Question 1

An example of a barrier to entry is

Accepted Answer

A)  product differentiation. 
B)  high profits. 
C)  superior technological knowledge. 
D)  increasing marginal costs 
A)  product differentiation. 
B)  high profits. 
C)  superior technological knowledge. 
D)  increasing marginal costs C

Question 2

Oligopolies exist and do not attract new rivals because

Accepted Answer

A)  of competition. 
B)  of barriers to entry. 
C)  the firms keep profits and prices so low that no rivals are attracted. 
D)  there can be no product differentiation. 
A)  of competition. 
B)  of barriers to entry. 
C)  the firms keep profits and prices so low that no rivals are attracted. 
D)  there can be no product differentiation. B

Question 3

If the painting firms in a city sign a contract outlining a pricing plan,they are involved in

Accepted Answer

A)  price competition. 
B)  a legal form of business contract in the United States. 
C)  collusion. 
D)  price regulation. 
A)  price competition. 
B)  a legal form of business contract in the United States. 
C)  collusion. 
D)  price regulation. C

Question 4

An oligopolistic industry is characterized by all of the following except

Accepted Answer

A)  existence of entry barriers. 
B)  the possibility of reaping long run economic profits. 
C)  firms pursuing aggressive business strategies, independent of rivals' strategies. 
D)  production of standardized products. 
A)  existence of entry barriers. 
B)  the possibility of reaping long run economic profits. 
C)  firms pursuing aggressive business strategies, independent of rivals' strategies. 
D)  production of standardized products.

Question 5

An oligopolist differs from a perfect competitor in that

Accepted Answer

A)  there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power. 
B)  firms in an oligopoly do not produce homogeneous products while firms in perfect competition do. 
C)  the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry. 
D)  there are no entry barriers in perfect competition but there are entry barriers in oligopoly. 
A)  there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power. 
B)  firms in an oligopoly do not produce homogeneous products while firms in perfect competition do. 
C)  the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry. 
D)  there are no entry barriers in perfect competition but there are entry barriers in oligopoly.

Question 6

Explain the difference between a cooperative equilibrium and a noncooperative equilibrium in game theory.

Accepted Answer

A cooperative equilibrium is one in whic

Question 7

Suppose we want to use game theory to analyze how an oligopolist selects its optimal price.The cells of the payoff matrix show

Accepted Answer

A)  the profit that each producer can expect to earn by pursuing a single strategy. 
B)  the profit that each producer can expect to earn from every combination of strategies by the firms in the market. 
C)  the strategy that a firm must pursue to earn various levels of profit. 
D)  the expected profits of rival firms. 
A)  the profit that each producer can expect to earn by pursuing a single strategy. 
B)  the profit that each producer can expect to earn from every combination of strategies by the firms in the market. 
C)  the strategy that a firm must pursue to earn various levels of profit. 
D)  the expected profits of rival firms.

Question 8

An oligopolist's demand curve is

Accepted Answer

A)  identical to that of a perfect 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 perfect 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 9

An equilibrium in which each player chooses its best strategy given the strategies chosen by the other players is called a Nash equilibrium.

Accepted Answer

A) True 
 B)False

Question 10

Should other firms,such as Apple or Toshiba,decide to develop and sell a laptop-tablet hybrid to compete with the one being developed by Intel,this 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)  the bargaining power of suppliers 
A)  the bargaining power of buyers 
B)  the threat from potential entrants 
C)  competition from substitute goods or services 
D)  the bargaining power of suppliers

Question 11

Which of the following is not a reason why government officials are willing to impose entry barriers?

Accepted Answer

A)  to raise revenue 
B)  to encourage innovation which may improve the standard of living in the long run 
C)  to increase economic efficiency 
D)  to promote an equitable distribution of income 
A)  to raise revenue 
B)  to encourage innovation which may improve the standard of living in the long run 
C)  to increase economic efficiency 
D)  to promote an equitable distribution of income

Question 12

Figure 14-4   
Rainbow Writer (RW) is a small online company selling a highly rated software package for printing color labels directly onto CDs. The firm currently earns a profit of $2 million per year selling its package exclusively on its Web site. Odeon, the producer of the most popular software package for editing and burning CDs and DVDs, has expressed interest in bundling Rainbow Writer's product into its own package. Odeon expects that bundling would further boost its sales and allow it to sell the new bundled product at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14-4 shows the decision tree for the Rainbow Writer-Odeon bargaining game.
-Refer to Figure 14-4.In a real world situation involving Rainbow Writer and Odeon,what scenario below might permit Rainbow Writer to rationally refuse an offer from Odeon of $40 per copy of the software package?

Accepted Answer

A)  Odeon is also negotiating with Swift Colors, Rainbow Writer's chief rival. 
B)  Odeon's competitors are also interested in bundling Rainbow Writer's software. 
C)  Odeon hires a software developer to begin developing its own proprietary color labeling software. 
D)  Odeon is considering new distribution outlets for its products. 
A)  Odeon is also negotiating with Swift Colors, Rainbow Writer's chief rival. 
B)  Odeon's competitors are also interested in bundling Rainbow Writer's software. 
C)  Odeon hires a software developer to begin developing its own proprietary color labeling software. 
D)  Odeon is considering new distribution outlets for its products.

Question 13

Figure 14-3   
Rainbow Writer (RW) is a small online company selling a highly rated software package for printing color labels directly onto CDs. The firm currently earns a profit of $2 million per year selling its package exclusively on its Web site. Odeon, the producer of the most popular software package for editing and burning CDs and DVDs has expressed interest in bundling Rainbow Writer's product into its own package. Odeon expects that bundling would further boost its sales and allow it to sell the new bundled product at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14.3 shows the decision tree for the Rainbow Writer-Odeon bargaining game.
-Refer to Figure 14-3.How will Rainbow Writer respond to Odeon's two possible offers?

