Question 1

How does oligopoly differ from perfect competition and monopolistic competition?

Accepted Answer

A) Barriers to entry are lower in oligopoly industries than they are in perfectly competitive and monopolistically competitive industries. 
B) Demand and marginal revenue curves are more useful for analysing oligopoly than they are for analysing perfect competition and monopolistic competition. 
C) Oligopoly firms often react when other firms in their industry change their prices, it is difficult to know what the oligopolist's demand curve looks like. 
D) The concentration ratios of oligopoly industries are lower than they are for perfectly competitive and monopolistically competitive firms. 
A) Barriers to entry are lower in oligopoly industries than they are in perfectly competitive and monopolistically competitive industries. 
B) Demand and marginal revenue curves are more useful for analysing oligopoly than they are for analysing perfect competition and monopolistic competition. 
C) Oligopoly firms often react when other firms in their industry change their prices, it is difficult to know what the oligopolist's demand curve looks like. 
D) The concentration ratios of oligopoly industries are lower than they are for perfectly competitive and monopolistically competitive firms.

Question 2

In many business situations one firm will act first, and then other firms will respond.What do economists use to help analyse these types of situations?

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 3

Each member of OPEC can increase its income by selling more oil than its output quota because

Accepted Answer

A) by selling more at OPEC's cartel price, a member will automatically earn more income. 
B) each member's demand is more elastic than the total demand for oil. 
C) the demand for oil is inelastic so total revenue increases. 
D) the demand for oil is perfectly elastic. 
A) by selling more at OPEC's cartel price, a member will automatically earn more income. 
B) each member's demand is more elastic than the total demand for oil. 
C) the demand for oil is inelastic so total revenue increases. 
D) the demand for oil is perfectly elastic.

Question 4

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 maximisers. 
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 maximisers. 
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 5

What is the approach used by economists to analyse competition among oligopolists?

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 6

Table 11.2   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 11.2 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 11.2.The Nash equilibrium in this game is

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

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

Accepted Answer

A) True 
 B)False

Question 8

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

Accepted Answer

A) True 
 B)False

Question 9

Collusion makes firms better off because if they act as a single entity (a cartel), they can reduce output and increase their prices and profits.But some cartels have failed and others are unstable.Which of the following is a reason why cartels often break down?

Accepted Answer

A) Most cartels do not have a dominant strategy. 
B) When a cartel is profitable, the amount of competition it faces increases. 
C) Members of a cartel may resent having to share their profits equally. 
D) Each member of a cartel has an incentive to 'cheat' on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement. 
A) Most cartels do not have a dominant strategy. 
B) When a cartel is profitable, the amount of competition it faces increases. 
C) Members of a cartel may resent having to share their profits equally. 
D) Each member of a cartel has an incentive to 'cheat' on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement.

Question 10

Why is a patent a government-imposed entry barrier?

Accepted Answer

A) it allows a firm to achieve economies of scale. 
B) it is a key input owned by the firm that is granted the patent. 
C) it limits the quantity of a good that can be imported into a country. 
D) it gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented. 
A) it allows a firm to achieve economies of scale. 
B) it is a key input owned by the firm that is granted the patent. 
C) it limits the quantity of a good that can be imported into a country. 
D) it gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.

Question 11

The bargaining power of buyers increases if

Accepted Answer

A) there are many large buyers. 
B) the input in question has few substitutes. 
C) the input in question is not a critical component of production. 
D) there are wide variations in the quality of inputs from supplier to supplier. 
A) there are many large buyers. 
B) the input in question has few substitutes. 
C) the input in question is not a critical component of production. 
D) there are wide variations in the quality of inputs from supplier to supplier.

Question 12

Table 11.2   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 11.2 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 11.2.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 13

Table 11.1   Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow.Each firm must decide on whether to increase its advertising spending to compete for customers.Table 11.1 shows the payoff matrix for this advertising game.
-Refer to Table 11.1.Is there a dominant strategy for Godrickporter and, if so, what is it?

Accepted Answer

A) No, its outcome depends on what Star Connections does. 
B) Yes, Godrickporter should increase its advertising spending. 
C) Yes, Godrickporter should reduce its advertising spending. 
D) Yes, Godrickporter's dominant strategy is to collude with Star Connections. 
A) No, its outcome depends on what Star Connections does. 
B) Yes, Godrickporter should increase its advertising spending. 
C) Yes, Godrickporter should reduce its advertising spending. 
D) Yes, Godrickporter's dominant strategy is to collude with Star Connections.

Question 14

Why are decision trees useful to managers who plan business strategies?

Accepted Answer

A) Decision trees explain the level of concentration in an industry. 
B) Decision trees can be used to increase the amount of product differentiation; this enables managers to charge higher prices for their products. 
C) Decision trees provide a systematic way of thinking through the implications of a strategy. 
D) Using a decision tree always leads to a dominant strategy. 
A) Decision trees explain the level of concentration in an industry. 
B) Decision trees can be used to increase the amount of product differentiation; this enables managers to charge higher prices for their products. 
C) Decision trees provide a systematic way of thinking through the implications of a strategy. 
D) Using a decision tree always leads to a dominant strategy.

