Question 1

A Nash equilibrium is

Accepted Answer

A) reached when an oligopoly's market demand and supply intersect. 
B) reached when each player chooses the best strategy for himself and for the group. 
C) reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group. 
D) an equilibrium comprising non-dominant strategies only. 
A) reached when an oligopoly's market demand and supply intersect. 
B) reached when each player chooses the best strategy for himself and for the group. 
C) reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group. 
D) an equilibrium comprising non-dominant strategies only.

Question 2

The Organization of Petroleum Exporting Countries (OPEC)controls about 75 percent of the world's proven oil reserves.Economists refer to OPEC as a cartel because

Accepted Answer

A) OPEC is a monopoly, but it is located outside of the boundaries of any one country. This is the definition of a cartel. 
B) this is the term used for an oligopoly that is controlled by national governments rather than private firms. 
C) it is a group of firms that collude to restrict output to increase prices and profits. 
D) this is the term economists use to describe an oligopoly that sells a standardized product, such as oil, rather than a differentiated product, such as automobiles. 
A) OPEC is a monopoly, but it is located outside of the boundaries of any one country. This is the definition of a cartel. 
B) this is the term used for an oligopoly that is controlled by national governments rather than private firms. 
C) it is a group of firms that collude to restrict output to increase prices and profits. 
D) this is the term economists use to describe an oligopoly that sells a standardized product, such as oil, rather than a differentiated product, such as automobiles.

Question 3

Figure 14-7
  
-Refer to Figure 14-7.Uniquest, Inc.is a company that provides PCs with Internet access and touch-sensitive screens to hotels.Suppose the Hard Rock Hotel and Casino in Las Vegas informs Uniquest that it is considering installing these systems in its hotel rooms.The Hard Rock expects to be able to charge higher prices for these rooms if it installs Uniquest's systems in its rooms.The two companies begin bargaining over what price the Hard Rock will pay Uniquest for its systems, and the decision tree shown above illustrates this bargaining game.Note that the profit figures listed in the decision tree are additional profits for the Hard Rock and total profits for Uniquest.
a.Suppose the Hard Rock offers Uniquest $1,200 per system.Will Uniquest accept or reject this offer? Why?
b.Suppose the Hard Rock offers Uniquest $800 per system.Will Uniquest accept or reject this offer? Why?
c.Suppose Uniquest attempts to obtain a favorable outcome from the bargaining by telling the Hard Rock it will reject an $800-per-system offer.If the Hard Rock does not believe the threat is credible, what will it do? Why? What will Uniquest do? Why?
d.Is there a subgame-perfect equilibrium in this situation? Explain.

Accepted Answer

a.If the Hard Rock offers Uniquest $1,20

Question 4

In an oligopoly, minimum efficient scale is likely to occur at a level of output that is a large fraction of industry sales.

Accepted Answer

A) True 
 B)False

Question 5

A cooperative equilibrium results when firms

Accepted Answer

A) choose the best strategy regardless of what other players do. 
B) choose the strategy that maximizes the total game payoff. 
C) choose the strategy that minimizes the payoff to other players. 
D) choose a strategy by random chance. 
A) choose the best strategy regardless of what other players do. 
B) choose the strategy that maximizes the total game payoff. 
C) choose the strategy that minimizes the payoff to other players. 
D) choose a strategy by random chance.

Question 6

One reason why, in the last four decades, the number of new auto makers in the world has been very small compared to the past is that

Accepted Answer

A) the automobile cannot be improved upon in any way by new producers. 
B) new auto makers cannot obtain necessary inputs to produce new cars. 
C) governments restrict who can produce automobiles. 
D) new producers cannot match the economies of scale of existing auto makers. 
A) the automobile cannot be improved upon in any way by new producers. 
B) new auto makers cannot obtain necessary inputs to produce new cars. 
C) governments restrict who can produce automobiles. 
D) new producers cannot match the economies of scale of existing auto makers.

Question 7

In Michael Porter's five competitive forces model, what do the competitive forces determine?

