Question 1

The product in an oligopolistic market

Accepted Answer

A)  is assumed to be homogeneous. 
B)  is always differentiated from one firm to another. 
C)  may be homogeneous or differentiated. 
D)  has very many close substitutes. 
A)  is assumed to be homogeneous. 
B)  is always differentiated from one firm to another. 
C)  may be homogeneous or differentiated. 
D)  has very many close substitutes.

Question 2

Suppose an oligopolistic producer assumes its rivals will ignore a price increase but match a price cut. In this case the firm perceives its

Accepted Answer

A)  demand curve as being of unit elasticity throughout. 
B)  supply curve as kinked, being steeper below the going price than above. 
C)  demand curve as kinked, being steeper below the going price than above. 
D)  demand curve as kinked, being steeper above the going price than below. 
A)  demand curve as being of unit elasticity throughout. 
B)  supply curve as kinked, being steeper below the going price than above. 
C)  demand curve as kinked, being steeper below the going price than above. 
D)  demand curve as kinked, being steeper above the going price than below.

Question 3

Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlines and Friendly Flyers are looking to enter that market. (They are the only two.) The figure shows in extensive form the possible outcomes of the two firms' decisions. The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. What is the solution to this extensive form game?

Accepted Answer

A)  AA will enter the market; FF will not. 
B)  FF will enter the market; AA will not. 
C)  Neither airline will enter the market. 
D)  Both airlines will enter the market. 
A)  AA will enter the market; FF will not. 
B)  FF will enter the market; AA will not. 
C)  Neither airline will enter the market. 
D)  Both airlines will enter the market.

Question 4

Which statement about oligopoly is false?

Accepted Answer

A)  Oligopolistic firms recognize their interdependence. 
B)  Prices in oligopoly are predicted to fluctuate widely and frequently. 
C)  A few firms play an important role in the sale of a product. 
D)  One firm's behavior is a function of what its rivals do. 
A)  Oligopolistic firms recognize their interdependence. 
B)  Prices in oligopoly are predicted to fluctuate widely and frequently. 
C)  A few firms play an important role in the sale of a product. 
D)  One firm's behavior is a function of what its rivals do.

Question 5

Some observers assert that oligopolies are less socially desirable than pure monopolies because

Accepted Answer

A)  monopolies are often government-regulated, whereas collusion among oligopolies may lead to similar results as a monopoly yet, having several firms, may give the illusion of competition. 
B)  monopolies have unique products, whereas product differentiation in oligopolies would lead to economic inefficiencies. 
C)  mutual interdependence among firms in an oligopoly would lead to more inefficiencies than in the case of a monopoly. 
D)  oligopolies tend to engage in advertising more so than monopolies. 
A)  monopolies are often government-regulated, whereas collusion among oligopolies may lead to similar results as a monopoly yet, having several firms, may give the illusion of competition. 
B)  monopolies have unique products, whereas product differentiation in oligopolies would lead to economic inefficiencies. 
C)  mutual interdependence among firms in an oligopoly would lead to more inefficiencies than in the case of a monopoly. 
D)  oligopolies tend to engage in advertising more so than monopolies.

Question 6

Larry's Lizards and Ronaldo's Reptiles are competing pet store franchises. Both are considering opening a store in the small town of Turtleville. If Ronaldo's opens a profitable store in Turtleville and Larry's management determines that it is not profitable to also open a store, then

Accepted Answer

A)  this is a simultaneous game. 
B)  a Nash equilibrium is not possible in this game. 
C)  Ronaldo's had a first-mover advantage in this game. 
D)  this is a zero-sum game. 
A)  this is a simultaneous game. 
B)  a Nash equilibrium is not possible in this game. 
C)  Ronaldo's had a first-mover advantage in this game. 
D)  this is a zero-sum game.

