Question 1

A cartel is

Accepted Answer

A)  a temporary storage facility for automobiles. 
B)  a group of firms that enter into an informal agreement to fix prices to maximize joint profits. 
C)  a group of firms that enter into a formal agreement to fix prices to maximize joint profits. 
D)  an example of a group of firms that collectively regulate a competitive industry. 
A)  a temporary storage facility for automobiles. 
B)  a group of firms that enter into an informal agreement to fix prices to maximize joint profits. 
C)  a group of firms that enter into a formal agreement to fix prices to maximize joint profits. 
D)  an example of a group of firms that collectively regulate a competitive industry.

Question 2

A reason why there is more competition among restaurants than among large discount department stores is that restaurants

Accepted Answer

A)  have to cater to a variety of consumer tastes while department stores do not. 
B)  unlike department stores, have to abide by government sanitation rules. 
C)  unlike department stores, do not have significant economies of scale. 
D)  have more elastic demand for their product compared to department stores. 
A)  have to cater to a variety of consumer tastes while department stores do not. 
B)  unlike department stores, have to abide by government sanitation rules. 
C)  unlike department stores, do not have significant economies of scale. 
D)  have more elastic demand for their product compared to department stores.

Question 3

Economies of scale can lead to an oligopolistic market structure because

Accepted Answer

A)  if larger firms have lower costs, new small entrants will not be able to produce at the low costs achieved by the big established firms. 
B)  if economies of scale are insignificant, only a few firms are able to produce at the low costs achieved by the big established firms. 
C)  a few firms can force rivals to produce at low levels of output. 
D)  a few firms can use high profits to keep out new entrants. 
A)  if larger firms have lower costs, new small entrants will not be able to produce at the low costs achieved by the big established firms. 
B)  if economies of scale are insignificant, only a few firms are able to produce at the low costs achieved by the big established firms. 
C)  a few firms can force rivals to produce at low levels of output. 
D)  a few firms can use high profits to keep out new entrants.

Question 4

If economies of scale are significant,the typical firm will not reach the minimum point on its long-run average cost curve until it has produced a large fraction of industry sales.

Accepted Answer

A) True 
 B)False

Question 5

In a subgame perfect equilibrium,

Accepted Answer

A)  the first mover has an advantage over other players. 
B)  the last mover has an advantage over other players. 
C)  each player's strategy constitutes a Nash equilibrium at every subgame of the original game. 
D)  each player has the same response as the others at every subgame of the tree. 
A)  the first mover has an advantage over other players. 
B)  the last mover has an advantage over other players. 
C)  each player's strategy constitutes a Nash equilibrium at every subgame of the original game. 
D)  each player has the same response as the others at every subgame of the tree.

Question 6

List the competitive forces in the five competitive forces model.

Accepted Answer

The five competitive forces are 1)compet

Question 7

Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?

Accepted Answer

A)  producing more of its product 
B)  advertising that it will match its rival's price 
C)  reneging on a previous tacit agreement with rival firms to charge identical high prices 
D)  ignoring the pricing decisions of the other firms 
A)  producing more of its product 
B)  advertising that it will match its rival's price 
C)  reneging on a previous tacit agreement with rival firms to charge identical high prices 
D)  ignoring the pricing decisions of the other firms

Question 8

Producing a differentiated product occurs in which of the following industries?

Accepted Answer

A)  oligopoly, monopolistic competition and perfect competition 
B)  monopolistic competition only 
C)  oligopoly only 
D)  monopolistic competition and oligopoly 
A)  oligopoly, monopolistic competition and perfect competition 
B)  monopolistic competition only 
C)  oligopoly only 
D)  monopolistic competition and oligopoly

Question 9

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 Nigeria and,if so,what is it?

Accepted Answer

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

Question 10

In a decision tree,the difference between a decision node and a terminal node is that

Accepted Answer

A)  at a decision node all participants are free to make individual decisions but at a terminal node they must agree on a collective decision. 
B)  at a decision node all participants make the same decision, while at a terminal node different players may make different decisions. 
C)  at a decision node, a decision must be made while a terminal node shows the payoff. 
D)  at a decision node a decision must be made, while at a terminal node the final decision must be made. 
A)  at a decision node all participants are free to make individual decisions but at a terminal node they must agree on a collective decision. 
B)  at a decision node all participants make the same decision, while at a terminal node different players may make different decisions. 
C)  at a decision node, a decision must be made while a terminal node shows the payoff. 
D)  at a decision node a decision must be made, while at a terminal node the final decision must be made.

Question 11

Decision trees can only be used to analyze sequential games.

Accepted Answer

A) True 
 B)False

Question 12

A subgame is a simultaneous game embedded in a sequential game.

Accepted Answer

A) True 
 B)False

Question 13

A characteristic found only in oligopolies is

Accepted Answer

A)  break even level of profits. 
B)  interdependence of firms. 
C)  independence of firms. 
D)  products that are slightly different. 
A)  break even level of profits. 
B)  interdependence of firms. 
C)  independence of firms. 
D)  products that are slightly different.

Question 14

According to Porter's Five Competitive Forces Model,which kinds of products are most likely to limit the ability of firms in an industry to raise prices?

Accepted Answer

A)  differentiated products that target a small subsegment of the industry 
B)  substitutable products produced by firms in different industries 
C)  similar products produced by similar industries in low-cost countries 
D)  complementary products produced by different firms in the same industry 
A)  differentiated products that target a small subsegment of the industry 
B)  substitutable products produced by firms in different industries 
C)  similar products produced by similar industries in low-cost countries 
D)  complementary products produced by different firms in the same industry

Question 15

Table 14-2  
 Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000.
-Refer to Table 14-2.Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor.What is the purpose of such a strategy?

Accepted Answer

A)  to signal to each other not to charge below the current low price 
B)  to signal to each other that they will not hesitate to initiate a price war 
C)  to signal to each other that they intend to charge the high price 
D)  to signal to each other to share the market equally 
A)  to signal to each other not to charge below the current low price 
B)  to signal to each other that they will not hesitate to initiate a price war 
C)  to signal to each other that they intend to charge the high price 
D)  to signal to each other to share the market equally

Question 16

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.

Accepted Answer

If advertising is a prisoners'

Question 17

A supplier of paper napkins to the fast food industry is unlikely to have significant bargaining power.

Accepted Answer

A) True 
 B)False

Question 18

Table 14-2  
 Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000.
-Refer to Table 14-2.Suppose pricing PlayStations is a repeated game in which Wal-Mart and Target will be selling the game system in competition over a long period of time.In this case,what is the most likely outcome?

Accepted Answer

A)  a noncooperative equilibrium in which each firm charges the high price 
B)  a cooperative equilibrium in which each firm charges the high price 
C)  a noncooperative equilibrium in which each firm charges the low price 
D)  a cooperative equilibrium in which each firm charges the low price 
A)  a noncooperative equilibrium in which each firm charges the high price 
B)  a cooperative equilibrium in which each firm charges the high price 
C)  a noncooperative equilibrium in which each firm charges the low price 
D)  a cooperative equilibrium in which each firm charges the low price

Question 19

Table 14-2  
 Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000.
-Refer to Table 14-2.Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not,why and what is the Nash equilibrium?

Accepted Answer

A)  No, it is not a Nash equilibrium because each firm can do better by charging the high price. The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000. 
B)  No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium. There is no Nash equilibrium in this game. 
C)  No, the current situation is not a Nash equilibrium. The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price. 
D)  Yes, the current situation is a Nash equilibrium. 
A)  No, it is not a Nash equilibrium because each firm can do better by charging the high price. The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000. 
B)  No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium. There is no Nash equilibrium in this game. 
C)  No, the current situation is not a Nash equilibrium. The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price. 
D)  Yes, the current situation is a Nash equilibrium.

Question 20

The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.

Accepted Answer

A) True 
 B)False

Exam 14: Oligopoly: Firms in Less Competitive Markets

A cartel is

A reason why there is more competition among restaurants than among large discount department stores is that restaurants

Economies of scale can lead to an oligopolistic market structure because

If economies of scale are significant,the typical firm will not reach the minimum point on its long-run average cost curve until it has produced a large fraction of industry sales.

In a subgame perfect equilibrium,

List the competitive forces in the five competitive forces model.

Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?

Producing a differentiated product occurs in which of the following industries?

In a decision tree,the difference between a decision node and a terminal node is that

Decision trees can only be used to analyze sequential games.

A subgame is a simultaneous game embedded in a sequential game.

A characteristic found only in oligopolies is

According to Porter's Five Competitive Forces Model,which kinds of products are most likely to limit the ability of firms in an industry to raise prices?

A supplier of paper napkins to the fast food industry is unlikely to have significant bargaining power.

The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.

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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