Question 1

Canada's anti-combine law is enforced by

Accepted Answer

A) a Competition Tribunal. 
B) the courts. 
C) Parliament. 
D) A and B. 
E) A and C. 
A) a Competition Tribunal. 
B) the courts. 
C) Parliament. 
D) A and B. 
E) A and C. D

Question 2

Use the table below to answer the following questions.
Table 15.2.5
  
-Refer to Table 15.2.5. Two software firms have developed an identical new software application. They are debating whether to give the new application away free and then sell add-ons or sell the application at $30 a copy. The payoff matrix is above and the payoffs are profits in millions of dollars. What is Firm 1's best strategy?

Accepted Answer

A) Give away the application regardless of what Firm 2 does. 
B) Sell the application at $30 a copy regardless of what Firm 2 does. 
C) Give away the application only if Firm 2 sells the application. 
D) Give away the application only if Firm 2 gives away the application. 
E) Sell the application only if Firm 2 sells the application. 
A) Give away the application regardless of what Firm 2 does. 
B) Sell the application at $30 a copy regardless of what Firm 2 does. 
C) Give away the application only if Firm 2 sells the application. 
D) Give away the application only if Firm 2 gives away the application. 
E) Sell the application only if Firm 2 sells the application. A

Question 3

Use the table below to answer the following question.
Table 15.3.1
  
-Consider the game shown in Table 15.3.1 based on potential gas prices between two competitors. The game is played repeatedly and the result is a cooperative equilibrium. The payoffs in the table show the economic profit of the firms. The most likely outcome is

Accepted Answer

A) a cycle of first $0.95/litre, then $1.15/litre, etc. 
B) Hare sets her prices at $1.15/litre, and Turtle sets his at $0.95/litre. 
C) Hare sets her prices at $0.95/litre, and Turtle sets his at $1.15/litre. 
D) both set their prices at $1.15/litre. 
E) both set their prices at $0.95/litre. 
A) a cycle of first $0.95/litre, then $1.15/litre, etc. 
B) Hare sets her prices at $1.15/litre, and Turtle sets his at $0.95/litre. 
C) Hare sets her prices at $0.95/litre, and Turtle sets his at $1.15/litre. 
D) both set their prices at $1.15/litre. 
E) both set their prices at $0.95/litre. D

Question 4

A dominant strategy equilibrium occurs when

Accepted Answer

A) there is a clear strategy for each player independent of the other player's actions. 
B) each player takes the best possible action given the other player's action. 
C) each player complies with the collusive agreement. 
D) you cooperate until the other player cheats, and then you cheat forever. 
E) the outcome is the best possible. 
A) there is a clear strategy for each player independent of the other player's actions. 
B) each player takes the best possible action given the other player's action. 
C) each player complies with the collusive agreement. 
D) you cooperate until the other player cheats, and then you cheat forever. 
E) the outcome is the best possible.

Question 5

A market with a single firm but no barriers to entry is known as

Accepted Answer

A) a natural monopoly. 
B) a contestable market. 
C) a perfectly competitive market. 
D) monopolistic competition. 
E) an oligopoly. 
A) a natural monopoly. 
B) a contestable market. 
C) a perfectly competitive market. 
D) monopolistic competition. 
E) an oligopoly.

Question 6

Consider a "prisoners' dilemma" game consisting of two firms in collusion to maximize profit. The game is repeated indefinitely and each player employs a tit-for-tat strategy. The equilibrium when the two firms share the monopoly profit is called a

Accepted Answer

A) credible strategy equilibrium. 
B) dominant player equilibrium. 
C) duopoly equilibrium. 
D) trigger strategy equilibrium. 
E) cooperative equilibrium. 
A) credible strategy equilibrium. 
B) dominant player equilibrium. 
C) duopoly equilibrium. 
D) trigger strategy equilibrium. 
E) cooperative equilibrium.

Question 7

Use the information below to answer the following questions.
Fact 15.2.1
Two firms, FastNet and SmartCast are the only Internet providers in a city. They have identical costs and one firm's service is a perfect substitute for the other firm's service. The industry is a natural duopoly. FastNet and SmartCast decide to collude and agree to share the market equally.
-Refer to Fact 15.2.1. What is the Nash equilibrium?

Accepted Answer

A) Both firms cheat on the agreement. 
B) One firm cheats and one firm complies. 
C) Both firms comply with the agreement. 
D) New firms enter the market. 
E) Both firms charge the price that would exist in a perfectly competitive market. 
A) Both firms cheat on the agreement. 
B) One firm cheats and one firm complies. 
C) Both firms comply with the agreement. 
D) New firms enter the market. 
E) Both firms charge the price that would exist in a perfectly competitive market.