Accepted Answer

The five competitive

Question 8

Economies of scale will create a barrier to entry in an oligopoly when

Accepted Answer

A) a firm's minimum efficient scale occurs where long-run average total costs are constant. 
B) the typical firm's long-run average total cost curve reaches a minimum at a level of output that is a large fraction of total industry sales. 
C) the typical firm's long-run average total cost curve reaches a minimum at a level of output that is a small fraction of total industry sales. 
D) the industry's four-firm concentration ratio is less than 40 percent. 
A) a firm's minimum efficient scale occurs where long-run average total costs are constant. 
B) the typical firm's long-run average total cost curve reaches a minimum at a level of output that is a large fraction of total industry sales. 
C) the typical firm's long-run average total cost curve reaches a minimum at a level of output that is a small fraction of total industry sales. 
D) the industry's four-firm concentration ratio is less than 40 percent.

Question 9

Which of the following is important in determining the extent of competition in an industry?

Accepted Answer

A) the minimum level of short-run average total costs of production 
B) the minimum efficient scale of production relative to market demand 
C) whether or not the industry product is differentiated or standardized 
D) only the level of market demand for the industry's product 
A) the minimum level of short-run average total costs of production 
B) the minimum efficient scale of production relative to market demand 
C) whether or not the industry product is differentiated or standardized 
D) only the level of market demand for the industry's product

Question 10

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

Accepted Answer

A) an earnings table. 
B) a payoff table. 
C) a payoff matrix. 
D) a strategic matrix. 
A) an earnings table. 
B) a payoff table. 
C) a payoff matrix. 
D) a strategic matrix.

Question 11

If an industry is made up of five identical-sized firms, the four-firm concentration ratio is

Accepted Answer

A) 5%. 
B) 20%. 
C) 80%. 
D) 100%. 
A) 5%. 
B) 20%. 
C) 80%. 
D) 100%.

Question 12

A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following explains why two firms, Apex and Bongo, would engage in implicit collusion, rather than explicit collusion?

Accepted Answer

A) Implicit collusion allows Apex to increase its profits at the expense of Bongo without Bongo knowing that collusion has occurred; if Apex engages in explicit collusion, Bongo will realize collusion has taken place and retaliate against Apex. 
B) Implicit collusion is less costly to both firms than explicit collusion; therefore, profits will be greater for both firms if they engage in implicit collusion. 
C) Explicit collusion is illegal; if the managers of Apex and Bongo engage in implicit collusion they may be within the law. 
D) Implicit collusion always has an enforcement mechanism that forces both firms to collude; explicit collusion does not have an enforcement mechanism. 
A) Implicit collusion allows Apex to increase its profits at the expense of Bongo without Bongo knowing that collusion has occurred; if Apex engages in explicit collusion, Bongo will realize collusion has taken place and retaliate against Apex. 
B) Implicit collusion is less costly to both firms than explicit collusion; therefore, profits will be greater for both firms if they engage in implicit collusion. 
C) Explicit collusion is illegal; if the managers of Apex and Bongo engage in implicit collusion they may be within the law. 
D) Implicit collusion always has an enforcement mechanism that forces both firms to collude; explicit collusion does not have an enforcement mechanism.

Question 14

All of the following are characteristics of game theory except

Accepted Answer

A) rules that determine what actions are allowable. 
B) payoffs that are the results of the interaction among players' strategies. 
C) strategies that players employ to attain their objectives. 
D) independence among players. 
A) rules that determine what actions are allowable. 
B) payoffs that are the results of the interaction among players' strategies. 
C) strategies that players employ to attain their objectives. 
D) independence among players.

Question 15

A market comprised of only two firms is called a

Accepted Answer

A) competitive market. 
B) duopoly. 
C) monopoly. 
D) monopolistically competitive market. 
A) competitive market. 
B) duopoly. 
C) monopoly. 
D) monopolistically competitive market.

Question 16

Which of the following economists did not help to develop game theory analysis?

Accepted Answer

A) Adam Smith 
B) John Nash 
C) John von Neumann 
D) Oskar Morgenstern 
A) Adam Smith 
B) John Nash 
C) John von Neumann 
D) Oskar Morgenstern

Question 17

A four-firm concentration ratio measures

Accepted Answer

A) the fraction of an industry's sales accounted for by the four largest firms. 
B) the production of any four firms in an industry. 
C) how the four largest firms became so concentrated. 
D) the fraction of employment of the four largest firms in an industry. 
A) the fraction of an industry's sales accounted for by the four largest firms. 
B) the production of any four firms in an industry. 
C) how the four largest firms became so concentrated. 
D) the fraction of employment of the four largest firms in an industry.

