is a strategy used by a firm to

Suppose that two soft drink manufacturers, Fizzy Pop and Spritzy Soda, agree to charge the same prices for their soft drinks. This practice is

The Sherman Act

The price in a contestable market is similar to that in a perfectly competitive market because

A trigger strategy is one in which a player

Two duopoly firms form a cartel. They decide to collude and fix the price of their good. Each individual firm will earn the highest profit if

The EU's antitrust chief in November 2008 fined car glass producers Asahi, Pilkington, Saint-Gobain and Soliver more than 1.3 billion euros ($1.66 billion) for price-fixing, the largest sum ever levied by the EU for a cartel. What are the economic justifications of making price fixing illegal?

In ________ market structure, a firm's output depends ________.

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Public Choices, Public Goods, and Healthcare

Externalities

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Filters

In market structure, a firm's output depends .