Question 1

The percentage of all sales contributed by the leading firms in an industry is known as

Accepted Answer

A)  the Herfindahl index. 
B)  the Hirschman index. 
C)  the zero sum. 
D)  the concentration ratio. 
A)  the Herfindahl index. 
B)  the Hirschman index. 
C)  the zero sum. 
D)  the concentration ratio.

Question 2

-Refer to the above figure. Ajax and Greenco are oligopolists. Above you are given the payoff matrix for the two firms giving the payoff associated with different pricing strategies. What is the best strategy for Greenco if Ajax decides on charging a high price?

Accepted Answer

A)  high price 
B)  low price 
C)  There is no best strategy. 
D)  Not enough information is given to determine the best strategy. 
A)  high price 
B)  low price 
C)  There is no best strategy. 
D)  Not enough information is given to determine the best strategy.

Question 3

In a cartel, firms jointly act as

Accepted Answer

A)  a monopolistic competitive firm. 
B)  a perfectly competitive firm. 
C)  a monopoly firm. 
D)  an oligopolistic firm. 
A)  a monopolistic competitive firm. 
B)  a perfectly competitive firm. 
C)  a monopoly firm. 
D)  an oligopolistic firm.

Question 4

When a player in a game adopts a strategy which always yields the highest benefit regardless of what the other player does, that player is using a(n)

Accepted Answer

A)  opportunistic strategy. 
B)  dominant strategy. 
C)  tit-for-tat strategy. 
D)  aggressive strategy. 
A)  opportunistic strategy. 
B)  dominant strategy. 
C)  tit-for-tat strategy. 
D)  aggressive strategy.

Question 5

If industry sales are $1,000, and the top four firms have sales of $500, $200, $100, and $50, respectively, what will be the four-firm concentration ratio?

Accepted Answer

A)  95 percent 
B)  85 percent 
C)  70 percent 
D)  100 percent 
A)  95 percent 
B)  85 percent 
C)  70 percent 
D)  100 percent

Question 6

Cooperation that continues as long as the players continue to cooperate is

Accepted Answer

A)  a zero-sum game. 
B)  a negative-sum game. 
C)  tit-for-tat strategic behavior. 
D)  opportunistic behavior. 
A)  a zero-sum game. 
B)  a negative-sum game. 
C)  tit-for-tat strategic behavior. 
D)  opportunistic behavior.

Question 7

Which of the following is NOT a necessary condition for oligopoly?

Accepted Answer

A)  barriers to entry 
B)  strategic dependence of firms 
C)  differentiated products 
D)  either a small number of firms or market dominance by a small number of firms 
A)  barriers to entry 
B)  strategic dependence of firms 
C)  differentiated products 
D)  either a small number of firms or market dominance by a small number of firms

Question 8

An action that is the best choice under all conditions is known as the

Accepted Answer

A)  profit-maximizing strategy. 
B)  prisoner's dilemma. 
C)  tit-for-tat strategy. 
D)  dominant strategy. 
A)  profit-maximizing strategy. 
B)  prisoner's dilemma. 
C)  tit-for-tat strategy. 
D)  dominant strategy.

Question 9

-Refer to the above figure. Ajax and Greenco are oligopolists. Above you are given the payoff matrix for the two firms giving the payoff associated with different pricing strategies. What is the best strategy for Greenco if Ajax decides on charging a low price?

Accepted Answer

A)  high price 
B)  low price 
C)  There is no best strategy. 
D)  Not enough information is given to determine the best strategy. 
A)  high price 
B)  low price 
C)  There is no best strategy. 
D)  Not enough information is given to determine the best strategy.

Question 10

The dominant strategy allows a firm to

Accepted Answer

A)  obtain the highest benefit, regardless of its rivals' actions. 
B)  transform a negative-sum game into a positive-sum game. 
C)  transform a zero-sum game into a positive-sum game. 
D)  escape from a Prisoners' Dilemma situation. 
A)  obtain the highest benefit, regardless of its rivals' actions. 
B)  transform a negative-sum game into a positive-sum game. 
C)  transform a zero-sum game into a positive-sum game. 
D)  escape from a Prisoners' Dilemma situation.

Question 11

Why do firms form a cartel? How do cartels achieve their goals?

Accepted Answer

Firms form a cartel in order t

Question 12

Straight Cut beauty salon merges with Clean-Cut beauty salon. This is an example of

Accepted Answer

A)  conglomerate merger. 
B)  concentration ratio. 
C)  vertical merger. 
D)  horizontal merger. 
A)  conglomerate merger. 
B)  concentration ratio. 
C)  vertical merger. 
D)  horizontal merger.

Question 13

Suppose that Industry X has two firms with equal market shares, and Industry Y has three firms with 65 percent, 30 percent, and 5 percent market shares, respectively. Which of the following is TRUE?

