Question 1

Which would make it easier to maintain an effective collusive agreement in a cartel?

Accepted Answer

A) the emergence of a number of potential entrant firms 
B) a decrease in the elasticity of demand for the cartel's product 
C) an increase in the number of substitutes for products produced by the cartel 
D) a new method of pricing that makes it more difficult for firms in the cartel to determine the prices at which other cartel members are selling their product 
A) the emergence of a number of potential entrant firms 
B) a decrease in the elasticity of demand for the cartel's product 
C) an increase in the number of substitutes for products produced by the cartel 
D) a new method of pricing that makes it more difficult for firms in the cartel to determine the prices at which other cartel members are selling their product

Question 2

Suppose that total sales in an industry in a particular year are $600 million and sales by the top four sellers are $200 million, $150 million, $100 million, and $50 million, respectively. We can conclude that

Accepted Answer

A) price leadership exists in this industry. 
B) the concentration ratio is more than 80 percent. 
C) this industry is a differentiated oligopoly. 
D) the firms in this industry face a kinked demand curve. 
A) price leadership exists in this industry. 
B) the concentration ratio is more than 80 percent. 
C) this industry is a differentiated oligopoly. 
D) the firms in this industry face a kinked demand curve.

Question 3

In a sequential game, the first mover into a new market

Accepted Answer

A) always earns a greater payoff than the second mover. 
B) may discourage the second mover from entering that market. 
C) only enters when there is a dominant strategy. 
D) guarantees that a Nash equilibrium will result. 
A) always earns a greater payoff than the second mover. 
B) may discourage the second mover from entering that market. 
C) only enters when there is a dominant strategy. 
D) guarantees that a Nash equilibrium will result.

Question 4

A breakdown in price leadership leading to successive rounds of price cuts is known as

Accepted Answer

A) limit pricing. 
B) a price war. 
C) informal pricing. 
D) price discrimination. 
A) limit pricing. 
B) a price war. 
C) informal pricing. 
D) price discrimination.

Question 5

In game theory, a repeated game is one

Accepted Answer

A) where a pair of players mimic the actions of another pair of players. 
B) that recurs more than once between two players. 
C) where the payoff matrix shows equal payoffs for two players. 
D) that is replicated in other parts of the market. 
A) where a pair of players mimic the actions of another pair of players. 
B) that recurs more than once between two players. 
C) where the payoff matrix shows equal payoffs for two players. 
D) that is replicated in other parts of the market.

Question 6

Economic efficiency can suffer as a result of advertising, when it

Accepted Answer

A) enhances competition among oligopolistic firms. 
B) facilitates the introduction and success of new products to replace old one. 
C) increases sales of firms and enhances their monopoly power. 
D) increases brand loyalty, reducing buyers' elasticity of demand. 
A) enhances competition among oligopolistic firms. 
B) facilitates the introduction and success of new products to replace old one. 
C) increases sales of firms and enhances their monopoly power. 
D) increases brand loyalty, reducing buyers' elasticity of demand.

Question 7

Which of the following terms best defines the choices available to the players of a game?

Accepted Answer

A) terminal nodes 
B) backward induction 
C) decision nodes 
D) subgame perfect Nash equilibrium 
A) terminal nodes 
B) backward induction 
C) decision nodes 
D) subgame perfect Nash equilibrium

Question 8

Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will

Accepted Answer

A) pursue a strategy to reduce advertising expenditures to maintain profits. 
B) decide to increase advertising expenditures even if it means a reduction in profits. 
C) make no changes in advertising expenditures because advertising is effective in the short run, but not the long run. 
D) increase the price of the product to improve profits and then increase advertising expenditures. 
A) pursue a strategy to reduce advertising expenditures to maintain profits. 
B) decide to increase advertising expenditures even if it means a reduction in profits. 
C) make no changes in advertising expenditures because advertising is effective in the short run, but not the long run. 
D) increase the price of the product to improve profits and then increase advertising expenditures.

Question 9

Refer to the game theory matrix, where the numerical data show the profits resulting from alternative combinations of advertising strategies for Ajax and Acme. Ajax's profits are shown in the upper right part of each cell; Acme's profits are shown in the lower left. Without collusion, the outcome of the game is cell

Accepted Answer

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

Question 10

If enforcement of antitrust laws caused the two largest firms in this table to be divided in half, with each half having equal market share, the industry's four-firm concentration ratio would ____ and its Herfindahl index would ____.

Accepted Answer

A) fall; fall 
B) fall; rise 
C) remain the same; rise 
D) remain the same; fall 
A) fall; fall 
B) fall; rise 
C) remain the same; rise 
D) remain the same; fall

Question 11

A dominant strategy is a player's move or action that

Accepted Answer

A) is better than any alternative option, regardless of what the other player does. 
B) yields her a higher payoff than the other player. 
C) results in the highest possible payoff, assuming a specific action by the other player. 
D) gives the largest total payoff for the two players combined. 
A) is better than any alternative option, regardless of what the other player does. 
B) yields her a higher payoff than the other player. 
C) results in the highest possible payoff, assuming a specific action by the other player. 
D) gives the largest total payoff for the two players combined.

Question 12

Which statement about oligopoly is false?

Accepted Answer

A) Oligopolistic firms recognize their interdependence. 
B) Prices in oligopoly are predicted to fluctuate widely and frequently. 
C) A few firms play an important role in the sale of a product. 
D) One firm's behavior is a function of what its rivals do. 
A) Oligopolistic firms recognize their interdependence. 
B) Prices in oligopoly are predicted to fluctuate widely and frequently. 
C) A few firms play an important role in the sale of a product. 
D) One firm's behavior is a function of what its rivals do.

Question 13

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. If Alpha and Beta agree to a high-price policy through collusion, the temptation to cheat on that agreement is demonstrated by the fact that

Accepted Answer

A) Beta can increase its profit by lowering its price. 
B) Beta can increase its profit by increasing its price still further. 
C) both Alpha and Beta can earn even more profits if both agree to a low-price policy. 
D) Alpha can increase its profit by reducing its production costs. 
A) Beta can increase its profit by lowering its price. 
B) Beta can increase its profit by increasing its price still further. 
C) both Alpha and Beta can earn even more profits if both agree to a low-price policy. 
D) Alpha can increase its profit by reducing its production costs.

Question 14

Answer the question based on the payoff matrix for a duopoly, in which the numbers indicate the profit from following either an international strategy or a national strategy. If firm A chooses an international strategy and firm B chooses a national strategy, then the payoffs will be

Accepted Answer

A) $3M for firm A and $3M for firm B. 
B) $17M for firm A and $17M for firm B. 
C) $15M for firm A and $5M for firm B. 
D) $5M for firm A and $15M for firm B. 
A) $3M for firm A and $3M for firm B. 
B) $17M for firm A and $17M for firm B. 
C) $15M for firm A and $5M for firm B. 
D) $5M for firm A and $15M for firm B.

Question 15

As a general rule, oligopoly exists when the four-firm concentration ratio

Accepted Answer

A) equals the Herfindahl index. 
B) yields a Herfindahl index below 500. 
C) is 40 percent or more. 
D) is 50 percent or more. 
A) equals the Herfindahl index. 
B) yields a Herfindahl index below 500. 
C) is 40 percent or more. 
D) is 50 percent or more.

Question 16

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, it is in the long-term best interests of both players to

Accepted Answer

A) compete, attempting to maximize their own payoffs each time the game is played. 
B) agree to cooperate, but then cheat on the agreement. 
C) agree to cooperate and then follow through on the agreement. 
D) match the advertising behavior of the other player each time the game is played. 
A) compete, attempting to maximize their own payoffs each time the game is played. 
B) agree to cooperate, but then cheat on the agreement. 
C) agree to cooperate and then follow through on the agreement. 
D) match the advertising behavior of the other player each time the game is played.

Question 17

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.

Question 18

Mutual interdependence means that each oligopolistic firm

Accepted Answer

A) faces a perfectly elastic demand for its product. 
B) must consider the reactions of its rivals when it determines its price policy. 
C) produces a product identical to those of its rivals. 
D) produces a product similar but not identical to the products of its rivals. 
A) faces a perfectly elastic demand for its product. 
B) must consider the reactions of its rivals when it determines its price policy. 
C) produces a product identical to those of its rivals. 
D) produces a product similar but not identical to the products of its rivals.

Question 19

The highest possible value of the Herfindahl index is 1,000.

Accepted Answer

A) True 
 B)False

Question 20

The automobile, household appliance, and automobile tire industries are all illustrations of

Accepted Answer

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

Exam 14: Oligopoly and Strategic Behavior

Which would make it easier to maintain an effective collusive agreement in a cartel?

Suppose that total sales in an industry in a particular year are $600 million and sales by the top four sellers are $200 million, $150 million, $100 million, and $50 million, respectively. We can conclude that

In a sequential game, the first mover into a new market

A breakdown in price leadership leading to successive rounds of price cuts is known as

In game theory, a repeated game is one

Economic efficiency can suffer as a result of advertising, when it

Which of the following terms best defines the choices available to the players of a game?

Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will

If enforcement of antitrust laws caused the two largest firms in this table to be divided in half, with each half having equal market share, the industry's four-firm concentration ratio would ____ and its Herfindahl index would ____.

A dominant strategy is a player's move or action that

Which statement about oligopoly is false?

Answer the question based on the payoff matrix for a duopoly, in which the numbers indicate the profit from following either an international strategy or a national strategy. If firm A chooses an international strategy and firm B chooses a national strategy, then the payoffs will be

As a general rule, oligopoly exists when the four-firm concentration ratio

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, it is in the long-term best interests of both players to

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

Mutual interdependence means that each oligopolistic firm

The highest possible value of the Herfindahl index is 1,000.

The automobile, household appliance, and automobile tire industries are all illustrations 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

Filters

If enforcement of antitrust laws caused the two largest firms in this table to be divided in half, with each half having equal market share, the industry's four-firm concentration ratio would and its Herfindahl index would .