Question 1

An example of a barrier to entry is

Accepted Answer

A) product differentiation. 
B) high profits. 
C) superior technological knowledge. 
D) increasing marginal costs. 
A) product differentiation. 
B) high profits. 
C) superior technological knowledge. 
D) increasing marginal costs.

Question 2

An agreement among firms to charge the same price or otherwise not to compete is called

Accepted Answer

A) a payoff matrix. 
B) a subgame-perfect equilibrium. 
C) a Nash equilibrium. 
D) collusion. 
A) a payoff matrix. 
B) a subgame-perfect equilibrium. 
C) a Nash equilibrium. 
D) collusion.

Question 3

Figure 14-4
   
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 14.4 shows the decision tree for the Rainbow Writer-Odeon bargaining game.
-Refer to Figure 14-4.In a real world situation involving Rainbow Writer and Odeon, what scenario below might permit Rainbow Writer to rationally refuse an offer from Odeon of $40 per copy of the software package?

Accepted Answer

A) Odeon is also negotiating with FastWrite, Rainbow Writer's chief rival. 
B) Odeon's competitors are also interested in bundling Rainbow Writer's software. 
C) Odeon hires a software developer to begin developing its own proprietary engraving software. 
D) Odeon is considering new distribution outlets for its products. 
A) Odeon is also negotiating with FastWrite, Rainbow Writer's chief rival. 
B) Odeon's competitors are also interested in bundling Rainbow Writer's software. 
C) Odeon hires a software developer to begin developing its own proprietary engraving software. 
D) Odeon is considering new distribution outlets for its products.

Question 4

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.

Accepted Answer

A) True 
 B)False

Question 5

The breakfast cereal industry has a four-firm concentration ratio of 80 percent.Is this enough information to classify the industry as an oligopoly? Is a high concentration ratio evidence that an industry is not competitive?

Accepted Answer

Most economists classify an industry wit

Question 6

An oligopolistic industry is characterized by all of the following except

Accepted Answer

A) existence of entry barriers. 
B) the possibility of reaping long-run economic profits. 
C) firms pursuing aggressive business strategies, independent of rivals' strategies. 
D) production of standardized or differentiated products. 
A) existence of entry barriers. 
B) the possibility of reaping long-run economic profits. 
C) firms pursuing aggressive business strategies, independent of rivals' strategies. 
D) production of standardized or differentiated products.

Question 7

Of all barriers to entry, the most important are those that are due to

Accepted Answer

A) ownership of a key input. 
B) economies of scale. 
C) government-imposed barriers. 
D) the Herfindahl-Hirschman Index. 
A) ownership of a key input. 
B) economies of scale. 
C) government-imposed barriers. 
D) the Herfindahl-Hirschman Index.

Question 8

Table 14-8
   
Two rival oligopolists in the athletic supplements industry, the Power Fuel Company and the Brawny Juice Company, have to decide on their pricing strategy.Each can choose either a high price or a low price.Table 14-8 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts.
-Refer to Table 14-8.If Brawny Juice selects a high price, what is Power Fuel's best strategy and what will Power Fuel earn as a result of this strategy?

Accepted Answer

A) Power Fuel will select a low price and earn $8 million. 
B) Power Fuel will select a low price and earn $16 million. 
C) Power Fuel will select a high price and earn $12 million. 
D) Power Fuel will select a high price and earn $16 million. 
A) Power Fuel will select a low price and earn $8 million. 
B) Power Fuel will select a low price and earn $16 million. 
C) Power Fuel will select a high price and earn $12 million. 
D) Power Fuel will select a high price and earn $16 million.

Question 9

If an industry is made up of five identical firms, the four-firm concentration ratio is

Accepted Answer

A) 5%. 
B) 20%. 
C) 80%. 
D) 100%. 
A) 5%. 
B) 20%. 
C) 80%. 
D) 100%.

Question 10

Most economists are concerned about entry barriers.Why is this so important to them?

