Question 1

The standard price for monopoly firms is a price that:

Accepted Answer

A)  exceeds marginal cost 
B)  exceeds demand 
C)  exceeds fixed costs 
D)  equals marginal revenue 
A)  exceeds marginal cost 
B)  exceeds demand 
C)  exceeds fixed costs 
D)  equals marginal revenue A

Question 2

An important characteristic of an oligopoly market structure is that:

Accepted Answer

A)  there are a large number of firms in the industry that produce identical products 
B)  products typically sell where price is equal to the marginal cost of production 
C)  the actions of one seller can have a large impact on the profitability of other sellers 
D)  the actions of one seller can have no impact on the profitability of other sellers because the market is so large 
A)  there are a large number of firms in the industry that produce identical products 
B)  products typically sell where price is equal to the marginal cost of production 
C)  the actions of one seller can have a large impact on the profitability of other sellers 
D)  the actions of one seller can have no impact on the profitability of other sellers because the market is so large C

Question 3

Oligopolies can end up looking like competitive firms if the number of firms is large and they do not cooperate.

Accepted Answer

A) True 
 B)False  True

Question 4

Assuming that oligopolists do not have the opportunity to collude, once they have reached the Nash equilibrium, it:

Accepted Answer

A)  is always in their best interest to supply more to the market 
B)  is always in their best interest to leave supply unchanged 
C)  is always in their best interest to supply less to the market 
D)  may be in their best interest to do any of the above, depending on market conditions 
A)  is always in their best interest to supply more to the market 
B)  is always in their best interest to leave supply unchanged 
C)  is always in their best interest to supply less to the market 
D)  may be in their best interest to do any of the above, depending on market conditions

Question 5

OPEC is able to raise the price of its product by:

Accepted Answer

A)  tying 
B)  bundling 
C)  setting production levels for each of its members 
D)  doing all of the above 
A)  tying 
B)  bundling 
C)  setting production levels for each of its members 
D)  doing all of the above

Question 6

Table 16-2
In the following duopoly game, the two firms can either set the price of their product high or low. If one firm's price is lower than the other, most of the market will buy from them. This will increase the low-price firm's profit at the expense of the other firm. The game is represented in the table below.
  
-Refer to Table 16-2. What is the profit firm B will earn if it plays its dominant strategy:

Accepted Answer

A)  $1000 if firm B has a high price and $1500 if firm B has a low price 
B)  $1000 if firm B has a high price and $800 if firm B has a low price 
C)  $800 if firm B has a high price and $1250 if firm B has a low price 
D)  $800 if firm B has a high price and $1500 if firm B has a low price 
A)  $1000 if firm B has a high price and $1500 if firm B has a low price 
B)  $1000 if firm B has a high price and $800 if firm B has a low price 
C)  $800 if firm B has a high price and $1250 if firm B has a low price 
D)  $800 if firm B has a high price and $1500 if firm B has a low price

Question 7

A tit-for-tat strategy starts out:

Accepted Answer

A)  conciliatory and then encourages an optimal social outcome among the other players 
B)  unfriendly and then encourages friendly strategy among players 
C)  friendly and then penalises unfriendly players 
D)  aggressive and then compensates losing players 
A)  conciliatory and then encourages an optimal social outcome among the other players 
B)  unfriendly and then encourages friendly strategy among players 
C)  friendly and then penalises unfriendly players 
D)  aggressive and then compensates losing players

Question 8

Which of the following statements are true of the prisoners' dilemma? (i) cooperation between the prisoners is difficult to maintain
(ii) rational self-interest leads neither party to confess
(iii) cooperation between the prisoners is individually irrational

Accepted Answer

A)  (i) and (ii) 
B)  (ii) and (iii) 
C)  (i) and (iii) 
D)  (i), (ii) and (iii) 
A)  (i) and (ii) 
B)  (ii) and (iii) 
C)  (i) and (iii) 
D)  (i), (ii) and (iii)

Question 9

It is individually irrational for players to cooperate in the prisoner's dilemma game because cooperation is not the dominant strategy.

Accepted Answer

A) True 
 B)False

Question 10

The general term for market structures that fall somewhere in between monopoly and perfect competition is:

Accepted Answer

A)  oligopoly markets 
B)  monopolistically competitive markets 
C)  incomplete markets 
D)  imperfectly competitive markets 
A)  oligopoly markets 
B)  monopolistically competitive markets 
C)  incomplete markets 
D)  imperfectly competitive markets

Question 11

Even when allowed to collude, firms in an oligopoly will choose to cheat on their agreements with the rest of the cartel. Why?

Accepted Answer

Individual profits can be increased at t

Question 12

Binding agreements concerning production levels between oligopolists can lead the involved firms to:

Accepted Answer

A)  bankruptcy 
B)  higher prices and less profit 
C)  monopoly profit 
D)  lower prices and more profit 
A)  bankruptcy 
B)  higher prices and less profit 
C)  monopoly profit 
D)  lower prices and more profit

Question 13

Table 16-1
The table below shows the total demand for viewing a rare penguin species at a local reserve. Ecotour companies have to build discreet viewing hides for tourists to view the penguins. Each ecotour company has to pay a fixed fee of $10 000 for the right to build on the reserve. Assume that hides can be supplied to tourists at zero marginal cost. Tickets are sold to tourists to use the viewing hides.
   Any firm can change tickets by steps of 1000 only. Prices for missing quantities are the exact midpoint between two adjacent prices.
-Refer to Table 16-1. If there is only one ecotourist company in this market, what ticket-price would it charge for its hides to maximise its profit?

