Question 1

Economies of scale can lead to an oligopolistic market structure because

Accepted Answer

A) if larger firms have lower costs, new small entrants will not be able to produce at the low costs achieved by the big established firms. 
B) if economies of scale are insignificant, only a few firms are able to produce at the low costs achieved by the big established firms. 
C) a few firms can force rivals to produce at low levels of output. 
D) a few firms can use high profits to keep out new entrants. 
A) if larger firms have lower costs, new small entrants will not be able to produce at the low costs achieved by the big established firms. 
B) if economies of scale are insignificant, only a few firms are able to produce at the low costs achieved by the big established firms. 
C) a few firms can force rivals to produce at low levels of output. 
D) a few firms can use high profits to keep out new entrants.

Question 2

In most business situations where firms compete, often they can escape the prisoner's dilemma and reach the most profitable outcome.Which of the following is a reason for this?

Accepted Answer

A) Firms engage in aggressive advertising to overcome the barriers to loyalty. 
B) Most games are one-shot games so firms learn from their mistakes. 
C) Most games are repeated games and firms can employ retaliation strategies against those who do not cooperate. 
D) Firms are constantly improving their products and anticipating changing consumer tastes. 
A) Firms engage in aggressive advertising to overcome the barriers to loyalty. 
B) Most games are one-shot games so firms learn from their mistakes. 
C) Most games are repeated games and firms can employ retaliation strategies against those who do not cooperate. 
D) Firms are constantly improving their products and anticipating changing consumer tastes.

Question 3

OPEC periodically meets to agree to restrict the cartel's oil output, and yet almost every member of OPEC produces more than its own output quota.This suggests that OPEC has

Accepted Answer

A) a cooperative equilibrium. 
B) a non-cooperative equilibrium. 
C) new potential entrants. 
D) a threat of substitute goods. 
A) a cooperative equilibrium. 
B) a non-cooperative equilibrium. 
C) new potential entrants. 
D) a threat of substitute goods.

Question 4

The study of how people make decisions in situations in which attaining their goals depends on their interactions with others is called

Accepted Answer

A) game theory. 
B) oligopoly. 
C) competitive analysis. 
D) strategic analysis. 
A) game theory. 
B) oligopoly. 
C) competitive analysis. 
D) strategic analysis.

Question 5

The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.

Accepted Answer

A) True 
 B)False

Question 6

Figure 11.2   The government of a developing country plans to award two firms, Gigacom and Xenophone, the exclusive rights to share the market for high-speed Internet service.Gigacom and Xenophone can both provide the service either via television cable lines or via direct subscriber line (DSL).Suppose the government is considering a proposal to delay one firm's entry into the market on the grounds that it wants to prevent 'harmful' competition.Figure 11.2 shows the decision tree for this game.
-Refer to Figure 11.2.If the government delays Gigacom's entry and Xenophone moves first, what is the likely outcome in the market?

Accepted Answer

A) Both offer Internet service via cable line; Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million. 
B) Both offer DSL Internet service; Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million. 
C) Xenophone offers DSL Internet service and earns a profit of $5 million, while Gigacom offers Internet service via cable line and earns a profit of $6.5 million. 
D) Xenophone offers Internet service via cable line and earns a profit of $4 million, while Gigacom offers DSL Internet service and earns a profit of $4.5 million. 
A) Both offer Internet service via cable line; Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million. 
B) Both offer DSL Internet service; Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million. 
C) Xenophone offers DSL Internet service and earns a profit of $5 million, while Gigacom offers Internet service via cable line and earns a profit of $6.5 million. 
D) Xenophone offers Internet service via cable line and earns a profit of $4 million, while Gigacom offers DSL Internet service and earns a profit of $4.5 million.

Question 7

In a decision tree, the difference between a decision node and a terminal node is that

Accepted Answer

A) at a decision node, all participants are free to make individual decisions, but at a terminal node, they must agree on a collective decision. 
B) at a decision node, all participants make the same decision, while at a terminal node, different players may make different decisions. 
C) at a decision node, a decision must be made, while a terminal node shows the payoff. 
D) at a decision node, a decision must be made, while at a terminal node, the final decision must be made. 
A) at a decision node, all participants are free to make individual decisions, but at a terminal node, they must agree on a collective decision. 
B) at a decision node, all participants make the same decision, while at a terminal node, different players may make different decisions. 
C) at a decision node, a decision must be made, while a terminal node shows the payoff. 
D) at a decision node, a decision must be made, while at a terminal node, the final decision must be made.

Question 8

Which of the following is an example of implicit collusion?

Accepted Answer

A) Product differentiation 
B) A retaliation strategy 
C) A second-price auction 
D) Price leadership 
A) Product differentiation 
B) A retaliation strategy 
C) A second-price auction 
D) Price leadership

Question 9

Which of the following is not a reason why government officials are willing to impose entry barriers?

Accepted Answer

A) To raise revenue 
B) To encourage innovation which may improve the standard of living in the long run 
C) To increase economic efficiency 
D) To promote an equitable distribution of income 
A) To raise revenue 
B) To encourage innovation which may improve the standard of living in the long run 
C) To increase economic efficiency 
D) To promote an equitable distribution of income

Question 10

Which of the following is an example of a barrier to entry?

Accepted Answer

A) Product differentiation. 
B) High profits. 
C) Superior technological knowledge. 
D) Increasing marginal costs 
A) Product differentiation. 
B) High profits. 
C) Superior technological knowledge. 
D) Increasing marginal costs

Question 11

If economies of scale are relatively unimportant in an industry, the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales.The industry will be ________.

Accepted Answer

A) large; competitive 
B) large; an oligopoly 
C) small; competitive 
D) small; an oligopoly 
A) large; competitive 
B) large; an oligopoly 
C) small; competitive 
D) small; an oligopoly

Question 12

A Nash equilibrium is

Accepted Answer

A) reached when an oligopoly's market demand and supply intersect. 
B) reached when each player chooses the best strategy for himself and for the group. 
C) reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group. 
D) an equilibrium comprising non-dominant strategies only. 
A) reached when an oligopoly's market demand and supply intersect. 
B) reached when each player chooses the best strategy for himself and for the group. 
C) reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group. 
D) an equilibrium comprising non-dominant strategies only.

Question 13

How does the demand curve for an oligopoly firm differ from the demand curves for firms in competitive market structures?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

The demand curve facing a perfectly comp

Question 14

What do economists call a set of actions that a firm takes to achieve a goal, such as maximising profits?

Accepted Answer

A) a business strategy. 
B) a payoff matrix. 
C) the Porter's Competitive Forces plan. 
D) game theory. 
A) a business strategy. 
B) a payoff matrix. 
C) the Porter's Competitive Forces plan. 
D) game theory.

Question 15

Table 11.3   Firm A(Alistair's)and Firm B (Baine's)are the only firms selling luggage in the upscale town of Adelaide.Each firm must decide on whether to increase its advertising spending 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 11.3 shows the payoff matrix for this advertising game.
-Refer to Table 11.3.Does Alistair have a dominant strategy and, if so, what is it?

Accepted Answer

A) Yes, Alistair should increase its advertising budget. 
B) Yes, Alistair should keep its advertising budget as is. 
C) There are two dominant strategies: if Baine increases its advertising budget, then Alistair's best bet is to keep its budget the same, but if Baine does not increase its spending, then Alistair should raise its advertising budget. 
D) No, there is no dominant strategy. 
A) Yes, Alistair should increase its advertising budget. 
B) Yes, Alistair should keep its advertising budget as is. 
C) There are two dominant strategies: if Baine increases its advertising budget, then Alistair's best bet is to keep its budget the same, but if Baine does not increase its spending, then Alistair should raise its advertising budget. 
D) No, there is no dominant strategy.

Question 16

How is an oligopoly firm similar to a monopolistic competitor?

Accepted Answer

A) Both firms face the prisoner's dilemma. 
B) Both operate in a market in which there are entry barriers. 
C) Both firms have market power. 
D) Both firms are in industries characterised by an interdependent firm. 
A) Both firms face the prisoner's dilemma. 
B) Both operate in a market in which there are entry barriers. 
C) Both firms have market power. 
D) Both firms are in industries characterised by an interdependent firm.

Question 17

A prisoner's dilemma is

Accepted Answer

A) a game that involves no dominant strategies 
B) a game in which prisoners are stumped because they cannot communicate with each other 
C) a game in which players act in rational, self-interested ways that leave everyone worse off 
D) a game in which players collude to outfox authorities 
A) a game that involves no dominant strategies 
B) a game in which prisoners are stumped because they cannot communicate with each other 
C) a game in which players act in rational, self-interested ways that leave everyone worse off 
D) a game in which players collude to outfox authorities

Question 18

What is true about marginal revenue for an oligopolist?

Accepted Answer

A) Identical to the demand for the firm's product. 
B) Difficult to determine because the firm's demand curve is typically unknown. 
C) Downward sloping beneath the firm's demand curve. 
D) Horizontal on a price-quantity diagram. 
A) Identical to the demand for the firm's product. 
B) Difficult to determine because the firm's demand curve is typically unknown. 
C) Downward sloping beneath the firm's demand curve. 
D) Horizontal on a price-quantity diagram.

Question 19

A sequential game can be used to analyse whether a retail firm should build a large store or a small store in a city, when the correct choice depends on whether a competing firm will build a new store in the same city.Which of the following is used to analyse this type of decision?

Accepted Answer

A) A decision tree 
B) A decision matrix 
C) A sequential matrix 
D) An either-or graph 
A) A decision tree 
B) A decision matrix 
C) A sequential matrix 
D) An either-or graph

Question 20

A game in which pursuing dominant strategies results in noncooperation that leaves all parties worse off is a

Accepted Answer

A) prisoner's dilemma. 
B) cooperative equilibrium. 
C) first-price auction. 
D) zero-sum game. 
A) prisoner's dilemma. 
B) cooperative equilibrium. 
C) first-price auction. 
D) zero-sum game.

Economies of scale can lead to an oligopolistic market structure because

In most business situations where firms compete, often they can escape the prisoner's dilemma and reach the most profitable outcome.Which of the following is a reason for this?

OPEC periodically meets to agree to restrict the cartel's oil output, and yet almost every member of OPEC produces more than its own output quota.This suggests that OPEC has

The study of how people make decisions in situations in which attaining their goals depends on their interactions with others is called

The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.

In a decision tree, the difference between a decision node and a terminal node is that

Which of the following is an example of implicit collusion?

Which of the following is not a reason why government officials are willing to impose entry barriers?

Which of the following is an example of a barrier to entry?

If economies of scale are relatively unimportant in an industry, the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a fraction of total industry sales.The industry will be .

A Nash equilibrium is

What do economists call a set of actions that a firm takes to achieve a goal, such as maximising profits?

How is an oligopoly firm similar to a monopolistic competitor?

A prisoner's dilemma is

What is true about marginal revenue for an oligopolist?

A sequential game can be used to analyse whether a retail firm should build a large store or a small store in a city, when the correct choice depends on whether a competing firm will build a new store in the same city.Which of the following is used to analyse this type of decision?

A game in which pursuing dominant strategies results in noncooperation that leaves all parties worse off is a

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

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Exam 11: Oligopoly: Markets With Few Competitors

Economies of scale can lead to an oligopolistic market structure because

In most business situations where firms compete, often they can escape the prisoner's dilemma and reach the most profitable outcome.Which of the following is a reason for this?

OPEC periodically meets to agree to restrict the cartel's oil output, and yet almost every member of OPEC produces more than its own output quota.This suggests that OPEC has

The study of how people make decisions in situations in which attaining their goals depends on their interactions with others is called

The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.

In a decision tree, the difference between a decision node and a terminal node is that

Which of the following is an example of implicit collusion?

Which of the following is not a reason why government officials are willing to impose entry barriers?

Which of the following is an example of a barrier to entry?

If economies of scale are relatively unimportant in an industry, the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales.The industry will be ________.

A Nash equilibrium is

What do economists call a set of actions that a firm takes to achieve a goal, such as maximising profits?

How is an oligopoly firm similar to a monopolistic competitor?

A prisoner's dilemma is

What is true about marginal revenue for an oligopolist?

A sequential game can be used to analyse whether a retail firm should build a large store or a small store in a city, when the correct choice depends on whether a competing firm will build a new store in the same city.Which of the following is used to analyse this type of decision?

A game in which pursuing dominant strategies results in noncooperation that leaves all parties worse off is a

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

If economies of scale are relatively unimportant in an industry, the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a fraction of total industry sales.The industry will be .