Question 1

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 2

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

Question 3

An entry barrier exists when firms in an industry charge the lowest price possible for their products.

Accepted Answer

A) True 
 B)False

Question 4

OPEC periodically meets to agree to restrict the cartel's oil output, and yet almost every member of OPEC produces more than its own output quota. This suggests that OPEC has

Accepted Answer

A)  a cooperative equilibrium. 
B)  a noncooperative equilibrium. 
C)  new potential entrants. 
D)  a threat of substitute goods. 
A)  a cooperative equilibrium. 
B)  a noncooperative equilibrium. 
C)  new potential entrants. 
D)  a threat of substitute goods.

Question 5

Which of the following is not an example of a government-imposed entry barrier?

Accepted Answer

A)  patents 
B)  occupational licensing 
C)  barriers to international trade 
D)  antitrust legislation 
A)  patents 
B)  occupational licensing 
C)  barriers to international trade 
D)  antitrust legislation

Question 6

The four-firm concentration ratio of the aircraft industry is over 80 percent. Most economists would consider this industry an oligopoly.

Accepted Answer

A) True 
 B)False

Question 7

The most important barrier to entry is economies of scale.

Accepted Answer

A) True 
 B)False

Question 8

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 the two distillers agree to coordinate their strategies, what is the outcome?

Accepted Answer

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

Question 9

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 10

A member of a cartel like OPEC has an incentive to

Accepted Answer

A)  argue for larger production quotas for each member of the cartel. 
B)  agree to a low cartel production level and then produce more than its quota. 
C)  abide by its individual production quota. 
D)  support equal production quotas for each member. 
A)  argue for larger production quotas for each member of the cartel. 
B)  agree to a low cartel production level and then produce more than its quota. 
C)  abide by its individual production quota. 
D)  support equal production quotas for each member.

Question 11

Competition from substitute goods is more of a threat when switching costs are high.

Accepted Answer

A) True 
 B)False

Question 12

Figure 15-18  
-A key part of Microsoft's business strategy in the video game console market has been

Accepted Answer

A)  to wait until competitors introduce new technology in their products before incorporating the technology in its products. 
B)  to concentrate on selling its products through large discount retailers like Wal-Mart. 
C)  the innovation of new products which initially have little to no competition. 
D)  to dominate the market by offering low-end products and beating its competitors' prices. 
A)  to wait until competitors introduce new technology in their products before incorporating the technology in its products. 
B)  to concentrate on selling its products through large discount retailers like Wal-Mart. 
C)  the innovation of new products which initially have little to no competition. 
D)  to dominate the market by offering low-end products and beating its competitors' prices.

Question 13

How does the demand curve for an oligopoly firm differ from the demand curves for firms in competitive market structures?

Accepted Answer

The demand curve facing a perfectly comp

Question 14

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 15

Which of the following statements about the prisoner's dilemma is false?

Accepted Answer

A)  The prisoner's dilemma in a one-shot game leads to a noncooperative, equilibrium outcome. 
B)  The prisoner's dilemma in repeated games could lead to cooperation especially if there is some enforcement mechanism that punishes a player who does not cooperate. 
C)  Players caught in a prisoner's dilemma act in selfish ways that lead to an equilibrium that is sub-optimal. 
D)  The prisoner's dilemma game can never reach a Nash equilibrium as long as players do not cooperate. 
A)  The prisoner's dilemma in a one-shot game leads to a noncooperative, equilibrium outcome. 
B)  The prisoner's dilemma in repeated games could lead to cooperation especially if there is some enforcement mechanism that punishes a player who does not cooperate. 
C)  Players caught in a prisoner's dilemma act in selfish ways that lead to an equilibrium that is sub-optimal. 
D)  The prisoner's dilemma game can never reach a Nash equilibrium as long as players do not cooperate.

Question 16

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

Accepted Answer

Interdependence among firms means that t

Question 17

The approach economists use to analyze competition among oligopolists is called

Accepted Answer

A)  marginal analysis. 
B)  game theory. 
C)  oligopoly theory. 
D)  competition among the few. 
A)  marginal analysis. 
B)  game theory. 
C)  oligopoly theory. 
D)  competition among the few.

Question 18

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 19

A market comprised of only two firms is called a

Accepted Answer

A)  competitive market. 
B)  duopoly. 
C)  monopoly. 
D)  monopolistically competitive market. 
A)  competitive market. 
B)  duopoly. 
C)  monopoly. 
D)  monopolistically competitive market.

Question 20

A large majority of the personal computers (PCs) in the United States use an operating system purchased from Microsoft. Microsoft's relationship with PC manufacturers is an example of which of Porter's competitive forces?

Accepted Answer

A)  the threat from new entrants 
B)  the bargaining power of suppliers 
C)  the bargaining power of buyers 
D)  competition from substitute goods or services 
A)  the threat from new entrants 
B)  the bargaining power of suppliers 
C)  the bargaining power of buyers 
D)  competition from substitute goods or services

Exam 14: Oligopoly: Firms in Less Competitive Markets

When an oligopoly market is in Nash equilibrium,

Which of the following is not a characteristic of oligopoly?

An entry barrier exists when firms in an industry charge the lowest price possible for their products.

OPEC periodically meets to agree to restrict the cartel's oil output, and yet almost every member of OPEC produces more than its own output quota. This suggests that OPEC has

Which of the following is not an example of a government-imposed entry barrier?

The four-firm concentration ratio of the aircraft industry is over 80 percent. Most economists would consider this industry an oligopoly.

The most important barrier to entry is economies of scale.

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

A member of a cartel like OPEC has an incentive to

Competition from substitute goods is more of a threat when switching costs are high.

Figure 15-18 -A key part of Microsoft's business strategy in the video game console market has been

How does the demand curve for an oligopoly firm differ from the demand curves for firms in competitive market structures?

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?

Which of the following statements about the prisoner's dilemma is false?

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

The approach economists use to analyze competition among oligopolists is called

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

A market comprised of only two firms is called a

A large majority of the personal computers (PCs) in the United States use an operating system purchased from Microsoft. Microsoft's relationship with PC manufacturers is an example of which of Porter's competitive forces?

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

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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