Question 1

A monopolistically competitive firm is like an oligopolistic firm insofar as

Accepted Answer

A)  both face perfectly elastic demand. 
B)  both can earn an economic profit in the long run. 
C)  both have MR curves that lie beneath their demand curves. 
D)  neither is protected by high barriers to entry. 
A)  both face perfectly elastic demand. 
B)  both can earn an economic profit in the long run. 
C)  both have MR curves that lie beneath their demand curves. 
D)  neither is protected by high barriers to entry.

Question 2

The prisoners' dilemma has an equilibrium that is

Accepted Answer

A)  a Nash equilibrium and both players confess. 
B)  not a Nash equilibrium and both players confess. 
C)  a Nash equilibrium and both players deny. 
D)  not a Nash equilibrium and both players deny. 
A)  a Nash equilibrium and both players confess. 
B)  not a Nash equilibrium and both players confess. 
C)  a Nash equilibrium and both players deny. 
D)  not a Nash equilibrium and both players deny.

Question 3

-The table above has the market demand schedule in an industry that has two firms in it. The marginal cost of this product is zero because these two firms have exclusive ownership of the resource and it does not cost any additional amount to produce additional units.
a) If the firms cooperate with each other so that they operate as a monopoly, what price will they charge and what (total) output will they produce?
b) If the firms cannot cooperate but instead behave as perfect competitors, what will be the price and the (total) output they produce?

Accepted Answer

a) As a monopoly, the price will be $15

Question 4

The local banking industry currently has a Herfindahl-Hirschman index (HHI) value of 2175 and two of the competing banks have considered merging. Because the merger would raise the HHI by 25 points, the Federal Trade Commission would likely

Accepted Answer

A)  challenge the merger. 
B)  not challenge the merger. 
C)  allow the merger under the condition that HHI does not rise by more than 25 points as promised. 
D)  allow the merger under the condition that the HHI remain at the premerger level of 2175. 
A)  challenge the merger. 
B)  not challenge the merger. 
C)  allow the merger under the condition that HHI does not rise by more than 25 points as promised. 
D)  allow the merger under the condition that the HHI remain at the premerger level of 2175.

Question 5

If there is a collusive agreement in a duopoly to maximize profit, then the price will

Accepted Answer

A)  equal the marginal cost of production. 
B)  equal the average total cost of production. 
C)  be the same as the price set by a monopoly. 
D)  be the same as the price set by a competitive industry. 
A)  equal the marginal cost of production. 
B)  equal the average total cost of production. 
C)  be the same as the price set by a monopoly. 
D)  be the same as the price set by a competitive industry.

Question 6

Kellogg's and General Mills are two of the dominant breakfast cereal manufactures in the U.S. Each firm can either sign or not sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box. If both companies sign an athlete, they will each make $5 million in economic profit. If only firm signs, they earn $8 million in economic profit and the other firm incurs an economic loss of $1 million. If neither firm signs, they break even. Which of the following pairs of payoffs would NOT appear together in a square of the payoff matrix?

Accepted Answer

A)  $5 million; $5 million 
B)  $0 million; $0 million 
C)  $8 million; $5 million 
D)  -$1 million; $8 million 
A)  $5 million; $5 million 
B)  $0 million; $0 million 
C)  $8 million; $5 million 
D)  -$1 million; $8 million

Question 7

In a contestable market with one firm in the market, the existing firm will

Accepted Answer

A)  set its price equal to the monopoly price. 
B)  set its price lower than the monopoly price. 
C)  set its price higher than the monopoly price. 
D)  have a demand curve that is horizontal at the price that will attract new firms to enter the market. 
A)  set its price equal to the monopoly price. 
B)  set its price lower than the monopoly price. 
C)  set its price higher than the monopoly price. 
D)  have a demand curve that is horizontal at the price that will attract new firms to enter the market.

Question 8

The local banking industry currently has a Herfindahl-Hirschman index (HHI) value of 1575 and two of the competing banks have considered merging. Because the merger would raise the HHI by 55 points, the Federal Trade Commission would likely

Accepted Answer

A)  challenge the merger. 
B)  not challenge the merger. 
C)  allow the merger under the condition that HHI does not rise by more than 55 points as promised. 
D)  allow the merger under the condition that the HHI remain at the premerger level of 1575. 
A)  challenge the merger. 
B)  not challenge the merger. 
C)  allow the merger under the condition that HHI does not rise by more than 55 points as promised. 
D)  allow the merger under the condition that the HHI remain at the premerger level of 1575.

