Question 1

Game-theory analyzes oligopoly behavior by using concepts derived from the study of games-of-chance such as dice games, solitaire, and roulette.

Accepted Answer

A) True 
 B)False

Question 2

A sequential game can be modeled in two forms: payoff-matrix form and game-tree form.

Accepted Answer

A) True 
 B)False

Question 3

Refer to the payoff matrix. Which cell represents the equilibrium outcome of this game?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
A) A 
B) B 
C) C 
D) D

Question 4

A strategy that is better than any alternative strategy-regardless of what the other firm does-is called a

Accepted Answer

A) dominant strategy. 
B) simultaneous strategy. 
C) positive-sum strategy. 
D) one-time strategy. 
A) dominant strategy. 
B) simultaneous strategy. 
C) positive-sum strategy. 
D) one-time strategy.

Question 5

The diagram shows the extensive form version of a strategic game between the two nationally dominant coffee sellers, Corporate Coffee and Jumbo Java, both of whom are considering opening coffee shops in a new town. The payoffs represent, in thousands per month, the profit (or loss)the firm will realize from its decision. Which of the following statements is true about this game?

Accepted Answer

A) It would be a Stackelberg duopoly if both firms gained from entering the new market. 
B) It represents a Stackelberg duopoly. 
C) It would be a Stackelberg duopoly if Jumbo Java could prevent Corporate Coffee's entry into the market. 
D) It would be a Stackelberg duopoly if the two firms moved simultaneously. 
A) It would be a Stackelberg duopoly if both firms gained from entering the new market. 
B) It represents a Stackelberg duopoly. 
C) It would be a Stackelberg duopoly if Jumbo Java could prevent Corporate Coffee's entry into the market. 
D) It would be a Stackelberg duopoly if the two firms moved simultaneously.

Question 6

If an oligopolist's demand curve has a "kink" in it, then over some interval,

Accepted Answer

A) the oligopolist's marginal cost curve will have a break in it. 
B) the oligopolist need not fear entry into the industry by new firms. 
C) the oligopolist's competitors will not react to its price changes, either up or down. 
D) changes in marginal cost will not cause a change in the profit-maximizing price. 
A) the oligopolist's marginal cost curve will have a break in it. 
B) the oligopolist need not fear entry into the industry by new firms. 
C) the oligopolist's competitors will not react to its price changes, either up or down. 
D) changes in marginal cost will not cause a change in the profit-maximizing price.

Question 7

If an oligopolist's competitors follow its price cuts but ignore its price increases, the oligopolist would end up holding its price constant even if its marginal cost changes.

Accepted Answer

A) True 
 B)False

Question 8

Answer the question based on the payoff matrix for a duopoly in which the numbers indicate the profit in millions of dollars for each firm. If the two firms collude to maximize joint profits, the total profits for the two firms will be

Accepted Answer

A) $350 million. 
B) $400 million. 
C) $500 million. 
D) $525 million. 
A) $350 million. 
B) $400 million. 
C) $500 million. 
D) $525 million.

Question 9

If an oligopolist is faced with a marginal revenue curve that has a gap in it, we may assume that

Accepted Answer

A) it is colluding with its rivals to maximize joint profits. 
B) its demand curve is kinked. 
C) it is selling a standardized product. 
D) it is selling a differentiated product. 
A) it is colluding with its rivals to maximize joint profits. 
B) its demand curve is kinked. 
C) it is selling a standardized product. 
D) it is selling a differentiated product.

Question 10

Monopolistic competition and oligopoly are more common in the real world than pure competition and monopoly.

Accepted Answer

A) True 
 B)False

Question 11

Oligopolists use limit pricing to maximize short-run profits.

Accepted Answer

A) True 
 B)False

Question 12

Microsoft

Accepted Answer

A) dominates the primary Internet markets. 
B) is attempting to gain market share in the Internet, smartphone, and tablet markets in an effort to offset a shrinking PC market. 
C) has colluded with Amazon and Google to fix online advertising prices. 
D) holds a near-monopoly in the Internet search market. 
A) dominates the primary Internet markets. 
B) is attempting to gain market share in the Internet, smartphone, and tablet markets in an effort to offset a shrinking PC market. 
C) has colluded with Amazon and Google to fix online advertising prices. 
D) holds a near-monopoly in the Internet search market.

Question 13

The kinked-demand curve model helps to explain price rigidity because

Accepted Answer

A) there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price. 
B) demand is inelastic above and elastic below the going price. 
C) the model assumes firms are engaging in some form of collusion. 
D) the associated marginal revenue curve is perfectly elastic at the going price. 
A) there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price. 
B) demand is inelastic above and elastic below the going price. 
C) the model assumes firms are engaging in some form of collusion. 
D) the associated marginal revenue curve is perfectly elastic at the going price.

