Question 1

Nash equilibrium is an outcome of a game from which neither rival will want to deviate.

Accepted Answer

A) True 
 B)False

Question 2

The kinked-demand curve model shows that oligopolistic firms tend to change their prices frequently.

Accepted Answer

A) True 
 B)False

Question 3

Which constitutes an obstacle to collusion among oligopolists?

Accepted Answer

A)  a standardized product 
B)  a large number of firms 
C)  prosperous economic conditions 
D)  trademarks and copyrights 
A)  a standardized product 
B)  a large number of firms 
C)  prosperous economic conditions 
D)  trademarks and copyrights

Question 4

If three or four homogeneous oligopolists collude, the resulting price and production outcomes will be similar to those of pure monopoly.

Accepted Answer

A) True 
 B)False

Question 5

If an oligopoly is faced with a kinked-demand curve that is relatively elastic above, and relatively inelastic below, the going price, then it will

Accepted Answer

A)  increase total revenue by increasing price but lower total revenue by decreasing price. 
B)  decrease total revenue by either increasing or decreasing price. 
C)  increase total revenue by either increasing or decreasing price. 
D)  increase total revenue by decreasing price but lower total revenue by increasing price. 
A)  increase total revenue by increasing price but lower total revenue by decreasing price. 
B)  decrease total revenue by either increasing or decreasing price. 
C)  increase total revenue by either increasing or decreasing price. 
D)  increase total revenue by decreasing price but lower total revenue by increasing price.

Question 6

A firm in an oligopoly is similar to a monopoly in that

Accepted Answer

A)  both firms do not face competition from others. 
B)  both firms could have significant market power and control over price. 
C)  both firms face very inelastic demand for their products. 
D)  both firms do not need to advertise. 
A)  both firms do not face competition from others. 
B)  both firms could have significant market power and control over price. 
C)  both firms face very inelastic demand for their products. 
D)  both firms do not need to advertise.

Question 7

Other things equal, cartels and similar collusive arrangements are easier to establish and maintain

Accepted Answer

A)  when there are ample opportunities for the firms to make secret price concessions to selected buyers. 
B)  during periods of business-cycle stability and full employment. 
C)  when the demand and cost conditions of the participating firms differ substantially. 
D)  when the number of firms is relatively large. 
A)  when there are ample opportunities for the firms to make secret price concessions to selected buyers. 
B)  during periods of business-cycle stability and full employment. 
C)  when the demand and cost conditions of the participating firms differ substantially. 
D)  when the number of firms is relatively large.

Question 8

A cartel of four firms that controls 100 percent of the sales in a market, and faces the same cost schedules of a monopolist, will set a price somewhat lower than the monopoly price for its product.

Accepted Answer

A) True 
 B)False

Question 9

If output is set at the kink of the kinked-demand model, then there

Accepted Answer

A)  is a strong incentive for rivals to decrease prices. 
B)  is a strong incentive for rivals to increase prices. 
C)  is one price at which marginal revenue equals marginal cost. 
D)  are several prices at which marginal revenue equals marginal cost. 
A)  is a strong incentive for rivals to decrease prices. 
B)  is a strong incentive for rivals to increase prices. 
C)  is one price at which marginal revenue equals marginal cost. 
D)  are several prices at which marginal revenue equals marginal cost.

Question 10

Informal collusion to restrict output and increase prices is sometimes referred to as a

Accepted Answer

A)  merger. 
B)  cartel. 
C)  tacit understanding. 
D)  kinked-demand oligopoly. 
A)  merger. 
B)  cartel. 
C)  tacit understanding. 
D)  kinked-demand oligopoly.

Question 11

Collusive control over price may permit oligopolists to

Accepted Answer

A)  use new technology, achieve economies of scale, and get government subsidies. 
B)  achieve economies of scale, reduce costs, and prevent price cheating. 
C)  increase product demand, increase product supply, and lower cost. 
D)  reduce uncertainty, increase profits, and possibly limit entry of new firms. 
A)  use new technology, achieve economies of scale, and get government subsidies. 
B)  achieve economies of scale, reduce costs, and prevent price cheating. 
C)  increase product demand, increase product supply, and lower cost. 
D)  reduce uncertainty, increase profits, and possibly limit entry of new firms.

Question 12

According to the definition of a positive-sum game, both players get positive payoffs.

Accepted Answer

A) True 
 B)False

Question 13

In the kinked-demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to

Accepted Answer

A)  decrease their prices. 
B)  increase their prices. 
C)  not change their prices. 
D)  reduce their quantity. 
A)  decrease their prices. 
B)  increase their prices. 
C)  not change their prices. 
D)  reduce their quantity.

Question 14

The first mover in a sequential game always has the advantage over the second mover.

Accepted Answer

A) True 
 B)False

Question 15

If an oligopolist's demand curve has a "kink" in it, then over some interval,

Accepted Answer

A)  the oligopolist's marginal cost curve will have a break in it. 
B)  the oligopolist need not fear entry into the industry by new firms. 
C)  the oligopolist's competitors will not react to its price changes, either up or down. 
D)  changes in marginal cost will not cause a change in the profit-maximizing price. 
A)  the oligopolist's marginal cost curve will have a break in it. 
B)  the oligopolist need not fear entry into the industry by new firms. 
C)  the oligopolist's competitors will not react to its price changes, either up or down. 
D)  changes in marginal cost will not cause a change in the profit-maximizing price.

Question 16

Both collusive and noncollusive oligopoly models suggest that price changes will be relatively infrequent in these types of industries.

Accepted Answer

A) True 
 B)False

Question 17

If an oligopolist is faced with a marginal revenue curve that has a gap in it, we may assume that

Accepted Answer

A)  it is colluding with its rivals to maximize joint profits. 
B)  its demand curve is kinked. 
C)  it is selling a standardized product. 
D)  it is selling a differentiated product. 
A)  it is colluding with its rivals to maximize joint profits. 
B)  its demand curve is kinked. 
C)  it is selling a standardized product. 
D)  it is selling a differentiated product.

Question 18

The copper, aluminum, cement, and industrial alcohol industries are examples of

Accepted Answer

A)  interproduct competition. 
B)  homogeneous oligopoly. 
C)  monopolistic competition. 
D)  differentiated oligopoly. 
A)  interproduct competition. 
B)  homogeneous oligopoly. 
C)  monopolistic competition. 
D)  differentiated oligopoly.

Question 19

Advertising increases the costs of firms and could be manipulative; therefore, it does not really have a positive economic effect.

Accepted Answer

A) True 
 B)False

Question 20

Homogeneous oligopolists tend to advertise more than do differentiated oligopolists.

Accepted Answer

A) True 
 B)False

Exam 14: Oligopoly and Strategic Behavior

Nash equilibrium is an outcome of a game from which neither rival will want to deviate.

The kinked-demand curve model shows that oligopolistic firms tend to change their prices frequently.

Which constitutes an obstacle to collusion among oligopolists?

If three or four homogeneous oligopolists collude, the resulting price and production outcomes will be similar to those of pure monopoly.

If an oligopoly is faced with a kinked-demand curve that is relatively elastic above, and relatively inelastic below, the going price, then it will

A firm in an oligopoly is similar to a monopoly in that

Other things equal, cartels and similar collusive arrangements are easier to establish and maintain

A cartel of four firms that controls 100 percent of the sales in a market, and faces the same cost schedules of a monopolist, will set a price somewhat lower than the monopoly price for its product.

If output is set at the kink of the kinked-demand model, then there

Informal collusion to restrict output and increase prices is sometimes referred to as a

Collusive control over price may permit oligopolists to

According to the definition of a positive-sum game, both players get positive payoffs.

In the kinked-demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to

The first mover in a sequential game always has the advantage over the second mover.

If an oligopolist's demand curve has a "kink" in it, then over some interval,

Both collusive and noncollusive oligopoly models suggest that price changes will be relatively infrequent in these types of industries.

If an oligopolist is faced with a marginal revenue curve that has a gap in it, we may assume that

The copper, aluminum, cement, and industrial alcohol industries are examples of

Advertising increases the costs of firms and could be manipulative; therefore, it does not really have a positive economic effect.

Homogeneous oligopolists tend to advertise more than do differentiated oligopolists.

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

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters