Question 1

The tablet-computer market is best characterized as a(n)

Accepted Answer

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

Question 2

You are told that the four-firm concentration ratio in an industry is 20. Based on this information you can conclude that

Accepted Answer

A) each of the top four firms has, on average, 20 percent of industry sales. 
B) this industry's market structure is oligopoly. 
C) the four largest firms account for 20 percent of industry sales. 
D) each of the four largest firms accounts for 5 percent of industry sales. 
A) each of the top four firms has, on average, 20 percent of industry sales. 
B) this industry's market structure is oligopoly. 
C) the four largest firms account for 20 percent of industry sales. 
D) each of the four largest firms accounts for 5 percent of industry sales.

Question 3

Major Internet-related firms such as Google, Apple, Amazon, Microsoft, and Facebook each have an area of the market that they dominate. Which of the following is true about their interaction in the market?

Accepted Answer

A) They tend to act independently, paying little attention to what the other firms do. 
B) They collude so that each firm retains a near-monopoly in a particular sector without facing threats from the other major firms. 
C) They behave according to a price leadership model, with each firm taking a leadership role in the particular sector it dominates. 
D) They compete fiercely, as each looks for ways to increase profits by expanding into rivals' markets. 
A) They tend to act independently, paying little attention to what the other firms do. 
B) They collude so that each firm retains a near-monopoly in a particular sector without facing threats from the other major firms. 
C) They behave according to a price leadership model, with each firm taking a leadership role in the particular sector it dominates. 
D) They compete fiercely, as each looks for ways to increase profits by expanding into rivals' markets.

Question 4

Two industries that have the same four-firm concentration ratio can have significantly different Herfindahl indexes.

Accepted Answer

A) True 
 B)False

Question 5

The Herfindahl index for bar soap is 2,250, while the index for gasoline pumps is 1,611. Which market is more competitive?

Accepted Answer

The higher the Herfindahl inde

Question 6

The kinked-demand curve model of oligopoly is useful in explaining

Accepted Answer

A) the way that collusion works. 
B) why oligopolistic prices and outputs are extremely sensitive to changes in marginal cost. 
C) why oligopolistic prices might change infrequently. 
D) the process by which oligopolists merge with one another. 
A) the way that collusion works. 
B) why oligopolistic prices and outputs are extremely sensitive to changes in marginal cost. 
C) why oligopolistic prices might change infrequently. 
D) the process by which oligopolists merge with one another.

Question 7

Which cannot be a characteristic of an oligopolistic industry?

Accepted Answer

A) differentiated products 
B) a large number of consumers 
C) significant barriers to entry 
D) a perfectly elastic firm demand curve 
A) differentiated products 
B) a large number of consumers 
C) significant barriers to entry 
D) a perfectly elastic firm demand curve

Question 8

Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlines and Friendly Flyers are looking to enter that market. (They are the only two.)The figure shows in extensive form the possible outcomes of the two firms' decisions. The payoffs represent, in thousands per month, the profit (or loss)the firm will realize from its decision. Assuming the two firms have perfect information about this game, what can we conclude about the existence of a Nash equilibrium?

Accepted Answer

A) The solution to the game is a Nash equilibrium. 
B) There are multiple Nash equilibria for this game. 
C) There is no Nash equilibrium for this game. 
D) There is a Nash equilibrium for this game, but it does not coincide with the solution to the game. 
A) The solution to the game is a Nash equilibrium. 
B) There are multiple Nash equilibria for this game. 
C) There is no Nash equilibrium for this game. 
D) There is a Nash equilibrium for this game, but it does not coincide with the solution to the game.

Question 9

In an oligopolistic market, there is likely to be

Accepted Answer

A) little consideration of the actions of rival firms. 
B) price-taking behavior on the part of firms. 
C) product homogeneity, not differentiation. 
D) neither allocative nor productive efficiency. 
A) little consideration of the actions of rival firms. 
B) price-taking behavior on the part of firms. 
C) product homogeneity, not differentiation. 
D) neither allocative nor productive efficiency.

Question 10

Firms must consider the possible reaction of rivals to their own decisions and actions in which of the following markets?

Accepted Answer

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

Question 11

Industry Y is dominated by five large firms that hold market shares of 27, 23, 16, 16, and 18 percent. The four-firm concentration ratio for this industry is

Accepted Answer

A) 82 percent. 
B) 84 percent. 
C) 88 percent. 
D) 92 percent. 
A) 82 percent. 
B) 84 percent. 
C) 88 percent. 
D) 92 percent.

Question 12

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 13

Game trees are most useful for

Accepted Answer

A) showing Nash equilibrium. 
B) identifying dominant strategies. 
C) mapping out sequential games. 
D) determining whether a game is positive-sum, zero-sum, or negative-sum. 
A) showing Nash equilibrium. 
B) identifying dominant strategies. 
C) mapping out sequential games. 
D) determining whether a game is positive-sum, zero-sum, or negative-sum.

Question 14

In which market model is there mutual interdependence?

Accepted Answer

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

Question 15

Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlines and Friendly Flyers are looking to enter that market. (They are the only two.)The figure shows in extensive form the possible outcomes of the two firms' decisions. The payoffs represent, in thousands per month, the profit (or loss)the firm will realize from its decision. What does this extensive form game indicate about the decision to enter the South Podunk market?

Accepted Answer

A) Accommodating Airlines has a first-mover advantage in this game. 
B) Both airlines are better off by entering this market. 
C) Friendly Flyers has a first-mover advantage in this game. 
D) The outcome of this game is a prisoner's dilemma. 
A) Accommodating Airlines has a first-mover advantage in this game. 
B) Both airlines are better off by entering this market. 
C) Friendly Flyers has a first-mover advantage in this game. 
D) The outcome of this game is a prisoner's dilemma.

Question 16

The effects of advertising on a firm's profits and efficiency

Accepted Answer

A) are definitely positive. 
B) are definitely negative. 
C) may be positive or negative. 
D) are only observed in oligopoly. 
A) are definitely positive. 
B) are definitely negative. 
C) may be positive or negative. 
D) are only observed in oligopoly.

Question 17

First-mover advantage cannot happen in a one-time simultaneous game.

Accepted Answer

A) True 
 B)False

Question 18

Price leadership represents a situation where oligopolistic firms

Accepted Answer

A) reduce their reliance on nonprice competition. 
B) form a cartel. 
C) face a kinked demand curve. 
D) tacitly collude. 
A) reduce their reliance on nonprice competition. 
B) form a cartel. 
C) face a kinked demand curve. 
D) tacitly collude.

Question 19

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. What does this extensive form game indicate about the decision to open a new coffee shop?

Accepted Answer

A) The outcome of the game is a prisoner's dilemma. 
B) Neither firm has a first-mover advantage. 
C) Jumbo Java has a first-mover advantage. 
D) Corporate Coffee has a first-mover advantage. 
A) The outcome of the game is a prisoner's dilemma. 
B) Neither firm has a first-mover advantage. 
C) Jumbo Java has a first-mover advantage. 
D) Corporate Coffee has a first-mover advantage.

Question 20

Refer to the diagram for a non-collusive oligopolist. We assume that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. If the firm's rivals will ignore any price increase but match any price reduction, the firm's marginal revenue curve will be (moving from left to right)

Accepted Answer

A) D₁ ED₂. 
B) MR₂abMR₁ 
C) MR₂aMR₂ 
D) MR₁ bMR₁. 
A) D₁ ED₂. 
B) MR₂abMR₁ 
C) MR₂aMR₂ 
D) MR₁ bMR₁.

Exam 14: Oligopoly and Strategic Behavior

The tablet-computer market is best characterized as a(n)

You are told that the four-firm concentration ratio in an industry is 20. Based on this information you can conclude that

Major Internet-related firms such as Google, Apple, Amazon, Microsoft, and Facebook each have an area of the market that they dominate. Which of the following is true about their interaction in the market?

Two industries that have the same four-firm concentration ratio can have significantly different Herfindahl indexes.

The Herfindahl index for bar soap is 2,250, while the index for gasoline pumps is 1,611. Which market is more competitive?

The kinked-demand curve model of oligopoly is useful in explaining

Which cannot be a characteristic of an oligopolistic industry?

In an oligopolistic market, there is likely to be

Firms must consider the possible reaction of rivals to their own decisions and actions in which of the following markets?

Industry Y is dominated by five large firms that hold market shares of 27, 23, 16, 16, and 18 percent. The four-firm concentration ratio for this industry is

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 ____.

Game trees are most useful for

In which market model is there mutual interdependence?

The effects of advertising on a firm's profits and efficiency

First-mover advantage cannot happen in a one-time simultaneous game.

Price leadership represents a situation where oligopolistic firms

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 .