Question 1

The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium.

Accepted Answer

A) True 
 B)False

Question 2

The five competitive forces model was developed by

Accepted Answer

A)  Michael Porter. 
B)  John Nash. 
C)  Michael Spence. 
D)  Porter Smith. 
A)  Michael Porter. 
B)  John Nash. 
C)  Michael Spence. 
D)  Porter Smith.

Question 3

What is a prisoner's dilemma?

Accepted Answer

A)  a game that involves no dominant strategies 
B)  a game in which prisoners are stumped because they cannot communicate with each other 
C)  a game in which players act in rational, self-interested ways that leave everyone worse off 
D)  a game in which players collude to outfox authorities 
A)  a game that involves no dominant strategies 
B)  a game in which prisoners are stumped because they cannot communicate with each other 
C)  a game in which players act in rational, self-interested ways that leave everyone worse off 
D)  a game in which players collude to outfox authorities

Question 4

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

Accepted Answer

A) True 
 B)False

Question 5

An oligopolistic industry is characterized by a few large firms acting independently.

Accepted Answer

A) True 
 B)False

Question 6

Oligopolies are difficult to analyze because

Accepted Answer

A)  the firms are so large. 
B)  demand and cost curves do not exist for these types of industries. 
C)  how firms respond to a price change by a rival is uncertain. 
D)  oligopolies are a recent development so economists have not had time to develop models. 
A)  the firms are so large. 
B)  demand and cost curves do not exist for these types of industries. 
C)  how firms respond to a price change by a rival is uncertain. 
D)  oligopolies are a recent development so economists have not had time to develop models.

Question 7

A four-firm concentration ratio measures

Accepted Answer

A)  the fraction of an industry's sales accounted for by the four largest firms. 
B)  the production of any four firms in an industry. 
C)  how the four largest firms became so concentrated. 
D)  the fraction of employment of the four largest firms in an industry. 
A)  the fraction of an industry's sales accounted for by the four largest firms. 
B)  the production of any four firms in an industry. 
C)  how the four largest firms became so concentrated. 
D)  the fraction of employment of the four largest firms in an industry.

Question 8

For years economists believed that market structure explained the ability of some firms to earn economic profits. For example, firms in industries with little competition and high barriers to entry would earn higher profits than firms in competitive industries with low entry barriers. Which of the following has caused economists to question this explanation and seek other explanations for why firms are profitable?

Accepted Answer

A)  Studies have shown that, on average, firms in competitive industries earn higher profit rates than firms in industries with little competition. 
B)  In recent years new technologies have increased the potential entry of new firms in industries with high entry barriers. 
C)  Studies have shown that firms in industries that have little competition and high entry barriers are not very profitable. Economists conclude from this that some competition is necessary in order to force firms to lower their costs and develop products that satisfy new consumer demands. 
D)  The market structure explanation fails to explain how firms in the same industry can have very different levels of profit. 
A)  Studies have shown that, on average, firms in competitive industries earn higher profit rates than firms in industries with little competition. 
B)  In recent years new technologies have increased the potential entry of new firms in industries with high entry barriers. 
C)  Studies have shown that firms in industries that have little competition and high entry barriers are not very profitable. Economists conclude from this that some competition is necessary in order to force firms to lower their costs and develop products that satisfy new consumer demands. 
D)  The market structure explanation fails to explain how firms in the same industry can have very different levels of profit.

Question 9

An oligopolist's demand curve is

Accepted Answer

A)  identical to that of a perfectly competitive firm. 
B)  identical to that of a monopolistically competitive firm. 
C)  vertical on a price quantity diagram. 
D)  unknown because a response of firms to price changes by rivals is uncertain. 
A)  identical to that of a perfectly competitive firm. 
B)  identical to that of a monopolistically competitive firm. 
C)  vertical on a price quantity diagram. 
D)  unknown because a response of firms to price changes by rivals is uncertain.

Question 10

The larger the number of firms in an industry,

Accepted Answer

A)  the easier it is to implicitly collude to fix prices. 
B)  the more intense the rivalry among firms. 
C)  the greater the need for a price enforcement mechanism. 
D)  the larger the potential number of market segments. 
A)  the easier it is to implicitly collude to fix prices. 
B)  the more intense the rivalry among firms. 
C)  the greater the need for a price enforcement mechanism. 
D)  the larger the potential number of market segments.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Figure 14-8  
-Refer to Figure 14-8. Use the decision tree to determine whether Microsoft should deter Toshiba from entering the market for electronic book readers (e-readers). Assume that each firm must earn a 20% return on investment to break even. Explain Microsoft's decision process.