Question 8

In the prisoners' dilemma with players Art and Bob, each prisoner would be best off if

Accepted Answer

A) both prisoners confess. 
B) both prisoners deny. 
C) Art denies and Bob confesses. 
D) Bob denies and Art confesses. 
E) none of the above is done. 
A) both prisoners confess. 
B) both prisoners deny. 
C) Art denies and Bob confesses. 
D) Bob denies and Art confesses. 
E) none of the above is done.

Question 9

Anti-combine law

Accepted Answer

A) can work in the public interest to maximize total surplus or in the self-interest of producers to maximize producer surpluses. 
B) always works in the self-interest of producers to maximize producer surpluses. 
C) always works in the public interest to maximize total surplus. 
D) encourages oligopolies to exhibit more monopolistic behaviours. 
E) is always prosecuted in Canada's criminal courts. 
A) can work in the public interest to maximize total surplus or in the self-interest of producers to maximize producer surpluses. 
B) always works in the self-interest of producers to maximize producer surpluses. 
C) always works in the public interest to maximize total surplus. 
D) encourages oligopolies to exhibit more monopolistic behaviours. 
E) is always prosecuted in Canada's criminal courts.

Question 10

Table 15.2.7
  
-Refer to Table 15.2.7. Disney and Fox must decide when to release their next films. The revenues received by each studio depend in part on when the other studio releases its film. Each studio can release its film at Thanksgiving or at Christmas. The revenues received by each studio, in millions of dollars, are given in the payoff matrix above. Which of the following statements correctly describes Fox's strategy given what Disney's release choice may be?

Accepted Answer

A) If Disney chooses a Thanksgiving release, Fox should choose a Christmas release. 
B) If Disney chooses a Christmas release, Fox should choose a Thanksgiving release. 
C) Fox should release on Christmas regardless of what Disney does. 
D) Fox should release on Thanksgiving regardless of what Disney does. 
E) Both answers A and B are correct. 
A) If Disney chooses a Thanksgiving release, Fox should choose a Christmas release. 
B) If Disney chooses a Christmas release, Fox should choose a Thanksgiving release. 
C) Fox should release on Christmas regardless of what Disney does. 
D) Fox should release on Thanksgiving regardless of what Disney does. 
E) Both answers A and B are correct.

Question 11

A merger is unlikely to be approved if

Accepted Answer

A) there are fewer than 6 firms in a market. 
B) it prevents or substantially lessens competition. 
C) the good produced in the market has been deemed a necessity. 
D) the industry is government regulated. 
E) all of the above 
A) there are fewer than 6 firms in a market. 
B) it prevents or substantially lessens competition. 
C) the good produced in the market has been deemed a necessity. 
D) the industry is government regulated. 
E) all of the above

Question 12

Use the information below to answer the following question.
Fact 15.1.2 Sparks Fly for Energizer
Energizer is gaining market share against competitor Duracell and its profit is rising despite the sharp rise in the price of zinc, a key battery ingredient.
Source: www. businessweek.com, August 2007
-Refer to Fact 15.1.2. The market for batteries is

Accepted Answer

A) an oligopoly with a small number of interdependent firms. 
B) a monopolistic competition with many firms that have no incentive to collude. 
C) perfectly competitive with no barriers to entry. 
D) a monopoly. 
E) an oligopoly with no barriers to entry. 
A) an oligopoly with a small number of interdependent firms. 
B) a monopolistic competition with many firms that have no incentive to collude. 
C) perfectly competitive with no barriers to entry. 
D) a monopoly. 
E) an oligopoly with no barriers to entry.

Question 13

The market structure in which natural or legal barriers prevent the entry of new firms and a small number of firms compete is

Accepted Answer

A) monopoly. 
B) monopolistic competition. 
C) perfect competition. 
D) oligopoly. 
E) imperfect monopoly. 
A) monopoly. 
B) monopolistic competition. 
C) perfect competition. 
D) oligopoly. 
E) imperfect monopoly.

Question 14

Two firms, Alpha and Beta, produce identical computer hard drives. They have identical costs, and the hard drives they produce are identical. The industry is a natural duopoly. Alpha and Beta enter into a collusive agreement, according to which they split the market equally. If both firms cheat on the agreement so the market is the same as a competitive market,

Accepted Answer

A) each firm makes zero economic profit in the long run. 
B) each firm makes the monopoly profit. 
C) the oligopoly will produce fewer hard drives than a profit-maximizing monopoly would produce. 
D) the oligopoly will produce the same number of hard drives as a profit-maximizing monopoly would produce. 
E) each firm incurs an economic loss and exits the market in the long run. 
A) each firm makes zero economic profit in the long run. 
B) each firm makes the monopoly profit. 
C) the oligopoly will produce fewer hard drives than a profit-maximizing monopoly would produce. 
D) the oligopoly will produce the same number of hard drives as a profit-maximizing monopoly would produce. 
E) each firm incurs an economic loss and exits the market in the long run.