Accepted Answer

A)  Rainbow Writer will reject either offer. 
B)  Rainbow Writer will only accept an offer of $30 per copy of the software package. 
C)  Rainbow Writer will only accept an offer of $40 per copy of the software package. 
D)  Rainbow Writer will accept either offer. 
A)  Rainbow Writer will reject either offer. 
B)  Rainbow Writer will only accept an offer of $30 per copy of the software package. 
C)  Rainbow Writer will only accept an offer of $40 per copy of the software package. 
D)  Rainbow Writer will accept either offer.

Question 14

Interdependence of firms is most common in

Accepted Answer

A)  monopolistically competitive industries. 
B)  monopolistic industries. 
C)  monopolistically competitive and oligopolistic industries. 
D)  oligopolistic industries. 
A)  monopolistically competitive industries. 
B)  monopolistic industries. 
C)  monopolistically competitive and oligopolistic industries. 
D)  oligopolistic industries.

Question 15

A dominant strategy

Accepted Answer

A)  is one that is the best for a firm, no matter what strategies other firms use. 
B)  is one that a firm is forced into following by government policy. 
C)  involves colluding with rivals to maximize joint profits. 
D)  involves deciding what to do after all rivals have chosen their own strategies. 
A)  is one that is the best for a firm, no matter what strategies other firms use. 
B)  is one that a firm is forced into following by government policy. 
C)  involves colluding with rivals to maximize joint profits. 
D)  involves deciding what to do after all rivals have chosen their own strategies.

Question 16

Figure 14-1  
 Assume that Lexus (L) is the first automobile company to produce a luxury class hybrid automobile and is the only such company for the past four years. BMW is now considering producing its own luxury hybrid automobile and Lexus must decide whether or not to lower the price of its luxury hybrid to counter BMW's entry into the luxury hybrid niche.
-Refer to Figure 14-1.Should Lexus lower its price in order to deter BMW's entry into the luxury hybrid automobile market?

Accepted Answer

A)  In terms of profit earned, it makes no difference whether Lexus lowers its price or not; in either case it will make $280 million profit if BMW enters. 
B)  No, it should keep the same price and work to capitalize on its brand loyalty. 
C)  Yes, it will drive BMW out of the market. 
D)  No, because BMW will enter the market regardless of Lexus' decision about its price. 
A)  In terms of profit earned, it makes no difference whether Lexus lowers its price or not; in either case it will make $280 million profit if BMW enters. 
B)  No, it should keep the same price and work to capitalize on its brand loyalty. 
C)  Yes, it will drive BMW out of the market. 
D)  No, because BMW will enter the market regardless of Lexus' decision about its price.

Question 17

There is much evidence to suggest that airlines are more likely to match price cuts than price increases.Which of the following best explains this evidence?

Accepted Answer

A)  The law of demand which states that an increase in price leads to a decrease in quantity demanded. 
B)  No one airline wants to be the first to renege on a tacit collusive agreement in which all airlines implicitly agree to match price cuts but not price increases. 
C)  An airline fears that if it does not match a price cut, its sales may fall considerably but if it does not match a price increase, it will be able to attract customers away from its rivals. 
D)  Airlines have different costs of production and therefore it is more difficult to agree on a price increase than on a price decrease. 
A)  The law of demand which states that an increase in price leads to a decrease in quantity demanded. 
B)  No one airline wants to be the first to renege on a tacit collusive agreement in which all airlines implicitly agree to match price cuts but not price increases. 
C)  An airline fears that if it does not match a price cut, its sales may fall considerably but if it does not match a price increase, it will be able to attract customers away from its rivals. 
D)  Airlines have different costs of production and therefore it is more difficult to agree on a price increase than on a price decrease.

Question 18

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 19

A set of actions that a firm takes to achieve a goal,such as maximizing profits,is called

Accepted Answer

A)  a business strategy. 
B)  a payoff matrix. 
C)  the Porter's Competitive Forces plan. 
D)  game theory. 
A)  a business strategy. 
B)  a payoff matrix. 
C)  the Porter's Competitive Forces plan. 
D)  game theory.

Question 20

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.

Exam 14: Oligopoly: Firms in Less Competitive Markets

An example of a barrier to entry is

Oligopolies exist and do not attract new rivals because

If the painting firms in a city sign a contract outlining a pricing plan,they are involved in

An oligopolistic industry is characterized by all of the following except

An oligopolist differs from a perfect competitor in that

Explain the difference between a cooperative equilibrium and a noncooperative equilibrium in game theory.

Suppose we want to use game theory to analyze how an oligopolist selects its optimal price.The cells of the payoff matrix show

An oligopolist's demand curve is

An equilibrium in which each player chooses its best strategy given the strategies chosen by the other players is called a Nash equilibrium.

Should other firms,such as Apple or Toshiba,decide to develop and sell a laptop-tablet hybrid to compete with the one being developed by Intel,this best describes which of the five competitive forces?

Which of the following is not a reason why government officials are willing to impose entry barriers?

Interdependence of firms is most common in

A dominant strategy

There is much evidence to suggest that airlines are more likely to match price cuts than price increases.Which of the following best explains this evidence?

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

A set of actions that a firm takes to achieve a goal,such as maximizing profits,is called

The larger the number of firms in an industry,

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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