Accepted Answer

A)  $36 
B)  $24 
C)  $12 
D)  $8 
A)  $36 
B)  $24 
C)  $12 
D)  $8

Question 14

An agreement among firms over production and price is called:

Accepted Answer

A)  collusion 
B)  conspiracy 
C)  multinational corporation 
D)  trade arrangement 
A)  collusion 
B)  conspiracy 
C)  multinational corporation 
D)  trade arrangement

Question 15

Oligopoly markets are characterised by:

Accepted Answer

A)  the universal existence of collusive agreements 
B)  a fall in collective profits if a cartel is organised 
C)  the pursuit of self-interest by profit-maximising firms always maximising collective profits 
D)  a conflict between cooperation and self-interest 
A)  the universal existence of collusive agreements 
B)  a fall in collective profits if a cartel is organised 
C)  the pursuit of self-interest by profit-maximising firms always maximising collective profits 
D)  a conflict between cooperation and self-interest

Question 16

As the number of firms in an oligopoly market:

Accepted Answer

A)  decreases, the market approaches a cartel equilibrium 
B)  increases, the market approaches a competitive market equilibrium 
C)  decreases, the market approaches a competitive market equilibrium 
D)  increases, the market approaches a monopoly market equilibrium 
A)  decreases, the market approaches a cartel equilibrium 
B)  increases, the market approaches a competitive market equilibrium 
C)  decreases, the market approaches a competitive market equilibrium 
D)  increases, the market approaches a monopoly market equilibrium

Question 17

If both countries agree on a certain level of arms in an arms race game, social welfare will decrease if both countries keep their end of the bargain.

Accepted Answer

A) True 
 B)False

Question 18

Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market. If they both advertise, they again split the market, but profits are lower, since each company must bear the cost of advertising. Yet, if one company advertises while the other does not, the one that advertises attracts customers from the other.
-Refer to the information provided. In 1971, the federal government passed a law that banned cigarette advertising on television. If cigarette companies are profit maximisers, it is likely that:

Accepted Answer

A)  Brown Inc. sued the federal government on the grounds that the ban constitutes a civil rights violation 
B)  both companies sued the federal government on the grounds that the ban constitutes a civil rights violation 
C)  both companies retaliated with black market operations 
D)  neither company opposed the ruling 
A)  Brown Inc. sued the federal government on the grounds that the ban constitutes a civil rights violation 
B)  both companies sued the federal government on the grounds that the ban constitutes a civil rights violation 
C)  both companies retaliated with black market operations 
D)  neither company opposed the ruling

Question 19

Table 16-1
The table below shows the total demand for viewing a rare penguin species at a local reserve. Ecotour companies have to build discreet viewing hides for tourists to view the penguins. Each ecotour company has to pay a fixed fee of $10 000 for the right to build on the reserve. Assume that hides can be supplied to tourists at zero marginal cost. Tickets are sold to tourists to use the viewing hides.
   Any firm can change tickets by steps of 1000 only. Prices for missing quantities are the exact midpoint between two adjacent prices.
-Refer to Table 16-1. Assume that there are two profit-maximising ecotourist companies operating in this market. Further assume that they are not able to collude on price and quantity of the tickets they sell. How many tickets will be by each firms when this market reaches a Nash equilibrium?

Accepted Answer

A)  1000 
B)  2000 
C)  3000 
D)  4000 
A)  1000 
B)  2000 
C)  3000 
D)  4000

Question 20

The arms race is similar to which of the following economic scenarios?

Accepted Answer

A)  the competitive game 
B)  the prisoners' dilemma 
C)  the welfare choice 
D)  cost allocation theory 
A)  the competitive game 
B)  the prisoners' dilemma 
C)  the welfare choice 
D)  cost allocation theory

Exam 16: Business Strategy

The standard price for monopoly firms is a price that:

An important characteristic of an oligopoly market structure is that:

Oligopolies can end up looking like competitive firms if the number of firms is large and they do not cooperate.

Assuming that oligopolists do not have the opportunity to collude, once they have reached the Nash equilibrium, it:

OPEC is able to raise the price of its product by:

A tit-for-tat strategy starts out:

Which of the following statements are true of the prisoners' dilemma? (i) cooperation between the prisoners is difficult to maintain (ii) rational self-interest leads neither party to confess (iii) cooperation between the prisoners is individually irrational

It is individually irrational for players to cooperate in the prisoner's dilemma game because cooperation is not the dominant strategy.

The general term for market structures that fall somewhere in between monopoly and perfect competition is:

Even when allowed to collude, firms in an oligopoly will choose to cheat on their agreements with the rest of the cartel. Why?

Binding agreements concerning production levels between oligopolists can lead the involved firms to:

An agreement among firms over production and price is called:

Oligopoly markets are characterised by:

As the number of firms in an oligopoly market:

If both countries agree on a certain level of arms in an arms race game, social welfare will decrease if both countries keep their end of the bargain.

The arms race is similar to which of the following economic scenarios?

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters