Question 1

How do economies of scale contribute to the development of an oligopoly?

Accepted Answer

A)  Economies of scale make it legally difficult for new firms to enter. 
B)  Economies of scale make small-scale producers inefficient. 
C)  Economies of scale are based on control of a key resource, without which other firms cannot enter an industry. 
D)  Economies of scale are guaranteed when a patent is granted. 
A)  Economies of scale make it legally difficult for new firms to enter. 
B)  Economies of scale make small-scale producers inefficient. 
C)  Economies of scale are based on control of a key resource, without which other firms cannot enter an industry. 
D)  Economies of scale are guaranteed when a patent is granted.

Question 2

Which of the following is a condition that helps enforce a cartel agreement?

Accepted Answer

A)  a large number of firms 
B)  relatively differentiated products 
C)  easily observable prices 
D)  large variation in prices 
A)  a large number of firms 
B)  relatively differentiated products 
C)  easily observable prices 
D)  large variation in prices

Question 3

A game in which players as a group gain at the end of the game is referred to as

Accepted Answer

A)  zero-sum game. 
B)  negative-sum game. 
C)  positive-sum game. 
D)  tit-for-tat game. 
A)  zero-sum game. 
B)  negative-sum game. 
C)  positive-sum game. 
D)  tit-for-tat game.

Question 4

-Refer to the above figure. The figure gives the payoff matrix for two individuals who are being accused of robbing a bank together. What is dominant strategy for Bob?

Accepted Answer

A)  Confess. 
B)  Don't confess. 
C)  Flip a coin to decide what to do. 
D)  There is no dominant strategy. 
A)  Confess. 
B)  Don't confess. 
C)  Flip a coin to decide what to do. 
D)  There is no dominant strategy.

Question 5

A group of producers that agree to coordinate their production is called a

Accepted Answer

A)  cartel. 
B)  monopoly. 
C)  free market competition. 
D)  vertical merger. 
A)  cartel. 
B)  monopoly. 
C)  free market competition. 
D)  vertical merger.

Question 6

If we observe firms earning zero economic profits in the short run, we know that

Accepted Answer

A)  the industry must be perfectly competitive. 
B)  the industry must be either perfectly competitive or monopolistically competitive. 
C)  there must not be any barriers to entry. 
D)  any market structure is possible since firms under any market structure can earn zero profits at some time. 
A)  the industry must be perfectly competitive. 
B)  the industry must be either perfectly competitive or monopolistically competitive. 
C)  there must not be any barriers to entry. 
D)  any market structure is possible since firms under any market structure can earn zero profits at some time.

Question 7

Which of the following is NOT a condition that helps enforce a cartel agreement?

Accepted Answer

A)  a small number of firms 
B)  nearly homogeneous products 
C)  easily observable prices 
D)  large variation in input prices 
A)  a small number of firms 
B)  nearly homogeneous products 
C)  easily observable prices 
D)  large variation in input prices

Question 8

Which does NOT cause an industry that might otherwise be competitive to tend toward oligopoly?

Accepted Answer

A)  economies of scale 
B)  barriers to entry 
C)  mergers 
D)  strategic independence 
A)  economies of scale 
B)  barriers to entry 
C)  mergers 
D)  strategic independence

Question 9

After participating members of a cartel form an agreement on common prices and output quotas, then an individual firm can increase its own profits by

Accepted Answer

A)  increasing production. 
B)  increasing prices. 
C)  leaving the cartel. 
D)  incurring higher input costs. 
A)  increasing production. 
B)  increasing prices. 
C)  leaving the cartel. 
D)  incurring higher input costs.

Question 10

Which of the following is LEAST likely to be an outcome of a cartel as compared to the situation before the cartel was formed?

Accepted Answer

A)  Cartel members charge higher prices. 
B)  Cartel members reduce production. 
C)  Cartel members make fewer profits. 
D)  Cartel members do not compete with each other in pricing decisions. 
A)  Cartel members charge higher prices. 
B)  Cartel members reduce production. 
C)  Cartel members make fewer profits. 
D)  Cartel members do not compete with each other in pricing decisions.

Question 11

Ahmed has decided not to purchase another can of Stosh because his friends laughed at him the last time he purchased some. Stosh is no longer a popular item. Ahmed's decision is known as

Accepted Answer

A)  price-leadership. 
B)  negative-sum game. 
C)  positive market feedback. 
D)  negative market feedback. 
A)  price-leadership. 
B)  negative-sum game. 
C)  positive market feedback. 
D)  negative market feedback.

Question 12

A game in which players collectively lose is known as a

Accepted Answer

A)  zero-sum game. 
B)  positive-sum game. 
C)  negative-sum game. 
D)  cooperative game. 
A)  zero-sum game. 
B)  positive-sum game. 
C)  negative-sum game. 
D)  cooperative game.

Question 13

Which of the following is TRUE of an oligopoly?

Accepted Answer

A)  They engage in nonprice competition. 
B)  They do not react to actions of their competitors. 
C)  Each firm produces a small portion of the total output. 
D)  Firms do not care what their competitors do. 
A)  They engage in nonprice competition. 
B)  They do not react to actions of their competitors. 
C)  Each firm produces a small portion of the total output. 
D)  Firms do not care what their competitors do.

Question 14

Suppose a ten firm industry has total sales of $35 million per year. The largest firm have sales of $10 million, the third largest firm has sales of $4 million, and the fourth largest firm has sales of $2 million. If fifth through tenth largest firms combined have annual sales of $12 million, the four-firm concentration ratio for this industry is

Accepted Answer

A)  45.7 percent. 
B)  80 percent. 
C)  65.7 percent. 
D)  none of the above. 
A)  45.7 percent. 
B)  80 percent. 
C)  65.7 percent. 
D)  none of the above.

Question 15

Explain how the prisoners' dilemma can be used to examine pricing strategies in an oligopoly.

Accepted Answer

The players can choose either a high-pri

Question 16

Games can be judged according to the payoffs

Accepted Answer

A)  as zero-sum, negative-sum, and positive-sum games. 
B)  as collusive or noncollusive games. 
C)  as competitive or noncompetitive games. 
D)  whether all companies participate or not. 
A)  as zero-sum, negative-sum, and positive-sum games. 
B)  as collusive or noncollusive games. 
C)  as competitive or noncompetitive games. 
D)  whether all companies participate or not.

Question 17

For which market structure do economists have the least precise model of price determination?

Accepted Answer

A)  perfect competition in the short run 
B)  perfect competition in the long run 
C)  oligopoly 
D)  monopoly 
A)  perfect competition in the short run 
B)  perfect competition in the long run 
C)  oligopoly 
D)  monopoly

Question 18

Which of the following is LEAST likely to be a reason for firms to form a cartel?

Accepted Answer

A)  to maximize profits of the cartel 
B)  to raise competition among firms in the cartel 
C)  to cut back output of the cartel 
D)  to set common prices among firms in the cartel 
A)  to maximize profits of the cartel 
B)  to raise competition among firms in the cartel 
C)  to cut back output of the cartel 
D)  to set common prices among firms in the cartel

Question 19

What is oligopoly? How does oligopoly differ from the other kinds of market structure?

Accepted Answer

Oligopoly is an industry characterized b

Question 20

-Refer to above figure, which represents a duopoly industry. What would be the likely total industry payoff or profit?

Accepted Answer

A)  $8 million 
B)  $9 million 
C)  $10 million 
D)  $14 million 
E)  zero 
A)  $8 million 
B)  $9 million 
C)  $10 million 
D)  $14 million 
E)  zero

Exam 26: Oligopoly and Strategic Behavior

How do economies of scale contribute to the development of an oligopoly?

Which of the following is a condition that helps enforce a cartel agreement?

A game in which players as a group gain at the end of the game is referred to as

-Refer to the above figure. The figure gives the payoff matrix for two individuals who are being accused of robbing a bank together. What is dominant strategy for Bob?

A group of producers that agree to coordinate their production is called a

If we observe firms earning zero economic profits in the short run, we know that

Which of the following is NOT a condition that helps enforce a cartel agreement?

Which does NOT cause an industry that might otherwise be competitive to tend toward oligopoly?

After participating members of a cartel form an agreement on common prices and output quotas, then an individual firm can increase its own profits by

Which of the following is LEAST likely to be an outcome of a cartel as compared to the situation before the cartel was formed?

Ahmed has decided not to purchase another can of Stosh because his friends laughed at him the last time he purchased some. Stosh is no longer a popular item. Ahmed's decision is known as

A game in which players collectively lose is known as a

Which of the following is TRUE of an oligopoly?

Explain how the prisoners' dilemma can be used to examine pricing strategies in an oligopoly.

Games can be judged according to the payoffs

For which market structure do economists have the least precise model of price determination?

Which of the following is LEAST likely to be a reason for firms to form a cartel?

What is oligopoly? How does oligopoly differ from the other kinds of market structure?

-Refer to above figure, which represents a duopoly industry. What would be the likely total industry payoff or profit?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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