Question 1

Which of the following is NOT a characteristic of oligopoly firms?

Accepted Answer

A)  Strategic dependence 
B)  Product differentiation 
C)  Non-price competition, such as advertising and promotions 
D)  Perfectly elastic demand curves 
A)  Strategic dependence 
B)  Product differentiation 
C)  Non-price competition, such as advertising and promotions 
D)  Perfectly elastic demand curves

Question 2

Vertical merger occurs when

Accepted Answer

A)  two firms merge where one had sold its output to the other as an input. 
B)  the merger moves the combined firm onto the horizontal portion of its long-run average cost curve. 
C)  two firms merge where each is about the same size. 
D)  two firms producing a similar product merge. 
A)  two firms merge where one had sold its output to the other as an input. 
B)  the merger moves the combined firm onto the horizontal portion of its long-run average cost curve. 
C)  two firms merge where each is about the same size. 
D)  two firms producing a similar product merge.

Question 3

A game in which players collectively lose is known as a

Accepted Answer

A)  zero-sum game. 
B)  positive-sum game. 
C)  negative-sum game. 
D)  cooperative game. 
A)  zero-sum game. 
B)  positive-sum game. 
C)  negative-sum game. 
D)  cooperative game.

Question 4

What is a cartel? Can cartels generate long-term profits without the existence of barriers to entry?

Accepted Answer

A cartel is an association of producers

Question 5

Which of the following is NOT subject to a network effect?

Accepted Answer

A)  the layout of the keys on your keyboard 
B)  rotating your tires every six months 
C)  using a fax machine 
D)  purchasing a new high-definition DVD player 
A)  the layout of the keys on your keyboard 
B)  rotating your tires every six months 
C)  using a fax machine 
D)  purchasing a new high-definition DVD player

Question 6

A market structure characterized by a small number of interdependent sellers is called a(n)

Accepted Answer

A)  monopoly. 
B)  monopolistic competition. 
C)  monopsony. 
D)  oligopoly. 
A)  monopoly. 
B)  monopolistic competition. 
C)  monopsony. 
D)  oligopoly.

Question 7

Distinguish between a horizontal merger and a vertical merger.

Accepted Answer

A horizontal merger is a merge

Question 8

Why do cartels often break down?

Accepted Answer

Cartels often break down because of the

Question 9

Which of the following is LEAST likely to be an outcome of a cartel as compared to the situation before the cartel was formed?

Accepted Answer

A)  Cartel members charge higher prices. 
B)  Cartel members reduce production. 
C)  Cartel members make fewer profits. 
D)  Cartel members do not compete with each other in pricing decisions. 
A)  Cartel members charge higher prices. 
B)  Cartel members reduce production. 
C)  Cartel members make fewer profits. 
D)  Cartel members do not compete with each other in pricing decisions.

Question 10

Stephanie listens to punk rock because her friends do. This is

Accepted Answer

A)  a positive sum game. 
B)  collusion. 
C)  positive market feedback. 
D)  negative market feedback. 
A)  a positive sum game. 
B)  collusion. 
C)  positive market feedback. 
D)  negative market feedback.

Question 11

A game in which players as a group gain at the end of the game is referred to as

Accepted Answer

A)  zero-sum game. 
B)  negative-sum game. 
C)  positive-sum game. 
D)  tit-for-tat game. 
A)  zero-sum game. 
B)  negative-sum game. 
C)  positive-sum game. 
D)  tit-for-tat game.

Question 12

The Herfindahl-Hirschman index is measured by

Accepted Answer

A)  adding the market shares of all firms in an industry. 
B)  adding the squares of the market shares of all firms in an industry. 
C)  squaring the sum of the market shares of the all firms in an industry. 
D)  adding the market shares of the four largest firms in an industry. 
A)  adding the market shares of all firms in an industry. 
B)  adding the squares of the market shares of all firms in an industry. 
C)  squaring the sum of the market shares of the all firms in an industry. 
D)  adding the market shares of the four largest firms in an industry.

Question 13

Which does NOT cause an industry that might otherwise be competitive to tend toward oligopoly?

Accepted Answer

A)  economies of scale 
B)  barriers to entry 
C)  mergers 
D)  strategic independence 
A)  economies of scale 
B)  barriers to entry 
C)  mergers 
D)  strategic independence

Question 14

Refer to the above payoff matrix for the profits (in $ millions) of two firms (X and Y) making a decision to advertise or not. Which of the following is the outcome of the dominant strategy without cooperation?

Accepted Answer

A)  Both firm X and firm Y choose not to advertise. 
B)  Both firm X and firm Y choose to advertise. 
C)  Firm X chooses to advertise while firm Y chooses not to advertise. 
D)  Firm X chooses not to advertise while firm Y chooses to advertise. 
A)  Both firm X and firm Y choose not to advertise. 
B)  Both firm X and firm Y choose to advertise. 
C)  Firm X chooses to advertise while firm Y chooses not to advertise. 
D)  Firm X chooses not to advertise while firm Y chooses to advertise.

Question 15

Refer to the above payoff matrix for the profits (in $ millions) of two firms (A and

Accepted Answer

A)  Both firm A and firm B choose the low price. 
B)  Both firm A and firm B choose the high price. 
B)  and two pricing strategies (high and low). Which of the following is the outcome of the dominant strategy without cooperation? 
C)  Firm A chooses the low price while firm B chooses the high price. 
D)  Firm A chooses the high price while firm B chooses the low price. 
A)  Both firm A and firm B choose the low price. 
B)  Both firm A and firm B choose the high price. 
B)  and two pricing strategies (high and low). Which of the following is the outcome of the dominant strategy without cooperation? 
C)  Firm A chooses the low price while firm B chooses the high price. 
D)  Firm A chooses the high price while firm B chooses the low price.

Question 16

A dominant strategy is a

Accepted Answer

A)  last-move strategy. 
B)  losing strategy. 
C)  player's best strategy when he can make the first move. 
D)  player's best strategy regardless whatever strategies are adopted by his rivals. 
A)  last-move strategy. 
B)  losing strategy. 
C)  player's best strategy when he can make the first move. 
D)  player's best strategy regardless whatever strategies are adopted by his rivals.

Question 17

When there is a tendency for a particular product to come into favor with additional consumers because other consumers have chosen to purchase the product,

Accepted Answer

A)  negative market feedback occurs. 
B)  positive market feedback occurs. 
C)  there is no dominant strategy. 
D)  a price war must result. 
A)  negative market feedback occurs. 
B)  positive market feedback occurs. 
C)  there is no dominant strategy. 
D)  a price war must result.

Question 18

A situation in which one firm's actions with respect to price, quality, advertising and related changes may be strategically countered by the reactions of one or more other firms in the industry is known as

Accepted Answer

A)  strategic dependence. 
B)  economies of scale. 
C)  the concentration ratio. 
D)  barriers to entry. 
A)  strategic dependence. 
B)  economies of scale. 
C)  the concentration ratio. 
D)  barriers to entry.

Question 19

Over the past several decades, U.S. firms have faced more competition from overseas firms. Does this have any impact on the market power of U.S. oligopoly firms?

Accepted Answer

A)  No, because domestic firms in oligopoly markets are always so dominant that overseas producers have little or no impact on those markets. 
B)  No, because the United States government has effectively blocked all imports that might compete with domestic firms in oligopoly industries. 
C)  Yes, competition from overseas firms can substantially limit domestic firms' market power. 
D)  There is no way to know. 
A)  No, because domestic firms in oligopoly markets are always so dominant that overseas producers have little or no impact on those markets. 
B)  No, because the United States government has effectively blocked all imports that might compete with domestic firms in oligopoly industries. 
C)  Yes, competition from overseas firms can substantially limit domestic firms' market power. 
D)  There is no way to know.

Question 20

In which market structures do firms earn long-term profits of zero?

Accepted Answer

A)  Perfect competition and monopolistic competition 
B)  Monopolistic competition and oligopoly 
C)  Oligopoly and monopoly 
D)  Perfect competition and monopoly 
A)  Perfect competition and monopolistic competition 
B)  Monopolistic competition and oligopoly 
C)  Oligopoly and monopoly 
D)  Perfect competition and monopoly

Exam 26: Oligopoly and Strategic Behavior

Which of the following is NOT a characteristic of oligopoly firms?

Vertical merger occurs when

A game in which players collectively lose is known as a

What is a cartel? Can cartels generate long-term profits without the existence of barriers to entry?

Which of the following is NOT subject to a network effect?

A market structure characterized by a small number of interdependent sellers is called a(n)

Distinguish between a horizontal merger and a vertical merger.

Why do cartels often break down?

Which of the following is LEAST likely to be an outcome of a cartel as compared to the situation before the cartel was formed?

Stephanie listens to punk rock because her friends do. This is

A game in which players as a group gain at the end of the game is referred to as

The Herfindahl-Hirschman index is measured by

Which does NOT cause an industry that might otherwise be competitive to tend toward oligopoly?

Refer to the above payoff matrix for the profits (in $ millions) of two firms (X and Y) making a decision to advertise or not. Which of the following is the outcome of the dominant strategy without cooperation?

Refer to the above payoff matrix for the profits (in $ millions) of two firms (A and

A dominant strategy is a

When there is a tendency for a particular product to come into favor with additional consumers because other consumers have chosen to purchase the product,

A situation in which one firm's actions with respect to price, quality, advertising and related changes may be strategically countered by the reactions of one or more other firms in the industry is known as

Over the past several decades, U.S. firms have faced more competition from overseas firms. Does this have any impact on the market power of U.S. oligopoly firms?

In which market structures do firms earn long-term profits of zero?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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