Question 1

Oligopoly differs from perfect competition and monopolistic competition in that

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 analyzing oligopoly than they are for analyzing perfect competition and monopolistic competition. 
C) because 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 analyzing oligopoly than they are for analyzing perfect competition and monopolistic competition. 
C) because 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

The profit-maximizing level of output and the profit-maximizing price for an oligopolist cannot be calculated when we don't know

Accepted Answer

A) what the concentration ratio for the oligopolist's industry is. 
B) what the minimum efficient scale in the oligopolist's industry is. 
C) the demand curve and the marginal revenue curve of the oligopolist. 
D) the type of barrier to entry that exists in the oligopolist's industry. 
A) what the concentration ratio for the oligopolist's industry is. 
B) what the minimum efficient scale in the oligopolist's industry is. 
C) the demand curve and the marginal revenue curve of the oligopolist. 
D) the type of barrier to entry that exists in the oligopolist's industry.

Question 3

A study conducted by economists at the University of Chicago found that when Southwest Airlines begins flying a new route,ticket prices on other airlines for that route ________,indicating that airlines ________.

Accepted Answer

A) stay relatively unchanged; may begin practicing implicit price collusion when Southwest enters a market 
B) drop by an average of 29 percent; may have been practicing implicit price collusion before Southwest's entry into the market 
C) rise by an average of 65 percent; know they can practice implicit price collusion once Southwest announces it is entering a market. 
D) first drop and then rise back to their original levels; temporarily stop practicing implicit price collusion until Southwest becomes established,then return to their collusive pricing strategies 
A) stay relatively unchanged; may begin practicing implicit price collusion when Southwest enters a market 
B) drop by an average of 29 percent; may have been practicing implicit price collusion before Southwest's entry into the market 
C) rise by an average of 65 percent; know they can practice implicit price collusion once Southwest announces it is entering a market. 
D) first drop and then rise back to their original levels; temporarily stop practicing implicit price collusion until Southwest becomes established,then return to their collusive pricing strategies

Question 4

Of all barriers to entry,the most important are those that are due to

Accepted Answer

A) ownership of a key input. 
B) economies of scale. 
C) government-imposed barriers. 
D) the Herfindahl-Hirschman Index. 
A) ownership of a key input. 
B) economies of scale. 
C) government-imposed barriers. 
D) the Herfindahl-Hirschman Index.

Question 5

Price leadership is a form of explicit collusion where one firm in an oligopoly announces a price change and expects all other firms to follow suit.

Accepted Answer

A) True 
 B)False

Question 6

A consequence of the quota that has been imposed on the importation of sugar into the United States is

Accepted Answer

A) consumers are protected from eating unsafe products made from cheap imported sugar. 
B) competition in the U.S.sugar market is reduced. 
C) the cost of producing cereal,chocolate and candy products in the United States is reduced. 
D) the market for sugar in the United States has become monopolistically competitive rather than oligopolistic. 
A) consumers are protected from eating unsafe products made from cheap imported sugar. 
B) competition in the U.S.sugar market is reduced. 
C) the cost of producing cereal,chocolate and candy products in the United States is reduced. 
D) the market for sugar in the United States has become monopolistically competitive rather than oligopolistic.

Question 7

The prisoner's dilemma is used to analyze business situations in which one firm acts first and then other firms respond.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Prices of PlayStation3 game systems are similar at almost every large retailer and little price competition occurs among these retailers.An explanation for this is

Accepted Answer

A) retailers are all price takers. 
B) retailers have lobbied state governments to allow them to collude legally to set the prices of certain products. 
C) pricing PlayStation3 game systems is a repeated game.Over a long period of time a cooperative equilibrium has been reached where retailers charge high prices for these systems. 
D) retailers are in a prisoner's dilemma which causes them to all charge the same price for PlayStation 3 game systems. 
A) retailers are all price takers. 
B) retailers have lobbied state governments to allow them to collude legally to set the prices of certain products. 
C) pricing PlayStation3 game systems is a repeated game.Over a long period of time a cooperative equilibrium has been reached where retailers charge high prices for these systems. 
D) retailers are in a prisoner's dilemma which causes them to all charge the same price for PlayStation 3 game systems.

Question 10

Figure 14-3  
-Refer to Figure 14-3.Uniguest,Inc.is a company that provides PCs with internet access and touch-sensitive screens to hotels.Suppose the Hard Rock Hotel and Casino in Las Vegas informs Uniguest that it is considering installing these systems in its hotel rooms.The Hard Rock expects to be able to charge higher prices for these rooms if it installs Uniguest's systems in its rooms.The two companies begin bargaining over what price the Hard Rock will pay Uniguest for its systems,and the decision tree shown above illustrates this bargaining game.Note that the profit figures listed in the decision tree are additional profits for the Hard Rock and total profits for Uniguest.
a.Suppose the Hard Rock offers Uniguest $1,200 per system.Will Uniguest accept or reject this offer? Why?
b.Suppose the Hard Rock offers Uniguest $800 per system.Will Uniguest accept or reject this offer? Why?
c.Suppose Uniguest attempts to obtain a favorable outcome from the bargaining by telling the Hard Rock it will reject an $800-per-system offer.If the Hard Rock does not believe the threat is credible,what will it do? Why? What will Uniguest do? Why?
d.Is there a sub-game perfect equilibrium in this situation? Explain.

Accepted Answer

a.If the Hard Rock offers Uniguest $1,20

Question 11

Because of the flaws of the concentration ratio as a measure of the extent of competition in an industry,some economists prefer another measure of competition,the Herfindahl-Hirschman Index.

Accepted Answer

A) True 
 B)False

Question 12

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

Accepted Answer

A) Nash equilibrium. 
B) dominant strategy. 
C) collusion. 
D) pay-off matrix. 
A) Nash equilibrium. 
B) dominant strategy. 
C) collusion. 
D) pay-off matrix.

Question 13

Ocean Spray is considered to be an oligopoly firm because,until the 1990s,it faced little competition in the market for fresh and frozen cranberries.Why?

Accepted Answer

A) Ocean Spray had a patent on the production of cranberries that gave the company the exclusive right to market its product for 20 years.The 20-year period ended in the 1990s. 
B) Until the 1990s,Ocean Spray controlled almost the entire supply of cranberries. 
C) Ocean Spray was able to achieve significant economies of scale in the production of cranberries.Beginning in the 1990s,other firms finally achieved economies of scale as well,but Ocean Spray still controls about 80 percent of the cranberry market. 
D) The federal government imposed a high tariff on cranberry imports.During the 1990s the tariff was eliminated,but Ocean Spray still controls about 80 percent of the cranberry market. 
A) Ocean Spray had a patent on the production of cranberries that gave the company the exclusive right to market its product for 20 years.The 20-year period ended in the 1990s. 
B) Until the 1990s,Ocean Spray controlled almost the entire supply of cranberries. 
C) Ocean Spray was able to achieve significant economies of scale in the production of cranberries.Beginning in the 1990s,other firms finally achieved economies of scale as well,but Ocean Spray still controls about 80 percent of the cranberry market. 
D) The federal government imposed a high tariff on cranberry imports.During the 1990s the tariff was eliminated,but Ocean Spray still controls about 80 percent of the cranberry market.

Question 14

The four-firm concentration ratio in the breakfast cereal industry is 78 percent.How does the five competitive forces model provide better insight into the degree of competition in the breakfast cereal industry than just observing the concentration ratio?

Accepted Answer

The concentration ratio only measures th

Question 15

The Organization of Petroleum Exporting Countries (OPEC)controls about 75 percent of the world's proven oil reserves.Economists refer to OPEC as a cartel because

Accepted Answer

A) OPEC is a monopoly,but it is located outside of the boundaries of any one country.This is the definition of a cartel. 
B) this is the term used for an oligopoly that is controlled by national governments rather than private firms. 
C) it is a group of firms that collude to restrict output to increase prices and profits. 
D) this is the term economists use to describe an oligopoly that sells a standardized product,such as oil,rather than a differentiated product,such as automobiles. 
A) OPEC is a monopoly,but it is located outside of the boundaries of any one country.This is the definition of a cartel. 
B) this is the term used for an oligopoly that is controlled by national governments rather than private firms. 
C) it is a group of firms that collude to restrict output to increase prices and profits. 
D) this is the term economists use to describe an oligopoly that sells a standardized product,such as oil,rather than a differentiated product,such as automobiles.

Question 16

Table 14-5   Two rival oligopolists in the athletic supplements industry,the Power Fuel Company and the Brawny Juice Company,have to decide on their pricing strategy.Each can choose either a high price or a low price.Table 14-5 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts.
-Refer to Table 14-5.If the firms act out of individual self-interest,which prices will they select?

Accepted Answer

A) Both firms will select a high price. 
B) Brawny Juice will select a high price,Power Fuel will select a low price. 
C) Brawny Juice will select a low price,Power Fuel will select a high price. 
D) Both firms will select a low price. 
A) Both firms will select a high price. 
B) Brawny Juice will select a high price,Power Fuel will select a low price. 
C) Brawny Juice will select a low price,Power Fuel will select a high price. 
D) Both firms will select a low price.

Question 17

Hewlett-Packard will not raise the prices of its personal computers without first considering how Dell might respond.This is evidence of

Accepted Answer

A) interdependence. 
B) collusion. 
C) cutthroat competition. 
D) price fixing. 
A) interdependence. 
B) collusion. 
C) cutthroat competition. 
D) price fixing.

Question 18

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 19

Consider two single-malt whiskey distillers,Laphroaig and Knockando.If they advertise,they can both sell more whiskey and increase their revenue.However,the cost of advertising more than offsets the increased revenue so that each distiller ends up with a lower profit than if they do not advertise.On the other hand,if only one advertises,that distiller increases its market share and also its profit.
a.Construct a payoff matrix using the following hypothetical information: If neither distiller advertises,each earns a profit of $35 million per year.If both advertise,each earns a profit of $20 million per year.If one advertises and the other does not,the distiller who advertises earns a profit of $50 million and the distiller who does not advertise earns a profit of $9 million.
b.If Laphroaig wants to maximize profit,will it advertise? Briefly explain.
c.If Knockando wants to maximize profit,will it advertise? Briefly explain.
d.Is there a dominant strategy for each distiller? Briefly explain.

Accepted Answer

a.The payoff matrix: @#IMG-DLM& b.If Laphroaig wan

Question 20

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

Accepted Answer

A) an earnings table. 
B) a payoff table. 
C) a payoff matrix. 
D) a strategic matrix. 
A) an earnings table. 
B) a payoff table. 
C) a payoff matrix. 
D) a strategic matrix.

Oligopoly differs from perfect competition and monopolistic competition in that

The profit-maximizing level of output and the profit-maximizing price for an oligopolist cannot be calculated when we don't know

A study conducted by economists at the University of Chicago found that when Southwest Airlines begins flying a new route,ticket prices on other airlines for that route ,indicating that airlines .

Of all barriers to entry,the most important are those that are due to

Price leadership is a form of explicit collusion where one firm in an oligopoly announces a price change and expects all other firms to follow suit.

A consequence of the quota that has been imposed on the importation of sugar into the United States is

The prisoner's dilemma is used to analyze business situations in which one firm acts first and then other firms respond.

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

Prices of PlayStation3 game systems are similar at almost every large retailer and little price competition occurs among these retailers.An explanation for this is

Because of the flaws of the concentration ratio as a measure of the extent of competition in an industry,some economists prefer another measure of competition,the Herfindahl-Hirschman Index.

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

Ocean Spray is considered to be an oligopoly firm because,until the 1990s,it faced little competition in the market for fresh and frozen cranberries.Why?

The four-firm concentration ratio in the breakfast cereal industry is 78 percent.How does the five competitive forces model provide better insight into the degree of competition in the breakfast cereal industry than just observing the concentration ratio?

The Organization of Petroleum Exporting Countries (OPEC)controls about 75 percent of the world's proven oil reserves.Economists refer to OPEC as a cartel because

Hewlett-Packard will not raise the prices of its personal computers without first considering how Dell might respond.This is evidence of

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

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Filters

Exam 14: Oligopoly: Firms in Less Competitive Markets

Oligopoly differs from perfect competition and monopolistic competition in that

The profit-maximizing level of output and the profit-maximizing price for an oligopolist cannot be calculated when we don't know

A study conducted by economists at the University of Chicago found that when Southwest Airlines begins flying a new route,ticket prices on other airlines for that route ________,indicating that airlines ________.

Of all barriers to entry,the most important are those that are due to

Price leadership is a form of explicit collusion where one firm in an oligopoly announces a price change and expects all other firms to follow suit.

A consequence of the quota that has been imposed on the importation of sugar into the United States is

The prisoner's dilemma is used to analyze business situations in which one firm acts first and then other firms respond.

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

Prices of PlayStation3 game systems are similar at almost every large retailer and little price competition occurs among these retailers.An explanation for this is

Because of the flaws of the concentration ratio as a measure of the extent of competition in an industry,some economists prefer another measure of competition,the Herfindahl-Hirschman Index.

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

Ocean Spray is considered to be an oligopoly firm because,until the 1990s,it faced little competition in the market for fresh and frozen cranberries.Why?

The four-firm concentration ratio in the breakfast cereal industry is 78 percent.How does the five competitive forces model provide better insight into the degree of competition in the breakfast cereal industry than just observing the concentration ratio?

The Organization of Petroleum Exporting Countries (OPEC)controls about 75 percent of the world's proven oil reserves.Economists refer to OPEC as a cartel because

Hewlett-Packard will not raise the prices of its personal computers without first considering how Dell might respond.This is evidence of

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

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Filters

A study conducted by economists at the University of Chicago found that when Southwest Airlines begins flying a new route,ticket prices on other airlines for that route ,indicating that airlines .