Question 15

Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6000 units of output.In this case, this industry would be

Accepted Answer

A) perfectly competitive if the market quantity demanded is 20 000 units. 
B) monopolistically competitive if the market quantity demanded is 12 000 units. 
C) an oligopoly if the market quantity demanded is 18 000 units. 
D) an oligopoly if the four-firm concentration ratio is more than 10 per cent. 
A) perfectly competitive if the market quantity demanded is 20 000 units. 
B) monopolistically competitive if the market quantity demanded is 12 000 units. 
C) an oligopoly if the market quantity demanded is 18 000 units. 
D) an oligopoly if the four-firm concentration ratio is more than 10 per cent.

Question 16

In economics, the study of the decisions of firms in industries where the profits of each firm depend on its interactions with other firms is called

Accepted Answer

A) decision theory. 
B) game theory. 
C) market structure analysis. 
D) profit analysis. 
A) decision theory. 
B) game theory. 
C) market structure analysis. 
D) profit analysis.

Question 17

Why does a prisoner's dilemma lead to a non-cooperative equilibrium?

Accepted Answer

A) Because each player had agreed before the game started to minimise 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 minimise 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 18

The bargaining power of suppliers increases if

Accepted Answer

A) the cost of switching suppliers is relatively low. 
B) there are only a few competitors to the supplier. 
C) the input in question is not a critical component of production. 
D) the input supplied is relatively standardised. 
A) the cost of switching suppliers is relatively low. 
B) there are only a few competitors to the supplier. 
C) the input in question is not a critical component of production. 
D) the input supplied is relatively standardised.

Question 19

There is much evidence to suggest that airlines are more likely to match price cuts than price increases.Which of the following best explains this evidence?

Accepted Answer

A) The law of demand, which states that an increase in price leads to a decrease in quantity demanded. 
B) No one airline wants to be the first to renege on a tacit collusive agreement in which all airlines implicitly agree to match price cuts but not price increases. 
C) An airline fears that if it does not match a price cut, its sales may fall considerably, but if it does not match a price increase, it will be able to attract customers away from its rivals. 
D) Airlines have different costs of production, and therefore it is more difficult to agree on a price increase than on a price decrease. 
A) The law of demand, which states that an increase in price leads to a decrease in quantity demanded. 
B) No one airline wants to be the first to renege on a tacit collusive agreement in which all airlines implicitly agree to match price cuts but not price increases. 
C) An airline fears that if it does not match a price cut, its sales may fall considerably, but if it does not match a price increase, it will be able to attract customers away from its rivals. 
D) Airlines have different costs of production, and therefore it is more difficult to agree on a price increase than on a price decrease.

Question 20

Which of the following is not a characteristic of oligopoly?

Accepted Answer

A) The ability to influence price 
B) A small number of firms 
C) Low barriers to entry 
D) Interdependent firms 
A) The ability to influence price 
B) A small number of firms 
C) Low barriers to entry 
D) Interdependent firms

How does oligopoly differ from perfect competition and monopolistic competition?

In many business situations one firm will act first, and then other firms will respond.What do economists use to help analyse these types of situations?

Each member of OPEC can increase its income by selling more oil than its output quota because

When an oligopoly market is in Nash equilibrium,

What is the approach used by economists to analyse competition among oligopolists?

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

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

Collusion makes firms better off because if they act as a single entity (a cartel), they can reduce output and increase their prices and profits.But some cartels have failed and others are unstable.Which of the following is a reason why cartels often break down?

Why is a patent a government-imposed entry barrier?

The bargaining power of buyers increases if

Why are decision trees useful to managers who plan business strategies?

Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6000 units of output.In this case, this industry would be

In economics, the study of the decisions of firms in industries where the profits of each firm depend on its interactions with other firms is called

Why does a prisoner's dilemma lead to a non-cooperative equilibrium?

The bargaining power of suppliers increases if

There is much evidence to suggest that airlines are more likely to match price cuts than price increases.Which of the following best explains this evidence?

Which of the following is not a characteristic of oligopoly?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition: The Competitive Model in a More Realistic

The Markets for Labour and Other Factors of Production

Comparative Advantage and the Gains From International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Exam 11: Oligopoly: Markets With Few Competitors

How does oligopoly differ from perfect competition and monopolistic competition?

In many business situations one firm will act first, and then other firms will respond.What do economists use to help analyse these types of situations?

Each member of OPEC can increase its income by selling more oil than its output quota because

When an oligopoly market is in Nash equilibrium,

What is the approach used by economists to analyse competition among oligopolists?

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

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

Collusion makes firms better off because if they act as a single entity (a cartel), they can reduce output and increase their prices and profits.But some cartels have failed and others are unstable.Which of the following is a reason why cartels often break down?

Why is a patent a government-imposed entry barrier?

The bargaining power of buyers increases if

Why are decision trees useful to managers who plan business strategies?

Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6000 units of output.In this case, this industry would be

In economics, the study of the decisions of firms in industries where the profits of each firm depend on its interactions with other firms is called

Why does a prisoner's dilemma lead to a non-cooperative equilibrium?

The bargaining power of suppliers increases if

There is much evidence to suggest that airlines are more likely to match price cuts than price increases.Which of the following best explains this evidence?

Which of the following is not a characteristic of oligopoly?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition: The Competitive Model in a More Realistic

The Markets for Labour and Other Factors of Production

Comparative Advantage and the Gains From International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters