Question 1

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 2

Limit pricing is the practice of

Accepted Answer

A) limiting the amount that can be purchased to drive up prices. 
B) threatening to go to the limit in a price war if someone enters your market. 
C) charging a monopoly price, but producing a quantity greater than the quantity at which MC = MR. 
D) setting the price at the highest level that inflicts a loss on the entrant. 
E) charging a price higher than the monopoly price, but producing a quantity greater than the quantity at which MC = MR. 
A) limiting the amount that can be purchased to drive up prices. 
B) threatening to go to the limit in a price war if someone enters your market. 
C) charging a monopoly price, but producing a quantity greater than the quantity at which MC = MR. 
D) setting the price at the highest level that inflicts a loss on the entrant. 
E) charging a price higher than the monopoly price, but producing a quantity greater than the quantity at which MC = MR.

Question 3

Two firms are trying to decide how much to budget for research and development.Once a new discovery is made, each firm benefits regardless of which firm developed the innovation.In this R&D game of chicken, the Nash equilibrium is that

Accepted Answer

A) both firms conduct R&D. 
B) neither firm conducts R&D. 
C) only one firm conducts R&D but which firm conducts the R&D cannot be determined. 
D) the larger firm conducts the R&D. 
E) the smaller firm conducts the R&D. 
A) both firms conduct R&D. 
B) neither firm conducts R&D. 
C) only one firm conducts R&D but which firm conducts the R&D cannot be determined. 
D) the larger firm conducts the R&D. 
E) the smaller firm conducts the R&D.

Question 4

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 5

In an oligopoly market, the Herfindahl-Hirschman Index is usually

Accepted Answer

A) below 2,500. 
B) zero. 
C) above 2,500. 
D) equal to 10,000. 
E) between 100 and 1,000. 
A) below 2,500. 
B) zero. 
C) above 2,500. 
D) equal to 10,000. 
E) between 100 and 1,000.

Question 6

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 7

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 8

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.Which of the following actions maximizes the industry's economic profit?

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 9

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.

Question 10

Use the table below to answer the following questions.
Table 15.2.1
  
-Refer to Table 15.2.1.This table includes the sentences that Bob and Joe will receive if convicted.They have been apprehended by the police under the suspicion of committing armed robbery.The two are immediately separated and questioned about the case.Which one of the following observations is correct?

Accepted Answer

A) If Joe confesses, Bob would be better off not confessing. 
B) If Bob confesses, Joe would be better off confessing. 
C) The outcome of the game, assuming Joe and Bob cannot collude, is they will both go free. 
D) If Joe does not confess, Bob would be better off confessing. 
E) The outcome of the game, assuming Joe and Bob cannot collude, is they will both confess. 
A) If Joe confesses, Bob would be better off not confessing. 
B) If Bob confesses, Joe would be better off confessing. 
C) The outcome of the game, assuming Joe and Bob cannot collude, is they will both go free. 
D) If Joe does not confess, Bob would be better off confessing. 
E) The outcome of the game, assuming Joe and Bob cannot collude, is they will both confess.

Question 11

Because an oligopoly has a small number of firms,

Accepted Answer

A) each firm can act like a monopoly. 
B) the firms may legally form a cartel. 
C) the HHI for the industry is small. 
D) the four-firm concentration ratio for the industry is small. 
E) the firms are interdependent. 
A) each firm can act like a monopoly. 
B) the firms may legally form a cartel. 
C) the HHI for the industry is small. 
D) the four-firm concentration ratio for the industry is small. 
E) the firms are interdependent.

Question 12

A monopolistically competitive firm is like an oligopolistic firm insofar as

Accepted Answer

A) both face perfectly elastic demand. 
B) both can earn an economic profit in the long run. 
C) both have MR curves that lie beneath their demand curves. 
D) neither is protected by high barriers to entry. 
E) both are price takers. 
A) both face perfectly elastic demand. 
B) both can earn an economic profit in the long run. 
C) both have MR curves that lie beneath their demand curves. 
D) neither is protected by high barriers to entry. 
E) both are price takers.

Question 13

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 14

Use the table below to answer the following questions.
Table 15.2.1
  
-Refer to Table 15.2.1.This table includes the sentences that Bob and Joe will receive if convicted.They have been apprehended by the police under the suspicion of committing armed robbery.The two are immediately separated and questioned about the case.Which one of the following observations is correct?

Accepted Answer

A) Bob would be smart to confess no matter what Joe does. 
B) Joe would be smart not to confess no matter what Bob does. 
C) Both Bob and Joe would be better off not confessing if they both do not confess. 
D) Both Bob and Joe would be better off "coming clean" and confessing to their crime. 
E) Both Bob and Joe have a dominant strategy of not confessing. 
A) Bob would be smart to confess no matter what Joe does. 
B) Joe would be smart not to confess no matter what Bob does. 
C) Both Bob and Joe would be better off not confessing if they both do not confess. 
D) Both Bob and Joe would be better off "coming clean" and confessing to their crime. 
E) Both Bob and Joe have a dominant strategy of not confessing.

