Question 1

Collusion

Accepted Answer

A)  is rampant in perfect competition as all firms charge the same price. 
B)  reduces market concentration in an industry. 
C)  among firms is difficult to maintain because it eliminates long run economic profit. 
D)  is more difficult when there are many firms producing differentiated products in an industry. 
A)  is rampant in perfect competition as all firms charge the same price. 
B)  reduces market concentration in an industry. 
C)  among firms is difficult to maintain because it eliminates long run economic profit. 
D)  is more difficult when there are many firms producing differentiated products in an industry.

Question 2

An oligopoly firm is similar to a monopolistically competitive firm in that

Accepted Answer

A)  both firms face the prisoner's dilemma. 
B)  both operate in a market in which there are entry barriers. 
C)  both firms have market power. 
D)  both firms are in industries characterized by an interdependent firm. 
A)  both firms face the prisoner's dilemma. 
B)  both operate in a market in which there are entry barriers. 
C)  both firms have market power. 
D)  both firms are in industries characterized by an interdependent firm.

Question 3

A key part of Apple's business strategy in the electronics 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 and services 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 and services 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 4

Figure 14-6  
-Refer to Figure 14-6.Uniguest,Inc.is a company that provides PCs with internet access and touch-sensitive screens to hotels.Suppose the Hard Rock Hotel and Casino in Las Vegas informs Uniguest that it is considering installing these systems in its hotel rooms.The Hard Rock expects to be able to charge higher prices for these rooms if it installs Uniguest's systems in its rooms.The two companies begin bargaining over what price the Hard Rock will pay Uniguest for its systems,and the decision tree shown above illustrates this bargaining game.Note that the profit figures listed in the decision tree are additional profits for the Hard Rock and total profits for Uniguest.
a.Suppose the Hard Rock offers Uniguest $1,200 per system.Will Uniguest accept or reject this offer? Why?
b.Suppose the Hard Rock offers Uniguest $800 per system.Will Uniguest accept or reject this offer? Why?
c.Suppose Uniguest attempts to obtain a favorable outcome from the bargaining by telling the Hard Rock it will reject an $800-per-system offer.If the Hard Rock does not believe the threat is credible,what will it do? Why? What will Uniguest do? Why?
d.Is there a sub-game perfect equilibrium in this situation? Explain.

Accepted Answer

a.If the Hard Rock offers Uniguest $1,20

Question 5

The prisoner's dilemma illustrates

Accepted Answer

A)  how oligopolists engage in implicit collusion under strategic situations. 
B)  why firms will not cooperate if they behave strategically. 
C)  why firms have an incentive to cheat on agreements. 
D)  how cooperation in strategic situations lead to the economically efficient market outcome. 
A)  how oligopolists engage in implicit collusion under strategic situations. 
B)  why firms will not cooperate if they behave strategically. 
C)  why firms have an incentive to cheat on agreements. 
D)  how cooperation in strategic situations lead to the economically efficient market outcome.

Question 6

Figure 14-5  
-Refer to Figure 14-5 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 7

As word processing on personal computers expanded,sales of typewriters began to disappear.Which of Porter's competitive forces does this event demonstrate?

Accepted Answer

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

Question 8

Which of the following is important in determining the extent of competition in an industry?

Accepted Answer

A)  the minimum level of short run average total costs of production 
B)  the minimum efficient scale of production relative to market demand 
C)  whether or not the industry product is differentiated or standardized 
D)  the level of market demand for the industry's product 
A)  the minimum level of short run average total costs of production 
B)  the minimum efficient scale of production relative to market demand 
C)  whether or not the industry product is differentiated or standardized 
D)  the level of market demand for the industry's product

Question 9

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 10

Table 14-1   
Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. Table 14-1 shows the payoff matrix for this advertising game.
-Refer to Table 14-1.Is there a dominant strategy for Godrickporter and if so,what is it?

Accepted Answer

A)  No, its outcome depends on what Star Connections does. 
B)  Yes, Godrickporter should increase its advertising spending. 
C)  Yes, Godrickporter should reduce its advertising spending. 
D)  Yes, Godrickporter's dominant strategy is to collude with Star Connections. 
A)  No, its outcome depends on what Star Connections does. 
B)  Yes, Godrickporter should increase its advertising spending. 
C)  Yes, Godrickporter should reduce its advertising spending. 
D)  Yes, Godrickporter's dominant strategy is to collude with Star Connections.

Question 11

For years economists believed that market structure explained the ability of some firms to earn economic profits.Today,economists and business strategists put greater emphasis on

Accepted Answer

A)  the number of years a firm has been in business and the average price of the products sold by the firm. 
B)  the number of countries in which a firm conducts business and the number of employees the firm has in each country. 
C)  the characteristics of individual firms and the strategies their managements use to continue to earn economic profits. 
D)  the size of a firm relative to the industry average and the number of firms in the domestic industry. 
A)  the number of years a firm has been in business and the average price of the products sold by the firm. 
B)  the number of countries in which a firm conducts business and the number of employees the firm has in each country. 
C)  the characteristics of individual firms and the strategies their managements use to continue to earn economic profits. 
D)  the size of a firm relative to the industry average and the number of firms in the domestic industry.

Question 12

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 13

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

Accepted Answer

In a sequential game one player (firm)ac

Question 14

What is a second-price auction?

Accepted Answer

A)  An auction in which the bidder who submitted the highest bid is awarded the object being sold and pays a price equal to the second highest amount bid. 
B)  An auction in which the bidder who submitted the second highest bid is awarded the object being sold. 
C)  An auction in which the bidder who submitted the highest bid is awarded the object being sold and pays a price equal to the average of the highest and second highest amount bid. 
D)  An auction in which the bidder who submitted the second highest bid is awarded the object being sold and pays a price equal to the average of the highest and second highest amount bid. 
A)  An auction in which the bidder who submitted the highest bid is awarded the object being sold and pays a price equal to the second highest amount bid. 
B)  An auction in which the bidder who submitted the second highest bid is awarded the object being sold. 
C)  An auction in which the bidder who submitted the highest bid is awarded the object being sold and pays a price equal to the average of the highest and second highest amount bid. 
D)  An auction in which the bidder who submitted the second highest bid is awarded the object being sold and pays a price equal to the average of the highest and second highest amount bid.

Question 15

Table 14-3   
Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 14-3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota.
-Refer to Table 14-3.Is there a dominant strategy for Saudi Arabia and,if so,what is it?

Accepted Answer

A)  Yes, the dominant strategy is to produce a high output. 
B)  Yes, the dominant strategy is to produce a low output. 
C)  No, there is no dominant strategy. 
D)  Yes, it has a dominant strategy depending on what Nigeria does. 
A)  Yes, the dominant strategy is to produce a high output. 
B)  Yes, the dominant strategy is to produce a low output. 
C)  No, there is no dominant strategy. 
D)  Yes, it has a dominant strategy depending on what Nigeria does.

Question 16

Table 14-3   
Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 14-3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota.
-Refer to Table 14-3.What is the Nash equilibrium in this game?

Accepted Answer

A)  In the Nash equilibrium both Saudi Arabia and Nigeria produce a low output and earn a profit of $100 million and $20 million respectively. 
B)  In the Nash equilibrium both Saudi Arabia and Nigeria produce a high output and earn a profit of $60 million and $20 million respectively. 
C)  In the Nash equilibrium Saudi Arabia produces a low output and earns a profit of $80 million and Nigeria produces a high output and $30 million respectively. 
D)  There is no Nash equilibrium. 
A)  In the Nash equilibrium both Saudi Arabia and Nigeria produce a low output and earn a profit of $100 million and $20 million respectively. 
B)  In the Nash equilibrium both Saudi Arabia and Nigeria produce a high output and earn a profit of $60 million and $20 million respectively. 
C)  In the Nash equilibrium Saudi Arabia produces a low output and earns a profit of $80 million and Nigeria produces a high output and $30 million respectively. 
D)  There is no Nash equilibrium.

Question 17

The value of the four-firm concentration ratio that many economists consider indicative of the existence of an oligopoly in a particular industry is

Accepted Answer

A)  anything greater than 10 percent. 
B)  anything greater than 20 percent. 
C)  anything greater than 30 percent. 
D)  anything greater than 40 percent. 
A)  anything greater than 10 percent. 
B)  anything greater than 20 percent. 
C)  anything greater than 30 percent. 
D)  anything greater than 40 percent.

Question 18

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

Accepted Answer

A)  Each prisoner confesses because this is the rational action to pursue. 
B)  Do nothing in the hope that the other prisoner will also do nothing. 
C)  Do not confess because the other prisoner will most likely confess. 
D)  There is no dominant strategy. 
A)  Each prisoner confesses because this is the rational action to pursue. 
B)  Do nothing in the hope that the other prisoner will also do nothing. 
C)  Do not confess because the other prisoner will most likely confess. 
D)  There is no dominant strategy.

Question 19

What is an oligopoly? Give two examples of oligopolistic industries in the United States.

Accepted Answer

Oligopoly is a market structur

Question 20

In an oligopoly market

Accepted Answer

A)  the pricing decisions of all other firms have no effect on an individual firm. 
B)  individual firms pay no attention to the behavior of other firms. 
C)  advertising of one firm has no effect on all other firms. 
D)  one firm's pricing decision affects all the other firms. 
A)  the pricing decisions of all other firms have no effect on an individual firm. 
B)  individual firms pay no attention to the behavior of other firms. 
C)  advertising of one firm has no effect on all other firms. 
D)  one firm's pricing decision affects all the other firms.

Exam 14: Oligopoly: Firms in Less Competitive Markets

Collusion

An oligopoly firm is similar to a monopolistically competitive firm in that

A key part of Apple's business strategy in the electronics market has been

The prisoner's dilemma illustrates

Figure 14-5 -Refer to Figure 14-5 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.

As word processing on personal computers expanded,sales of typewriters began to disappear.Which of Porter's competitive forces does this event demonstrate?

Which of the following is important in determining the extent of competition in an industry?

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

For years economists believed that market structure explained the ability of some firms to earn economic profits.Today,economists and business strategists put greater emphasis on

A four-firm concentration ratio measures

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

What is a second-price auction?

The value of the four-firm concentration ratio that many economists consider indicative of the existence of an oligopoly in a particular industry is

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

What is an oligopoly? Give two examples of oligopolistic industries in the United States.

In an oligopoly market

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

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The Economics of Health Care

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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

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Macroeconomics in an Open Economy

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