Question 1

The DeBeers Company of South Africa was able to block competition through

Accepted Answer

A) economies of scale. 
B) ownership of an essential input. 
C) government-imposed barriers. 
D) differentiating its product. 
A) economies of scale. 
B) ownership of an essential input. 
C) government-imposed barriers. 
D) differentiating its product.

Question 2

Table 14-6
   
There are two mobile home manufacturers in Nevada, Sturdy Homes (S)and My Haven (M).Sturdy Homes has been in the market for a long time and must now compete with newcomer, My Haven.Suppose that Sturdy Homes believes that My Haven will match any price it sets.Use Table 14-6 to answer the following question and assume throughout that Sturdy Homes believes that My Haven will match any price it sets.
-Refer to Table 14-6.What price will Sturdy Homes charge and what profit does Sturdy Homes expect to make?

Accepted Answer

A) Price = $8,000; expected profit = $7 million 
B) Price = $8,000; expected profit = $4 million 
C) Price = $10,000; expected profit = $5 million 
D) Price = $12,000; expected profit = $3 million 
A) Price = $8,000; expected profit = $7 million 
B) Price = $8,000; expected profit = $4 million 
C) Price = $10,000; expected profit = $5 million 
D) Price = $12,000; expected profit = $3 million

Question 3

Table 14-2
   
Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 4.At the start of the game each firm charges a low price and each earns a profit of $7,000.
-Refer to Table 14-2.For each firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000?

Accepted Answer

A) Yes, the firms can implicitly collude and agree to charge a higher price. 
B) No, there is no incentive for each firm to consider any other strategy. 
C) No, any other strategy hurts consumers. 
D) Yes, each firm can implicitly agree to increase output and not to deviate from a low price. 
A) Yes, the firms can implicitly collude and agree to charge a higher price. 
B) No, there is no incentive for each firm to consider any other strategy. 
C) No, any other strategy hurts consumers. 
D) Yes, each firm can implicitly agree to increase output and not to deviate from a low price.

Question 4

In a subgame-perfect equilibrium

Accepted Answer

A) the first mover has an advantage over other players. 
B) the last mover has an advantage over other players. 
C) each player's strategy constitutes a Nash equilibrium at every subgame of the original game. 
D) each player has the same response as the others at every subgame of the tree. 
A) the first mover has an advantage over other players. 
B) the last mover has an advantage over other players. 
C) each player's strategy constitutes a Nash equilibrium at every subgame of the original game. 
D) each player has the same response as the others at every subgame of the tree.

Question 5

Table 14-4
   
Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito.Each firm must decide on whether to increase its advertising budget to compete for customers.If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit.Table 14-4 shows the payoff matrix for this advertising game.
-Refer to Table 14-4.How are the firms in this advertising game caught in a prisoner's dilemma?

Accepted Answer

A) They are not in a prisoner's dilemma because there is one clear strategy for each. 
B) They would be more profitable if they refrained from advertising but each fears that if it does not advertise, it will lose customers. 
C) Since each firm is uncertain about the other's behavior, each will adopt a wait-and-see attitude which results in no increase in market share and no new customers. 
D) Only the first mover is caught in a prisoner's dilemma because the second has a chance to observe and respond. 
A) They are not in a prisoner's dilemma because there is one clear strategy for each. 
B) They would be more profitable if they refrained from advertising but each fears that if it does not advertise, it will lose customers. 
C) Since each firm is uncertain about the other's behavior, each will adopt a wait-and-see attitude which results in no increase in market share and no new customers. 
D) Only the first mover is caught in a prisoner's dilemma because the second has a chance to observe and respond.

Question 6

A cartel is

Accepted Answer

A) a temporary storage facility for automobiles. 
B) a group of firms that enter into an informal agreement to fix prices to maximize joint profits. 
C) a group of firms that enter into a formal agreement to fix prices to maximize joint profits. 
D) an example of a group of firms that collectively regulate a competitive industry. 
A) a temporary storage facility for automobiles. 
B) a group of firms that enter into an informal agreement to fix prices to maximize joint profits. 
C) a group of firms that enter into a formal agreement to fix prices to maximize joint profits. 
D) an example of a group of firms that collectively regulate a competitive industry.

Question 7

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.Is there a dominant strategy for Saudi Arabia and, if so, what is it?

