Question 1

In a cartel, the incentive to cheat is significant because

Accepted Answer

A) each individual member has the incentive to restrict its own output to maximize profit. 
B) the marginal cost is equal to the cartel price at the profit-maximizing output level. 
C) each firm has the incentive to lower its price to sell more than the allotted amount. 
D) each firm has the incentive to cheat by raising its price to maximize profit. 
E) price is less than marginal cost for each member of the cartel. 
A) each individual member has the incentive to restrict its own output to maximize profit. 
B) the marginal cost is equal to the cartel price at the profit-maximizing output level. 
C) each firm has the incentive to lower its price to sell more than the allotted amount. 
D) each firm has the incentive to cheat by raising its price to maximize profit. 
E) price is less than marginal cost for each member of the cartel.

Question 2

A duopoly occurs when

Accepted Answer

A) there are only two producers of a particular good competing in the same market. 
B) there are two producers of two goods competing in an oligopoly market. 
C) there are numerous producers of two goods competing in a competitive market. 
D) the one producer of two goods sells the goods in a monopoly market. 
E) a competitive market produces two goods. 
A) there are only two producers of a particular good competing in the same market. 
B) there are two producers of two goods competing in an oligopoly market. 
C) there are numerous producers of two goods competing in a competitive market. 
D) the one producer of two goods sells the goods in a monopoly market. 
E) a competitive market produces two goods.

Question 3

A trigger 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 single-play game nor a repeated 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 single-play game nor a repeated game. 
E) only when there is no Nash equilibrium.

Question 4

If there is a successful collusive agreement in a duopoly to maximize profit,

Accepted Answer

A) the market price will equal the marginal cost of production. 
B) the market price will equal the average total cost of production. 
C) the price will be the same as the price in a perfectly competitive market. 
D) the price will be the monopoly price. 
E) the market marginal revenue will be the same as the demand curve. 
A) the market price will equal the marginal cost of production. 
B) the market price will equal the average total cost of production. 
C) the price will be the same as the price in a perfectly competitive market. 
D) the price will be the monopoly price. 
E) the market marginal revenue will be the same as the demand curve.

Question 5

Use the table below to answer the following questions.
Table 15.2.2
  
-Table 15.2.2 gives the payoff matrix in terms of economic profit for firms A and B when there are two strategies facing each firm: (1)charge a low price, or (2)charge a high price. The equilibrium in this game (played once)will be a dominant strategy equilibrium because

Accepted Answer

A) firm B will reduce profit by more than A if both charge a lower price. 
B) firm B is the dominant firm. 
C) the best strategy for each firm does not depend on the strategy chosen by the other firm. 
D) there is no credible threat by either firm to "punish" the other if it breaks the agreement. 
E) each firm will charge the higher price. 
A) firm B will reduce profit by more than A if both charge a lower price. 
B) firm B is the dominant firm. 
C) the best strategy for each firm does not depend on the strategy chosen by the other firm. 
D) there is no credible threat by either firm to "punish" the other if it breaks the agreement. 
E) each firm will charge the higher price.

Question 6

Consider a cartel consisting of several firms that is maximizing economic profit. If one firm cheats on the cartel agreement by cutting its price and increasing its output, the best response of the other firms is to

Accepted Answer

A) cancel the cheating firm's membership in the cartel. 
B) continue to sell at the agreed-upon price. 
C) raise their price to recapture lost profit. 
D) cut their prices also. 
E) cut output to keep total cartel output at its original level. 
A) cancel the cheating firm's membership in the cartel. 
B) continue to sell at the agreed-upon price. 
C) raise their price to recapture lost profit. 
D) cut their prices also. 
E) cut output to keep total cartel output at its original level.

Question 7

Choose the statement below that is incorrect.

Accepted Answer

A) The Competition Act distinguishes between practices that are criminal and practices that are noncriminal. 
B) The Director of the Competition Bureau sends alleged violations of a noncriminal nature to Parliament for examination. 
C) The Competition Act of 1986 established a Competition Bureau. 
D) The Competition Act of 1986 established a Competition Tribunal. 
E) Canada's anti-combine law dates from 1889. 
A) The Competition Act distinguishes between practices that are criminal and practices that are noncriminal. 
B) The Director of the Competition Bureau sends alleged violations of a noncriminal nature to Parliament for examination. 
C) The Competition Act of 1986 established a Competition Bureau. 
D) The Competition Act of 1986 established a Competition Tribunal. 
E) Canada's anti-combine law dates from 1889.

