Question 1

Why do economists refer to the pricing strategies of oligopoly firms as a prisoner's dilemma game?

Accepted Answer

A prisoners' dilemma is a game in which

Question 2

A supplier of an input is unlikely to have bargaining power if

Accepted Answer

A) the input supplied is specialized. 
B) many firms can supply the input. 
C) it is the sole supplier of the input. 
D) it has a patent on the input. 
A) the input supplied is specialized. 
B) many firms can supply the input. 
C) it is the sole supplier of the input. 
D) it has a patent on the input.

Question 3

In an oligopoly,minimum efficient scale is likely to occur at a level of output that is a large fraction of industry sales.

Accepted Answer

A) True 
 B)False

Question 4

In a Nash equilibrium,all players select non-dominant strategies.

Accepted Answer

A) True 
 B)False

Question 5

As a measure of competition in an industry,concentration ratios have several flaws.One of these flaws is that concentration ratios

Accepted Answer

A) assume that all industries have low barriers to entry. 
B) assume that a ratio less than 40 percent means an industry is perfectly competitive. 
C) assume there are only four firms in an industry. 
D) are calculated for the national market,even though competition in some industries is mainly local. 
A) assume that all industries have low barriers to entry. 
B) assume that a ratio less than 40 percent means an industry is perfectly competitive. 
C) assume there are only four firms in an industry. 
D) are calculated for the national market,even though competition in some industries is mainly local.

Question 6

What is a subgame?

Accepted Answer

A) It is one that begins at any node of the tree,including the game itself. 
B) It is one that begins at any decision node of the tree except the first decision node. 
C) It is one that starts at the final decision node of the tree. 
D) It is a simultaneous game embedded in a sequential game. 
A) It is one that begins at any node of the tree,including the game itself. 
B) It is one that begins at any decision node of the tree except the first decision node. 
C) It is one that starts at the final decision node of the tree. 
D) It is a simultaneous game embedded in a sequential game.

Question 7

Table 14-4
   The payoff matrix shown above assumes that Pepsi and Coca-Cola must decide whether to advertise their products.The matrix shows how much profit each firm will earn if it does or does not advertise.The amount of profit for one firm depends on whether the other firm advertises.
-Refer to Table 14-4.Which of the following statements is true?

Accepted Answer

A) Neither Pepsi nor Coca-Cola have a dominant strategy. 
B) Pepsi's dominant strategy is to advertise; Coca-Cola's dominant strategy is to not advertise. 
C) Coca-Cola's dominant strategy is to advertise; Pepsi's dominant strategy is to not advertise. 
D) The dominant strategy for both firms is to advertise. 
A) Neither Pepsi nor Coca-Cola have a dominant strategy. 
B) Pepsi's dominant strategy is to advertise; Coca-Cola's dominant strategy is to not advertise. 
C) Coca-Cola's dominant strategy is to advertise; Pepsi's dominant strategy is to not advertise. 
D) The dominant strategy for both firms is to advertise.

Question 8

When an oligopoly market is in Nash equilibrium,

Accepted Answer

A) firms have colluded to set their prices. 
B) firms will not behave as profit maximizers. 
C) a firm will not take into account the strategies of its rivals. 
D) a firm will choose its best pricing strategy,given the strategies that it observes other firms have taken. 
A) firms have colluded to set their prices. 
B) firms will not behave as profit maximizers. 
C) a firm will not take into account the strategies of its rivals. 
D) a firm will choose its best pricing strategy,given the strategies that it observes other firms have taken.

Question 9

Firms in an oligopoly are said to be interdependent.What does this mean?

Accepted Answer

Interdependence among firms means that t

Question 10

If firms are protected by substantial barriers to entry,short-run profits can turn into long-run profits.

Accepted Answer

A) True 
 B)False

Question 11

An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.This entry barrier is known as

Accepted Answer

A) a copyright. 
B) a patent. 
C) an exclusive marketing agreement. 
D) a tariff. 
A) a copyright. 
B) a patent. 
C) an exclusive marketing agreement. 
D) a tariff.

Question 12

Economists use game theory to analyze oligopolies because

Accepted Answer

A) real markets are too complicated to analyze without using games. 
B) it is more enjoyable for economists and students to learn by playing games. 
C) game theory helps us to understand why interactions among firms are crucial in determining profitable business strategies. 
D) game theory is useful in understanding the actions of firms that are price takers. 
A) real markets are too complicated to analyze without using games. 
B) it is more enjoyable for economists and students to learn by playing games. 
C) game theory helps us to understand why interactions among firms are crucial in determining profitable business strategies. 
D) game theory is useful in understanding the actions of firms that are price takers.

Question 13

Competition in the form of advertising,better customer service,or longer warranties can also reduce profits by raising costs.

Accepted Answer

A) True 
 B)False

Question 14

For many years the Aluminum Company of America (Alcoa)controlled most of the world's supply of high quality bauxite,the ore needed to produce aluminum.What type of entry barrier was responsible for Alcoa's position in the aluminum industry?

Accepted Answer

A) ownership of a key input 
B) a government-imposed barrier 
C) a patent on the manufacture of aluminum 
D) economies of scale 
A) ownership of a key input 
B) a government-imposed barrier 
C) a patent on the manufacture of aluminum 
D) economies of scale

Question 15

An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a

Accepted Answer

A) cartel equilibrium. 
B) noncooperative equilibrium. 
C) prisoner's dilemma equilibrium. 
D) dominant strategy equilibrium. 
A) cartel equilibrium. 
B) noncooperative equilibrium. 
C) prisoner's dilemma equilibrium. 
D) dominant strategy equilibrium.

