Question 1

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

Accepted Answer

A) Nash equilibrium. 
B) dominant strategy. 
C) collusion. 
D) payoff matrix. 
A) Nash equilibrium. 
B) dominant strategy. 
C) collusion. 
D) payoff matrix.

Question 2

When an oligopoly market is in Nash equilibrium

Accepted Answer

A) firms have colluded to set their prices. 
B) firms will not behave as profit maximizers. 
C) a firm will not take into account the strategies of its rivals. 
D) a firm will choose its best pricing strategy, given the strategies that it observes other firms have taken. 
A) firms have colluded to set their prices. 
B) firms will not behave as profit maximizers. 
C) a firm will not take into account the strategies of its rivals. 
D) a firm will choose its best pricing strategy, given the strategies that it observes other firms have taken.

Question 3

Suppose two firms in a duopoly implicitly collude and charge a high price.How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

Accepted Answer

A) The offer to match prices is a way of deterring entry by other large firms, thereby keeping the market share of the existing firms intact. 
B) The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same. 
C) The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion. 
D) The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available. 
A) The offer to match prices is a way of deterring entry by other large firms, thereby keeping the market share of the existing firms intact. 
B) The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same. 
C) The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion. 
D) The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available.

Question 4

If firms are protected by substantial barriers to entry, short-run profits can turn into long-run profits.

Accepted Answer

A) True 
 B)False

Question 5

A game in which each player adopts its dominant strategy

Accepted Answer

A) will not lead to an equilibrium. 
B) must be a cooperative game. 
C) could result in a Nash equilibrium. 
D) can never result in a Nash equilibrium. 
A) will not lead to an equilibrium. 
B) must be a cooperative game. 
C) could result in a Nash equilibrium. 
D) can never result in a Nash equilibrium.

Question 6

Table 14-3
   
Suppose OPEC has only two producers, Saudi Arabia and Nigeria.Saudi Arabia has far more oil reserves and is the lower-cost producer compared to Nigeria.The payoff matrix in Table 14-3 shows the profits earned per day by each country."Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota.
-Refer to Table 14-3.What is the Nash equilibrium in this game?

Accepted Answer

A) In the Nash equilibrium both Saudi Arabia and Nigeria produce a low output and earn a profit of $100 million and $20 million respectively. 
B) In the Nash equilibrium both Saudi Arabia and Nigeria produce a high output and earn a profit of $60 million and $20 million respectively. 
C) In the Nash equilibrium Saudi Arabia produces a low output and earns a profit of $80 million and Nigeria produces a high output and earns a profit of $30 million. 
D) There is no Nash equilibrium. 
A) In the Nash equilibrium both Saudi Arabia and Nigeria produce a low output and earn a profit of $100 million and $20 million respectively. 
B) In the Nash equilibrium both Saudi Arabia and Nigeria produce a high output and earn a profit of $60 million and $20 million respectively. 
C) In the Nash equilibrium Saudi Arabia produces a low output and earns a profit of $80 million and Nigeria produces a high output and earns a profit of $30 million. 
D) There is no Nash equilibrium.

Question 7

In Michael Porter's five competitive forces model, what do the competitive forces determine?

Accepted Answer

The five competitive

Question 8

Price leadership is a form of explicit collusion where one firm in an oligopoly announces a price change and expects all other firms to follow suit.

Accepted Answer

A) True 
 B)False

Question 9

An example of a supplier that used its bargaining power to charge high prices to its customers is

Accepted Answer

A) Walmart, which required many of its suppliers to alter their distribution systems to accommodate Walmart's need to control the flow of goods to its stores. 
B) the firms that supply paper napkins to McDonald's restaurants. 
C) the Technicolor Company, the sole producer of cameras and film that movie studios needed to produce color movies in the 1930s and 1940s. 
D) the publishers of the Encyclopedia Britannica. 
A) Walmart, which required many of its suppliers to alter their distribution systems to accommodate Walmart's need to control the flow of goods to its stores. 
B) the firms that supply paper napkins to McDonald's restaurants. 
C) the Technicolor Company, the sole producer of cameras and film that movie studios needed to produce color movies in the 1930s and 1940s. 
D) the publishers of the Encyclopedia Britannica.

Question 10

Figure 14-7
  
-Refer to Figure 14-7.Uniguest, Inc.is a company that provides PCs with internet access and touch-sensitive screens to hotels.Suppose the Hard Rock Hotel and Casino in Las Vegas informs Uniguest that it is considering installing these systems in its hotel rooms.The Hard Rock expects to be able to charge higher prices for these rooms if it installs Uniguest's systems in its rooms.The two companies begin bargaining over what price the Hard Rock will pay Uniguest for its systems, and the decision tree shown above illustrates this bargaining game.Note that the profit figures listed in the decision tree are additional profits for the Hard Rock and total profits for Uniguest.
a.Suppose the Hard Rock offers Uniguest $1,200 per system.Will Uniguest accept or reject this offer? Why?
b.Suppose the Hard Rock offers Uniguest $800 per system.Will Uniguest accept or reject this offer? Why?
c.Suppose Uniguest attempts to obtain a favorable outcome from the bargaining by telling the Hard Rock it will reject an $800-per-system offer.If the Hard Rock does not believe the threat is credible, what will it do? Why? What will Uniguest do? Why?
d.Is there a subgame-perfect equilibrium in this situation? Explain.

Accepted Answer

a.If the Hard Rock offers Uniguest $1,20

Question 11

The approach economists use to analyze competition among oligopolists is called

Accepted Answer

A) marginal analysis. 
B) game theory. 
C) oligopoly theory. 
D) competition among the few. 
A) marginal analysis. 
B) game theory. 
C) oligopoly theory. 
D) competition among the few.

Question 12

Which of the following is not a reason why government officials are willing to impose entry barriers?

Accepted Answer

A) to raise revenue 
B) to encourage innovation which may improve the standard of living in the long run 
C) to increase economic efficiency 
D) to promote an equitable distribution of income 
A) to raise revenue 
B) to encourage innovation which may improve the standard of living in the long run 
C) to increase economic efficiency 
D) to promote an equitable distribution of income

Question 13

In many business situations one firm will act first, and then other firms will respond.To help analyze these types of situations economists use

Accepted Answer

A) retaliation games. 
B) follow-the-leader-games. 
C) sequential games. 
D) bargaining games. 
A) retaliation games. 
B) follow-the-leader-games. 
C) sequential games. 
D) bargaining games.

Question 14

In most business situations where firms compete, often they can escape the prisoner's dilemma and reach the most profitable outcome.Which of the following is a reason for this?

Accepted Answer

A) Firms engage in aggressive advertising to overcome the barriers to loyalty. 
B) Most games are one-shot games so firms learn from their mistakes. 
C) Most games are repeated games and firms can employ retaliation strategies against those who do not cooperate. 
D) Firms are constantly improving their products and anticipating changing consumer tastes. 
A) Firms engage in aggressive advertising to overcome the barriers to loyalty. 
B) Most games are one-shot games so firms learn from their mistakes. 
C) Most games are repeated games and firms can employ retaliation strategies against those who do not cooperate. 
D) Firms are constantly improving their products and anticipating changing consumer tastes.

Question 15

The fraction of an industry's sales that are accounted for by the largest firms is called

Accepted Answer

A) the four-firm competition ratio. 
B) the four-firm concentration ratio. 
C) the four-firm industry ratio. 
D) the four-firm oligopoly ratio. 
A) the four-firm competition ratio. 
B) the four-firm concentration ratio. 
C) the four-firm industry ratio. 
D) the four-firm oligopoly ratio.

Question 16

A dominant strategy

Accepted Answer

A) is one that is the best for a firm, no matter what strategies other firms use. 
B) is one that a firm is forced into following by government policy. 
C) involves colluding with rivals to maximize joint profits. 
D) involves deciding what to do after all rivals have chosen their own strategies. 
A) is one that is the best for a firm, no matter what strategies other firms use. 
B) is one that a firm is forced into following by government policy. 
C) involves colluding with rivals to maximize joint profits. 
D) involves deciding what to do after all rivals have chosen their own strategies.

Question 17

Table 14-7
   
The payoff matrix shown above assumes that Perfect Plants and Florabunda Florist must decide whether to offer same-day delivery for their products.The matrix shows how much profit each firm will earn if it does or does not offer same-day delivery.The amount of profit for one firm depends on whether the other firm offers same-day delivery.
-Refer to Table 14-7.Which of the following statements is true?

