Question 1

Limit pricing refers to

Accepted Answer

A) the highest price a monopolist can set. 
B) the highest price that just inflicts a loss on a potential entrant. 
C) a strategy used by entering firms in contestable markets. 
D) the lowest price a duopoly can set. 
E) the price set in a perfectly competitive market. 
A) the highest price a monopolist can set. 
B) the highest price that just inflicts a loss on a potential entrant. 
C) a strategy used by entering firms in contestable markets. 
D) the lowest price a duopoly can set. 
E) the price set in a perfectly competitive market.

Question 2

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 is a game described as a prisoners' dilemma. 
B) If Bud offers a new advertising campaign and Miller does not, Bud will earn a $100 profit. 
C) If Bud offers a new advertising campaign, then Miller will be better off by not offering a new advertising campaign. 
D) Both Bud and Miller would be better off if they could collude and agree to coordinate their new advertising campaigns. 
E) If Miller does not offer a new advertising campaign, then Bud is better off if it doesn't offer a new advertising campaign. 
A) This is a game described as a prisoners' dilemma. 
B) If Bud offers a new advertising campaign and Miller does not, Bud will earn a $100 profit. 
C) If Bud offers a new advertising campaign, then Miller will be better off by not offering a new advertising campaign. 
D) Both Bud and Miller would be better off if they could collude and agree to coordinate their new advertising campaigns. 
E) If Miller does not offer a new advertising campaign, then Bud is better off if it doesn't offer a new advertising campaign.

Question 3

Use the information below to answer the following questions.
Fact 15.1.1 An Energy Drink with a Monster of a Stock
The $5.7 billion energy-drink category, in which Monster holds the No. 2 position behind industry leader Red Bull, has slowed down as copycat brands jostle for shelf space. Over the past five years Red Bull's market share in dollar terms has gone from 91 percent to well under 50 percent and much of that loss has been Monster's gain.
-Refer to Fact 15.1.1.If Monster and Red Bull successfully formed a cartel, the priced charged for energy drinks would ________ and economic profit would ________.

Accepted Answer

A) rise; increase 
B) rise; decrease 
C) fall; increase 
D) fall; decrease 
E) remain unchanged; remain unchanged 
A) rise; increase 
B) rise; decrease 
C) fall; increase 
D) fall; decrease 
E) remain unchanged; remain unchanged

Question 4

The Competition Act distinguishes between business practices that are criminal and noncriminal.Which of the following is noncriminal?

Accepted Answer

A) conspiracy to fix prices 
B) bid-rigging 
C) resale price maintenance 
D) false advertising 
E) refusal to deal 
A) conspiracy to fix prices 
B) bid-rigging 
C) resale price maintenance 
D) false advertising 
E) refusal to deal

Question 5

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 6

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 7

Which is not a characteristic of oligopoly?

Accepted Answer

A) Each firm faces a downward-sloping demand curve. 
B) Firms are profit-maximizers. 
C) The sales of one firm will not have a significant effect on other firms. 
D) There is more than one firm in the industry. 
E) Firms set prices. 
A) Each firm faces a downward-sloping demand curve. 
B) Firms are profit-maximizers. 
C) The sales of one firm will not have a significant effect on other firms. 
D) There is more than one firm in the industry. 
E) Firms set prices.

Question 8

The maximum total economic profit that can be made by colluding duopolists

Accepted Answer

A) equals the economic profit made by a monopoly. 
B) exceeds the economic profit made by a monopoly. 
C) is less than the economic profit made by a monopoly. 
D) is zero. 
E) cannot be determined. 
A) equals the economic profit made by a monopoly. 
B) exceeds the economic profit made by a monopoly. 
C) is less than the economic profit made by a monopoly. 
D) is zero. 
E) cannot be determined.

Question 9

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 10

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 11

All of the following except ________ are noncriminal offences under the Competition Act.

