Question 1

An oligopolistic industry is characterized by a few large firms acting independently.

Accepted Answer

A) True 
 B)False

Question 2

Explain why OPEC is caught in a prisoner's dilemma?

Accepted Answer

If every member of OPEC cooperates and p

Question 3

In Michael Porter's five competitive forces model,what do the competitive forces determine?

Accepted Answer

The five competitive

Question 4

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.For each firm,is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000?

Accepted Answer

A)  Yes, the firms can implicitly collude and agree to charge a higher price. 
B)  No, there is no incentive for each firm to consider any other strategy. 
C)  No, any other strategy hurts consumers. 
D)  Yes, each firm can implicitly agree to increase output and not to deviate from a low price. 
A)  Yes, the firms can implicitly collude and agree to charge a higher price. 
B)  No, there is no incentive for each firm to consider any other strategy. 
C)  No, any other strategy hurts consumers. 
D)  Yes, each firm can implicitly agree to increase output and not to deviate from a low price.

Question 5

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 6

Figure 14-2   
The government of a developing country plans to award two firms, Gigacom and Xenophone, the exclusive rights to share the market for high speed internet service. Gigacom and Xenophone can both provide the service either via television cable lines or via direct subscriber line (DSL). Suppose the government is considering a proposal to delay one firm's entry into the market on the grounds that it wants to prevent "harmful" competition. Figure 14-2 shows the decision tree for this game.
-Refer to Figure 14-2.Now suppose that the government delays Xenophone's entry and Gigacom moves first,what is the likely outcome in the market?

Accepted Answer

A)  Both offer internet service via cable line; Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million. 
B)  Both offer DSL internet service; Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million. 
C)  Xenophone offers DSL internet service and earns a profit of $5 million while Gigacom offer internet service via cable line and earns a profit of $6.5 million. 
D)  Xenophone offers internet service via cable line and earns a profit of $4 million while Gigacom offers DSL internet service and earns a profit of $4.5 million. 
A)  Both offer internet service via cable line; Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million. 
B)  Both offer DSL internet service; Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million. 
C)  Xenophone offers DSL internet service and earns a profit of $5 million while Gigacom offer internet service via cable line and earns a profit of $6.5 million. 
D)  Xenophone offers internet service via cable line and earns a profit of $4 million while Gigacom offers DSL internet service and earns a profit of $4.5 million.

Question 7

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

Accepted Answer

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

Question 8

Oligopolies are difficult to analyze because

Accepted Answer

A)  the firms are so large. 
B)  demand and cost curves do not exist for these types of industries. 
C)  how firms respond to a price change by a rival is uncertain. 
D)  oligopolies are a recent development so economists have not had time to develop models. 
A)  the firms are so large. 
B)  demand and cost curves do not exist for these types of industries. 
C)  how firms respond to a price change by a rival is uncertain. 
D)  oligopolies are a recent development so economists have not had time to develop models.

Question 9

The bargaining power of buyers increases if

Accepted Answer

A)  there are many large buyers. 
B)  the input in question has few substitutes. 
C)  the input in question is not a critical component of production. 
D)  there are wide variations in the quality of inputs from supplier to supplier. 
A)  there are many large buyers. 
B)  the input in question has few substitutes. 
C)  the input in question is not a critical component of production. 
D)  there are wide variations in the quality of inputs from supplier to supplier.

Question 10

A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

Accepted Answer

A) True 
 B)False

Question 11

According to an article the Wall Street Journal,"The big car makers are pushing a wide array of new technology into production,responding to relentless competitive pressure,
Rising energy prices and consumer demand for better safety.
Source: Joseph B.White,"Ford,GM Eye Shift in Buying Habits," Wall Street Journal,May 22,2006.
Which of Porter's competitive forces does this statement allude to?

Accepted Answer

A)  the threat of competition from new entrants 
B)  competition from foreign auto manufacturers 
C)  competition from existing firms within the industry 
D)  competition from substitute products from outside the industry 
A)  the threat of competition from new entrants 
B)  competition from foreign auto manufacturers 
C)  competition from existing firms within the industry 
D)  competition from substitute products from outside the industry

Question 12

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 Star Connections and if so,what is it?

Accepted Answer

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

Question 13

The "Discount Department Stores" industry is highly concentrated.What does this mean?