Question 8

Oligopoly is similar to

Accepted Answer

A) perfect competition because both market types produce identical goods. 
B) perfect competition because both firms in both market types make zero economic profit in the long run. 
C) monopoly because both market types have barriers to entry. 
D) monopoly because both market types have a single firm. 
E) monopolistic competition because firms in both markets face a perfectly elastic demand. 
A) perfect competition because both market types produce identical goods. 
B) perfect competition because both firms in both market types make zero economic profit in the long run. 
C) monopoly because both market types have barriers to entry. 
D) monopoly because both market types have a single firm. 
E) monopolistic competition because firms in both markets face a perfectly elastic demand.

Question 9

The act of parliament that provides our anti-combine law is

Accepted Answer

A) the Anti-Combine Act of 1986. 
B) the Anti-Combine Act of 1889. 
C) the Competition Act of 1986. 
D) the Competition Act of 1889. 
E) the Competition Act of 1967. 
A) the Anti-Combine Act of 1986. 
B) the Anti-Combine Act of 1889. 
C) the Competition Act of 1986. 
D) the Competition Act of 1889. 
E) the Competition Act of 1967.

Question 10

Why might only a few firms dominate an oligopolistic industry?

Accepted Answer

A) A natural or legal barrier to entry exists. 
B) Perfectly elastic demand makes small-scale operation economically inefficient. 
C) Decreasing returns to scale may make small-scale firms more advantageous. 
D) Inelastic market demand leads to the domination of the industry by a few firms. 
E) It is due to the outcome of the prisoners' dilemma. 
A) A natural or legal barrier to entry exists. 
B) Perfectly elastic demand makes small-scale operation economically inefficient. 
C) Decreasing returns to scale may make small-scale firms more advantageous. 
D) Inelastic market demand leads to the domination of the industry by a few firms. 
E) It is due to the outcome of the prisoners' dilemma.

Question 11

The price in a contestable market is similar to that in a perfectly competitive market because

Accepted Answer

A) firms in the market make an economic profit in the long run. 
B) there are no barriers to entry. 
C) there are many firms in the market. 
D) the Nash equilibrium is that all firms cheat. 
E) collusion is possible. 
A) firms in the market make an economic profit in the long run. 
B) there are no barriers to entry. 
C) there are many firms in the market. 
D) the Nash equilibrium is that all firms cheat. 
E) collusion is possible.

Question 12

Use the table below to answer the following question.
Table 15.2.3
  
-Refer to Table 15.2.3. Store X and Store Y must decide whether or not to lower their prices. The table gives the economic profit made by Store X and Store Y. Which one of the following observations is correct?

Accepted Answer

A) Both Store X and Store Y have a dominant strategy of raising their prices. 
B) If Store X lowers its prices and Store Y does not, Store X will earn a $20 profit. 
C) If Store Y lowers its prices, Store X will be better off not lowering its prices. 
D) Both Store X and Store Y would be better off if they could collude and agree to not lower prices. 
E) Both Store X and Store Y have a dominant strategy of lowering their prices. 
A) Both Store X and Store Y have a dominant strategy of raising their prices. 
B) If Store X lowers its prices and Store Y does not, Store X will earn a $20 profit. 
C) If Store Y lowers its prices, Store X will be better off not lowering its prices. 
D) Both Store X and Store Y would be better off if they could collude and agree to not lower prices. 
E) Both Store X and Store Y have a dominant strategy of lowering their prices.

Question 13

It is difficult to maintain a cartel for a long period of time. Which one of the following is the most important reason?

Accepted Answer

A) Each firm has an incentive to collude. 
B) Other firms will enter the industry. 
C) Firms in the cartel will want to raise the price. 
D) Consumers will eventually decide not to buy the cartel's output. 
E) Each firm has an incentive to cheat. 
A) Each firm has an incentive to collude. 
B) Other firms will enter the industry. 
C) Firms in the cartel will want to raise the price. 
D) Consumers will eventually decide not to buy the cartel's output. 
E) Each firm has an incentive to cheat.

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 comply with the agreement,

Accepted Answer

A) together they will produce the monopoly quantity and make the monopoly economic profit. 
B) the price of a hard drive will equal marginal cost. 
C) each firm will make zero economic profit. 
D) the oligopoly will produce more hard drives than a profit-maximizing monopoly would produce. 
E) the oligopoly will produce fewer hard drives than a profit-maximizing monopoly would produce. 
A) together they will produce the monopoly quantity and make the monopoly economic profit. 
B) the price of a hard drive will equal marginal cost. 
C) each firm will make zero economic profit. 
D) the oligopoly will produce more hard drives than a profit-maximizing monopoly would produce. 
E) the oligopoly will produce fewer hard drives than a profit-maximizing monopoly would produce.