Question 7

If there are significant economies of scale in an industry, then

Accepted Answer

A)  a firm that is large may be able to produce at a lower unit cost than can a small firm. 
B)  a firm that is large will have to charge a higher price than will a small firm. 
C)  entry to that industry will be easy. 
D)  firms must differentiate their products to earn economic profits. 
A)  a firm that is large may be able to produce at a lower unit cost than can a small firm. 
B)  a firm that is large will have to charge a higher price than will a small firm. 
C)  entry to that industry will be easy. 
D)  firms must differentiate their products to earn economic profits.

Question 8

In which of these continuums of degrees of competition (lowest to highest) is oligopoly properly placed?

Accepted Answer

A)  pure monopoly, monopolistic competition, oligopoly, pure competition 
B)  oligopoly, pure competition, monopolistic competition, pure monopoly 
C)  monopolistic competition, pure competition, pure monopoly, oligopoly 
D)  pure monopoly, oligopoly, monopolistic competition, pure competition 
A)  pure monopoly, monopolistic competition, oligopoly, pure competition 
B)  oligopoly, pure competition, monopolistic competition, pure monopoly 
C)  monopolistic competition, pure competition, pure monopoly, oligopoly 
D)  pure monopoly, oligopoly, monopolistic competition, pure competition

Question 9

A cartel is

Accepted Answer

A)  a form of covert collusion. 
B)  legal in the United States. 
C)  always successful in raising profits. 
D)  a formal agreement among firms to collude. 
A)  a form of covert collusion. 
B)  legal in the United States. 
C)  always successful in raising profits. 
D)  a formal agreement among firms to collude.

Question 10

Suppose that a particular industry has a four-firm concentration ratio of 85 and a Herfindahl index of 3,000. Most likely, this industry would achieve

Accepted Answer

A)  both productive efficiency and allocative efficiency. 
B)  allocative efficiency but not productive efficiency. 
C)  neither productive efficiency nor allocative efficiency. 
D)  productive efficiency but not allocative efficiency. 
A)  both productive efficiency and allocative efficiency. 
B)  allocative efficiency but not productive efficiency. 
C)  neither productive efficiency nor allocative efficiency. 
D)  productive efficiency but not allocative efficiency.

Question 11

The Herfindahl index is a measure of

Accepted Answer

A)  profitability in an industry. 
B)  the price level in an industry. 
C)  the costs in an industry. 
D)  market power in an industry. 
A)  profitability in an industry. 
B)  the price level in an industry. 
C)  the costs in an industry. 
D)  market power in an industry.

Question 12

Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlines and Friendly Flyers are looking to enter that market. (They are the only two.) The figure shows in extensive form the possible outcomes of the two firms' decisions. The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. What does this extensive form game indicate about the decision to enter the South Podunk market?

Accepted Answer

A)  Accommodating Airlines has a first-mover advantage in this game. 
B)  Both airlines are better off by entering this market. 
C)  Friendly Flyers has a first-mover advantage in this game. 
D)  The outcome of this game is a prisoner's dilemma. 
A)  Accommodating Airlines has a first-mover advantage in this game. 
B)  Both airlines are better off by entering this market. 
C)  Friendly Flyers has a first-mover advantage in this game. 
D)  The outcome of this game is a prisoner's dilemma.

Question 13

(Last Word) Major Internet-related firms such as Google, Apple, Amazon, Microsoft, and Facebook each have an area of the market that they dominate. Which of the following is true about their interaction in the market?

Accepted Answer

A)  They tend to act independently, paying little attention to what the other firms do. 
B)  They collude so that each firm retains a near-monopoly in a particular sector without facing threats from the other major firms. 
C)  They behave according to a price leadership model, with each firm taking a leadership role in the particular sector it dominates. 
D)  They compete fiercely, as each looks for ways to increase profits by expanding into rivals' markets. 
A)  They tend to act independently, paying little attention to what the other firms do. 
B)  They collude so that each firm retains a near-monopoly in a particular sector without facing threats from the other major firms. 
C)  They behave according to a price leadership model, with each firm taking a leadership role in the particular sector it dominates. 
D)  They compete fiercely, as each looks for ways to increase profits by expanding into rivals' markets.

Question 14

In a sequential game, the first mover into a new market

Accepted Answer

A)  always earns a greater payoff than the second mover. 
B)  may discourage the second mover from entering that market. 
C)  only enters when there is a dominant strategy. 
D)  guarantees that a Nash equilibrium will result. 
A)  always earns a greater payoff than the second mover. 
B)  may discourage the second mover from entering that market. 
C)  only enters when there is a dominant strategy. 
D)  guarantees that a Nash equilibrium will result.

Question 15

The kinked-demand curve of an oligopolist is based on the assumption that

Accepted Answer

A)  competitors will follow a price cut but ignore a price increase. 
B)  competitors will match both price cuts and price increases. 
C)  competitors will ignore a price cut but follow a price increase. 
D)  there is no product differentiation. 
A)  competitors will follow a price cut but ignore a price increase. 
B)  competitors will match both price cuts and price increases. 
C)  competitors will ignore a price cut but follow a price increase. 
D)  there is no product differentiation.

Question 16

Patents and copyrights were established by the government to reduce oligopoly and monopoly power.

Accepted Answer

A) True 
 B)False

Question 17

The mutual interdependence that characterizes oligopoly arises because

Accepted Answer

A)  the products of various firms are homogeneous. 
B)  the products of various firms are differentiated. 
C)  each firm in an oligopoly depends on its own pricing strategy and that of its rivals. 
D)  the demand curves of firms are kinked at the prevailing price. 
A)  the products of various firms are homogeneous. 
B)  the products of various firms are differentiated. 
C)  each firm in an oligopoly depends on its own pricing strategy and that of its rivals. 
D)  the demand curves of firms are kinked at the prevailing price.

Question 18

Price leadership in an oligopoly entails an implicit or tacit form of collusion.

Accepted Answer

A) True 
 B)False

Question 19

Mutual interdependence means that oligopolistic producers rely primarily on price competition in determining their shares of the total market for their product.

Accepted Answer

A) True 
 B)False

Question 20

You are told that the four-firm concentration ratio in an industry is 20. Based on this information you can conclude that

Accepted Answer

A)  each of the top four firms has 20 percent of industry sales. 
B)  the four largest firms account for a combined 80 percent of the industry sales. 
C)  the four largest firms account for 20 percent of industry sales. 
D)  each of the four largest firms accounts for 5 percent of industry sales. 
A)  each of the top four firms has 20 percent of industry sales. 
B)  the four largest firms account for a combined 80 percent of the industry sales. 
C)  the four largest firms account for 20 percent of industry sales. 
D)  each of the four largest firms accounts for 5 percent of industry sales.

Exam 14: Oligopoly and Strategic Behavior

The product in an oligopolistic market

Suppose an oligopolistic producer assumes its rivals will ignore a price increase but match a price cut. In this case the firm perceives its

Which statement about oligopoly is false?

Some observers assert that oligopolies are less socially desirable than pure monopolies because

Larry's Lizards and Ronaldo's Reptiles are competing pet store franchises. Both are considering opening a store in the small town of Turtleville. If Ronaldo's opens a profitable store in Turtleville and Larry's management determines that it is not profitable to also open a store, then

If there are significant economies of scale in an industry, then

In which of these continuums of degrees of competition (lowest to highest) is oligopoly properly placed?

A cartel is

Suppose that a particular industry has a four-firm concentration ratio of 85 and a Herfindahl index of 3,000. Most likely, this industry would achieve

The Herfindahl index is a measure of

(Last Word) Major Internet-related firms such as Google, Apple, Amazon, Microsoft, and Facebook each have an area of the market that they dominate. Which of the following is true about their interaction in the market?

In a sequential game, the first mover into a new market

The kinked-demand curve of an oligopolist is based on the assumption that

Patents and copyrights were established by the government to reduce oligopoly and monopoly power.

The mutual interdependence that characterizes oligopoly arises because

Price leadership in an oligopoly entails an implicit or tacit form of collusion.

Mutual interdependence means that oligopolistic producers rely primarily on price competition in determining their shares of the total market for their product.

You are told that the four-firm concentration ratio in an industry is 20. Based on this information you can conclude that

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

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The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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