Accepted Answer

A) Neither Perfect nor Florabunda have a dominant strategy. 
B) Perfect's dominant strategy is to offer same-day delivery; Florabunda's dominant strategy is to not offer same-day delivery. 
C) Florabunda's dominant strategy is to offer same-day delivery; Perfect's dominant strategy is to not offer same-day delivery. 
D) The dominant strategy for both firms is to offer same-day delivery. 
A) Neither Perfect nor Florabunda have a dominant strategy. 
B) Perfect's dominant strategy is to offer same-day delivery; Florabunda's dominant strategy is to not offer same-day delivery. 
C) Florabunda's dominant strategy is to offer same-day delivery; Perfect's dominant strategy is to not offer same-day delivery. 
D) The dominant strategy for both firms is to offer same-day delivery.

Question 18

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

Accepted Answer

A) an earnings table. 
B) a payoff table. 
C) a payoff matrix. 
D) a strategic matrix. 
A) an earnings table. 
B) a payoff table. 
C) a payoff matrix. 
D) a strategic matrix.

Question 19

Occupational licensing is an example of an entry barrier that improves a country's standard of living.

Accepted Answer

A) True 
 B)False

Question 20

As a measure of competition in an industry, concentration ratios have several flaws.One of these flaws is that concentration ratios

Accepted Answer

A) assume that all industries have low barriers to entry. 
B) assume that a ratio less than 40 percent means an industry is perfectly competitive. 
C) assume there are only four firms in an industry. 
D) are calculated for the national market, even though competition in some industries is mainly local. 
A) assume that all industries have low barriers to entry. 
B) assume that a ratio less than 40 percent means an industry is perfectly competitive. 
C) assume there are only four firms in an industry. 
D) are calculated for the national market, even though competition in some industries is mainly local.

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

When an oligopoly market is in Nash equilibrium

Suppose two firms in a duopoly implicitly collude and charge a high price.How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

If firms are protected by substantial barriers to entry, short-run profits can turn into long-run profits.

A game in which each player adopts its dominant strategy

In Michael Porter's five competitive forces model, what do the competitive forces determine?

Price leadership is a form of explicit collusion where one firm in an oligopoly announces a price change and expects all other firms to follow suit.

An example of a supplier that used its bargaining power to charge high prices to its customers is

The approach economists use to analyze competition among oligopolists is called

Which of the following is not a reason why government officials are willing to impose entry barriers?

In many business situations one firm will act first, and then other firms will respond.To help analyze these types of situations economists use

In most business situations where firms compete, often they can escape the prisoner's dilemma and reach the most profitable outcome.Which of the following is a reason for this?

The fraction of an industry's sales that are accounted for by the largest firms is called

A dominant strategy

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

Occupational licensing is an example of an entry barrier that improves a country's standard of living.

As a measure of competition in an industry, concentration ratios have several flaws.One of these flaws is that concentration ratios

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

Exam 14: Oligopoly: Firms in Less Competitive Markets

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

When an oligopoly market is in Nash equilibrium

Suppose two firms in a duopoly implicitly collude and charge a high price.How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

If firms are protected by substantial barriers to entry, short-run profits can turn into long-run profits.

A game in which each player adopts its dominant strategy

In Michael Porter's five competitive forces model, what do the competitive forces determine?

Price leadership is a form of explicit collusion where one firm in an oligopoly announces a price change and expects all other firms to follow suit.

An example of a supplier that used its bargaining power to charge high prices to its customers is

The approach economists use to analyze competition among oligopolists is called

Which of the following is not a reason why government officials are willing to impose entry barriers?

In many business situations one firm will act first, and then other firms will respond.To help analyze these types of situations economists use

In most business situations where firms compete, often they can escape the prisoner's dilemma and reach the most profitable outcome.Which of the following is a reason for this?

The fraction of an industry's sales that are accounted for by the largest firms is called

A dominant strategy

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

Occupational licensing is an example of an entry barrier that improves a country's standard of living.

As a measure of competition in an industry, concentration ratios have several flaws.One of these flaws is that concentration ratios

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