Accepted Answer

A) Yes, the dominant strategy is to produce a high output. 
B) Yes, the dominant strategy is to produce a low output. 
C) No, there is no dominant strategy. 
D) Yes, it has a dominant strategy depending on what Nigeria does. 
A) Yes, the dominant strategy is to produce a high output. 
B) Yes, the dominant strategy is to produce a low output. 
C) No, there is no dominant strategy. 
D) Yes, it has a dominant strategy depending on what Nigeria does.

Question 8

The four-firm concentration ratio in the breakfast cereal industry is 80 percent.How does the five competitive forces model provide better insight into the degree of competition in the breakfast cereal industry than just observing the concentration ratio?

Accepted Answer

The concentration ratio only measures th

Question 9

Which of the following is not an example of a government-imposed entry barrier?

Accepted Answer

A) patents 
B) occupational licensing 
C) barriers to international trade 
D) antitrust legislation 
A) patents 
B) occupational licensing 
C) barriers to international trade 
D) antitrust legislation

Question 10

Why does a prisoner's dilemma lead to a noncooperative equilibrium?

Accepted Answer

A) because each player had agreed before the game started to minimize the harm that he can inflict on the other players 
B) because each player is uncertain how other players will play the game 
C) because players must choose from a limited number of non-dominant strategies 
D) because each rational player has a dominant strategy to play a certain way regardless of what other players do 
A) because each player had agreed before the game started to minimize the harm that he can inflict on the other players 
B) because each player is uncertain how other players will play the game 
C) because players must choose from a limited number of non-dominant strategies 
D) because each rational player has a dominant strategy to play a certain way regardless of what other players do

Question 11

Table 14-2
   
Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 4.At the start of the game each firm charges a low price and each earns a profit of $7,000.
-Refer to Table 14-2.Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor.What is the purpose of such a strategy?

Accepted Answer

A) to signal to each other not to charge below the current low price 
B) to signal to each other that they will not hesitate to initiate a price war 
C) to signal to each other that they intend to charge the high price 
D) to signal to each other to share the market equally 
A) to signal to each other not to charge below the current low price 
B) to signal to each other that they will not hesitate to initiate a price war 
C) to signal to each other that they intend to charge the high price 
D) to signal to each other to share the market equally

Question 12

Which of the following is not among Porter's competitive forces?

Accepted Answer

A) power of buyers 
B) power of suppliers 
C) threat of new entrants 
D) changing consumer tastes 
A) power of buyers 
B) power of suppliers 
C) threat of new entrants 
D) changing consumer tastes

Question 13

The four-firm concentration ratio of the aircraft industry is over 80 percent.Most economists would consider this industry an oligopoly.

Accepted Answer

A) True 
 B)False

Question 14

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) Given that Florabunda offers same-day delivery, Perfect's best strategy is to not offer same-day delivery. 
B) Given that Perfect offers same-day delivery, Florabunda's best strategy is to offer same-day delivery. 
C) Perfect and Florabunda will agree to collude in order to maximize their profits. 
D) Neither Perfect nor Florabunda will offer same-day delivery; this decision will decrease their costs and allow each firm to earn more than $1,800 million in profits. 
A) Given that Florabunda offers same-day delivery, Perfect's best strategy is to not offer same-day delivery. 
B) Given that Perfect offers same-day delivery, Florabunda's best strategy is to offer same-day delivery. 
C) Perfect and Florabunda will agree to collude in order to maximize their profits. 
D) Neither Perfect nor Florabunda will offer same-day delivery; this decision will decrease their costs and allow each firm to earn more than $1,800 million in profits.

Question 15

In 2015, the Educational Testing Service (ETS)charged $52.50 to take the Scholastic Aptitude Test (SAT)but $195 to take the Graduate Record Exam (GRE).One reason for this difference in price is

Accepted Answer

A) more people took the SAT than the GRE in 2015. 
B) the GRE is a longer test with more questions. 
C) an average, those who take the GRE have higher incomes than those who take the SAT. 
D) the ETS faces competition in the market for the SAT but no competition for the GRE. 
A) more people took the SAT than the GRE in 2015. 
B) the GRE is a longer test with more questions. 
C) an average, those who take the GRE have higher incomes than those who take the SAT. 
D) the ETS faces competition in the market for the SAT but no competition for the GRE.

Question 16

The people firms hire to attempt to convince state legislators and members of Congress to pass laws that are favorable to the economic interests of the firms are called

Accepted Answer

A) economic advisors. 
B) legislative assistants. 
C) government bureaucrats. 
D) lobbyists. 
A) economic advisors. 
B) legislative assistants. 
C) government bureaucrats. 
D) lobbyists.

