Question 1

Assume that an industry is significantly affected by import competition from foreign suppliers. Taking this factor into account, it would mean that

Accepted Answer

A) the Herfindahl index would be significantly higher in that industry because there are more firms in the industry. 
B) the industry is less concentrated than suggested by domestic concentration ratios. 
C) there is a high degree of interindustry competition. 
D) there is a low degree of interindustry competition. 
A) the Herfindahl index would be significantly higher in that industry because there are more firms in the industry. 
B) the industry is less concentrated than suggested by domestic concentration ratios. 
C) there is a high degree of interindustry competition. 
D) there is a low degree of interindustry competition.

Question 2

Explain the collusive pricing model of oligopoly behavior.

Accepted Answer

If oligopolistic firms face identical or

Question 3

Refer to the profits-payoff table for a duopoly. Which of the following statements is true about Nash equilibrium in this game?

Accepted Answer

A) A Nash equilibrium exists where X charges $7 and Y charges $5, because that is the cell that maximizes the combined profits of the two firms. 
B) There are multiple Nash equilibriums in this game. 
C) There is no Nash equilibrium in this game. 
D) Nash equilibriums occur in this game only where the two firms are charging the same price. 
A) A Nash equilibrium exists where X charges $7 and Y charges $5, because that is the cell that maximizes the combined profits of the two firms. 
B) There are multiple Nash equilibriums in this game. 
C) There is no Nash equilibrium in this game. 
D) Nash equilibriums occur in this game only where the two firms are charging the same price.

Question 4

In game theory, a credible threat of coercion by a dominant firm tends to

Accepted Answer

A) prevent cheating in collusive agreements. 
B) increase the incentives to cheat. 
C) reduce discipline among cartel members. 
D) discourage collusive agreements. 
A) prevent cheating in collusive agreements. 
B) increase the incentives to cheat. 
C) reduce discipline among cartel members. 
D) discourage collusive agreements.

Question 5

Advertising can enhance economic efficiency when it

Accepted Answer

A) increases brand loyalty. 
B) expands sales such that firms achieve substantial economies of scale. 
C) keeps new firms from entering profitable industries. 
D) is undertaken by pure competitors. 
A) increases brand loyalty. 
B) expands sales such that firms achieve substantial economies of scale. 
C) keeps new firms from entering profitable industries. 
D) is undertaken by pure competitors.

Question 6

Refer to the data. Suppose that enforcement of antitrust laws resulted in any firm in this industry with market share of 20 percent or above to be split into two firms, with each having equal market share. That would cause this industry to

Accepted Answer

A) remain monopolistically competitive. 
B) change from monopolistic competition to oligopoly. 
C) change from oligopoly to monopolistic competition. 
D) remain an oligopoly. 
A) remain monopolistically competitive. 
B) change from monopolistic competition to oligopoly. 
C) change from oligopoly to monopolistic competition. 
D) remain an oligopoly.

Question 7

Obstacles to collusion among oligopolists include the following, except

Accepted Answer

A) demand and costs differences among firms. 
B) long-lasting economic recession and poor industry performance. 
C) potential new entrants into the market. 
D) "gentlemen's agreements" among the firms. 
A) demand and costs differences among firms. 
B) long-lasting economic recession and poor industry performance. 
C) potential new entrants into the market. 
D) "gentlemen's agreements" among the firms.

Question 8

A positive-sum game occurs

Accepted Answer

A) when the sum of the two firms' outcomes is positive. 
B) whenever any of the values in the payoff matrix are positive. 
C) when the gains received by one player are exactly offset by the losses to the other. 
D) whenever the payoffs to the two players are equal. 
A) when the sum of the two firms' outcomes is positive. 
B) whenever any of the values in the payoff matrix are positive. 
C) when the gains received by one player are exactly offset by the losses to the other. 
D) whenever the payoffs to the two players are equal.

Question 9

Which of the following has not contributed to the development of oligopolies in the U.S. economy?

Accepted Answer

A) mergers 
B) patents 
C) economies of scale 
D) interindustry competition 
A) mergers 
B) patents 
C) economies of scale 
D) interindustry competition

Question 10

In the U.S. market, people often refer to the "Big Three" in autos and the "Big Four" in accounting. These terms suggest that these two industries are

Accepted Answer

A) purely competitive. 
B) monopolistically competitive. 
C) monopolies. 
D) oligopolies. 
A) purely competitive. 
B) monopolistically competitive. 
C) monopolies. 
D) oligopolies.

