Exam 14: Oligopoly: Firms in Less Competitive Markets

Table 14-7 The payoff matrix shown above assumes that Perfect Plants and Florabunda Florist must decide whether to offer same-day delivery for their products. The matrix shows how much profit each firm will earn if it does or does not offer same-day delivery. The amount of profit for one firm depends on whether the other firm offers same-day delivery. -Refer to Table 14-7. Which of the following statements is true?

If economies of scale are relatively unimportant in an industry, the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales. The industry will be ________.

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

Assume that the four-firm concentration ratio in an industry is 85 percent. Which of the following statements uses one of the five competitive forces to argue that this industry may be more competitive than its concentration ratio suggests?

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

On November 7, 1996, the Distilled Spirits Council of the United States decided to end its voluntary ban on television and radio liquor advertisement. The ban on hard liquor advertising had been in effect since 1936 for radio and 1948 for television. Did the lifting of this ban likely increase or decrease the profits of hard liquor companies? Briefly explain.

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

Table 14-4 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 14-4 shows the payoff matrix for this advertising game. -Refer to Table 14-4. If Alistair assumes that Baine would increase its advertising budget, what should it do?

What is the dominant strategy in the prisoner's dilemma?

Table 14-7 The payoff matrix shown above assumes that Perfect Plants and Florabunda Florist must decide whether to offer same-day delivery for their products. The matrix shows how much profit each firm will earn if it does or does not offer same-day delivery. The amount of profit for one firm depends on whether the other firm offers same-day delivery. -Refer to Table 14-7. Which of the following statements is true?

The De Beers Company blocked competition

Game theory was developed in the 1940s by John von Neuman, a mathematician, and an economist named

The prisoner's dilemma illustrates

There are two firms in the residential paint industry, Cool Shades (C) and Warm Hues (W). They collude to share the market equally. They jointly set a monopoly price and split the quantity demanded at that price. Here are their options: i. They continue to collude (no cheating) and make $12 million each in profits. ii. One firm cheats and the other does not. The firm that cheats makes a profit of $14 million whereas the firm that doesn't makes a profit of $9 million. iii. They both cheat and each firm makes a profit of $7 million. a. Construct a payoff matrix for these two firms. b. How does this situation relate to the prisoner's dilemma? c. If each firm acted noncooperatively, how much profit would each make? d. Are the firms better off colluding (with no cheating) or competing? Explain.

A game in which pursuing dominant strategies results in noncooperation that leaves all parties worse off is a

On January 2, 1971, all cigarette advertising was banned on U.S. television and radio stations. Did this ban likely increase or decrease the profits of cigarette companies in 1971? Briefly explain.

Consider two oligopolistic industries selling the same product in different locations. In the first industry, firms always match price changes by any other firm in the industry. In the second industry, firms always ignore price changes by any other firm. Which of the following statements is true about these two industries, holding everything else constant?

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

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

Table 14-8 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 14-8 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts. -Refer to Table 14-8. Which of the following is true?