Question 1

What is the incentive for a firm to join a cartel?

Accepted Answer

A)  to be able to earn profits in the long run but not in the short run 
B)  to be able to earn larger profits than if it was not part of the cartel 
C)  to completely insulate itself from competition 
D)  to produce a larger amount of output than if it was not part of the cartel 
A)  to be able to earn profits in the long run but not in the short run 
B)  to be able to earn larger profits than if it was not part of the cartel 
C)  to completely insulate itself from competition 
D)  to produce a larger amount of output than if it was not part of the cartel

Question 2

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?

Accepted Answer

A)  Power Fuel's dominant strategy is to select a low price. 
B)  Brawny Juice's dominant strategy is to select a high price. 
C)  Power Fuel does not have a dominant strategy. 
D)  Brawny Juice does not have a dominant strategy. 
A)  Power Fuel's dominant strategy is to select a low price. 
B)  Brawny Juice's dominant strategy is to select a high price. 
C)  Power Fuel does not have a dominant strategy. 
D)  Brawny Juice does not have a dominant strategy.

Question 3

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 4

Why do economists refer to the pricing strategies of oligopoly firms as a prisoner's dilemma game?

Accepted Answer

A prisoners' dilemma is a game in which

Question 5

We can draw demand curves for firms in perfectly competitive and monopolistically competitive industries,but not for oligopoly firms.The reason for this is

Accepted Answer

A)  there are no barriers to entry in perfectly competitive and monopolistically competitive industries. There are high barriers to entry in oligopoly industries. 
B)  we can assume that the prices charged by perfectly competitive and monopolistically competitive firms have no impact on rival firms. For oligopoly this assumption is unrealistic. 
C)  that perfectly competitive and monopolistically competitive firms are price takers. Oligopoly firms are price makers. 
D)  perfectly competitive and monopolistically competitive firms sell standardized products. Oligopoly firms sell differentiated products. 
A)  there are no barriers to entry in perfectly competitive and monopolistically competitive industries. There are high barriers to entry in oligopoly industries. 
B)  we can assume that the prices charged by perfectly competitive and monopolistically competitive firms have no impact on rival firms. For oligopoly this assumption is unrealistic. 
C)  that perfectly competitive and monopolistically competitive firms are price takers. Oligopoly firms are price makers. 
D)  perfectly competitive and monopolistically competitive firms sell standardized products. Oligopoly firms sell differentiated products.

Question 6

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.What is the equilibrium outcome in this game and is this a subgame-perfect equilibrium?

Accepted Answer

A)  In the equilibrium, neither offer is accepted as Rainbow Writer holds out for a better deal. The two rejection outcomes are subgame-perfect equilibria. 
B)  In the equilibrium, Odeon offers $40 per copy of the software package and is accepted but this is not a subgame-perfect equilibrium. 
C)  Either offer of $30 or $40 per copy of the software package is accepted and these two equilibria are subgame-perfect equilibria. 
D)  Either offer of $30 or $40 per copy of the software package is accepted but these are not are subgame-perfect equilibria. 
A)  In the equilibrium, neither offer is accepted as Rainbow Writer holds out for a better deal. The two rejection outcomes are subgame-perfect equilibria. 
B)  In the equilibrium, Odeon offers $40 per copy of the software package and is accepted but this is not a subgame-perfect equilibrium. 
C)  Either offer of $30 or $40 per copy of the software package is accepted and these two equilibria are subgame-perfect equilibria. 
D)  Either offer of $30 or $40 per copy of the software package is accepted but these are not are subgame-perfect equilibria.

Question 7

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 8

A consequence of the quota that has been imposed on the importation of sugar into the United States is

Accepted Answer

A)  consumers are protected from eating unsafe products made from cheap imported sugar. 
B)  competition in the U.S. sugar market is reduced. 
C)  the cost of producing cereal, chocolate and candy products in the United States is reduced. 
D)  the market for sugar in the United States has become monopolistically competitive rather than oligopolistic. 
A)  consumers are protected from eating unsafe products made from cheap imported sugar. 
B)  competition in the U.S. sugar market is reduced. 
C)  the cost of producing cereal, chocolate and candy products in the United States is reduced. 
D)  the market for sugar in the United States has become monopolistically competitive rather than oligopolistic.

Question 9

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 10

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

Question 11

Which of the following statements is generally true?

Accepted Answer

A)  Rivalry is less the larger the number of firms in an industry. 
B)  The smaller the number of firms in an industry, the greater the rivalry. 
C)  The larger the number of firms in an industry, the greater the rivalry. 
D)  The degree of rivalry in an industry is largely independent of the number of firms. 
A)  Rivalry is less the larger the number of firms in an industry. 
B)  The smaller the number of firms in an industry, the greater the rivalry. 
C)  The larger the number of firms in an industry, the greater the rivalry. 
D)  The degree of rivalry in an industry is largely independent of the number of firms.

Question 12

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 13

Sequential games are used to analyze

Accepted Answer

A)  firms that are subject to the prisoner's dilemma. 
B)  cartels. 
C)  second-price auctions. 
D)  situations in which one firm acts and other firms respond. 
A)  firms that are subject to the prisoner's dilemma. 
B)  cartels. 
C)  second-price auctions. 
D)  situations in which one firm acts and other firms respond.

Question 14

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.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 15

For years economists believed that market structure explained the ability of some firms to earn economic profits.For example,firms in industries with little competition and high barriers to entry would earn higher profits than firms in competitive industries with low entry barriers.Which of the following has caused economists to question this explanation and seek other explanations for why firms are profitable?

Accepted Answer

A)  Studies have shown that, on average, firms in competitive industries earn higher profit rates than firms in industries with little competition. 
B)  In recent years new technologies have increased the potential entry of new firms in industries with high entry barriers. 
C)  Studies have shown that firms in industries that have little competition and high entry barriers are not very profitable. Economists conclude from this that some competition is necessary in order to force firms to lower their costs and develop products that satisfy new consumer demands. 
D)  The market structure explanation fails to explain how firms in the same industry can have very different levels of profit. 
A)  Studies have shown that, on average, firms in competitive industries earn higher profit rates than firms in industries with little competition. 
B)  In recent years new technologies have increased the potential entry of new firms in industries with high entry barriers. 
C)  Studies have shown that firms in industries that have little competition and high entry barriers are not very profitable. Economists conclude from this that some competition is necessary in order to force firms to lower their costs and develop products that satisfy new consumer demands. 
D)  The market structure explanation fails to explain how firms in the same industry can have very different levels of profit.

Question 16

Why does a prisoner's dilemma lead to a noncooperative equilibrium?

Accepted Answer

A)  because each player had agreed before the game started to minimize the harm that he can inflict on the other players 
B)  because each player is uncertain how other players will play the game 
C)  because players must choose from a limited number of non-dominant strategies 
D)  because each rational player has a dominant strategy to play a certain way regardless of what other players do 
A)  because each player had agreed before the game started to minimize the harm that he can inflict on the other players 
B)  because each player is uncertain how other players will play the game 
C)  because players must choose from a limited number of non-dominant strategies 
D)  because each rational player has a dominant strategy to play a certain way regardless of what other players do

Question 17

Which of the following is an example of implicit collusion?

Accepted Answer

A)  product differentiation 
B)  a retaliation strategy 
C)  a second-price auction 
D)  price leadership 
A)  product differentiation 
B)  a retaliation strategy 
C)  a second-price auction 
D)  price leadership

Question 18

Occupational licensing is an example of an entry barrier that improves a country's standard of living.

Accepted Answer

A) True 
 B)False

Question 19

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 20

An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a

Accepted Answer

A)  cartel equilibrium. 
B)  noncooperative equilibrium. 
C)  prisoner's dilemma equilibrium. 
D)  dominant strategy equilibrium. 
A)  cartel equilibrium. 
B)  noncooperative equilibrium. 
C)  prisoner's dilemma equilibrium. 
D)  dominant strategy equilibrium.

What is the incentive for a firm to join a cartel?

Why do economists refer to the pricing strategies of oligopoly firms as a prisoner's dilemma game?

We can draw demand curves for firms in perfectly competitive and monopolistically competitive industries,but not for oligopoly firms.The reason for this is

An oligopolist differs from a perfect competitor in that

A consequence of the quota that has been imposed on the importation of sugar into the United States is

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

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

Which of the following statements is generally true?

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

Sequential games are used to analyze

Why does a prisoner's dilemma lead to a noncooperative equilibrium?

Which of the following is an example of implicit collusion?

Occupational licensing is an example of an entry barrier that improves a country's standard of living.

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

An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a

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

Filters

Exam 14: Oligopoly: Firms in Less Competitive Markets

What is the incentive for a firm to join a cartel?

Why do economists refer to the pricing strategies of oligopoly firms as a prisoner's dilemma game?

We can draw demand curves for firms in perfectly competitive and monopolistically competitive industries,but not for oligopoly firms.The reason for this is

An oligopolist differs from a perfect competitor in that

A consequence of the quota that has been imposed on the importation of sugar into the United States is

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

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

Which of the following statements is generally true?

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

Sequential games are used to analyze

Why does a prisoner's dilemma lead to a noncooperative equilibrium?

Which of the following is an example of implicit collusion?

Occupational licensing is an example of an entry barrier that improves a country's standard of living.

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

An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a

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

Filters