Question 18

Table 14-10
  
-Refer to Table 14-10.Suppose the payoff matrix in the above figure represents the payoffs to Saudi Arabia and Ecuador for the production of oil.Saudi Arabia and Ecuador must decide how much oil to produce.Since the demand for oil is inelastic, relatively low production rates drive up prices and profits.Saudi Arabia, the world's largest and lowest-cost producer, is able to influence market price; it has an incentive to keep output low.Ecuador, on the other hand, is a relatively high-cost producer with much smaller reserves.Assume Saudi Arabia now decides to try to further influence the oil market by offering to pay Ecuador $15 million to produce a low output.
a.Create a new payoff matrix that reflects Saudi Arabia's willingness to pay Ecuador $15 million to produce a low output.
b.What is the dominant strategy for each country in this new game?
c.What is the new Nash equilibrium?

Accepted Answer

a.See payoff matrix below.
b.T

Question 19

A dominant strategy

Accepted Answer

A) is one that is the best for a firm, no matter what strategies other firms use. 
B) is one that a firm is forced into following by government policy. 
C) involves colluding with rivals to maximize joint profits. 
D) involves deciding what to do after all rivals have chosen their own strategies. 
A) is one that is the best for a firm, no matter what strategies other firms use. 
B) is one that a firm is forced into following by government policy. 
C) involves colluding with rivals to maximize joint profits. 
D) involves deciding what to do after all rivals have chosen their own strategies.

Question 20

Table 14-8
   
Two rival oligopolists in the coffee industry, Wide Awake and Zuma, have to decide on their pricing strategy. Each can choose either a high price or a low price. Table 14-8 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts.
-Refer to Table 14-8.Which of the following is true?

Accepted Answer

A) Wide Awake's dominant strategy is to select a low price. 
B) Zuma's dominant strategy is to select a high price. 
C) Wide Awake does not have a dominant strategy. 
D) Zuma does not have a dominant strategy. 
A) Wide Awake's dominant strategy is to select a low price. 
B) Zuma's dominant strategy is to select a high price. 
C) Wide Awake does not have a dominant strategy. 
D) Zuma does not have a dominant strategy.

A Nash equilibrium is

The Organization of Petroleum Exporting Countries (OPEC)controls about 75 percent of the world's proven oil reserves.Economists refer to OPEC as a cartel because

In an oligopoly, minimum efficient scale is likely to occur at a level of output that is a large fraction of industry sales.

A cooperative equilibrium results when firms

One reason why, in the last four decades, the number of new auto makers in the world has been very small compared to the past is that

In Michael Porter's five competitive forces model, what do the competitive forces determine?

Economies of scale will create a barrier to entry in an oligopoly when

Which of the following is important in determining the extent of competition in an industry?

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

If an industry is made up of five identical-sized firms, the four-firm concentration ratio is

A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

Which of the following explains why two firms, Apex and Bongo, would engage in implicit collusion, rather than explicit collusion?

All of the following are characteristics of game theory except

A market comprised of only two firms is called a

Which of the following economists did not help to develop game theory analysis?

A four-firm concentration ratio measures

A dominant strategy

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

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Exam 14: Oligopoly: Firms in Less Competitive Markets

A Nash equilibrium is

The Organization of Petroleum Exporting Countries (OPEC)controls about 75 percent of the world's proven oil reserves.Economists refer to OPEC as a cartel because

In an oligopoly, minimum efficient scale is likely to occur at a level of output that is a large fraction of industry sales.

A cooperative equilibrium results when firms

One reason why, in the last four decades, the number of new auto makers in the world has been very small compared to the past is that

In Michael Porter's five competitive forces model, what do the competitive forces determine?

Economies of scale will create a barrier to entry in an oligopoly when

Which of the following is important in determining the extent of competition in an industry?

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

If an industry is made up of five identical-sized firms, the four-firm concentration ratio is

A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

Which of the following explains why two firms, Apex and Bongo, would engage in implicit collusion, rather than explicit collusion?

All of the following are characteristics of game theory except

A market comprised of only two firms is called a

Which of the following economists did not help to develop game theory analysis?

A four-firm concentration ratio measures

A dominant strategy

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters