Question 1

Refer to the data. Suppose that firms A and F merged into a single firm. The four-firm concentration ratio and the Herfindahl index would be

Accepted Answer

A) 93 percent and 2,537, respectively. 
B) 100 percent and 2,537, respectively. 
C) 87 percent and 2,586, respectively. 
D) 93 percent and 2,586, respectively. 
A) 93 percent and 2,537, respectively. 
B) 100 percent and 2,537, respectively. 
C) 87 percent and 2,586, respectively. 
D) 93 percent and 2,586, respectively.

Question 2

Nash equilibrium is an outcome of a game from which neither rival will want to deviate.

Accepted Answer

A) True 
 B)False

Question 3

What's a price war?

Accepted Answer

A price war consists of successive, comp

Question 4

Mutual interdependence means that

Accepted Answer

A) a firm's behavior is affected by other firms' actions. 
B) a firm's profits are affected by other firms' entry or exit. 
C) a firm's costs are affected by other firms' costs. 
D) a firm's revenues are affected by other firms' demand for its product. 
A) a firm's behavior is affected by other firms' actions. 
B) a firm's profits are affected by other firms' entry or exit. 
C) a firm's costs are affected by other firms' costs. 
D) a firm's revenues are affected by other firms' demand for its product.

Question 5

In some games, one firm may avoid taking advantage of another firm because it knows that the other firm can take advantage of it in subsequent games. This behavior is called

Accepted Answer

A) the first-mover advantage. 
B) reciprocity. 
C) price leadership. 
D) preemption of entry. 
A) the first-mover advantage. 
B) reciprocity. 
C) price leadership. 
D) preemption of entry.

Question 6

On the graph, if the oligopolist's MC curve shifts from MC ₁ to MC ₂, the firm will charge

Accepted Answer

A) a higher price than before and total revenue will increase. 
B) the same price as before and sell more output; total revenue will increase. 
C) the same price as before and sell the same amount of output; total revenue will remain the same. 
D) a higher price than before and sell less output; it can't be determined whether total revenue will change. 
A) a higher price than before and total revenue will increase. 
B) the same price as before and sell more output; total revenue will increase. 
C) the same price as before and sell the same amount of output; total revenue will remain the same. 
D) a higher price than before and sell less output; it can't be determined whether total revenue will change.

Question 7

Industries X and Y both have four-firm concentration ratios of 53 percent, but the Herfindahl index for X is 1,965, while that for Y is 2,019. These data suggest

Accepted Answer

A) greater market power in X than in Y. 
B) greater market power in Y than in X. 
C) that X is more technologically progressive than Y. 
D) that price competition is stronger in Y than in X. 
A) greater market power in X than in Y. 
B) greater market power in Y than in X. 
C) that X is more technologically progressive than Y. 
D) that price competition is stronger in Y than in X.

Question 8

Assume six firms composing an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl index for this industry is

Accepted Answer

A) 2,000. 
B) 2,200. 
C) 1,600. 
D) 80. 
A) 2,000. 
B) 2,200. 
C) 1,600. 
D) 80.

Question 9

Three major means of collusion by oligopolists are

Accepted Answer

A) cartels, informal understandings, and price leadership. 
B) market sharing, mutual interdependence, and product differentiation. 
C) cartels, kinked-demand pricing, and product differentiation. 
D) informal understandings, P = MC pricing, and mutual interdependence. 
A) cartels, informal understandings, and price leadership. 
B) market sharing, mutual interdependence, and product differentiation. 
C) cartels, kinked-demand pricing, and product differentiation. 
D) informal understandings, P = MC pricing, and mutual interdependence.

Question 10

Aluminum competes with copper in the market for power transmission lines. This illustrates

Accepted Answer

A) mutual interdependence. 
B) differentiated oligopoly. 
C) interindustry competition. 
D) homogeneous oligopoly. 
A) mutual interdependence. 
B) differentiated oligopoly. 
C) interindustry competition. 
D) homogeneous oligopoly.

Question 11

Differentiated oligopoly exists where a small number of firms are

Accepted Answer

A) producing goods that differ in terms of quality and design. 
B) setting price and output collusively. 
C) setting price and output independently. 
D) producing virtually identical products. 
A) producing goods that differ in terms of quality and design. 
B) setting price and output collusively. 
C) setting price and output independently. 
D) producing virtually identical products.

Question 12

Patents and copyrights were established by the government to reduce oligopoly and monopoly power.

Accepted Answer

A) True 
 B)False

Question 13

Game theory, which is used in studying oligopoly behavior, originated from the study of games such as the following, except

Accepted Answer

A) poker. 
B) solitaire. 
C) chess. 
D) bridge. 
A) poker. 
B) solitaire. 
C) chess. 
D) bridge.