Accepted Answer

A)  There are many large stores such as Wal-Mart, Target, Kohl's, in this industry. 
B)  A few large stores account for a significant portion of industry sales. 
C)  There is cut-throat competition in this industry because there are no entry barriers. 
D)  The sales volume in this industry is consistently high. 
A)  There are many large stores such as Wal-Mart, Target, Kohl's, in this industry. 
B)  A few large stores account for a significant portion of industry sales. 
C)  There is cut-throat competition in this industry because there are no entry barriers. 
D)  The sales volume in this industry is consistently high.

Question 14

If an industry is made up of five identical firms,the four-firm concentration ratio is

Accepted Answer

A)  5%. 
B)  20%. 
C)  80%. 
D)  100%. 
A)  5%. 
B)  20%. 
C)  80%. 
D)  100%.

Question 15

Which of the following is most likely to exert the bargaining power of a buyer?

Accepted Answer

A)  Barnes and Noble purchases books from publishers for sale in its online stores. 
B)  Wal-Mart, The world's largest discount store, seeks vendors to supply products made exclusively for its stores. 
C)  Ground beef producers seek to purchase cattle from ranchers. 
D)  Cowgirl Creamery, a small cheese producer, seeks a dairy farm for its organic milk supplies. 
A)  Barnes and Noble purchases books from publishers for sale in its online stores. 
B)  Wal-Mart, The world's largest discount store, seeks vendors to supply products made exclusively for its stores. 
C)  Ground beef producers seek to purchase cattle from ranchers. 
D)  Cowgirl Creamery, a small cheese producer, seeks a dairy farm for its organic milk supplies.

Question 16

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 17

In which of the following cartels is total cartel profit likely to be the highest?

Accepted Answer

A)  a cartel made up of equal sized firms each producing different quantities of a differentiated product 
B)  a cartel made up of firms of various sizes each producing different quantities of a homogeneous product 
C)  a cartel made up of firms of various sizes each producing the same quantity of a differentiated product 
D)  a cartel made up of identical firms each producing the same quantity of a homogeneous product 
A)  a cartel made up of equal sized firms each producing different quantities of a differentiated product 
B)  a cartel made up of firms of various sizes each producing different quantities of a homogeneous product 
C)  a cartel made up of firms of various sizes each producing the same quantity of a differentiated product 
D)  a cartel made up of identical firms each producing the same quantity of a homogeneous product

Question 18

What is meant by the term "government-imposed barrier to entry"? Why would a government be willing to impose barriers to entering an industry?

Accepted Answer

Government imposed barriers to entry are

Question 19

In an oligopoly,firms can increase their market power by

Accepted Answer

A)  selling to buyers who have market power. 
B)  pursuing dominant strategies. 
C)  colluding to set prices. 
D)  undertaking heavy advertising expenditure. 
A)  selling to buyers who have market power. 
B)  pursuing dominant strategies. 
C)  colluding to set prices. 
D)  undertaking heavy advertising expenditure.

Question 20

Which of the following is not part of an oligopolist's business strategy?

Accepted Answer

A)  meeting worker health and safety standards required of all firms 
B)  deciding the level of total output of a new product 
C)  determining the amount of advertising a new product needs 
D)  setting the product's price after considering what rivals will do 
A)  meeting worker health and safety standards required of all firms 
B)  deciding the level of total output of a new product 
C)  determining the amount of advertising a new product needs 
D)  setting the product's price after considering what rivals will do

Exam 14: Oligopoly: Firms in Less Competitive Markets

An oligopolistic industry is characterized by a few large firms acting independently.

Explain why OPEC is caught in a prisoner's dilemma?

In Michael Porter's five competitive forces model,what do the competitive forces determine?

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

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

Oligopolies are difficult to analyze because

The bargaining power of buyers increases if

A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

The "Discount Department Stores" industry is highly concentrated.What does this mean?

If an industry is made up of five identical firms,the four-firm concentration ratio is

Which of the following is most likely to exert the bargaining power of a buyer?

A member of a cartel like OPEC has an incentive to

In which of the following cartels is total cartel profit likely to be the highest?

What is meant by the term "government-imposed barrier to entry"? Why would a government be willing to impose barriers to entering an industry?

In an oligopoly,firms can increase their market power by

Which of the following is not part of an oligopolist's business strategy?

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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