Question 15

Which one the following industries is the best example of an oligopoly?

Accepted Answer

A) the market for wheat 
B) the fast-food industry 
C) the automobile industry 
D) the clothing industry 
E) the restaurant industry 
A) the market for wheat 
B) the fast-food industry 
C) the automobile industry 
D) the clothing industry 
E) the restaurant industry

Question 16

Sarah's Soothing Diapers, Inc. and Orville's Odorless Diapers, Inc. are duopolists, who have agreed to collude. Orville has decided that he will comply with the collusive agreement as long as Sarah cooperated in the previous period. But if Sarah cheated in the previous period, Orville will punish Sarah by cheating in the current period. Orville's strategy is referred to as a

Accepted Answer

A) Nash strategy. 
B) tit-for-tat strategy. 
C) trigger strategy. 
D) monkey-see, monkey-do strategy. 
E) dominant firm strategy. 
A) Nash strategy. 
B) tit-for-tat strategy. 
C) trigger strategy. 
D) monkey-see, monkey-do strategy. 
E) dominant firm strategy.

Question 17

Which of the following quotes shows cheating on a cartel in the widget industry?

Accepted Answer

A) "I am producing extra widgets, even though it costs me short-run profit, to stop Wally's Widgets from expanding into my market." 
B) "I am producing more widgets than Wally and I agreed to in our talk last week." 
C) "If only Wally and I could agree on a higher price, we could make more profit." 
D) "I have been spending extra on research and development of my new two-way widget." 
E) None of the above 
A) "I am producing extra widgets, even though it costs me short-run profit, to stop Wally's Widgets from expanding into my market." 
B) "I am producing more widgets than Wally and I agreed to in our talk last week." 
C) "If only Wally and I could agree on a higher price, we could make more profit." 
D) "I have been spending extra on research and development of my new two-way widget." 
E) None of the above

Question 18

An oligopoly is a market structure in which there

Accepted Answer

A) are a few buyers but many sellers. 
B) are no barriers to entry. 
C) are many independent sellers. 
D) are a few goods sold by many sellers. 
E) is a temptation to collude. 
A) are a few buyers but many sellers. 
B) are no barriers to entry. 
C) are many independent sellers. 
D) are a few goods sold by many sellers. 
E) is a temptation to collude.

Question 19

A contestable market is similar to a perfectly competitive market in that there

Accepted Answer

A) are barriers to entry. 
B) are no barriers to entry. 
C) can be only one firm in the market. 
D) will be no entry if the existing firm makes an economic profit. 
E) is a perfectly elastic demand. 
A) are barriers to entry. 
B) are no barriers to entry. 
C) can be only one firm in the market. 
D) will be no entry if the existing firm makes an economic profit. 
E) is a perfectly elastic demand.

Question 20

A cartel is a group of firms which agree to

Accepted Answer

A) behave competitively. 
B) raise the price of their products. 
C) lower the price of their products. 
D) increase the amount they produce. 
E) cheat on each other. 
A) behave competitively. 
B) raise the price of their products. 
C) lower the price of their products. 
D) increase the amount they produce. 
E) cheat on each other.

Exam 15: Oligopoly

In a cartel, the incentive to cheat is significant because

A duopoly occurs when

A trigger strategy can be used

If there is a successful collusive agreement in a duopoly to maximize profit,

Consider a cartel consisting of several firms that is maximizing economic profit. If one firm cheats on the cartel agreement by cutting its price and increasing its output, the best response of the other firms is to

Choose the statement below that is incorrect.

Oligopoly is similar to

The act of parliament that provides our anti-combine law is

Why might only a few firms dominate an oligopolistic industry?

The price in a contestable market is similar to that in a perfectly competitive market because

Use the table below to answer the following question. Table 15.2.3 -Refer to Table 15.2.3. Store X and Store Y must decide whether or not to lower their prices. The table gives the economic profit made by Store X and Store Y. Which one of the following observations is correct?

It is difficult to maintain a cartel for a long period of time. Which one of the following is the most important reason?

Which one the following industries is the best example of an oligopoly?

Which of the following quotes shows cheating on a cartel in the widget industry?

An oligopoly is a market structure in which there

A contestable market is similar to a perfectly competitive market in that there

A cartel is a group of firms which agree to

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Governments Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

Macro Only: International Trade Policy

Filters