Question 14

How is the prisoner's dilemma similar to two firms competing for market share as described in the text?

Accepted Answer

The "confess-confess" outcome of the pri

Question 15

A potential negative effect of advertising for society is that it can

Accepted Answer

A) be the major cause of price wars among firms in the industry. 
B) reduce mutual interdependence and increase competition. 
C) be self-canceling and contribute to economic inefficiency. 
D) lower barriers to entry and undermine profits in the industry. 
A) be the major cause of price wars among firms in the industry. 
B) reduce mutual interdependence and increase competition. 
C) be self-canceling and contribute to economic inefficiency. 
D) lower barriers to entry and undermine profits in the industry.

Question 16

In this payoff matrix,

Accepted Answer

A) both firms have a dominant strategy. 
B) neither firm has a dominant strategy. 
C) Alpha has a dominant strategy, but Beta does not. 
D) Beta has a dominant strategy, but Alpha does not. 
A) both firms have a dominant strategy. 
B) neither firm has a dominant strategy. 
C) Alpha has a dominant strategy, but Beta does not. 
D) Beta has a dominant strategy, but Alpha does not.

Question 17

Refer to the payoff matrix. Suppose that Speedy Bike and Power Bike are the only two bicycle manufacturing firms serving the market. Both can choose large or small advertising budgets. If this is a repeated game and the firms cooperate to maximize profits, which of the following outcomes would we expect to occur?

Accepted Answer

A) In repeated playing, the outcomes would alternate between cells A and D. 
B) In repeated playing, the outcomes would alternate between cells B and C. 
C) The two firms will agree to keep their advertising budgets small over time. 
D) The game will reach a Nash equilibrium at cell A. 
A) In repeated playing, the outcomes would alternate between cells A and D. 
B) In repeated playing, the outcomes would alternate between cells B and C. 
C) The two firms will agree to keep their advertising budgets small over time. 
D) The game will reach a Nash equilibrium at cell A.

Question 18

Firms are more likely to collude when the economy is in a recession.

Accepted Answer

A) True 
 B)False

Question 19

A statement of coercion by one firm is

Accepted Answer

A) an empty threat if it is believed by the other firm. 
B) a credible threat if it is not believed by the other firm. 
C) always a credible threat whether or not it is believed by the other firm. 
D) a credible threat if it is believed by the other firm. 
A) an empty threat if it is believed by the other firm. 
B) a credible threat if it is not believed by the other firm. 
C) always a credible threat whether or not it is believed by the other firm. 
D) a credible threat if it is believed by the other firm.

Question 20

The kinked-demand model of oligopoly assumes that

Accepted Answer

A) rivals will ignore price increases but will match price cuts. 
B) rivals will ignore price cuts but will match price increases. 
C) the oligopolistic firms are colluding. 
D) a firm faces a more elastic demand curve if it cuts its price, and less elastic if it raises its price. 
A) rivals will ignore price increases but will match price cuts. 
B) rivals will ignore price cuts but will match price increases. 
C) the oligopolistic firms are colluding. 
D) a firm faces a more elastic demand curve if it cuts its price, and less elastic if it raises its price.

Exam 14: Oligopoly and Strategic Behavior

Refer to the data. Suppose that firms A and F merged into a single firm. The four-firm concentration ratio and the Herfindahl index would be

Nash equilibrium is an outcome of a game from which neither rival will want to deviate.

What's a price war?

Mutual interdependence means that

In some games, one firm may avoid taking advantage of another firm because it knows that the other firm can take advantage of it in subsequent games. This behavior is called

On the graph, if the oligopolist's MC curve shifts from MC ₁ to MC ₂, the firm will charge

Industries X and Y both have four-firm concentration ratios of 53 percent, but the Herfindahl index for X is 1,965, while that for Y is 2,019. These data suggest

Assume six firms composing an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl index for this industry is

Three major means of collusion by oligopolists are

Aluminum competes with copper in the market for power transmission lines. This illustrates

Differentiated oligopoly exists where a small number of firms are

Patents and copyrights were established by the government to reduce oligopoly and monopoly power.

Game theory, which is used in studying oligopoly behavior, originated from the study of games such as the following, except

How is the prisoner's dilemma similar to two firms competing for market share as described in the text?

A potential negative effect of advertising for society is that it can

In this payoff matrix,

Firms are more likely to collude when the economy is in a recession.

A statement of coercion by one firm is

The kinked-demand model of oligopoly assumes that

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Technology, RD, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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