Question 1

The main purpose of antitrust law is to

Accepted Answer

A)  prohibit monopoly practices such as restricting output. 
B)  regulate advertising. 
C)  encourage the formation of cartels. 
D)  regulate the stock and bond markets. 
A)  prohibit monopoly practices such as restricting output. 
B)  regulate advertising. 
C)  encourage the formation of cartels. 
D)  regulate the stock and bond markets.

Question 2

There are two firms that compete against each other and each needs to decide if they will undertake research and development to improve their product. The payoffs are as follows: If Firm 1 does undertake R&D then Firm 2 will earn $25 million if they also do R&D or $50 million if not
If Firm 1 does not undertake R&D then Firm 2 will earn $2 million if they do R&D or $0 million if not
If Firm 2 does undertake R&D then Firm 1 will earn $10 million if they also do R&D or $20 million if not
If Firm 2 does not undertake R&D then Firm 1 will earn $2 million if they do R&D or $0 million if not
Regarding this game, which of the following is TRUE?

Accepted Answer

A)  Only one will do R&D but we cannot say which one. 
B)  Both firms will do R&D. 
C)  Both firms will not do R&D. 
D)  Firm 1 will do R&D and Firm 2 will not. 
A)  Only one will do R&D but we cannot say which one. 
B)  Both firms will do R&D. 
C)  Both firms will not do R&D. 
D)  Firm 1 will do R&D and Firm 2 will not.

Question 3

As the Federal Trade Commission currently interprets the Herfindahl-Hirschman index (HHI), an industry is considered to be highly concentrated if the HHI value is above

Accepted Answer

A)  100. 
B)  1,000. 
C)  2,500. 
D)  5,000. 
A)  100. 
B)  1,000. 
C)  2,500. 
D)  5,000.

Question 4

Gateway  
-Dell and Gateway must decide whether to lower their prices, based on the potential economic profits shown in the payoff matrix above. (The profits are in millions of dollars.) If the firms collude and don't cheat, Dell's profit is ________ million and Gateway's profit is ________ million.

Accepted Answer

A)  $10; $10 
B)  $15; $15 
C)  $5; $20 
D)  $20; $5 
A)  $10; $10 
B)  $15; $15 
C)  $5; $20 
D)  $20; $5

Question 5

What is game theory and what light does it shed on the issues faced by duopolists?

Accepted Answer

Game theory is a tool economists use to

Question 6

Dr. Smith  
-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 categorizes the Nash equilibrium for the game?

Accepted Answer

A)  The game has a Nash equilibrium in which both optometrists advertise. 
B)  The game has a Nash equilibrium in which both optometrists do not advertise. 
C)  The game has a Nash equilibrium in which Dr. Smith advertises and Dr. Jones does not advertise. 
D)  The game has a Nash equilibrium in which Dr. Smith does not advertise and Dr. Jones does advertise. 
A)  The game has a Nash equilibrium in which both optometrists advertise. 
B)  The game has a Nash equilibrium in which both optometrists do not advertise. 
C)  The game has a Nash equilibrium in which Dr. Smith advertises and Dr. Jones does not advertise. 
D)  The game has a Nash equilibrium in which Dr. Smith does not advertise and Dr. Jones does advertise.

Question 7

In the figure, D is the demand curve for taxi rides in a town, and ATC is the average total cost curve of a taxi company.
-In an oligopoly market, the Herfindahl-Hirschman Index is usually

Accepted Answer

A)  greater than 2,500. 
B)  below 1,000. 
C)  between 100 and 1,000. 
D)  between 200 and 2,000. 
A)  greater than 2,500. 
B)  below 1,000. 
C)  between 100 and 1,000. 
D)  between 200 and 2,000.

Question 8

Describe the characteristics of an oligopoly.

Accepted Answer

There are a small number of firms that a

Question 9

If the Herfindahl-Hirschman index (HHI) among the firms in the long distance telecommunications market were equal to 1755, when would the Federal Trade Commission probably challenge a proposed merger between any two of the firms?

Accepted Answer

A)  It would challenge if the HHI would increase by more than 50 points. 
B)  It would challenge if the HHI would increase by more than 100 points. 
C)  It would challenge no matter what happened to the HHI because the market has so few firms. 
D)  It would not challenge because the HHI is less than 1800. 
A)  It would challenge if the HHI would increase by more than 50 points. 
B)  It would challenge if the HHI would increase by more than 100 points. 
C)  It would challenge no matter what happened to the HHI because the market has so few firms. 
D)  It would not challenge because the HHI is less than 1800.

Question 10

The EU's antitrust chief in November 2008 fined car glass producers Asahi, Pilkington, Saint-Gobain and Soliver more than 1.3 billion euros ($1.66 billion) for price-fixing, the largest sum ever levied by the EU for a cartel. Price fixing is a violation of ________.

Accepted Answer

A)  price fixing legislation 
B)  antitrust law 
C)  Federal Trade Commission 
D)  Division of the U.S. Department of Justice 
A)  price fixing legislation 
B)  antitrust law 
C)  Federal Trade Commission 
D)  Division of the U.S. Department of Justice

Question 11

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

Question 12

Explain how the courts have ruled on price fixing.

Accepted Answer

Price fixing among competitors is always

Question 13

A market structure in which a small number of firms compete is called ________.

Accepted Answer

A)  a monopoly 
B)  a small-number market 
C)  an oligopoly 
D)  monopolistic competition 
A)  a monopoly 
B)  a small-number market 
C)  an oligopoly 
D)  monopolistic competition

Question 14

A natural oligopoly can form

Accepted Answer

A)  if there are economies of scale. 
B)  only if firms sell a differentiated good. 
C)  only if firms sell a homogeneous good. 
D)  if there is only one firm in the industry. 
A)  if there are economies of scale. 
B)  only if firms sell a differentiated good. 
C)  only if firms sell a homogeneous good. 
D)  if there is only one firm in the industry.

Question 15

Kellogg's and General Mills are two of the dominant breakfast cereal manufactures in the U.S. Each firm can either sign or not sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box. If both companies sign an athlete, they will each make $5 million in economic profit. If only firm signs, they earn $8 million in economic profit and the other firm incurs an economic loss of $1 million. If neither firm signs, they break even. What are the strategies in this game?

Accepted Answer

A)  Do not sign exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box and make $8 million in profit. 
B)  Sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box and do not sign exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box. 
C)  Sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box and make $8 million in profit. 
D)  Make $5 million or $8 million in profit. 
A)  Do not sign exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box and make $8 million in profit. 
B)  Sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box and do not sign exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box. 
C)  Sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box and make $8 million in profit. 
D)  Make $5 million or $8 million in profit.

Question 16

Game theory is applicable to oligopoly behavior because oligopolists

Accepted Answer

A)  use strategic behavior. 
B)  ignore rival firms. 
C)  are price takers. 
D)  can only be profitable if they collude. 
A)  use strategic behavior. 
B)  ignore rival firms. 
C)  are price takers. 
D)  can only be profitable if they collude.

Question 17

"If firms in duopoly collude and operate as a monopoly, the industry produces more output compared to the Nash equilibrium." True or false? Explain.

Accepted Answer

The statement is False. In the Nash equi

Question 18

If a duopolists' collusive price-fixing game can be played repeatedly,

Accepted Answer

A)  one possible equilibrium is that both firms cheat. 
B)  players can signal their willingness to cooperate. 
C)  players can punish cheaters in the following game. 
D)  All of the above answers are correct. 
A)  one possible equilibrium is that both firms cheat. 
B)  players can signal their willingness to cooperate. 
C)  players can punish cheaters in the following game. 
D)  All of the above answers are correct.

Question 19

Why would a profit maximizing monopolist in a contestable market set its price at a level below that which maximizes short run profits?

Accepted Answer

A firm in a contestable market is not pr

Question 20

In the United States, why are cartels among firms usually kept secret?

Accepted Answer

Cartels are typically kept secret becaus

The main purpose of antitrust law is to

As the Federal Trade Commission currently interprets the Herfindahl-Hirschman index (HHI), an industry is considered to be highly concentrated if the HHI value is above

Gateway -Dell and Gateway must decide whether to lower their prices, based on the potential economic profits shown in the payoff matrix above. (The profits are in millions of dollars.) If the firms collude and don't cheat, Dell's profit is million and Gateway's profit is million.

What is game theory and what light does it shed on the issues faced by duopolists?

In the figure, D is the demand curve for taxi rides in a town, and ATC is the average total cost curve of a taxi company. -In an oligopoly market, the Herfindahl-Hirschman Index is usually

Describe the characteristics of an oligopoly.

If the Herfindahl-Hirschman index (HHI) among the firms in the long distance telecommunications market were equal to 1755, when would the Federal Trade Commission probably challenge a proposed merger between any two of the firms?

The EU's antitrust chief in November 2008 fined car glass producers Asahi, Pilkington, Saint-Gobain and Soliver more than 1.3 billion euros ($1.66 billion) for price-fixing, the largest sum ever levied by the EU for a cartel. Price fixing is a violation of ________.

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

Explain how the courts have ruled on price fixing.

A market structure in which a small number of firms compete is called ________.

A natural oligopoly can form

Game theory is applicable to oligopoly behavior because oligopolists

"If firms in duopoly collude and operate as a monopoly, the industry produces more output compared to the Nash equilibrium." True or false? Explain.

If a duopolists' collusive price-fixing game can be played repeatedly,

Why would a profit maximizing monopolist in a contestable market set its price at a level below that which maximizes short run profits?

In the United States, why are cartels among firms usually kept secret?

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

Public Choices, Public Goods, and Healthcare

Externalities

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Filters

Exam 15: Oligopoly

The main purpose of antitrust law is to

As the Federal Trade Commission currently interprets the Herfindahl-Hirschman index (HHI), an industry is considered to be highly concentrated if the HHI value is above

Gateway -Dell and Gateway must decide whether to lower their prices, based on the potential economic profits shown in the payoff matrix above. (The profits are in millions of dollars.) If the firms collude and don't cheat, Dell's profit is ________ million and Gateway's profit is ________ million.

What is game theory and what light does it shed on the issues faced by duopolists?

In the figure, D is the demand curve for taxi rides in a town, and ATC is the average total cost curve of a taxi company. -In an oligopoly market, the Herfindahl-Hirschman Index is usually

Describe the characteristics of an oligopoly.

If the Herfindahl-Hirschman index (HHI) among the firms in the long distance telecommunications market were equal to 1755, when would the Federal Trade Commission probably challenge a proposed merger between any two of the firms?

The EU's antitrust chief in November 2008 fined car glass producers Asahi, Pilkington, Saint-Gobain and Soliver more than 1.3 billion euros ($1.66 billion) for price-fixing, the largest sum ever levied by the EU for a cartel. Price fixing is a violation of ________.

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

Explain how the courts have ruled on price fixing.

A market structure in which a small number of firms compete is called ________.

A natural oligopoly can form

Game theory is applicable to oligopoly behavior because oligopolists

"If firms in duopoly collude and operate as a monopoly, the industry produces more output compared to the Nash equilibrium." True or false? Explain.

If a duopolists' collusive price-fixing game can be played repeatedly,

Why would a profit maximizing monopolist in a contestable market set its price at a level below that which maximizes short run profits?

In the United States, why are cartels among firms usually kept secret?

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

Public Choices, Public Goods, and Healthcare

Externalities

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Filters

Gateway -Dell and Gateway must decide whether to lower their prices, based on the potential economic profits shown in the payoff matrix above. (The profits are in millions of dollars.) If the firms collude and don't cheat, Dell's profit is million and Gateway's profit is million.

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