Accepted Answer

A) refusal to deal 
B) mergers 
C) false advertising 
D) abuse of a dominant market position 
E) exclusive dealing 
A) refusal to deal 
B) mergers 
C) false advertising 
D) abuse of a dominant market position 
E) exclusive dealing

Question 12

If a duopoly collusive agreement is made that maximizes joint profit,

Accepted Answer

A) each of the duopolists has no incentive to cheat on the agreement. 
B) each duopolist has the incentive to cheat on the duopoly agreement by lowering the price. 
C) each duopolist has the incentive to cheat on the agreement by increasing the price to make monopoly profit. 
D) there is no concern over the entrance of potential rivals, since they cannot decrease the duopolists' profit. 
E) the dominant strategy is to collude. 
A) each of the duopolists has no incentive to cheat on the agreement. 
B) each duopolist has the incentive to cheat on the duopoly agreement by lowering the price. 
C) each duopolist has the incentive to cheat on the agreement by increasing the price to make monopoly profit. 
D) there is no concern over the entrance of potential rivals, since they cannot decrease the duopolists' profit. 
E) the dominant strategy is to collude.

Question 13

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

Accepted Answer

A) the battery industry 
B) the sporting goods industry 
C) the footwear industry 
D) the cosmetics industry 
E) the power industry 
A) the battery industry 
B) the sporting goods industry 
C) the footwear industry 
D) the cosmetics industry 
E) the power industry

Question 14

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 15

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 16

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 17

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 Disney's strategy given what Fox's release choice may be?

Accepted Answer

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

Question 18

The distinguishing features of oligopoly are ________ and ________ in the industry.

Accepted Answer

A) no barriers to entry; a small number of firms 
B) barriers to entry; a large number of firms 
C) no barriers to entry; a large number of firms 
D) barriers to entry; one firm 
E) barriers to entry; a small number of firms 
A) no barriers to entry; a small number of firms 
B) barriers to entry; a large number of firms 
C) no barriers to entry; a large number of firms 
D) barriers to entry; one firm 
E) barriers to entry; a small number of firms

Question 19

There exists an incentive to cheat on a collusive agreement as long as

Accepted Answer

A) price equals marginal cost. 
B) price equals marginal revenue. 
C) price exceeds marginal cost. 
D) price is above minimum average total cost. 
E) the market is perfectly competitive. 
A) price equals marginal cost. 
B) price equals marginal revenue. 
C) price exceeds marginal cost. 
D) price is above minimum average total cost. 
E) the market is perfectly competitive.

Question 20

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.Refer to the nonrepeated game in the table.In Nash equilibrium, firm A will make an economic profit of

Accepted Answer

A) -$10. 
B) $2. 
C) $10. 
D) $20. 
E) $5. 
A) -$10. 
B) $2. 
C) $10. 
D) $20. 
E) $5.

Limit pricing refers to

The Competition Act distinguishes between business practices that are criminal and noncriminal.Which of the following is noncriminal?

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

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

Which is not a characteristic of oligopoly?

The maximum total economic profit that can be made by colluding duopolists

A dominant strategy equilibrium occurs when

All of the following except ________ are noncriminal offences under the Competition Act.

If a duopoly collusive agreement is made that maximizes joint profit,

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

A contestable market exists whenever

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

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

The distinguishing features of oligopoly are and in the industry.

There exists an incentive to cheat on a collusive agreement as long as

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

Limit pricing refers to

The Competition Act distinguishes between business practices that are criminal and noncriminal.Which of the following is noncriminal?

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

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

Which is not a characteristic of oligopoly?

The maximum total economic profit that can be made by colluding duopolists

A dominant strategy equilibrium occurs when

All of the following except ________ are noncriminal offences under the Competition Act.

If a duopoly collusive agreement is made that maximizes joint profit,

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

A contestable market exists whenever

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

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

The distinguishing features of oligopoly are ________ and ________ in the industry.

There exists an incentive to cheat on a collusive agreement as long as

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

The distinguishing features of oligopoly are and in the industry.