Question 1

In a repeated game with reciprocity, the two players

Accepted Answer

A) could each earn a higher payoff than if they aggressively countered each other's single-period strategy. 
B) tend to earn less than if they aggressively countered each other's single-period strategy. 
C) will have less incentive to collude explicitly or tacitly. 
D) often end up in a price war. 
A) could each earn a higher payoff than if they aggressively countered each other's single-period strategy. 
B) tend to earn less than if they aggressively countered each other's single-period strategy. 
C) will have less incentive to collude explicitly or tacitly. 
D) often end up in a price war.

Question 2

The diagram portrays

Accepted Answer

A) pure competition. 
B) collusive oligopoly. 
C) non-collusive oligopoly. 
D) pure monopoly. 
A) pure competition. 
B) collusive oligopoly. 
C) non-collusive oligopoly. 
D) pure monopoly.

Question 3

Suppose that a particular industry has a four-firm concentration ratio of 85 and a Herfindahl index of 3,000. Most likely, this industry would achieve

Accepted Answer

A) both productive efficiency and allocative efficiency. 
B) allocative efficiency but not productive efficiency. 
C) neither productive efficiency nor allocative efficiency. 
D) productive efficiency but not allocative efficiency. 
A) both productive efficiency and allocative efficiency. 
B) allocative efficiency but not productive efficiency. 
C) neither productive efficiency nor allocative efficiency. 
D) productive efficiency but not allocative efficiency.

Question 4

As it relates to oligopoly, game theory focuses on the strategic behavior of rival firms.

Accepted Answer

A) True 
 B)False

Question 5

Limit pricing by a price leader in an oligopoly refers to the strategy of setting a price

Accepted Answer

A) that blocks the entry of new firms. 
B) that ensures profits for the least efficient existing firm in the oligopoly. 
C) that maximizes profits for all firms in the oligopoly market. 
D) that maximizes profits for the price leader, but not necessarily for the other firms. 
A) that blocks the entry of new firms. 
B) that ensures profits for the least efficient existing firm in the oligopoly. 
C) that maximizes profits for all firms in the oligopoly market. 
D) that maximizes profits for the price leader, but not necessarily for the other firms.

Question 6

Industry Y is dominated by five large firms that hold market shares of 41, 21, 17, 12, and 9. The Herfindahl index for this industry is

Accepted Answer

A) 2,555. 
B) 2,636. 
C) 2,225. 
D) 3,494. 
A) 2,555. 
B) 2,636. 
C) 2,225. 
D) 3,494.

Question 7

Game theory

Accepted Answer

A) is the analysis of how people (or firms)behave in strategic situations. 
B) is best suited for analyzing purely competitive markets. 
C) reveals that mergers between rival firms are self-defeating. 
D) reveals that price-fixing among firms reduces profits. 
A) is the analysis of how people (or firms)behave in strategic situations. 
B) is best suited for analyzing purely competitive markets. 
C) reveals that mergers between rival firms are self-defeating. 
D) reveals that price-fixing among firms reduces profits.

Question 8

In game theory, credible threats can be used to maintain collusive agreements between firms.

Accepted Answer

A) True 
 B)False

Question 9

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 is the solution to this extensive form game?

Accepted Answer

A) AA will enter the market; FF will not. 
B) FF will enter the market; AA will not. 
C) Neither airline will enter the market. 
D) Both airlines will enter the market. 
A) AA will enter the market; FF will not. 
B) FF will enter the market; AA will not. 
C) Neither airline will enter the market. 
D) Both airlines will enter the market.

Question 10

One shortcoming of the kinked demand curve model of oligopoly is that it does not explain

Accepted Answer

A) why the marginal revenue curve is kinked. 
B) how the current price gets determined. 
C) what the level of profits is for the firm. 
D) why the firm is a least-cost producer. 
A) why the marginal revenue curve is kinked. 
B) how the current price gets determined. 
C) what the level of profits is for the firm. 
D) why the firm is a least-cost producer.

Question 11

A major prediction of the kinked demand curve model is

Accepted Answer

A) price stability in oligopolies. 
B) price instability in oligopolies. 
C) stability of production costs in oligopolies. 
D) instability of costs in oligopolies. 
A) price stability in oligopolies. 
B) price instability in oligopolies. 
C) stability of production costs in oligopolies. 
D) instability of costs in oligopolies.

Question 12

The likelihood of a cartel being successful is greater when

Accepted Answer

A) firms are producing a differentiated, rather than a homogeneous, product. 
B) cost and demand curves of various participants are very similar. 
C) the number of firms involved is relatively large. 
D) the economy is in the recession phase of the business cycle. 
A) firms are producing a differentiated, rather than a homogeneous, product. 
B) cost and demand curves of various participants are very similar. 
C) the number of firms involved is relatively large. 
D) the economy is in the recession phase of the business cycle.

Question 13

All other things equal, the larger the number of firms in an oligopolistic industry, the more difficult it is for those firms to collude.

Accepted Answer

A) True 
 B)False

Question 14

What are three qualifications to the view that allocative and productive efficiency are not realized in oligopoly?

Accepted Answer

Three qualifications to the view that ol

Question 15

Answer the question based on the payoff matrix for a duopoly in which the numbers indicate the profit in millions of dollars for each firm. If the two firms collude to maximize joint profits,

Accepted Answer

A) there will be an incentive for Firm A to cheat and earn more if Firm B does not switch strategies. 
B) there will be an incentive for Firm B to cheat and earn more if Firm A does not switch strategies. 
C) there will be no incentive for either Firm A or Firm B to cheat. 
D) there will be incentives for both Firm A and Firm B to cheat. 
A) there will be an incentive for Firm A to cheat and earn more if Firm B does not switch strategies. 
B) there will be an incentive for Firm B to cheat and earn more if Firm A does not switch strategies. 
C) there will be no incentive for either Firm A or Firm B to cheat. 
D) there will be incentives for both Firm A and Firm B to cheat.

Question 16

A player is said to have a dominant strategy when one of the options available is superior, regardless of what strategy the other player chooses.

Accepted Answer

A) True 
 B)False

Question 17

The kinked-demand curve model of oligopoly

Accepted Answer

A) assumes a firm's rivals will ignore a price cut but match a price increase. 
B) embodies the possibility that changes in unit costs will have no effect on equilibrium price and output. 
C) assumes a firm's rivals will match any price change it may initiate. 
D) assumes a firm's rivals will ignore any price change it may initiate. 
A) assumes a firm's rivals will ignore a price cut but match a price increase. 
B) embodies the possibility that changes in unit costs will have no effect on equilibrium price and output. 
C) assumes a firm's rivals will match any price change it may initiate. 
D) assumes a firm's rivals will ignore any price change it may initiate.

Question 18

Collusion among oligopolistic firms

Accepted Answer

A) is common in world markets, but does not happen in the United States. 
B) becomes more difficult if there are fewer firms in the group. 
C) becomes easier during a recession, when sales are falling. 
D) becomes more difficult if the firms all have different cost and demand curves. 
A) is common in world markets, but does not happen in the United States. 
B) becomes more difficult if there are fewer firms in the group. 
C) becomes easier during a recession, when sales are falling. 
D) becomes more difficult if the firms all have different cost and demand curves.

Question 19

If an oligopolist's several rivals exactly match any price changes it initiates, the demand curve will be less elastic than if its price changes are ignored by its rivals.

Accepted Answer

A) True 
 B)False

Question 20

Suppose that a particular industry has a four-firm concentration ratio of 25 and a Herfindahl index of 600. Most likely, this industry would achieve

Accepted Answer

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

Exam 14: Oligopoly and Strategic Behavior

In a repeated game with reciprocity, the two players

The diagram portrays

Suppose that a particular industry has a four-firm concentration ratio of 85 and a Herfindahl index of 3,000. Most likely, this industry would achieve

As it relates to oligopoly, game theory focuses on the strategic behavior of rival firms.

Limit pricing by a price leader in an oligopoly refers to the strategy of setting a price

Industry Y is dominated by five large firms that hold market shares of 41, 21, 17, 12, and 9. The Herfindahl index for this industry is

Game theory

In game theory, credible threats can be used to maintain collusive agreements between firms.

One shortcoming of the kinked demand curve model of oligopoly is that it does not explain

A major prediction of the kinked demand curve model is

The likelihood of a cartel being successful is greater when

All other things equal, the larger the number of firms in an oligopolistic industry, the more difficult it is for those firms to collude.

What are three qualifications to the view that allocative and productive efficiency are not realized in oligopoly?

Answer the question based on the payoff matrix for a duopoly in which the numbers indicate the profit in millions of dollars for each firm. If the two firms collude to maximize joint profits,

A player is said to have a dominant strategy when one of the options available is superior, regardless of what strategy the other player chooses.

The kinked-demand curve model of oligopoly

Collusion among oligopolistic firms

If an oligopolist's several rivals exactly match any price changes it initiates, the demand curve will be less elastic than if its price changes are ignored by its rivals.

Suppose that a particular industry has a four-firm concentration ratio of 25 and a Herfindahl index of 600. Most likely, this industry would achieve

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