Question 14

Answer the question based on the payoff matrix for a duopoly in which the numbers indicate the profit from either opening a coffee shop in a small town or not opening the coffee shop. If the firms are playing a sequential game, then

Accepted Answer

A) there is first-mover advantage. 
B) the firm with the first move will choose not to open a coffee shop. 
C) the firm with the first move will choose to open a coffee shop. 
D) both firms will choose not to open a coffee shop, regardless of which firm chooses first. 
A) there is first-mover advantage. 
B) the firm with the first move will choose not to open a coffee shop. 
C) the firm with the first move will choose to open a coffee shop. 
D) both firms will choose not to open a coffee shop, regardless of which firm chooses first.

Question 15

A cartel is

Accepted Answer

A) a form of covert collusion. 
B) legal in the United States. 
C) always successful in raising profits. 
D) a formal agreement among firms to collude. 
A) a form of covert collusion. 
B) legal in the United States. 
C) always successful in raising profits. 
D) a formal agreement among firms to collude.

Question 16

The Herfindahl index for an industry is 2,550. Which of the following sets of market shares and industry with four firms would produce such an index?

Accepted Answer

A) 20, 20, 30, and 30 
B) 25, 25, 25, and 25 
C) 20, 25, 25, and 30 
D) 10, 20, 30, and 40 
A) 20, 20, 30, and 30 
B) 25, 25, 25, and 25 
C) 20, 25, 25, and 30 
D) 10, 20, 30, and 40

Question 17

Refer to the payoff matrix. Bob's Burgers and Sam's Sandwiches are competing restaurants in a small town. Both are considering adding pizza to their line of products. If this is a sequential game,

Accepted Answer

A) whoever moves first to add pizza will discourage the other from adding pizza. 
B) neither firm will add pizza, regardless of who moves first. 
C) both firms will add pizza, regardless of who moves first. 
D) there is only one possible Nash equilibrium for this game. 
A) whoever moves first to add pizza will discourage the other from adding pizza. 
B) neither firm will add pizza, regardless of who moves first. 
C) both firms will add pizza, regardless of who moves first. 
D) there is only one possible Nash equilibrium for this game.

Question 18

Potential entry by new firms and competition from imports tend to worsen the economic inefficiency in an oligopoly.

Accepted Answer

A) True 
 B)False

Question 19

The high concentration ratio for the aluminum industry understates the competition in that industry that comes from the copper industry. This is an example of

Accepted Answer

A) overt collusion. 
B) covert collusion. 
C) import competition. 
D) interindustry competition. 
A) overt collusion. 
B) covert collusion. 
C) import competition. 
D) interindustry competition.

Question 20

If the four-firm concentration ratio for industry X is 60,

Accepted Answer

A) the four largest firms account for 60 percent of total sales. 
B) each of the four largest firms accounts for 15 percent of total sales. 
C) the four largest firms account for 60 percent of total advertising expenditures. 
D) the industry is monopolistically competitive, but on the threshold of being an oligopoly. 
A) the four largest firms account for 60 percent of total sales. 
B) each of the four largest firms accounts for 15 percent of total sales. 
C) the four largest firms account for 60 percent of total advertising expenditures. 
D) the industry is monopolistically competitive, but on the threshold of being an oligopoly.

Exam 14: Oligopoly and Strategic Behavior

Game-theory analyzes oligopoly behavior by using concepts derived from the study of games-of-chance such as dice games, solitaire, and roulette.

A sequential game can be modeled in two forms: payoff-matrix form and game-tree form.

Refer to the payoff matrix. Which cell represents the equilibrium outcome of this game?

A strategy that is better than any alternative strategy-regardless of what the other firm does-is called a

If an oligopolist's demand curve has a "kink" in it, then over some interval,

If an oligopolist's competitors follow its price cuts but ignore its price increases, the oligopolist would end up holding its price constant even if its marginal cost changes.

Answer the question based on the payoff matrix for a duopoly in which the numbers indicate the profit in millions of dollars for each firm. If the two firms collude to maximize joint profits, the total profits for the two firms will be

If an oligopolist is faced with a marginal revenue curve that has a gap in it, we may assume that

Monopolistic competition and oligopoly are more common in the real world than pure competition and monopoly.

Oligopolists use limit pricing to maximize short-run profits.

Microsoft

The kinked-demand curve model helps to explain price rigidity because

Answer the question based on the payoff matrix for a duopoly in which the numbers indicate the profit from either opening a coffee shop in a small town or not opening the coffee shop. If the firms are playing a sequential game, then

A cartel is

The Herfindahl index for an industry is 2,550. Which of the following sets of market shares and industry with four firms would produce such an index?

Refer to the payoff matrix. Bob's Burgers and Sam's Sandwiches are competing restaurants in a small town. Both are considering adding pizza to their line of products. If this is a sequential game,

Potential entry by new firms and competition from imports tend to worsen the economic inefficiency in an oligopoly.

The high concentration ratio for the aluminum industry understates the competition in that industry that comes from the copper industry. This is an example of

If the four-firm concentration ratio for industry X is 60,

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

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Pure Monopoly

Monopolistic Competition

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The Demand for Resources

Wage Determination

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Natural Resource and Energy Economics

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Income Inequality, Poverty, and Discrimination

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