Question 9

The Clayton Act of 1914 was passed to prohibit, in part

Accepted Answer

A)  price discrimination if the effect is to substantially lessen competition or create monopoly. 
B)  unfair methods of competition and unfair or deceptive business practices. 
C)  combinations, trusts, or conspiracies that restrict interstate or international trade. 
D)  business practices that allow one firm to profit at the expense of another whenever the first firm is a monopoly. 
A)  price discrimination if the effect is to substantially lessen competition or create monopoly. 
B)  unfair methods of competition and unfair or deceptive business practices. 
C)  combinations, trusts, or conspiracies that restrict interstate or international trade. 
D)  business practices that allow one firm to profit at the expense of another whenever the first firm is a monopoly.

Question 10

-In an oligopoly price-fixing game, each player tries to

Accepted Answer

A)  minimize the market shares of its opponents. 
B)  maximize its own market share. 
C)  minimize the profits of its opponents. 
D)  maximize its own profit. 
A)  minimize the market shares of its opponents. 
B)  maximize its own market share. 
C)  minimize the profits of its opponents. 
D)  maximize its own profit.

Question 11

In a contestable market

Accepted Answer

A)  two or more firms are competing. 
B)  the Herfindahl-Hirschman Index exceeds 1,800. 
C)  the four-firm concentration ratio exceeds 50 percent. 
D)  potential entry holds down prices. 
A)  two or more firms are competing. 
B)  the Herfindahl-Hirschman Index exceeds 1,800. 
C)  the four-firm concentration ratio exceeds 50 percent. 
D)  potential entry holds down prices.

Question 12

Russia, Iran and Qatar made the first serious moves in October 2008 toward forming an OPEC-style cartel on natural gas. What is the goal of a cartel?

Accepted Answer

A)  restrict output 
B)  raise prices 
C)  increase sales 
D)  increase profits 
A)  restrict output 
B)  raise prices 
C)  increase sales 
D)  increase profits

Question 13

Ann and Lynn have been arrested by the police, who have evidence that will convict them of robbing a bank. If convicted, each will receive a sentence of 6 years for the robbery. During questioning, the police suspect that Ann and Lynn are responsible for a series of bank robberies. If both confess to the series, each will receive 12 years in jail. If only one confesses, she will receive 4 years and the one who does not confess will receive 14 years. What is the equilibrium for this game?

Accepted Answer

A)  Both confess. 
B)  Ann confesses and Lynn does not confess. 
C)  Lynn confesses and Ann does not confess. 
D)  Neither confess. 
A)  Both confess. 
B)  Ann confesses and Lynn does not confess. 
C)  Lynn confesses and Ann does not confess. 
D)  Neither confess.

Question 14

A law that prohibits certain kinds of market behavior such as monopoly and monopolistic practices is called

Accepted Answer

A)  a consumer surplus law. 
B)  a trust law. 
C)  an antitrust law. 
D)  an anti-monopoly law. 
A)  a consumer surplus law. 
B)  a trust law. 
C)  an antitrust law. 
D)  an anti-monopoly law.

Question 15

-Oscar and Felix are the only firms that clean offices in a large city. They agree to operate as a cartel. The payoff matrix shows the economic profit that each firm can make. If the game is played repeatedly and Felix and Oscar both use a tit-for-tat strategy, then

Accepted Answer

A)  Felix will make $10 million of economic profit and Oscar will cheat. 
B)  Felix and Oscar will each make $1 million of economic profit. 
C)  Felix will make -$2 million economic of profit and Oscar will cheat. 
D)  Felix and Oscar will each make $10 million of economic profit. 
A)  Felix will make $10 million of economic profit and Oscar will cheat. 
B)  Felix and Oscar will each make $1 million of economic profit. 
C)  Felix will make -$2 million economic of profit and Oscar will cheat. 
D)  Felix and Oscar will each make $10 million of economic profit.

Question 16

Russia and Qatar made the first serious moves in October 2008 toward forming an OPEC-style cartel for natural gas. The two strategies these countries face are to comply with the cartel agreement or to cheat on the cartel agreement. If both countries comply, the economic profit for each will be $140 million. If one country cheats, that country earns $200 million in economic profit and the other country will have an economic loss of $10 million. If all countries cheat, they break even. What is the outcome of this game if it is only played once?

Accepted Answer

A)  Each country will comply with the cartel agreement. 
B)  Two countries will comply and one will cheat, but we cannot predict which one will cheat. 
C)  One country will comply and two will cheat, but we cannot predict which ones will cheat. 
D)  None of the countries will comply with the cartel agreement. 
A)  Each country will comply with the cartel agreement. 
B)  Two countries will comply and one will cheat, but we cannot predict which one will cheat. 
C)  One country will comply and two will cheat, but we cannot predict which ones will cheat. 
D)  None of the countries will comply with the cartel agreement.

