Question 1

Which of the following is not a shortcoming of the concentration ratio as a measure of the extent of competition in an industry?

Accepted Answer

A)  Concentration ratios do not include sales in the United States by foreign firms. 
B)  Concentration ratios are calculated for the national market, even though the competition in some industries is mainly local. 
C)  Concentration ratios assign weights to only the four largest firms in an industry. 
D)  Concentration ratios do not address the fact that competition sometimes exists between firms in different industries. 
A)  Concentration ratios do not include sales in the United States by foreign firms. 
B)  Concentration ratios are calculated for the national market, even though the competition in some industries is mainly local. 
C)  Concentration ratios assign weights to only the four largest firms in an industry. 
D)  Concentration ratios do not address the fact that competition sometimes exists between firms in different industries.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Table 14-5   Ming and Henri each run one of the two dry cleaning facilities in the town of Scaraby. Both consider offering free pickup and delivery services. Table 14-5 shows the payoff matrix containing the expected quarterly profits for each firm.
-Refer to Table 14-5.Does Ming have a dominant strategy? If yes,what is it?

Accepted Answer

A)  Yes, Ming's dominant strategy is to offer free pickup and delivery. 
B)  No, Ming does not a dominant strategy - his best outcome depends on what Henri does. 
C)  Yes, Ming's dominant strategy is to not to offer free pickup and delivery. 
D)  Yes, Ming's dominant strategy is to wait to see what Henri does first. 
A)  Yes, Ming's dominant strategy is to offer free pickup and delivery. 
B)  No, Ming does not a dominant strategy - his best outcome depends on what Henri does. 
C)  Yes, Ming's dominant strategy is to not to offer free pickup and delivery. 
D)  Yes, Ming's dominant strategy is to wait to see what Henri does first.

Question 4

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 5

Figure 14-9  
-Refer to Figure 14-9.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 6

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 7

Explain why selling output at a price below that at which marginal revenue equals marginal cost (MR = MC)might serve to deter entry of a potential competitor.

Accepted Answer

If a potential entrant is unsure about t

Question 8

The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium.

Accepted Answer

A) True 
 B)False

Question 9

The DeBeers Company of South Africa was able to block competition through

Accepted Answer

A)  economies of scale. 
B)  ownership of an essential input. 
C)  government-imposed barriers. 
D)  differentiating its product. 
A)  economies of scale. 
B)  ownership of an essential input. 
C)  government-imposed barriers. 
D)  differentiating its product.

Question 10

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 prisoner's

Question 11

eBay is an online auction site where more than 200 million items are auctioned annually.What type of auctions are run on eBay?

Accepted Answer

A)  noncooperative auctions 
B)  second-price auctions 
C)  cooperative auctions 
D)  double-blind auctions 
A)  noncooperative auctions 
B)  second-price auctions 
C)  cooperative auctions 
D)  double-blind auctions

Question 12

Doctors and lawyers in every state need a license to practice.This is an example of

Accepted Answer

A)  consumer protection laws. 
B)  consumer advocacy. 
C)  occupational licensing. 
D)  ownership of a key input. 
A)  consumer protection laws. 
B)  consumer advocacy. 
C)  occupational licensing. 
D)  ownership of a key input.

Question 13

Each member of OPEC can increase its income by selling more oil than its output quota because

Accepted Answer

A)  by selling more at OPEC's cartel price, a member will automatically earn more income. 
B)  each member's demand is more elastic than the total demand for oil. 
C)  the demand for oil is inelastic so total revenue increases. 
D)  the demand for oil is perfectly elastic. 
A)  by selling more at OPEC's cartel price, a member will automatically earn more income. 
B)  each member's demand is more elastic than the total demand for oil. 
C)  the demand for oil is inelastic so total revenue increases. 
D)  the demand for oil is perfectly elastic.

Question 14

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.What is the Nash equilibrium in this game?

Accepted Answer

A)  There is no Nash equilibrium. 
B)  Godrickporter increases its advertising budget, but Star Connections does not. 
C)  Star Connections increases its advertising budget, but Godrickporter does not. 
D)  Both Godrickporter and Star Connections increase their advertising budgets. 
A)  There is no Nash equilibrium. 
B)  Godrickporter increases its advertising budget, but Star Connections does not. 
C)  Star Connections increases its advertising budget, but Godrickporter does not. 
D)  Both Godrickporter and Star Connections increase their advertising budgets.

