Question 1

List the three main models of oligopoly pricing and output.

Accepted Answer

There are three distinct prici

Question 2

Prices are likely to be least flexible

Accepted Answer

A) in oligopoly. 
B) in monopolistic competition. 
C) where product demand is inelastic. 
D) in pure competition. 
A) in oligopoly. 
B) in monopolistic competition. 
C) where product demand is inelastic. 
D) in pure competition.

Question 3

Refer to the diagram, where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. Which cell represents a Nash equilibrium?

Accepted Answer

A) The two firms will be maximizing joint profits. 
B) Y would find it advantageous to raise its price if it were certain X would not alter its price. 
C) X would find it advantageous to raise its price if it were certain Y would not alter its price. 
D) both firms would find it advantageous to collude to raise their prices by $1 each. 
A) The two firms will be maximizing joint profits. 
B) Y would find it advantageous to raise its price if it were certain X would not alter its price. 
C) X would find it advantageous to raise its price if it were certain Y would not alter its price. 
D) both firms would find it advantageous to collude to raise their prices by $1 each.

Question 4

This industry shown in this table illustrates

Accepted Answer

A) pure competition. 
B) monopolistic competition. 
C) oligopoly. 
D) pure monopoly. 
A) pure competition. 
B) monopolistic competition. 
C) oligopoly. 
D) pure monopoly.

Question 5

A cartel of four firms that controls 100 percent of the sales in a market, and faces the same cost schedules of a monopolist, will set a price somewhat lower than the monopoly price for its product.

Accepted Answer

A) True 
 B)False

Question 6

What obstacles might a group of oligopolists encounter in forming a cartel?

Accepted Answer

There are several barriers to collusion:

Question 7

Refer to the payoff matrix. Suppose that Alpha and Beta agree that they will both pursue a high-price strategy. If Beta then cheats on the agreement in order to increase profits, which of the following is true?

Accepted Answer

A) If this is a repeated game, Alpha can be expected to pursue a low-price strategy in future games. 
B) If this is a one-time game, a Nash equilibrium will result. 
C) A Nash equilibrium cannot be reached through repeated playing of this game. 
D) The game is a negative-sum game. 
A) If this is a repeated game, Alpha can be expected to pursue a low-price strategy in future games. 
B) If this is a one-time game, a Nash equilibrium will result. 
C) A Nash equilibrium cannot be reached through repeated playing of this game. 
D) The game is a negative-sum game.

Question 8

Industry Y is dominated by five large firms that hold market shares of 20, 20, 25, 25, and 10. The Herfindahl index for this industry is

Accepted Answer

A) 1,560. 
B) 2,150. 
C) 2,340. 
D) 3,500. 
A) 1,560. 
B) 2,150. 
C) 2,340. 
D) 3,500.

Question 9

Collusive control over price may permit oligopolists to

Accepted Answer

A) use new technology, achieve economies of scale, and get government subsidies. 
B) achieve economies of scale, reduce costs, and prevent price cheating. 
C) increase product demand, increase product supply, and lower cost. 
D) reduce uncertainty, increase profits, and possibly limit entry of new firms. 
A) use new technology, achieve economies of scale, and get government subsidies. 
B) achieve economies of scale, reduce costs, and prevent price cheating. 
C) increase product demand, increase product supply, and lower cost. 
D) reduce uncertainty, increase profits, and possibly limit entry of new firms.

Question 10

Suppose the Herfindahl indexes for industries A, B, and C are 7,200, 5,000, and 1,500, respectively. These data imply

Accepted Answer

A) that market power is greatest in industry C. 
B) that market power is greatest in industry B. 
C) that market power is greatest in industry A. 
D) nothing about the degree of concentration across the three industries. 
A) that market power is greatest in industry C. 
B) that market power is greatest in industry B. 
C) that market power is greatest in industry A. 
D) nothing about the degree of concentration across the three industries.

Question 11

Describe the negative effects of advertising.

Accepted Answer

Negative effects of advertising include:

Question 12

In game theory, each player is assumed to have the following, except

Accepted Answer

A) alternative strategies or actions. 
B) alternative outcomes or results. 
C) alternative payoffs or earnings. 
D) alternative partners or coplayers. 
A) alternative strategies or actions. 
B) alternative outcomes or results. 
C) alternative payoffs or earnings. 
D) alternative partners or coplayers.

Question 13

Price wars among oligopolists tend to

Accepted Answer

A) strengthen the price leadership model. 
B) reduce profits for the firms. 
C) hurt the buyers of the product. 
D) occur when sales growth in the industry is strong. 
A) strengthen the price leadership model. 
B) reduce profits for the firms. 
C) hurt the buyers of the product. 
D) occur when sales growth in the industry is strong.

Question 14

The incentive to cheat within a cartel increases with an increase in the following factors, except

Accepted Answer

A) the number of firms in the cartel. 
B) economic performance and industry sales. 
C) the number of potential entrants into the industry. 
D) the cost differences among firms. 
A) the number of firms in the cartel. 
B) economic performance and industry sales. 
C) the number of potential entrants into the industry. 
D) the cost differences among firms.

Question 15

Which of the following is an illustration of differentiated oligopoly?

Accepted Answer

A) the aluminum industry 
B) the steel industry 
C) the soft drink industry 
D) retail stores in large cities 
A) the aluminum industry 
B) the steel industry 
C) the soft drink industry 
D) retail stores in large cities

Question 16

Game theory can be used to demonstrate that oligopolists

Accepted Answer

A) adopting a high-price policy. 
B) adopting a low-price policy. 
C) adopting a low-price policy, but only if Beta formally agrees to do the same. 
D) engaging in nonprice competition only. 
A) adopting a high-price policy. 
B) adopting a low-price policy. 
C) adopting a low-price policy, but only if Beta formally agrees to do the same. 
D) engaging in nonprice competition only.

Question 17

Other things equal, cartels and similar collusive arrangements are easier to establish and maintain

Accepted Answer

A) when there are ample opportunities for the firms to make secret price concessions to selected buyers. 
B) during periods of business-cycle stability and full employment. 
C) when the demand and cost conditions of the participating firms differ substantially. 
D) when the number of firms is relatively large. 
A) when there are ample opportunities for the firms to make secret price concessions to selected buyers. 
B) during periods of business-cycle stability and full employment. 
C) when the demand and cost conditions of the participating firms differ substantially. 
D) when the number of firms is relatively large.

Question 18

One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the following cases?

Accepted Answer

A) a rather large number of firms producing a differentiated product 
B) a very small number of firms producing a differentiated product 
C) a rather large number of firms producing a homogeneous product 
D) a very small number of firms producing a homogeneous product 
A) a rather large number of firms producing a differentiated product 
B) a very small number of firms producing a differentiated product 
C) a rather large number of firms producing a homogeneous product 
D) a very small number of firms producing a homogeneous product

Question 19

Which of the following industries is an illustration of homogeneous oligopoly?

Accepted Answer

A) household laundry products 
B) personal computers 
C) aluminum 
D) the auto industry 
A) household laundry products 
B) personal computers 
C) aluminum 
D) the auto industry

Question 20

The four-firm concentration ratio for the national industry does not capture the effects of all of the following, except

Accepted Answer

A) localized markets when transportation costs are high. 
B) interindustry competition. 
C) import competition when there is world trade. 
D) market coverage of the four largest firms. 
A) localized markets when transportation costs are high. 
B) interindustry competition. 
C) import competition when there is world trade. 
D) market coverage of the four largest firms.

Exam 14: Oligopoly and Strategic Behavior

List the three main models of oligopoly pricing and output.

Prices are likely to be least flexible

Refer to the diagram, where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. Which cell represents a Nash equilibrium?

This industry shown in this table illustrates

A cartel of four firms that controls 100 percent of the sales in a market, and faces the same cost schedules of a monopolist, will set a price somewhat lower than the monopoly price for its product.

What obstacles might a group of oligopolists encounter in forming a cartel?

Refer to the payoff matrix. Suppose that Alpha and Beta agree that they will both pursue a high-price strategy. If Beta then cheats on the agreement in order to increase profits, which of the following is true?

Industry Y is dominated by five large firms that hold market shares of 20, 20, 25, 25, and 10. The Herfindahl index for this industry is

Collusive control over price may permit oligopolists to

Suppose the Herfindahl indexes for industries A, B, and C are 7,200, 5,000, and 1,500, respectively. These data imply

Describe the negative effects of advertising.

In game theory, each player is assumed to have the following, except

Price wars among oligopolists tend to

The incentive to cheat within a cartel increases with an increase in the following factors, except

Which of the following is an illustration of differentiated oligopoly?

Game theory can be used to demonstrate that oligopolists

Other things equal, cartels and similar collusive arrangements are easier to establish and maintain

One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the following cases?

Which of the following industries is an illustration of homogeneous oligopoly?

The four-firm concentration ratio for the national industry does not capture the effects of all of the following, except

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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