Accepted Answer

A)  The HHI for Industry X is 50 higher than the HHI for Industry Y. 
B)  The HHI for Industry X is 150 lower than the HHI for Industry Y. 
C)  The HHI for Industry X is 100 higher than the HHI for Industry Y. 
D)  The HHI is the same between Industry X and Industry Y. 
A)  The HHI for Industry X is 50 higher than the HHI for Industry Y. 
B)  The HHI for Industry X is 150 lower than the HHI for Industry Y. 
C)  The HHI for Industry X is 100 higher than the HHI for Industry Y. 
D)  The HHI is the same between Industry X and Industry Y.

Question 14

Why do cartels often break down?

Accepted Answer

Cartels often break down because of the

Question 15

Refer to the above payoff matrix for the profits (in $ millions) of two firms (A and B) and two pricing strategies (high and low). Which of the following is the outcome of the dominant strategy without cooperation?

Accepted Answer

A)  Both firm A and firm B choose the low price. 
B)  Both firm A and firm B choose the high price. 
C)  Firm A chooses the low price while firm B chooses the high price. 
D)  Firm A chooses the high price while firm B chooses the low price. 
A)  Both firm A and firm B choose the low price. 
B)  Both firm A and firm B choose the high price. 
C)  Firm A chooses the low price while firm B chooses the high price. 
D)  Firm A chooses the high price while firm B chooses the low price.

Question 16

Within a game theory model, if a change in decision-making raises corporation X's profits by $100 and lowers corporation Y's profits by $50, the game is a

Accepted Answer

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

Question 17

Opportunistic behavior by oligopolies means

Accepted Answer

A)  that firms cooperate in both the long run and in the short run to prevent others from entering the industry. 
B)  that firms cooperate in the short run for current gains. 
C)  that firms refuse to cooperate in the short run. 
D)  that firms refuse to honor their product guarantees. 
A)  that firms cooperate in both the long run and in the short run to prevent others from entering the industry. 
B)  that firms cooperate in the short run for current gains. 
C)  that firms refuse to cooperate in the short run. 
D)  that firms refuse to honor their product guarantees.

Question 18

A noncooperative game would refer to a situation in which oligopoly firms

Accepted Answer

A)  are too small to be interdependent. 
B)  do not engage in collusive behavior together. 
C)  are made worse off by their actions. 
D)  behave as a joint monopoly. 
A)  are too small to be interdependent. 
B)  do not engage in collusive behavior together. 
C)  are made worse off by their actions. 
D)  behave as a joint monopoly.

Question 19

Which is FALSE about perfect competition?

Accepted Answer

A)  There are numerous sellers. 
B)  Market entry and exit is unrestricted. 
C)  There is no ability to set price. 
D)  There is considerable product differentiation. 
A)  There are numerous sellers. 
B)  Market entry and exit is unrestricted. 
C)  There is no ability to set price. 
D)  There is considerable product differentiation.

Question 20

Distinguish between a horizontal merger and a vertical merger.

Accepted Answer

A horizontal merger is a merge

Exam 26: Oligopoly and Strategic Behavior

The percentage of all sales contributed by the leading firms in an industry is known as

-Refer to the above figure. Ajax and Greenco are oligopolists. Above you are given the payoff matrix for the two firms giving the payoff associated with different pricing strategies. What is the best strategy for Greenco if Ajax decides on charging a high price?

In a cartel, firms jointly act as

When a player in a game adopts a strategy which always yields the highest benefit regardless of what the other player does, that player is using a(n)

If industry sales are $1,000, and the top four firms have sales of $500, $200, $100, and $50, respectively, what will be the four-firm concentration ratio?

Cooperation that continues as long as the players continue to cooperate is

Which of the following is NOT a necessary condition for oligopoly?

An action that is the best choice under all conditions is known as the

-Refer to the above figure. Ajax and Greenco are oligopolists. Above you are given the payoff matrix for the two firms giving the payoff associated with different pricing strategies. What is the best strategy for Greenco if Ajax decides on charging a low price?

The dominant strategy allows a firm to

Why do firms form a cartel? How do cartels achieve their goals?

Straight Cut beauty salon merges with Clean-Cut beauty salon. This is an example of

Suppose that Industry X has two firms with equal market shares, and Industry Y has three firms with 65 percent, 30 percent, and 5 percent market shares, respectively. Which of the following is TRUE?

Why do cartels often break down?

Refer to the above payoff matrix for the profits (in $ millions) of two firms (A and B) and two pricing strategies (high and low). Which of the following is the outcome of the dominant strategy without cooperation?

Within a game theory model, if a change in decision-making raises corporation X's profits by $100 and lowers corporation Y's profits by $50, the game is a

Opportunistic behavior by oligopolies means

A noncooperative game would refer to a situation in which oligopoly firms

Which is FALSE about perfect competition?

Distinguish between a horizontal merger and a vertical merger.

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

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Unions and Labor Market Monopoly Power

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Environmental Economics

Comparative Advantage and the Open Economy

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