Question 15

Because many business situations are repeated games,firms may be able to avoid the prisoner's dilemma and implicitly collude to keep prices high.

Accepted Answer

A) True 
 B)False

Question 16

In a sequential game,one firm will act first and then other firms will respond.

Accepted Answer

A) True 
 B)False

Question 17

A dominant strategy is

Accepted Answer

A)  an equilibrium where each firm chooses the best strategy, given the strategies of other firms. 
B)  a strategy chosen by two firms that decide to charge the same price or otherwise not to compete. 
C)  a strategy that is obviously the best for each firm that is a party to a business decision. 
D)  a strategy that is the best for a firm no matter what strategies other firms use. 
A)  an equilibrium where each firm chooses the best strategy, given the strategies of other firms. 
B)  a strategy chosen by two firms that decide to charge the same price or otherwise not to compete. 
C)  a strategy that is obviously the best for each firm that is a party to a business decision. 
D)  a strategy that is the best for a firm no matter what strategies other firms use.

Question 18

Table 14-6   There are two mobile home manufacturers in Nevada, Sturdy Homes (S) and My Haven (M). Sturdy Homes has been in the market for a long time and must now compete with newcomer, My Haven. Suppose that Sturdy Homes believes that My Haven will match any price it sets. Use Table 14-6 to answer the following question and assume throughout that Sturdy Homes believes that My Haven will match any price it sets.
-Refer to Table 14-6.What price will Sturdy Homes charge and what profit does Sturdy Homes expect to make?

Accepted Answer

A)  Price = $8,000; expected profit = $7 million 
B)  Price = $8,000; expected profit = $4 million 
C)  Price = $10,000; expected profit = $5 million 
D)  Price = $12,000; expected profit = $3 million 
A)  Price = $8,000; expected profit = $7 million 
B)  Price = $8,000; expected profit = $4 million 
C)  Price = $10,000; expected profit = $5 million 
D)  Price = $12,000; expected profit = $3 million

Question 19

All of the following are characteristics of game theory except

Accepted Answer

A)  rules that determine what actions are allowable. 
B)  payoffs that are the results of the interaction among players' strategies. 
C)  strategies that players employ to attain their objectives. 
D)  independence among players 
A)  rules that determine what actions are allowable. 
B)  payoffs that are the results of the interaction among players' strategies. 
C)  strategies that players employ to attain their objectives. 
D)  independence among players

Question 20

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.

Which of the following is not a shortcoming of the concentration ratio as a measure of the extent of competition in an industry?

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

A characteristic found only in oligopolies is

Economies of scale can lead to an oligopolistic market structure because

Explain why selling output at a price below that at which marginal revenue equals marginal cost (MR = MC)might serve to deter entry of a potential competitor.

The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium.

The DeBeers Company of South Africa was able to block competition through

eBay is an online auction site where more than 200 million items are auctioned annually.What type of auctions are run on eBay?

Doctors and lawyers in every state need a license to practice.This is an example of

Each member of OPEC can increase its income by selling more oil than its output quota because

Because many business situations are repeated games,firms may be able to avoid the prisoner's dilemma and implicitly collude to keep prices high.

In a sequential game,one firm will act first and then other firms will respond.

A dominant strategy is

All of the following are characteristics of game theory except

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

Which of the following is not a shortcoming of the concentration ratio as a measure of the extent of competition in an industry?

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

A characteristic found only in oligopolies is

Economies of scale can lead to an oligopolistic market structure because

Explain why selling output at a price below that at which marginal revenue equals marginal cost (MR = MC)might serve to deter entry of a potential competitor.

The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium.

The DeBeers Company of South Africa was able to block competition through

eBay is an online auction site where more than 200 million items are auctioned annually.What type of auctions are run on eBay?

Doctors and lawyers in every state need a license to practice.This is an example of

Each member of OPEC can increase its income by selling more oil than its output quota because

Because many business situations are repeated games,firms may be able to avoid the prisoner's dilemma and implicitly collude to keep prices high.

In a sequential game,one firm will act first and then other firms will respond.

A dominant strategy is

All of the following are characteristics of game theory except

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