Question 1

As it relates to oligopoly,game theory focuses on the strategic behavior of rival firms.

Accepted Answer

A) True 
 B)False

Question 2

One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the following cases?

Accepted Answer

A)  A rather large number of firms producing a differentiated product. 
B)  A very small number of firms producing a differentiated product. 
C)  A rather large number of firms producing a homogeneous product. 
D)  A very small number of firms producing a homogeneous product. 
A)  A rather large number of firms producing a differentiated product. 
B)  A very small number of firms producing a differentiated product. 
C)  A rather large number of firms producing a homogeneous product. 
D)  A very small number of firms producing a homogeneous product.

Question 3

Game theory can be used to demonstrate that oligopolists:

Accepted Answer

A)  rarely consider the potential reactions of rivals. 
B)  experience economies of scale. 
C)  can increase their profits through collusion. 
D)  may be either homogeneous or differentiated. 
A)  rarely consider the potential reactions of rivals. 
B)  experience economies of scale. 
C)  can increase their profits through collusion. 
D)  may be either homogeneous or differentiated.

Question 4

The economic inefficiencies of monopolistic competition may be offset by the fact that:

Accepted Answer

A)  advertising expenditures shift the average cost curve upward. 
B)  available capacity is fully utilized. 
C)  resources are optimally allocated to the production of the product. 
D)  consumers have increased product variety. 
A)  advertising expenditures shift the average cost curve upward. 
B)  available capacity is fully utilized. 
C)  resources are optimally allocated to the production of the product. 
D)  consumers have increased product variety.

Question 5

Assume six firms comprising an industry have market shares of 30,30,10,10,10,and 10 percent.The Herfindahl index for this industry is:

Accepted Answer

A)  2,000. 
B)  1,600. 
C)  2,200. 
D)  80. 
A)  2,000. 
B)  1,600. 
C)  2,200. 
D)  80.

Question 6

If one player in a game has a dominant strategy,the other player must also have a dominant strategy.

Accepted Answer

A) True 
 B)False

Question 7

Use your basic knowledge and your understanding of market structures to answer this question.Which of the following companies most closely approximates a differentiated oligopolist in a highly concentrated industry?

Accepted Answer

A)  Subway Sandwiches. 
B)  Pittsburgh Plate Glass. 
C)  Ford Motor Company. 
D)  Kaiser Aluminum. 
A)  Subway Sandwiches. 
B)  Pittsburgh Plate Glass. 
C)  Ford Motor Company. 
D)  Kaiser Aluminum.

Question 8

The U.S.breakfast cereal industry is an example of differentiated oligopoly.

Accepted Answer

A) True 
 B)False

Question 9

A positive-sum game occurs:

Accepted Answer

A)  when the sum of the two firms' outcomes is positive. 
B)  whenever any of the values in the payoff matrix are positive. 
C)  when the gains received by one player are exactly offset by the losses to the other. 
D)  whenever the payoffs to the two players are equal. 
A)  when the sum of the two firms' outcomes is positive. 
B)  whenever any of the values in the payoff matrix are positive. 
C)  when the gains received by one player are exactly offset by the losses to the other. 
D)  whenever the payoffs to the two players are equal.

Question 10

Collusive agreements between two firms are most likely to be honored when the game:

Accepted Answer

A)  is a one-time game with the opportunity for a prisoner's dilemma. 
B)  has a Nash equilibrium that differs from the outcome that maximizes the payoffs to the two firms. 
C)  is a zero-sum game. 
D)  is repeated and both firms offer credible threats if the other violates the agreement. 
A)  is a one-time game with the opportunity for a prisoner's dilemma. 
B)  has a Nash equilibrium that differs from the outcome that maximizes the payoffs to the two firms. 
C)  is a zero-sum game. 
D)  is repeated and both firms offer credible threats if the other violates the agreement.

Question 11

The automobile,household appliance,and automobile tire industries are all illustrations of:

Accepted Answer

A)  homogeneous oligopoly. 
B)  monopolistic competition. 
C)  pure monopoly. 
D)  differentiated oligopoly. 
A)  homogeneous oligopoly. 
B)  monopolistic competition. 
C)  pure monopoly. 
D)  differentiated oligopoly.

Question 12

Secret conspiracies to fix prices are examples of:

Accepted Answer

A)  cartels. 
B)  price leadership. 
C)  overt collusion. 
D)  covert collusion. 
A)  cartels. 
B)  price leadership. 
C)  overt collusion. 
D)  covert collusion.

Question 13

In the long run,economic theory predicts that a monopolistically competitive firm will:

Accepted Answer

A)  earn an economic profit. 
B)  realize all economies of scale. 
C)  equate price and marginal cost. 
D)  have excess production capacity. 
A)  earn an economic profit. 
B)  realize all economies of scale. 
C)  equate price and marginal cost. 
D)  have excess production capacity.

Question 14

A monopolistically competitive industry combines elements of both competition and monopoly.It is correct to say that the competitive element results from:

Accepted Answer

A)  a relatively large number of firms and the monopolistic element from product differentiation. 
B)  product differentiation and the monopolistic element from high entry barriers. 
C)  a perfectly elastic demand curve and the monopolistic element from low entry barriers. 
D)  a highly inelastic demand curve and the monopolistic element from advertising and product promotion. 
A)  a relatively large number of firms and the monopolistic element from product differentiation. 
B)  product differentiation and the monopolistic element from high entry barriers. 
C)  a perfectly elastic demand curve and the monopolistic element from low entry barriers. 
D)  a highly inelastic demand curve and the monopolistic element from advertising and product promotion.

Question 15

One characteristic of sequential games is that they all have first-mover advantages.

Accepted Answer

A) True 
 B)False

Question 16

In a sequential game with two firms,the first mover into a new market:

Accepted Answer

A)  is guaranteed positive economic profits. 
B)  is assured of blocking any potential second mover from entering the market. 
C)  runs the risk that the untested new market will not provide enough customers. 
D)  will likely set a high price to reap greater profits until the second mover enters. 
A)  is guaranteed positive economic profits. 
B)  is assured of blocking any potential second mover from entering the market. 
C)  runs the risk that the untested new market will not provide enough customers. 
D)  will likely set a high price to reap greater profits until the second mover enters.

Question 17

A monopolistically competitive firm has a:

Accepted Answer

A)  highly elastic demand curve. 
B)  highly inelastic demand curve. 
C)  perfectly inelastic demand curve. 
D)  perfectly elastic demand curve. 
A)  highly elastic demand curve. 
B)  highly inelastic demand curve. 
C)  perfectly inelastic demand curve. 
D)  perfectly elastic demand curve.

Question 18

If some firms leave a monopolistically competitive industry,the demand curves of the remaining firms will:

Accepted Answer

A)  be unaffected. 
B)  shift to the left. 
C)  become more elastic. 
D)  shift to the right. 
A)  be unaffected. 
B)  shift to the left. 
C)  become more elastic. 
D)  shift to the right.

Question 19

The kinked-demand curve model of oligopoly is useful in explaining:

Accepted Answer

A)  the way that collusion works. 
B)  why oligopolistic prices and outputs are extremely sensitive to changes in marginal cost. 
C)  why oligopolistic prices might change only infrequently. 
D)  the process by which oligopolists merge with one another. 
A)  the way that collusion works. 
B)  why oligopolistic prices and outputs are extremely sensitive to changes in marginal cost. 
C)  why oligopolistic prices might change only infrequently. 
D)  the process by which oligopolists merge with one another.

Question 20

Advertising can impede economic efficiency when it:

Accepted Answer

A)  reduces entry barriers. 
B)  reduces brand loyalty. 
C)  leads to greater monopoly power. 
D)  provides consumers with useful information about product quality. 
A)  reduces entry barriers. 
B)  reduces brand loyalty. 
C)  leads to greater monopoly power. 
D)  provides consumers with useful information about product quality.

Exam 13: Monopolistic Competition and Oligopoly

As it relates to oligopoly,game theory focuses on the strategic behavior of rival firms.

One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the following cases?

Game theory can be used to demonstrate that oligopolists:

The economic inefficiencies of monopolistic competition may be offset by the fact that:

Assume six firms comprising an industry have market shares of 30,30,10,10,10,and 10 percent.The Herfindahl index for this industry is:

If one player in a game has a dominant strategy,the other player must also have a dominant strategy.

Use your basic knowledge and your understanding of market structures to answer this question.Which of the following companies most closely approximates a differentiated oligopolist in a highly concentrated industry?

The U.S.breakfast cereal industry is an example of differentiated oligopoly.

A positive-sum game occurs:

Collusive agreements between two firms are most likely to be honored when the game:

The automobile,household appliance,and automobile tire industries are all illustrations of:

Secret conspiracies to fix prices are examples of:

In the long run,economic theory predicts that a monopolistically competitive firm will:

A monopolistically competitive industry combines elements of both competition and monopoly.It is correct to say that the competitive element results from:

One characteristic of sequential games is that they all have first-mover advantages.

In a sequential game with two firms,the first mover into a new market:

A monopolistically competitive firm has a:

If some firms leave a monopolistically competitive industry,the demand curves of the remaining firms will:

The kinked-demand curve model of oligopoly is useful in explaining:

Advertising can impede economic efficiency when it:

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 Cost of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

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

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