Question 17

Of the following, the best example of firm that might operate in a contestable market is a

Accepted Answer

A)  cable TV company. 
B)  wheat farmer. 
C)  ship owner operating on a major waterway. 
D)  private college operating in a state with many public colleges. 
A)  cable TV company. 
B)  wheat farmer. 
C)  ship owner operating on a major waterway. 
D)  private college operating in a state with many public colleges.

Question 18

The Herfindahl-Hirschman Index will indicate that a contestable market is

Accepted Answer

A)  a sequential market. 
B)  competitive. 
C)  uncompetitive. 
D)  a prisoners' dilemma. 
A)  a sequential market. 
B)  competitive. 
C)  uncompetitive. 
D)  a prisoners' dilemma.

Question 19

Does an oligopoly produce the efficient quantity of output or does it create a deadweight loss? Do the firms want to produce the efficient quantity of output? Explain your answer.

Accepted Answer

An oligopoly might or might not produce

Question 20

In a prisoners' dilemma game, in the Nash equilibrium

Accepted Answer

A)  both players have another outcome that does not occur but is more favorable. 
B)  neither player has another outcome that does not occur and is more favorable. 
C)  one player has another outcome that does not occur and is more favorable. 
D)  collusion would not alter the outcome. 
A)  both players have another outcome that does not occur but is more favorable. 
B)  neither player has another outcome that does not occur and is more favorable. 
C)  one player has another outcome that does not occur and is more favorable. 
D)  collusion would not alter the outcome.

A monopolistically competitive firm is like an oligopolistic firm insofar as

The prisoners' dilemma has an equilibrium that is

The local banking industry currently has a Herfindahl-Hirschman index (HHI) value of 2175 and two of the competing banks have considered merging. Because the merger would raise the HHI by 25 points, the Federal Trade Commission would likely

If there is a collusive agreement in a duopoly to maximize profit, then the price will

In a contestable market with one firm in the market, the existing firm will

The local banking industry currently has a Herfindahl-Hirschman index (HHI) value of 1575 and two of the competing banks have considered merging. Because the merger would raise the HHI by 55 points, the Federal Trade Commission would likely

The Clayton Act of 1914 was passed to prohibit, in part

-In an oligopoly price-fixing game, each player tries to

In a contestable market

Russia, Iran and Qatar made the first serious moves in October 2008 toward forming an OPEC-style cartel on natural gas. What is the goal of a cartel?

A law that prohibits certain kinds of market behavior such as monopoly and monopolistic practices is called

-Oscar and Felix are the only firms that clean offices in a large city. They agree to operate as a cartel. The payoff matrix shows the economic profit that each firm can make. If the game is played repeatedly and Felix and Oscar both use a tit-for-tat strategy, then

Of the following, the best example of firm that might operate in a contestable market is a

The Herfindahl-Hirschman Index will indicate that a contestable market is

Does an oligopoly produce the efficient quantity of output or does it create a deadweight loss? Do the firms want to produce the efficient quantity of output? Explain your answer.

In a prisoners' dilemma game, in the Nash equilibrium

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

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Exam 15: Oligopoly

A monopolistically competitive firm is like an oligopolistic firm insofar as

The prisoners' dilemma has an equilibrium that is

The local banking industry currently has a Herfindahl-Hirschman index (HHI) value of 2175 and two of the competing banks have considered merging. Because the merger would raise the HHI by 25 points, the Federal Trade Commission would likely

If there is a collusive agreement in a duopoly to maximize profit, then the price will

In a contestable market with one firm in the market, the existing firm will

The local banking industry currently has a Herfindahl-Hirschman index (HHI) value of 1575 and two of the competing banks have considered merging. Because the merger would raise the HHI by 55 points, the Federal Trade Commission would likely

The Clayton Act of 1914 was passed to prohibit, in part

-In an oligopoly price-fixing game, each player tries to

In a contestable market

Russia, Iran and Qatar made the first serious moves in October 2008 toward forming an OPEC-style cartel on natural gas. What is the goal of a cartel?

A law that prohibits certain kinds of market behavior such as monopoly and monopolistic practices is called

-Oscar and Felix are the only firms that clean offices in a large city. They agree to operate as a cartel. The payoff matrix shows the economic profit that each firm can make. If the game is played repeatedly and Felix and Oscar both use a tit-for-tat strategy, then

Of the following, the best example of firm that might operate in a contestable market is a

The Herfindahl-Hirschman Index will indicate that a contestable market is

Does an oligopoly produce the efficient quantity of output or does it create a deadweight loss? Do the firms want to produce the efficient quantity of output? Explain your answer.

In a prisoners' dilemma game, in the Nash equilibrium

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