Accepted Answer

If Microsoft charges $249 for its e-read

Question 13

Figure 14-2   The government of a developing country plans to award two firms, Gigacom and Xenophone, the exclusive rights to share the market for high speed Internet service. Gigacom and Xenophone can both provide the service either via television cable lines or via direct subscriber line (dbl). Suppose the government is considering a proposal to delay one firm's entry into the market on the grounds that it wants to prevent "harmful" competition. Figure 14-2 shows the decision tree for this game.
-Refer to Figure 14-2. If the government delays Gigacom's entry and Xenophone moves first, is a threat by Gigacom that it will provide DSL service if Gigacom provides cable service a credible threat?

Accepted Answer

A)  No, because Gigacom will lose $4.5 million in profits if it carries out its threat. 
B)  Yes, because Gigacom's DSL service will drive Xenophone out of business. 
C)  No, because as a second mover, it has no choice but to abide by the choices of the first mover. 
D)  Yes, Xenophone stands to lose $3 million in profit. 
A)  No, because Gigacom will lose $4.5 million in profits if it carries out its threat. 
B)  Yes, because Gigacom's DSL service will drive Xenophone out of business. 
C)  No, because as a second mover, it has no choice but to abide by the choices of the first mover. 
D)  Yes, Xenophone stands to lose $3 million in profit.

Question 14

Explain why member firms of a cartel like OPEC have incentives to agree to a low cartel production level and then produce more than its quota.

Accepted Answer

A low cartel production level results in

Question 15

If an industry is made up of five identical firms, the four-firm concentration ratio is

Accepted Answer

A)  5%. 
B)  20%. 
C)  80%. 
D)  100%. 
A)  5%. 
B)  20%. 
C)  80%. 
D)  100%.

Question 16

We can draw demand curves for firms in perfectly competitive and monopolistically competitive industries, but not for oligopoly firms. The reason for this is

Accepted Answer

A)  there are no barriers to entry in perfectly competitive and monopolistically competitive industries. There are high barriers to entry in oligopoly industries. 
B)  we can assume that the prices charged by perfectly competitive and monopolistically competitive firms have no impact on rival firms. For oligopoly this assumption is unrealistic. 
C)  that perfectly competitive and monopolistically competitive firms are price takers. Oligopoly firms are price makers. 
D)  perfectly competitive and monopolistically competitive firms sell standardized products. Oligopoly firms sell differentiated products. 
A)  there are no barriers to entry in perfectly competitive and monopolistically competitive industries. There are high barriers to entry in oligopoly industries. 
B)  we can assume that the prices charged by perfectly competitive and monopolistically competitive firms have no impact on rival firms. For oligopoly this assumption is unrealistic. 
C)  that perfectly competitive and monopolistically competitive firms are price takers. Oligopoly firms are price makers. 
D)  perfectly competitive and monopolistically competitive firms sell standardized products. Oligopoly firms sell differentiated products.

Question 17

What is a sequential game? How are decision trees used to analyze sequential games?

Accepted Answer

In a sequential game one player (firm) a

Question 18

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

Accepted Answer

A)  Nash equilibrium. 
B)  the prisoner's dilemma. 
C)  game theory. 
D)  dominant strategy equilibrium. 
A)  Nash equilibrium. 
B)  the prisoner's dilemma. 
C)  game theory. 
D)  dominant strategy equilibrium.

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

Marginal revenue for an oligopolist is

Accepted Answer

A)  identical to the demand for the firm's product. 
B)  difficult to determine because the firm's demand curve is typically unknown. 
C)  downward sloping beneath the firm's demand curve. 
D)  horizontal on a price-quantity diagram. 
A)  identical to the demand for the firm's product. 
B)  difficult to determine because the firm's demand curve is typically unknown. 
C)  downward sloping beneath the firm's demand curve. 
D)  horizontal on a price-quantity diagram.

Exam 14: Oligopoly: Firms in Less Competitive Markets

The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium.

The five competitive forces model was developed by

What is a prisoner's dilemma?

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

An oligopolistic industry is characterized by a few large firms acting independently.

Oligopolies are difficult to analyze because

A four-firm concentration ratio measures

An oligopolist's demand curve is

The larger the number of firms in an industry,

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

Figure 14-8 -Refer to Figure 14-8. Use the decision tree to determine whether Microsoft should deter Toshiba from entering the market for electronic book readers (e-readers). Assume that each firm must earn a 20% return on investment to break even. Explain Microsoft's decision process.

Explain why member firms of a cartel like OPEC have incentives to agree to a low cartel production level and then produce more than its quota.

If an industry is made up of five identical firms, the four-firm concentration ratio is

We can draw demand curves for firms in perfectly competitive and monopolistically competitive industries, but not for oligopoly firms. The reason for this is

What is a sequential game? How are decision trees used to analyze sequential games?

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

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

Marginal revenue for an oligopolist is

Economics: Foundations and Models

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Monopolistic Competition: the Competitive Model in a More Realistic Setting

Monopoly and Antitrust Policy

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