Question 11

Advertising increases the costs of firms and could be manipulative; therefore, it does not really have a positive economic effect.

Accepted Answer

A) True 
 B)False

Question 12

If firms E and F in this table merged into a single firm, the Herfindahl index would

Accepted Answer

A) not change. 
B) rise, as would the four-firm concentration ratio. 
C) rise, but the four-firm concentration ratio would remain unchanged. 
D) fall. 
A) not change. 
B) rise, as would the four-firm concentration ratio. 
C) rise, but the four-firm concentration ratio would remain unchanged. 
D) fall.

Question 13

The Herfindahl index is a measure of

Accepted Answer

A) profitability in an industry. 
B) the price level in an industry. 
C) the costs in an industry. 
D) market power in an industry. 
A) profitability in an industry. 
B) the price level in an industry. 
C) the costs in an industry. 
D) market power in an industry.

Question 14

The strategy of establishing a price that prevents the entry of new firms is called

Accepted Answer

A) cartel pricing. 
B) limit pricing. 
C) price leadership. 
D) profit maximizing price. 
A) cartel pricing. 
B) limit pricing. 
C) price leadership. 
D) profit maximizing price.

Question 15

Which of the following is not true of covert collusion?

Accepted Answer

A) It occurs when formal cartels are not legal. 
B) It has been historically referred to as "gentlemen's agreements." 
C) Numerous examples of it have been found in the United States. 
D) No case of it has been proven in the United States. 
A) It occurs when formal cartels are not legal. 
B) It has been historically referred to as "gentlemen's agreements." 
C) Numerous examples of it have been found in the United States. 
D) No case of it has been proven in the United States.

Question 16

Collusion among firms always involves formal agreements.

Accepted Answer

A) True 
 B)False

Question 17

In the payoff matrix shown,

Accepted Answer

A) neither firm has a dominant strategy. 
B) both firms have a dominant strategy to price high. 
C) both firms have a dominant strategy to price low. 
D) one firm has a dominant strategy to price high, the other to price low. 
A) neither firm has a dominant strategy. 
B) both firms have a dominant strategy to price high. 
C) both firms have a dominant strategy to price low. 
D) one firm has a dominant strategy to price high, the other to price low.

Question 18

An empty threat is a statement of coercion that is not believed by the threatened firm.

Accepted Answer

A) True 
 B)False

Question 19

Industries X and Y both have four-firm concentration ratios of 70 percent, but the Herfindahl index for X is 2,500, while that for Y is 2,000. These data suggest

Accepted Answer

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

Question 20

OPEC provides an example of

Accepted Answer

A) an unwritten, informal understanding. 
B) non-collusive oligopoly. 
C) an international cartel. 
D) a monopolistically competitive industry. 
A) an unwritten, informal understanding. 
B) non-collusive oligopoly. 
C) an international cartel. 
D) a monopolistically competitive industry.

Exam 14: Oligopoly and Strategic Behavior

Assume that an industry is significantly affected by import competition from foreign suppliers. Taking this factor into account, it would mean that

Explain the collusive pricing model of oligopoly behavior.

Refer to the profits-payoff table for a duopoly. Which of the following statements is true about Nash equilibrium in this game?

In game theory, a credible threat of coercion by a dominant firm tends to

Advertising can enhance economic efficiency when it

Refer to the data. Suppose that enforcement of antitrust laws resulted in any firm in this industry with market share of 20 percent or above to be split into two firms, with each having equal market share. That would cause this industry to

Obstacles to collusion among oligopolists include the following, except

A positive-sum game occurs

Which of the following has not contributed to the development of oligopolies in the U.S. economy?

In the U.S. market, people often refer to the "Big Three" in autos and the "Big Four" in accounting. These terms suggest that these two industries are

Advertising increases the costs of firms and could be manipulative; therefore, it does not really have a positive economic effect.

If firms E and F in this table merged into a single firm, the Herfindahl index would

The Herfindahl index is a measure of

The strategy of establishing a price that prevents the entry of new firms is called

Which of the following is not true of covert collusion?

Collusion among firms always involves formal agreements.

In the payoff matrix shown,

An empty threat is a statement of coercion that is not believed by the threatened firm.

Industries X and Y both have four-firm concentration ratios of 70 percent, but the Herfindahl index for X is 2,500, while that for Y is 2,000. These data suggest

OPEC provides an example of

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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