Question 17

Firms in an oligopoly are said to be interdependent.What does this mean?

Accepted Answer

Interdependence among firms means that t

Question 18

Sequential games are often used to analyze which two types of business strategies?

Accepted Answer

A) whether to invest in research and development and whether to offer employees an early retirement package 
B) deciding to merge with another firm and deciding how much to spend on an advertising campaign 
C) deciding to end production of an unprofitable product and deciding to shut down temporarily 
D) deterring entry by another firm and bargaining between firms 
A) whether to invest in research and development and whether to offer employees an early retirement package 
B) deciding to merge with another firm and deciding how much to spend on an advertising campaign 
C) deciding to end production of an unprofitable product and deciding to shut down temporarily 
D) deterring entry by another firm and bargaining between firms

Question 19

For many years the Aluminum Company of America (Alcoa)controlled most of the world's supply of high quality bauxite, the ore needed to produce aluminum.What type of entry barrier was responsible for Alcoa's position in the aluminum industry?

Accepted Answer

A) ownership of a key input 
B) a government-imposed barrier 
C) a patent on the manufacture of aluminum 
D) economies of scale 
A) ownership of a key input 
B) a government-imposed barrier 
C) a patent on the manufacture of aluminum 
D) economies of scale

Question 20

An oligopolist differs from a perfect competitor in that

Accepted Answer

A) there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power. 
B) firms in an oligopoly do not produce homogeneous products while firms in perfect competition do. 
C) the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry. 
D) there are no entry barriers in perfect competition but there are entry barriers in oligopoly. 
A) there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power. 
B) firms in an oligopoly do not produce homogeneous products while firms in perfect competition do. 
C) the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry. 
D) there are no entry barriers in perfect competition but there are entry barriers in oligopoly.

The DeBeers Company of South Africa was able to block competition through

In a subgame-perfect equilibrium

A cartel is

The four-firm concentration ratio in the breakfast cereal industry is 80 percent.How does the five competitive forces model provide better insight into the degree of competition in the breakfast cereal industry than just observing the concentration ratio?

Which of the following is not an example of a government-imposed entry barrier?

Why does a prisoner's dilemma lead to a noncooperative equilibrium?

Which of the following is not among Porter's competitive forces?

The four-firm concentration ratio of the aircraft industry is over 80 percent.Most economists would consider this industry an oligopoly.

In 2015, the Educational Testing Service (ETS)charged $52.50 to take the Scholastic Aptitude Test (SAT)but $195 to take the Graduate Record Exam (GRE).One reason for this difference in price is

The people firms hire to attempt to convince state legislators and members of Congress to pass laws that are favorable to the economic interests of the firms are called

Firms in an oligopoly are said to be interdependent.What does this mean?

Sequential games are often used to analyze which two types of business strategies?

For many years the Aluminum Company of America (Alcoa)controlled most of the world's supply of high quality bauxite, the ore needed to produce aluminum.What type of entry barrier was responsible for Alcoa's position in the aluminum industry?

An oligopolist differs from a perfect competitor in that

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

The DeBeers Company of South Africa was able to block competition through

In a subgame-perfect equilibrium

A cartel is

The four-firm concentration ratio in the breakfast cereal industry is 80 percent.How does the five competitive forces model provide better insight into the degree of competition in the breakfast cereal industry than just observing the concentration ratio?

Which of the following is not an example of a government-imposed entry barrier?

Why does a prisoner's dilemma lead to a noncooperative equilibrium?

Which of the following is not among Porter's competitive forces?

The four-firm concentration ratio of the aircraft industry is over 80 percent.Most economists would consider this industry an oligopoly.

In 2015, the Educational Testing Service (ETS)charged $52.50 to take the Scholastic Aptitude Test (SAT)but $195 to take the Graduate Record Exam (GRE).One reason for this difference in price is

The people firms hire to attempt to convince state legislators and members of Congress to pass laws that are favorable to the economic interests of the firms are called

Firms in an oligopoly are said to be interdependent.What does this mean?

Sequential games are often used to analyze which two types of business strategies?

For many years the Aluminum Company of America (Alcoa)controlled most of the world's supply of high quality bauxite, the ore needed to produce aluminum.What type of entry barrier was responsible for Alcoa's position in the aluminum industry?

An oligopolist differs from a perfect competitor in that

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