Exam 14: Oligopoly: Firms in Less Competitive Markets

Table 14-3 Suppose OPEC has only two producers, Saudi Arabia and Ecuador. Saudi Arabia has far more oil reserves and is the lower-cost producer compared to Ecuador. The payoff matrix in Table 14-3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota. -Refer to Table 14-3.Is there a dominant strategy for Ecuador and, if so, what is it?

A consequence of the quota that has been imposed on the importation of sugar into the United States is

Figure 14-3 Rainbow Writer (RW)is a small online company selling a highly rated software package for engraving words onto objects produced by 3D printers. The firm currently earns a profit of $2 million per year selling its package exclusively on its Website. Odeon, the producer of the most popular 3D printers has expressed interest in bundling Rainbow Writer's product with its printers. Odeon expects that bundling would further boost its sales and allow it to sell its printers at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14.3 shows the decision tree for the Rainbow Writer-Odeon bargaining game. -Refer to Figure 14-3.What is the equilibrium outcome in this game and is this a subgame-perfect equilibrium?

As word processing on personal computers expanded, sales of typewriters began to disappear.Which of Porter's competitive forces does this event demonstrate?

If economies of scale are significant, the typical firm will not reach the minimum point on its long-run average cost curve until it has produced a large fraction of industry sales.

Decision trees are commonly used to illustrate how firms make business decisions that depend on the actions of rival firms.A decision tree has boxes that contain points that represent when firms must make the decisions contained in the boxes.What are these points called?

An oligopolistic industry is characterized by a few large firms acting independently.

As a measure of competition in an industry, concentration ratios have several flaws.One of these flaws is that concentration ratios

Which of the following is not one of the five competitive forces?

If the painting firms in a city sign a contract outlining a pricing plan, they are involved in

Competition in the form of advertising, better customer service, or longer warranties can also reduce profits by raising costs.

What is the incentive for a firm to join a cartel?

In a decision tree, the difference between a decision node and a terminal node is that

Collusion occurs when

Which of the following is not part of an oligopolist's business strategy?

Prices of PlayStation 4 game systems are similar at almost every large retailer and little price competition occurs among these retailers.An explanation for this is

Figure 14-1 Assume that Lexus (L)is the first automobile company to produce a luxury class hybrid automobile and is the only such company for the past four years. BMW is now considering producing its own luxury hybrid automobile and Lexus must decide whether or not to lower the price of its luxury hybrid to counter BMW's entry into the luxury hybrid niche. -Refer to Figure 14-1.If Lexus lowers its price, will this deter BMW from entering the market?

Which of the following best explains why airlines often cut their ticket prices at the last-minute in order to fill the remaining empty seats on their flights?

Figure 14-9 -Refer to Figure 14-9.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.

If economies of scale are relatively important in an industry, the typical firm's