Question 1

A high concentration ratio indicates that

Accepted Answer

A) the industry is highly profitable. 
B) the industry is highly competitive. 
C) many firms produce most of the output in an industry. 
D) few firms produce most of the output in an industry. 
A) the industry is highly profitable. 
B) the industry is highly competitive. 
C) many firms produce most of the output in an industry. 
D) few firms produce most of the output in an industry.

Question 2

An industry having a four-firm concentration ratio of 85 percent

Accepted Answer

A) approximates pure competition. 
B) is monopolistically competitive. 
C) is a pure monopoly. 
D) is an oligopoly. 
A) approximates pure competition. 
B) is monopolistically competitive. 
C) is a pure monopoly. 
D) is an oligopoly.

Question 3

Mutual interdependence means that each firm in an oligopoly

Accepted Answer

A) faces a perfectly inelastic demand for its product. 
B) considers the reactions of its rivals when it determines its pricing policy. 
C) depends on the other firms for its inputs. 
D) depends on the other firms for its markets. 
A) faces a perfectly inelastic demand for its product. 
B) considers the reactions of its rivals when it determines its pricing policy. 
C) depends on the other firms for its inputs. 
D) depends on the other firms for its markets.

Question 4

In game theory, sequential games can be displayed or summarized in two forms,

Accepted Answer

A) collusive form and strategic form. 
B) strategic form and extensive form. 
C) payoff matrix form and strategic form. 
D) extensive form and game-tree form. 
A) collusive form and strategic form. 
B) strategic form and extensive form. 
C) payoff matrix form and strategic form. 
D) extensive form and game-tree form.

Question 5

In repeated games, credible threats are necessary for the players to reach a Nash equilibrium.

Accepted Answer

A) True 
 B)False

Question 6

If an oligopoly is faced with a kinked-demand curve that is relatively elastic above and relatively inelastic below the going price, then it will

Accepted Answer

A) increase total revenue by increasing price but lower total revenue by decreasing price. 
B) decrease total revenue by either increasing or decreasing price. 
C) increase total revenue by either increasing or decreasing price. 
D) increase total revenue by decreasing price but lower total revenue by increasing price. 
A) increase total revenue by increasing price but lower total revenue by decreasing price. 
B) decrease total revenue by either increasing or decreasing price. 
C) increase total revenue by either increasing or decreasing price. 
D) increase total revenue by decreasing price but lower total revenue by increasing price.

Question 7

In a duopoly, if one firm increases its price, then the other firm can

Accepted Answer

A) lose $75 million in profit and firm A will gain $50 million in profit. 
B) gain $50 million in profit and firm A will lose $50 million in profit. 
C) gain $75 million in profit and firm A will lose $50 million in profit. 
D) gain $50 million in profit and firm A will lose $75 million in profit. 
A) lose $75 million in profit and firm A will gain $50 million in profit. 
B) gain $50 million in profit and firm A will lose $50 million in profit. 
C) gain $75 million in profit and firm A will lose $50 million in profit. 
D) gain $50 million in profit and firm A will lose $75 million in profit.

Question 8

The first mover in a sequential game always has the advantage over the second mover.

Accepted Answer

A) True 
 B)False

Question 9

The Organization of Petroleum Exporting Countries (OPEC)is an international cartel. If the cartel were to hire a consulting firm to monitor the production rates of member countries, the economic reason for this monitoring would be to

Accepted Answer

A) make sure that each member country is producing at an output level at which price equals marginal cost. 
B) make sure all the member countries produce at least their quotas so that there will be no oil shortage. 
C) detect those member countries that are depressing prices by producing more than their assigned quotas. 
D) make sure that the marginal revenue for the last barrel of oil sold by each member country is less than its price. 
A) make sure that each member country is producing at an output level at which price equals marginal cost. 
B) make sure all the member countries produce at least their quotas so that there will be no oil shortage. 
C) detect those member countries that are depressing prices by producing more than their assigned quotas. 
D) make sure that the marginal revenue for the last barrel of oil sold by each member country is less than its price.

Question 10

Suppose an oligopolistic producer assumes its rivals will ignore a price increase but match a price cut. In this case the firm perceives its

Accepted Answer

A) demand curve as being of unit elasticity throughout. 
B) supply curve as kinked, being steeper below the going price than above. 
C) demand curve as kinked, being steeper below the going price than above. 
D) demand curve as kinked, being steeper above the going price than below. 
A) demand curve as being of unit elasticity throughout. 
B) supply curve as kinked, being steeper below the going price than above. 
C) demand curve as kinked, being steeper below the going price than above. 
D) demand curve as kinked, being steeper above the going price than below.