Question 15

In the prisoners' dilemma, with players Art and Bob, the dominant strategy equilibrium is that

Accepted Answer

A) both prisoners confess. 
B) neither prisoner confesses. 
C) Art denies and Bob confesses. 
D) Art denies if Bob denies, and Art confesses if Bob confesses. 
E) Bob denies and Art confesses. 
A) both prisoners confess. 
B) neither prisoner confesses. 
C) Art denies and Bob confesses. 
D) Art denies if Bob denies, and Art confesses if Bob confesses. 
E) Bob denies and Art confesses.

Question 16

Table 15.2.8
  
-Refer to Table 15.2.8.Libertyville has two optometrists, Dr.Smith and Dr.Jones.Each optometrist can choose to advertise his service or not.The incomes of each optometrist, in thousands of dollars, are given in the payoff matrix above.Which of the following statements correctly describes Dr.Smith's strategy given what Dr.Jones may do?

Accepted Answer

A) Dr. Smith advertises no matter what Dr. Jones does. 
B) Dr. Smith does not advertise no matter what Dr. Jones does. 
C) Dr. Smith advertises only if Dr. Jones doesn't advertise. 
D) Dr. Smith advertises only if Dr. Jones advertises. 
E) Dr. Smith does not advertise if Dr. Jones advertises. 
A) Dr. Smith advertises no matter what Dr. Jones does. 
B) Dr. Smith does not advertise no matter what Dr. Jones does. 
C) Dr. Smith advertises only if Dr. Jones doesn't advertise. 
D) Dr. Smith advertises only if Dr. Jones advertises. 
E) Dr. Smith does not advertise if Dr. Jones advertises.

Question 17

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) This game has no dominant strategies. 
B) This game has no Nash equilibrium. 
C) Miller has a dominant strategy but Bud does not. 
D) Bud has a dominant strategy but Miller does not. 
E) Bud and Miller each have a dominant strategy. 
A) This game has no dominant strategies. 
B) This game has no Nash equilibrium. 
C) Miller has a dominant strategy but Bud does not. 
D) Bud has a dominant strategy but Miller does not. 
E) Bud and Miller each have a dominant strategy.

Question 18

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 19

In a contestable market the Herfindahl-Hirschman Index is ________ and the market behaves as if it is ________.

Accepted Answer

A) low; perfectly competitive 
B) low; a monopoly 
C) high; perfectly competitive 
D) high; a monopoly 
E) zero; perfectly competitive 
A) low; perfectly competitive 
B) low; a monopoly 
C) high; perfectly competitive 
D) high; a monopoly 
E) zero; perfectly competitive

Question 20

A trigger strategy is one in which a player

Accepted Answer

A) cooperates in the current period if the other player cooperated in the previous period, but cheats in the current period only if the other player cheated in the previous period. 
B) cheats in the current period if the other player cooperated in the previous period, but cooperates in the current period if the other player cheated in the previous period. 
C) cooperates in the current period if the other player has always cooperated, but cheats forever if the other player ever cheats. 
D) cheats in the current period if the other player has always cheated, but cooperates forever if the other player has ever cooperated. 
E) changes his or her strategy in a random manner. 
A) cooperates in the current period if the other player cooperated in the previous period, but cheats in the current period only if the other player cheated in the previous period. 
B) cheats in the current period if the other player cooperated in the previous period, but cooperates in the current period if the other player cheated in the previous period. 
C) cooperates in the current period if the other player has always cooperated, but cheats forever if the other player ever cheats. 
D) cheats in the current period if the other player has always cheated, but cooperates forever if the other player has ever cooperated. 
E) changes his or her strategy in a random manner.

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

Limit pricing is the practice of

Two firms are trying to decide how much to budget for research and development.Once a new discovery is made, each firm benefits regardless of which firm developed the innovation.In this R&D game of chicken, the Nash equilibrium is that

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?

In an oligopoly market, the Herfindahl-Hirschman Index is usually

A trigger strategy can be used

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

Because an oligopoly has a small number of firms,

A monopolistically competitive firm is like an oligopolistic firm insofar as

Anti-combine law

In the prisoners' dilemma, with players Art and Bob, the dominant strategy equilibrium is that

A duopoly occurs when

In a contestable market the Herfindahl-Hirschman Index is and the market behaves as if it is .

A trigger strategy is one in which a player

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government 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

Filters

Exam 15: Oligopoly

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

Limit pricing is the practice of

Two firms are trying to decide how much to budget for research and development.Once a new discovery is made, each firm benefits regardless of which firm developed the innovation.In this R&D game of chicken, the Nash equilibrium is that

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?

In an oligopoly market, the Herfindahl-Hirschman Index is usually

A trigger strategy can be used

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

Because an oligopoly has a small number of firms,

A monopolistically competitive firm is like an oligopolistic firm insofar as

Anti-combine law

In the prisoners' dilemma, with players Art and Bob, the dominant strategy equilibrium is that

A duopoly occurs when

In a contestable market the Herfindahl-Hirschman Index is ________ and the market behaves as if it is ________.

A trigger strategy is one in which a player

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government 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

Filters

In a contestable market the Herfindahl-Hirschman Index is and the market behaves as if it is .