Question 15

Use the table below to answer the following questions.
Table 15.2.4
  
-Refer to Table 15.2.4. The marketers of Budweiser Light beer and Miller Lite beer must decide whether or not to offer new advertising campaigns promoting their products. The payoffs in the table are the economic profit made by Bud and Miller. Which one of the following observations is correct?

Accepted Answer

A) The equilibrium of the game is that both firms will conduct new advertising campaigns. 
B) The equilibrium of the game is that neither firm will conduct a new advertising campaign. 
C) The equilibrium solution has Bud conducting a new advertising campaign, but not Miller. 
D) The equilibrium solution has Miller conducting a new advertising campaign, but not Bud. 
E) There is no equilibrium to this game-the industry will have alternating cycles of advertising and no advertising. 
A) The equilibrium of the game is that both firms will conduct new advertising campaigns. 
B) The equilibrium of the game is that neither firm will conduct a new advertising campaign. 
C) The equilibrium solution has Bud conducting a new advertising campaign, but not Miller. 
D) The equilibrium solution has Miller conducting a new advertising campaign, but not Bud. 
E) There is no equilibrium to this game-the industry will have alternating cycles of advertising and no advertising.

Question 16

A contestable market exists whenever

Accepted Answer

A) two or more firms are competing. 
B) the Herfindahl-Hirschman Index exceeds 1,800. 
C) the four-firm concentration ratio exceeds 50 percent. 
D) a monopoly contests entry into its markets. 
E) potential entry holds down prices. 
A) two or more firms are competing. 
B) the Herfindahl-Hirschman Index exceeds 1,800. 
C) the four-firm concentration ratio exceeds 50 percent. 
D) a monopoly contests entry into its markets. 
E) potential entry holds down prices.

Question 17

A market in which firms can enter and leave so easily that firms in the market face competition from potential entrants is called a

Accepted Answer

A) contestable market. 
B) cartel. 
C) limit pricing market. 
D) monopolistic competition market. 
E) natural oligopoly. 
A) contestable market. 
B) cartel. 
C) limit pricing market. 
D) monopolistic competition market. 
E) natural oligopoly.

Question 18

In a contestable market with one firm, the existing firm

Accepted Answer

A) sets its price lower than the monopoly price. 
B) sets its price equal to the monopoly price. 
C) sets its price above the monopoly price. 
D) has no competition. 
E) sets its price so that other firms will enter the market. 
A) sets its price lower than the monopoly price. 
B) sets its price equal to the monopoly price. 
C) sets its price above the monopoly price. 
D) has no competition. 
E) sets its price so that other firms will enter the market.

Question 19

When a firm cooperates if the other cooperates, but plays the Nash equilibrium strategy forever if the other cheats, the strategy is a

Accepted Answer

A) dominant strategy. 
B) trigger strategy. 
C) tit-for-tat strategy. 
D) wimp's strategy. 
E) cooperative strategy. 
A) dominant strategy. 
B) trigger strategy. 
C) tit-for-tat strategy. 
D) wimp's strategy. 
E) cooperative strategy.

Question 20

A tit-for-tat strategy can be used

Accepted Answer

A) in a single-play game or a repeated game. 
B) in a single-play game but not a repeated game. 
C) in a repeated game but not a single-play game. 
D) in neither a repeated game nor a single-play game. 
E) only when there is no Nash equilibrium. 
A) in a single-play game or a repeated game. 
B) in a single-play game but not a repeated game. 
C) in a repeated game but not a single-play game. 
D) in neither a repeated game nor a single-play game. 
E) only when there is no Nash equilibrium.

Exam 15: Oligopoly

Canada's anti-combine law is enforced by

A dominant strategy equilibrium occurs when

A market with a single firm but no barriers to entry is known as

Consider a "prisoners' dilemma" game consisting of two firms in collusion to maximize profit. The game is repeated indefinitely and each player employs a tit-for-tat strategy. The equilibrium when the two firms share the monopoly profit is called a

In the prisoners' dilemma with players Art and Bob, each prisoner would be best off if

Anti-combine law

A merger is unlikely to be approved if

The market structure in which natural or legal barriers prevent the entry of new firms and a small number of firms compete is

A contestable market exists whenever

A market in which firms can enter and leave so easily that firms in the market face competition from potential entrants is called a

In a contestable market with one firm, the existing firm

When a firm cooperates if the other cooperates, but plays the Nash equilibrium strategy forever if the other cheats, the strategy is a

A tit-for-tat strategy can be used

What Is Economics

The Economic Problem

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Governments Actions in Markets

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Possibilities, Preferences, and Choices

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Perfect Competition

Monopoly

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Economic Inequality

Measuring Gdp and Economic Growth

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Money, the Price Level, and Inflation

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