Question 11

The four-firm concentration ratio for the industry described in this table is

Accepted Answer

A) 100 percent. 
B) indeterminate since we don't know which four firms are included. 
C) 80 percent. 
D) 20 percent. 
A) 100 percent. 
B) indeterminate since we don't know which four firms are included. 
C) 80 percent. 
D) 20 percent.

Question 12

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. Is there a Nash equilibrium solution to this game?

Accepted Answer

A) There is no possible Nash equilibrium solution. 
B) A Nash equilibrium can occur at either cell B or cell C. 
C) Cell A represents a Nash equilibrium. 
D) Cell D represents a Nash equilibrium. 
A) There is no possible Nash equilibrium solution. 
B) A Nash equilibrium can occur at either cell B or cell C. 
C) Cell A represents a Nash equilibrium. 
D) Cell D represents a Nash equilibrium.

Question 13

In 2018, advertising expenditures in the United States were

Accepted Answer

A) 10 to 12 percent of GDP. 
B) about $103 billion. 
C) about $163 billion. 
D) about $539 billion. 
A) 10 to 12 percent of GDP. 
B) about $103 billion. 
C) about $163 billion. 
D) about $539 billion.

Question 14

Describe the essential features of the kinked-demand model of oligopoly pricing.

Accepted Answer

The kinked demand model has a demand cur

Question 15

In which of these continuums of degrees of competition (lowest to highest)is oligopoly properly placed?

Accepted Answer

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

Question 16

In an oligopolistic market,

Accepted Answer

A) one firm is always dominant. 
B) products may be standardized or differentiated. 
C) the four largest firms account for 20 percent or less of total sales. 
D) the industry is monopolistically competitive. 
A) one firm is always dominant. 
B) products may be standardized or differentiated. 
C) the four largest firms account for 20 percent or less of total sales. 
D) the industry is monopolistically competitive.

Question 17

The term oligopoly indicates

Accepted Answer

A) a one-firm industry. 
B) many producers of a differentiated product. 
C) a few firms producing either a differentiated or a homogeneous product. 
D) an industry whose four-firm concentration ratio is low. 
A) a one-firm industry. 
B) many producers of a differentiated product. 
C) a few firms producing either a differentiated or a homogeneous product. 
D) an industry whose four-firm concentration ratio is low.

Question 18

One major problem with four-firm concentration ratios is that they fail to take into account

Accepted Answer

A) the localized market for products. 
B) excess capacity in production. 
C) price leadership. 
D) mutual interdependence. 
A) the localized market for products. 
B) excess capacity in production. 
C) price leadership. 
D) mutual interdependence.

Question 19

A Nash equilibrium can only occur in repeated games.

Accepted Answer

A) True 
 B)False

Question 20

Refer to the diagram. In equilibrium the firm

Accepted Answer

A) is realizing an economic profit of ad per unit. 
B) should close down in the short run. 
C) is incurring a loss. 
D) is realizing an economic profit of bd per unit. 
A) is realizing an economic profit of ad per unit. 
B) should close down in the short run. 
C) is incurring a loss. 
D) is realizing an economic profit of bd per unit.

Exam 14: Oligopoly and Strategic Behavior

A high concentration ratio indicates that

An industry having a four-firm concentration ratio of 85 percent

Mutual interdependence means that each firm in an oligopoly

In game theory, sequential games can be displayed or summarized in two forms,

In repeated games, credible threats are necessary for the players to reach a Nash equilibrium.

If an oligopoly is faced with a kinked-demand curve that is relatively elastic above and relatively inelastic below the going price, then it will

In a duopoly, if one firm increases its price, then the other firm can

The first mover in a sequential game always has the advantage over the second mover.

The Organization of Petroleum Exporting Countries (OPEC)is an international cartel. If the cartel were to hire a consulting firm to monitor the production rates of member countries, the economic reason for this monitoring would be to

Suppose an oligopolistic producer assumes its rivals will ignore a price increase but match a price cut. In this case the firm perceives its

The four-firm concentration ratio for the industry described in this table is

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. Is there a Nash equilibrium solution to this game?

In 2018, advertising expenditures in the United States were

Describe the essential features of the kinked-demand model of oligopoly pricing.

In which of these continuums of degrees of competition (lowest to highest)is oligopoly properly placed?

In an oligopolistic market,

The term oligopoly indicates

One major problem with four-firm concentration ratios is that they fail to take into account

A Nash equilibrium can only occur in repeated games.

Refer to the diagram. In equilibrium the firm

Limits, Alternatives, and Choices

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Pure Competition in the Short Run

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