Question 1

Unlike a monopoly, an oligopoly tends to achieve allocative efficiency due to the rivalry among several firms.

Accepted Answer

A) True 
 B)False

Question 2

Mutually cancelling advertising by oligopolistic firms tends to improve economic efficiency in the industry.

Accepted Answer

A) True 
 B)False

Question 3

Collusion refers to a situation where rival firms decide to

Accepted Answer

A) compete aggressively against each other. 
B) cheat on each other. 
C) agree with each other to set prices and output. 
D) combine their operations and merge with each other. 
A) compete aggressively against each other. 
B) cheat on each other. 
C) agree with each other to set prices and output. 
D) combine their operations and merge with each other.

Question 4

Assume six firms composing an industry have market shares of 35, 25, 15, 10, 10, and 5 percent. The Herfindahl index for this industry is

Accepted Answer

A) 2,175. 
B) 2,300. 
C) 1,225. 
D) 85. 
A) 2,175. 
B) 2,300. 
C) 1,225. 
D) 85.

Question 5

Refer to the diagram for a non-collusive oligopolist. Suppose that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. Which of the following statements is correct?

Accepted Answer

A) Demand curve D₁ assumes that rivals will match any price change initiated by this oligopolist. 
B) Demand curves D₁ and D₂ both assume that rivals will ignore any price change initiated by this oligopolist. 
C) Demand curves D₁ and D₂ both assume that rivals will match any price change initiated by this oligopolist. 
D) Demand curve D₂ assumes that rivals will match any price change initiated by this oligopolist. 
A) Demand curve D₁ assumes that rivals will match any price change initiated by this oligopolist. 
B) Demand curves D₁ and D₂ both assume that rivals will ignore any price change initiated by this oligopolist. 
C) Demand curves D₁ and D₂ both assume that rivals will match any price change initiated by this oligopolist. 
D) Demand curve D₂ assumes that rivals will match any price change initiated by this oligopolist.

Question 6

A prediction from the kinked demand curve model of oligopoly is that, for an individual firm, small changes in

Accepted Answer

A) demand will lead to changes in price or output. 
B) marginal revenue will lead to changes in price and output. 
C) marginal cost will lead to changes in price and output. 
D) marginal cost will not lead to changes in price or output. 
A) demand will lead to changes in price or output. 
B) marginal revenue will lead to changes in price and output. 
C) marginal cost will lead to changes in price and output. 
D) marginal cost will not lead to changes in price or output.

Question 7

Which of the following best describes a Nash equilibrium?

Accepted Answer

A) An outcome from which one or both competitors can improve their position by adopting an alternative strategy. 
B) The unstable outcome of a repeated game. 
C) An outcome that is stable only because of credible threats. 
D) An outcome that both competitors see as optimal, given the strategy of their rival. 
A) An outcome from which one or both competitors can improve their position by adopting an alternative strategy. 
B) The unstable outcome of a repeated game. 
C) An outcome that is stable only because of credible threats. 
D) An outcome that both competitors see as optimal, given the strategy of their rival.

Question 8

Negative-sum games do not exist, because neither player has an incentive to play the game.

Accepted Answer

A) True 
 B)False

Question 9

Advertising can impede economic efficiency when it

Accepted Answer

A) reduces entry barriers. 
B) reduces brand loyalty. 
C) leads to greater monopoly power. 
D) provides consumers with useful information about product quality. 
A) reduces entry barriers. 
B) reduces brand loyalty. 
C) leads to greater monopoly power. 
D) provides consumers with useful information about product quality.

Question 10

The U.S. breakfast cereal industry is an example of differentiated oligopoly.

Accepted Answer

A) True 
 B)False

Question 11

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. Which of the following is true?

Accepted Answer

A) The international strategy is the dominant strategy for both firms. 
B) The national strategy is the dominant strategy for both firms. 
C) The international strategy is the dominant strategy for firm A, and the national strategy is the dominant strategy for firm B. 
D) The national strategy is the dominant strategy for firm A, and the international strategy is the dominant strategy for firm B. 
A) The international strategy is the dominant strategy for both firms. 
B) The national strategy is the dominant strategy for both firms. 
C) The international strategy is the dominant strategy for firm A, and the national strategy is the dominant strategy for firm B. 
D) The national strategy is the dominant strategy for firm A, and the international strategy is the dominant strategy for firm B.

Question 12

If an industry evolves from monopolistic competition to oligopoly, we would expect

Accepted Answer

A) the four-firm concentration ratio to decrease. 
B) the four-firm concentration ratio to increase. 
C) the four-firm concentration ratio to remain the same. 
D) barriers to entry to weaken. 
A) the four-firm concentration ratio to decrease. 
B) the four-firm concentration ratio to increase. 
C) the four-firm concentration ratio to remain the same. 
D) barriers to entry to weaken.

Question 13

A major reason that firms form a cartel is to

Accepted Answer

A) reduce the elasticity of demand for the product. 
B) enlarge the market share for each producer. 
C) minimize the costs of production. 
D) maximize joint profits. 
A) reduce the elasticity of demand for the product. 
B) enlarge the market share for each producer. 
C) minimize the costs of production. 
D) maximize joint profits.

Question 14

The characteristic most closely associated with oligopoly is

Accepted Answer

A) easy entry into the industry. 
B) a few large producers. 
C) product standardization. 
D) no control over price. 
A) easy entry into the industry. 
B) a few large producers. 
C) product standardization. 
D) no control over price.

Question 15

If competing oligopolists completely ignore oligopolist X's price changes, then X's

Accepted Answer

A) demand curve will be less elastic than if the other oligopolists matched X's price changes. 
B) demand curve will be more elastic than if the other oligopolists matched X's price changes. 
C) marginal revenue curve will have a vertical gap. 
D) demand and marginal revenue curves will coincide. 
A) demand curve will be less elastic than if the other oligopolists matched X's price changes. 
B) demand curve will be more elastic than if the other oligopolists matched X's price changes. 
C) marginal revenue curve will have a vertical gap. 
D) demand and marginal revenue curves will coincide.

Question 16

Clear-cut mutual interdependence with respect to the price-output policies exists in

Accepted Answer

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

Question 17

Answer the question based on the payoff matrices for a repeated game involving two firms that are considering introducing new products to the market. The numbers indicate the profit from following either a strategy to introduce a new product or a strategy to not introduce a new product.First game.   Second game.   In the second game,

Accepted Answer

A) introducing a new product is the dominant strategy for both firms. 
B) not introducing a new product is the dominant strategy for both firms. 
C) introducing a new product is the dominant strategy for firm A, while not introducing a new product is the dominant strategy for firm B. 
D) not introducing a new product is the dominant strategy for firm A, while introducing a new product is the dominant strategy for firm B. 
A) introducing a new product is the dominant strategy for both firms. 
B) not introducing a new product is the dominant strategy for both firms. 
C) introducing a new product is the dominant strategy for firm A, while not introducing a new product is the dominant strategy for firm B. 
D) not introducing a new product is the dominant strategy for firm A, while introducing a new product is the dominant strategy for firm B.

Question 18

OPEC functions as a classic example of a kinked demand curve oligopoly.

Accepted Answer

A) True 
 B)False

Question 19

Two characteristics of oligopoly pricing that have frequently been observed are that

Accepted Answer

A) oligopolistic prices tend to be "sticky" or inflexible, and when the firms do change their prices, they tend to do so together. 
B) oligopolistic firms' prices tend to fluctuate a lot, and these prices tend to move together with each other. 
C) oligopolists tend to practice a lot of price discrimination, and there tends to be a wide variance in oligopoly pricing. 
D) oligopolistic firms' prices tend to fluctuate a lot, and there tends to be a wide variance in oligopoly pricing. 
A) oligopolistic prices tend to be "sticky" or inflexible, and when the firms do change their prices, they tend to do so together. 
B) oligopolistic firms' prices tend to fluctuate a lot, and these prices tend to move together with each other. 
C) oligopolists tend to practice a lot of price discrimination, and there tends to be a wide variance in oligopoly pricing. 
D) oligopolistic firms' prices tend to fluctuate a lot, and there tends to be a wide variance in oligopoly pricing.

Question 20

The study of how people (or firms)behave in strategic situations is called

Accepted Answer

A) cost-benefit analysis. 
B) recursive analysis. 
C) normative economics. 
D) game theory. 
A) cost-benefit analysis. 
B) recursive analysis. 
C) normative economics. 
D) game theory.

Exam 14: Oligopoly and Strategic Behavior

Unlike a monopoly, an oligopoly tends to achieve allocative efficiency due to the rivalry among several firms.

Mutually cancelling advertising by oligopolistic firms tends to improve economic efficiency in the industry.

Collusion refers to a situation where rival firms decide to

Assume six firms composing an industry have market shares of 35, 25, 15, 10, 10, and 5 percent. The Herfindahl index for this industry is

Refer to the diagram for a non-collusive oligopolist. Suppose that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. Which of the following statements is correct?

A prediction from the kinked demand curve model of oligopoly is that, for an individual firm, small changes in

Which of the following best describes a Nash equilibrium?

Negative-sum games do not exist, because neither player has an incentive to play the game.

Advertising can impede economic efficiency when it

The U.S. breakfast cereal industry is an example of differentiated oligopoly.

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. Which of the following is true?

If an industry evolves from monopolistic competition to oligopoly, we would expect

A major reason that firms form a cartel is to

The characteristic most closely associated with oligopoly is

If competing oligopolists completely ignore oligopolist X's price changes, then X's

Clear-cut mutual interdependence with respect to the price-output policies exists in

OPEC functions as a classic example of a kinked demand curve oligopoly.

Two characteristics of oligopoly pricing that have frequently been observed are that

The study of how people (or firms)behave in strategic situations is called

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

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The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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