Question 1

Which of the following statements is generally true?

Accepted Answer

A) Rivalry is less the larger the number of firms in an industry. 
B) The smaller the number of firms in an industry,the greater the rivalry. 
C) The larger the number of firms in an industry,the greater the rivalry. 
D) The degree of rivalry in an industry is largely independent of the number of firms. 
A) Rivalry is less the larger the number of firms in an industry. 
B) The smaller the number of firms in an industry,the greater the rivalry. 
C) The larger the number of firms in an industry,the greater the rivalry. 
D) The degree of rivalry in an industry is largely independent of the number of firms.

Question 2

Since 1972,the world price of oil has been largely determined by OPEC,which controls about 75 percent of the world's proven oil reserves.Since 1972 the price of oil has

Accepted Answer

A) fluctuated.OPEC's situation is an example of a prisoner's dilemma. 
B) risen slowly,but steadily.Members of OPEC fear that if they raise the price of oil too quickly this will lead oil-buying nations to accuse OPEC of price gouging,which is illegal under international law. 
C) steadily fallen through the 1970s,then risen continually in the years since then.OPEC's actions are an example of implicit collusion. 
D) been tied by OPEC to the rate of inflation in the United States.If,for example,the rate of inflation is 5 percent in one year,OPEC will raise the price of oil by 5 percent the next year. 
A) fluctuated.OPEC's situation is an example of a prisoner's dilemma. 
B) risen slowly,but steadily.Members of OPEC fear that if they raise the price of oil too quickly this will lead oil-buying nations to accuse OPEC of price gouging,which is illegal under international law. 
C) steadily fallen through the 1970s,then risen continually in the years since then.OPEC's actions are an example of implicit collusion. 
D) been tied by OPEC to the rate of inflation in the United States.If,for example,the rate of inflation is 5 percent in one year,OPEC will raise the price of oil by 5 percent the next year.

Question 3

Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6,000 units of output.In this case,this industry would be

Accepted Answer

A) perfectly competitive if the market quantity demanded is 20,000 units. 
B) monopolistically competitive if the market quantity demanded is 12,000 units. 
C) an oligopoly if the market quantity demanded is 18,000 units. 
D) an oligopoly if the four-firm concentration ratio is more than 10 percent. 
A) perfectly competitive if the market quantity demanded is 20,000 units. 
B) monopolistically competitive if the market quantity demanded is 12,000 units. 
C) an oligopoly if the market quantity demanded is 18,000 units. 
D) an oligopoly if the four-firm concentration ratio is more than 10 percent.

Question 4

Table 14-1   Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito.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 14-1 shows the payoff matrix for this advertising game.
-Refer to Table 14-1.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 5

Does the strength of each of the five competitive forces from Michael Porter's model remain constant over time? Briefly explain.

Accepted Answer

The strength of these forces c

Question 6

Table 14-2   Ming and Henri each run one of the two dry cleaning facilities in the town of Scaraby.Both consider offering free pickup and delivery services.Table 14-2 shows the payoff matrix containing the expected quarterly profits for each firm.
-Refer to Table 14-2.Does Ming have a dominant strategy? If yes,what is it?

Accepted Answer

A) Yes,Ming's dominant strategy is to offer free pickup and delivery. 
B) No,Ming does not a dominant strategy - his best outcome depends on what Henri does. 
C) Yes,Ming's dominant strategy is to not to offer free pickup and delivery. 
D) Yes,Ming's dominant strategy is to wait to see what Henri does first. 
A) Yes,Ming's dominant strategy is to offer free pickup and delivery. 
B) No,Ming does not a dominant strategy - his best outcome depends on what Henri does. 
C) Yes,Ming's dominant strategy is to not to offer free pickup and delivery. 
D) Yes,Ming's dominant strategy is to wait to see what Henri does first.

Question 7

All games share three characteristics.Two of these characteristics are rule and strategies.What is the third characteristic called?

Accepted Answer

A) competition 
B) collusion 
C) results 
D) payoffs 
A) competition 
B) collusion 
C) results 
D) payoffs

Question 8

In game theory,the three key characteristics of a game are

Accepted Answer

A) rules,strategies,and payoffs. 
B) rules,regulations,and payoffs. 
C) winners,losers,and rules. 
D) risks,rewards,and penalties. 
A) rules,strategies,and payoffs. 
B) rules,regulations,and payoffs. 
C) winners,losers,and rules. 
D) risks,rewards,and penalties.

Question 9

Intel's introduction of the "Ultrabook",which the company hopes will successfully rival Apple's MacBook Air,best describes which of the five competitive forces?

Accepted Answer

A) the bargaining power of buyers 
B) the threat from potential entrants 
C) competition from substitute goods or services 
D) competition from existing firms 
A) the bargaining power of buyers 
B) the threat from potential entrants 
C) competition from substitute goods or services 
D) competition from existing firms

Question 10

Sequential games are often used to analyze which two types of business strategies?

Accepted Answer

A) whether to invest in research and development and whether to offer employees an early retirement package 
B) deciding to merge with another firm and deciding how much to spend on an advertising campaign 
C) deciding to end production of an unprofitable product and deciding to shut down temporarily 
D) deterring entry by another firm and bargaining between firms 
A) whether to invest in research and development and whether to offer employees an early retirement package 
B) deciding to merge with another firm and deciding how much to spend on an advertising campaign 
C) deciding to end production of an unprofitable product and deciding to shut down temporarily 
D) deterring entry by another firm and bargaining between firms

Question 11

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real world results?

Accepted Answer

A) Prisoner's dilemma games do not permit people or firms from reneging on agreements,which often occurs in real word situations. 
B) The prisoner's dilemma does not apply to most business situations that are repeated over and over. 
C) Prisoner's dilemma games predict the behavior of people and firms that engage in illegal activity; most people and firms do not resort to illegal activity. 
D) Most real world situations involve more than two people or firms; the prisoner's dilemma is only applicable to situations that involve two parties. 
A) Prisoner's dilemma games do not permit people or firms from reneging on agreements,which often occurs in real word situations. 
B) The prisoner's dilemma does not apply to most business situations that are repeated over and over. 
C) Prisoner's dilemma games predict the behavior of people and firms that engage in illegal activity; most people and firms do not resort to illegal activity. 
D) Most real world situations involve more than two people or firms; the prisoner's dilemma is only applicable to situations that involve two parties.

Question 12

Figure 14-2  
-Refer to Figure 14-2 Use the decision tree to determine whether Pizza Hut should deter Domino's from entering the market for pasta salad.Assume that each firm must earn a 25% return on investment to break even.Explain Pizza Hut's decision process.

Accepted Answer

If Pizza Hut charges $7.49 for its pasta

Question 13

Explain why selling output at a price below that at which marginal revenue equals marginal cost (MR = MC)might serve to deter entry of a potential competitor.

Accepted Answer

If a potential entrant is unsure about t

Question 14

eBay is an online auction site where more than 200 million items are auctioned annually.What type of auctions are run on eBay?

Accepted Answer

A) noncooperative auctions 
B) second-price auctions 
C) cooperative auctions 
D) double-blind auctions 
A) noncooperative auctions 
B) second-price auctions 
C) cooperative auctions 
D) double-blind auctions

Question 15

Which of the following best explains why airlines often cut their ticket prices at the last-minute in order to fill the remaining empty seats on their flights?

Accepted Answer

A) Fixed costs in the airline industry are very large,but the marginal cost of flying one more passenger is very low. 
B) Airlines receive a subsidy from the government for each flight that is fully booked and departs on time. 
C) The Federal Aviation Administration ranks each airline based on the percentage of flights that are fully booked.These rankings affect the decisions of firms to use a particular airline to fly their employees to business meetings. 
D) Cutting prices makes the airlines more popular with their customers,who may fly with the same airline in the future as the result of buying low-price tickets. 
A) Fixed costs in the airline industry are very large,but the marginal cost of flying one more passenger is very low. 
B) Airlines receive a subsidy from the government for each flight that is fully booked and departs on time. 
C) The Federal Aviation Administration ranks each airline based on the percentage of flights that are fully booked.These rankings affect the decisions of firms to use a particular airline to fly their employees to business meetings. 
D) Cutting prices makes the airlines more popular with their customers,who may fly with the same airline in the future as the result of buying low-price tickets.

Question 16

Table 14-2   Ming and Henri each run one of the two dry cleaning facilities in the town of Scaraby.Both consider offering free pickup and delivery services.Table 14-2 shows the payoff matrix containing the expected quarterly profits for each firm.
-Refer to Table 14-2.Does Henri have a dominant strategy? If yes,what is it?

Accepted Answer

A) Yes,Henri's dominant strategy is to not offer free pickup and delivery. 
B) Yes,Henri's dominant strategy is to offer free pickup and delivery. 
C) No,Henri does not have a dominant strategy - his best outcome depends on what Ming does. 
D) Yes,Henri's dominant strategy is to wait and see what Ming does first. 
A) Yes,Henri's dominant strategy is to not offer free pickup and delivery. 
B) Yes,Henri's dominant strategy is to offer free pickup and delivery. 
C) No,Henri does not have a dominant strategy - his best outcome depends on what Ming does. 
D) Yes,Henri's dominant strategy is to wait and see what Ming does first.

Question 17

Who won a Nobel Prize in economics for his work in the development of game theory?

Accepted Answer

A) John von Neuman 
B) Oskar Morgenstern 
C) John Nash 
D) Howard Schultz 
A) John von Neuman 
B) Oskar Morgenstern 
C) John Nash 
D) Howard Schultz

Question 18

In many business situations one firm will act first,and then other firms will respond.To help analyze these types of situations economists use

Accepted Answer

A) retaliation games. 
B) follow-the-leader-games. 
C) sequential games. 
D) bargaining games. 
A) retaliation games. 
B) follow-the-leader-games. 
C) sequential games. 
D) bargaining games.

Question 19

An example of a supplier that used its bargaining power to charge high prices to its customers is

Accepted Answer

A) Wal-Mart,which required many of its suppliers to alter their distribution systems to accommodate Wal-Mart's need to control the flow of goods to its stores. 
B) the firms that supply paper napkins to McDonald's restaurants. 
C) the Technicolor Company,the sole producer of cameras and film that movie studios needed to produce color movies in the 1930s and 1940s. 
D) the publishers of the Encyclopedia Britannica. 
A) Wal-Mart,which required many of its suppliers to alter their distribution systems to accommodate Wal-Mart's need to control the flow of goods to its stores. 
B) the firms that supply paper napkins to McDonald's restaurants. 
C) the Technicolor Company,the sole producer of cameras and film that movie studios needed to produce color movies in the 1930s and 1940s. 
D) the publishers of the Encyclopedia Britannica.

Question 20

In 2011,the Educational Testing Service (ETS)charged $49 to take the Scholastic Aptitude Test (SAT)but $160 to take the Graduate Record Exam (GRE).One reason for this difference in price is

Accepted Answer

A) more people took the SAT than the GRE in 2011. 
B) the GRE is a longer test with more questions. 
C) an average,those who take the GRE have higher incomes than those who take the SAT. 
D) the ETS faces competition in the market for the SAT but no competition for the GRE. 
A) more people took the SAT than the GRE in 2011. 
B) the GRE is a longer test with more questions. 
C) an average,those who take the GRE have higher incomes than those who take the SAT. 
D) the ETS faces competition in the market for the SAT but no competition for the GRE.

Which of the following statements is generally true?

Since 1972,the world price of oil has been largely determined by OPEC,which controls about 75 percent of the world's proven oil reserves.Since 1972 the price of oil has

Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6,000 units of output.In this case,this industry would be

Does the strength of each of the five competitive forces from Michael Porter's model remain constant over time? Briefly explain.

All games share three characteristics.Two of these characteristics are rule and strategies.What is the third characteristic called?

In game theory,the three key characteristics of a game are

Intel's introduction of the "Ultrabook",which the company hopes will successfully rival Apple's MacBook Air,best describes which of the five competitive forces?

Sequential games are often used to analyze which two types of business strategies?

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real world results?

Figure 14-2 -Refer to Figure 14-2 Use the decision tree to determine whether Pizza Hut should deter Domino's from entering the market for pasta salad.Assume that each firm must earn a 25% return on investment to break even.Explain Pizza Hut's decision process.

Explain why selling output at a price below that at which marginal revenue equals marginal cost (MR = MC)might serve to deter entry of a potential competitor.

eBay is an online auction site where more than 200 million items are auctioned annually.What type of auctions are run on eBay?

Which of the following best explains why airlines often cut their ticket prices at the last-minute in order to fill the remaining empty seats on their flights?

Who won a Nobel Prize in economics for his work in the development of game theory?

In many business situations one firm will act first,and then other firms will respond.To help analyze these types of situations economists use

An example of a supplier that used its bargaining power to charge high prices to its customers is

In 2011,the Educational Testing Service (ETS)charged $49 to take the Scholastic Aptitude Test (SAT)but $160 to take the Graduate Record Exam (GRE).One reason for this difference in price is

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

Which of the following statements is generally true?

Since 1972,the world price of oil has been largely determined by OPEC,which controls about 75 percent of the world's proven oil reserves.Since 1972 the price of oil has

Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6,000 units of output.In this case,this industry would be

Does the strength of each of the five competitive forces from Michael Porter's model remain constant over time? Briefly explain.

All games share three characteristics.Two of these characteristics are rule and strategies.What is the third characteristic called?

In game theory,the three key characteristics of a game are

Intel's introduction of the "Ultrabook",which the company hopes will successfully rival Apple's MacBook Air,best describes which of the five competitive forces?

Sequential games are often used to analyze which two types of business strategies?

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real world results?

Figure 14-2 -Refer to Figure 14-2 Use the decision tree to determine whether Pizza Hut should deter Domino's from entering the market for pasta salad.Assume that each firm must earn a 25% return on investment to break even.Explain Pizza Hut's decision process.

Explain why selling output at a price below that at which marginal revenue equals marginal cost (MR = MC)might serve to deter entry of a potential competitor.

eBay is an online auction site where more than 200 million items are auctioned annually.What type of auctions are run on eBay?

Which of the following best explains why airlines often cut their ticket prices at the last-minute in order to fill the remaining empty seats on their flights?

Who won a Nobel Prize in economics for his work in the development of game theory?

In many business situations one firm will act first,and then other firms will respond.To help analyze these types of situations economists use

An example of a supplier that used its bargaining power to charge high prices to its customers is

In 2011,the Educational Testing Service (ETS)charged $49 to take the Scholastic Aptitude Test (SAT)but $160 to take the Graduate Record Exam (GRE).One reason for this difference in price is

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