Accepted Answer

Entry barriers enable a firm to earn lon

Question 11

For years, economists believed that market structure explained the ability of some firms to earn economic profits.For example, firms in industries with little competition and high barriers to entry would earn higher profits than firms in competitive industries with low entry barriers.Which of the following has caused economists to question this explanation and seek other explanations for why firms are profitable?

Accepted Answer

A) Studies have shown that, on average, firms in competitive industries earn higher profit rates than firms in industries with little competition. 
B) In recent years, new technologies have increased the potential entry of new firms in industries with high entry barriers. 
C) Studies have shown that firms in industries that have little competition and high entry barriers are not very profitable. Economists conclude from this that some competition is necessary in order to force firms to lower their costs and develop products that satisfy new consumer demands. 
D) The market structure explanation fails to explain how firms in the same industry can have very different levels of profit. 
A) Studies have shown that, on average, firms in competitive industries earn higher profit rates than firms in industries with little competition. 
B) In recent years, new technologies have increased the potential entry of new firms in industries with high entry barriers. 
C) Studies have shown that firms in industries that have little competition and high entry barriers are not very profitable. Economists conclude from this that some competition is necessary in order to force firms to lower their costs and develop products that satisfy new consumer demands. 
D) The market structure explanation fails to explain how firms in the same industry can have very different levels of profit.

Question 12

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?

Accepted Answer

A) Fixed costs in the airline industry are very large, but the marginal cost of flying one more passenger is very low. 
B) Airlines receive a subsidy from the government for each flight that is fully booked and departs on time. 
C) The Federal Aviation Administration ranks each airline based on the percentage of flights that are fully booked. These rankings affect the decisions of firms to use a particular airline to fly their employees to business meetings. 
D) Cutting prices makes the airlines more popular with their customers, who may fly with the same airline in the future as the result of buying low-price tickets. 
A) Fixed costs in the airline industry are very large, but the marginal cost of flying one more passenger is very low. 
B) Airlines receive a subsidy from the government for each flight that is fully booked and departs on time. 
C) The Federal Aviation Administration ranks each airline based on the percentage of flights that are fully booked. These rankings affect the decisions of firms to use a particular airline to fly their employees to business meetings. 
D) Cutting prices makes the airlines more popular with their customers, who may fly with the same airline in the future as the result of buying low-price tickets.

Question 13

Doctors and lawyers in every state need a license to practice.This is an example of

Accepted Answer

A) consumer protection laws. 
B) consumer advocacy. 
C) occupational licensing. 
D) ownership of a key input. 
A) consumer protection laws. 
B) consumer advocacy. 
C) occupational licensing. 
D) ownership of a key input.

Question 14

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?

Accepted Answer

A) Yes, because BMW stands to lose $100 million if it competes with Lexus. 
B) Yes, because BMW will make a smaller profit than Lexus if it chooses to compete. 
C) No, because BMW will still make a profit of $120 if it competes with Lexus. 
D) No, because BMW will be able to break Lexus' first-mover advantage. 
A) Yes, because BMW stands to lose $100 million if it competes with Lexus. 
B) Yes, because BMW will make a smaller profit than Lexus if it chooses to compete. 
C) No, because BMW will still make a profit of $120 if it competes with Lexus. 
D) No, because BMW will be able to break Lexus' first-mover advantage.

Question 15

According to Porter's Five Competitive Forces Model, similar products produced by different firms within the industry affects a firm's ability to raise prices far more than substitutable products produced outside the industry.

Accepted Answer

A) True 
 B)False

Question 16

An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a

Accepted Answer

A) cartel equilibrium. 
B) noncooperative equilibrium. 
C) prisoner's dilemma equilibrium. 
D) dominant strategy equilibrium. 
A) cartel equilibrium. 
B) noncooperative equilibrium. 
C) prisoner's dilemma equilibrium. 
D) dominant strategy equilibrium.