Question 16

Table 14-3   There are two mobile home manufacturers in Nevada,Sturdy Homes (S)and My Haven (M).Sturdy Homes has been in the market for a long time and must now compete with newcomer,My Haven.Suppose that Sturdy Homes believes that My Haven will match any price it sets.Use Table 14-3 to answer the following question and assume throughout that Sturdy Homes believes that My Haven will match any price it sets.
-Refer to Table 14-3.What price will Sturdy Homes charge and what profit does Sturdy Homes expect to make?

Accepted Answer

A) Price = $8,000; expected profit = $7 million 
B) Price = $8,000; expected profit = $4 million 
C) Price = $10,000; expected profit = $5 million 
D) Price = $12,000; expected profit = $3 million 
A) Price = $8,000; expected profit = $7 million 
B) Price = $8,000; expected profit = $4 million 
C) Price = $10,000; expected profit = $5 million 
D) Price = $12,000; expected profit = $3 million

Question 17

The breakfast cereal industry has a four-firm concentration ratio of 78 percent.Is this enough information to classify the industry as an oligopoly? Is a high concentration ratio evidence that an industry is not competitive?

Accepted Answer

Most economists classify an industry wit

Question 18

By the 21st century few people purchased printed encyclopedias.Which of the following competitive forces best explains this?

Accepted Answer

A) competition from substitutes 
B) the bargaining power of buyers 
C) the bargaining power of suppliers 
D) the threat from potential entrants 
A) competition from substitutes 
B) the bargaining power of buyers 
C) the bargaining power of suppliers 
D) the threat from potential entrants

Question 19

If economies of scale are relatively important in an industry,the typical firm's

Accepted Answer

A) marginal cost curve will decline continuously until it reaches minimum efficient scale. 
B) long-run average cost curve will begin rising before it reaches minimum efficient scale. 
C) long-run average cost curve will reach a minimum at a level of output that leaves room for a large number of firms to enter the industry. 
D) long-run average cost curve will reach a minimum at a level of output that is a relatively large fraction of total industry sales. 
A) marginal cost curve will decline continuously until it reaches minimum efficient scale. 
B) long-run average cost curve will begin rising before it reaches minimum efficient scale. 
C) long-run average cost curve will reach a minimum at a level of output that leaves room for a large number of firms to enter the industry. 
D) long-run average cost curve will reach a minimum at a level of output that is a relatively large fraction of total industry sales.

Question 20

Which of the following is not a characteristic of oligopoly?

Accepted Answer

A) the ability to influence price 
B) a small number of firms 
C) low barriers to entry 
D) interdependent firms 
A) the ability to influence price 
B) a small number of firms 
C) low barriers to entry 
D) interdependent firms

Why do economists refer to the pricing strategies of oligopoly firms as a prisoner's dilemma game?

A supplier of an input is unlikely to have bargaining power if

In an oligopoly,minimum efficient scale is likely to occur at a level of output that is a large fraction of industry sales.

In a Nash equilibrium,all players select non-dominant strategies.

As a measure of competition in an industry,concentration ratios have several flaws.One of these flaws is that concentration ratios

What is a subgame?

When an oligopoly market is in Nash equilibrium,

Firms in an oligopoly are said to be interdependent.What does this mean?

If firms are protected by substantial barriers to entry,short-run profits can turn into long-run profits.

An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.This entry barrier is known as

Economists use game theory to analyze oligopolies because

Competition in the form of advertising,better customer service,or longer warranties can also reduce profits by raising costs.

For many years the Aluminum Company of America (Alcoa)controlled most of the world's supply of high quality bauxite,the ore needed to produce aluminum.What type of entry barrier was responsible for Alcoa's position in the aluminum industry?

An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a

The breakfast cereal industry has a four-firm concentration ratio of 78 percent.Is this enough information to classify the industry as an oligopoly? Is a high concentration ratio evidence that an industry is not competitive?

By the 21st century few people purchased printed encyclopedias.Which of the following competitive forces best explains this?

If economies of scale are relatively important in an industry,the typical firm's

Which of the following is not a characteristic of oligopoly?

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

Why do economists refer to the pricing strategies of oligopoly firms as a prisoner's dilemma game?

A supplier of an input is unlikely to have bargaining power if

In an oligopoly,minimum efficient scale is likely to occur at a level of output that is a large fraction of industry sales.

In a Nash equilibrium,all players select non-dominant strategies.

As a measure of competition in an industry,concentration ratios have several flaws.One of these flaws is that concentration ratios

What is a subgame?

When an oligopoly market is in Nash equilibrium,

Firms in an oligopoly are said to be interdependent.What does this mean?

If firms are protected by substantial barriers to entry,short-run profits can turn into long-run profits.

An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.This entry barrier is known as

Economists use game theory to analyze oligopolies because

Competition in the form of advertising,better customer service,or longer warranties can also reduce profits by raising costs.

For many years the Aluminum Company of America (Alcoa)controlled most of the world's supply of high quality bauxite,the ore needed to produce aluminum.What type of entry barrier was responsible for Alcoa's position in the aluminum industry?

An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a

The breakfast cereal industry has a four-firm concentration ratio of 78 percent.Is this enough information to classify the industry as an oligopoly? Is a high concentration ratio evidence that an industry is not competitive?

By the 21st century few people purchased printed encyclopedias.Which of the following competitive forces best explains this?

If economies of scale are relatively important in an industry,the typical firm's

Which of the following is not a characteristic of oligopoly?

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