Question 17

All of the following are ways by which existing firms can deter the entry of new firms into an industry except

Accepted Answer

A) continuously producing new and improved products. 
B) earning less than maximum profit. 
C) advertising products aggressively. 
D) threatening to raise prices. 
A) continuously producing new and improved products. 
B) earning less than maximum profit. 
C) advertising products aggressively. 
D) threatening to raise prices.

Question 18

Oligopolies exist and do not attract new rivals because

Accepted Answer

A) of competition. 
B) of barriers to entry. 
C) the firms keep profits and prices so low that no rivals are attracted. 
D) there can be no product differentiation. 
A) of competition. 
B) of barriers to entry. 
C) the firms keep profits and prices so low that no rivals are attracted. 
D) there can be no product differentiation.

Question 19

Figure 14-6
  
-Refer to Figure 14-6 Use the decision tree to determine whether Pizza Hut should deter Domino's from entering the market for pasta salad.Assume that each firm must earn a 25% return on investment to break even.Explain Pizza Hut's decision process.

Accepted Answer

If Pizza Hut charges $7.49 for its pasta

Question 20

Collusion between two firms occurs when

Accepted Answer

A) the firms independently pursue strategies that could hurt each other. 
B) firms explicitly or implicitly agree to adopt a uniform business strategy. 
C) announce that each will match its rival's market price. 
D) firms act altruistically to bring about the economically efficient outcome. 
A) the firms independently pursue strategies that could hurt each other. 
B) firms explicitly or implicitly agree to adopt a uniform business strategy. 
C) announce that each will match its rival's market price. 
D) firms act altruistically to bring about the economically efficient outcome.

An example of a barrier to entry is

An agreement among firms to charge the same price or otherwise not to compete is called

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.

The breakfast cereal industry has a four-firm concentration ratio of 80 percent.Is this enough information to classify the industry as an oligopoly? Is a high concentration ratio evidence that an industry is not competitive?

An oligopolistic industry is characterized by all of the following except

Of all barriers to entry, the most important are those that are due to

If an industry is made up of five identical firms, the four-firm concentration ratio is

Most economists are concerned about entry barriers.Why is this so important to them?

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?

Doctors and lawyers in every state need a license to practice.This is an example of

According to Porter's Five Competitive Forces Model, similar products produced by different firms within the industry affects a firm's ability to raise prices far more than substitutable products produced outside the industry.

An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a

All of the following are ways by which existing firms can deter the entry of new firms into an industry except

Oligopolies exist and do not attract new rivals because

Figure 14-6 -Refer to Figure 14-6 Use the decision tree to determine whether Pizza Hut should deter Domino's from entering the market for pasta salad.Assume that each firm must earn a 25% return on investment to break even.Explain Pizza Hut's decision process.

Collusion between two firms occurs when

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

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Exam 14: Oligopoly: Firms in Less Competitive Markets

An example of a barrier to entry is

An agreement among firms to charge the same price or otherwise not to compete is called

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.

The breakfast cereal industry has a four-firm concentration ratio of 80 percent.Is this enough information to classify the industry as an oligopoly? Is a high concentration ratio evidence that an industry is not competitive?

An oligopolistic industry is characterized by all of the following except

Of all barriers to entry, the most important are those that are due to

If an industry is made up of five identical firms, the four-firm concentration ratio is

Most economists are concerned about entry barriers.Why is this so important to them?

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?

Doctors and lawyers in every state need a license to practice.This is an example of

According to Porter's Five Competitive Forces Model, similar products produced by different firms within the industry affects a firm's ability to raise prices far more than substitutable products produced outside the industry.

An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a

All of the following are ways by which existing firms can deter the entry of new firms into an industry except

Oligopolies exist and do not attract new rivals because

Figure 14-6 -Refer to Figure 14-6 Use the decision tree to determine whether Pizza Hut should deter Domino's from entering the market for pasta salad.Assume that each firm must earn a 25% return on investment to break even.Explain Pizza Hut's decision process.

Collusion between two firms occurs when

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters