Question 1

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. D

Question 2

Explain why member firms of a cartel like OPEC have incentives to agree to a low cartel production level and then produce more than its quota.

Accepted Answer

A low cartel production level results in a high market price for oil.Thereafter,each firm has an incentive to unilaterally cheat on the agreement by producing beyond its quota.Of course,ultimately if everyone cheats then the price of oil will fall,but at least for a while some members will earn higher profits than they would if they had adhered to their quotas.

Question 3

A cooperative equilibrium results when firms

Accepted Answer

A) choose the best strategy regardless of what other players do. 
B) choose the strategy that maximizes the total game payoff. 
C) choose the strategy that minimizes the payoff to other players. 
D) choose a strategy by random chance. 
A) choose the best strategy regardless of what other players do. 
B) choose the strategy that maximizes the total game payoff. 
C) choose the strategy that minimizes the payoff to other players. 
D) choose a strategy by random chance. B

Question 4

Game theory was developed in the 1940s by John von Neuman,a mathematician,and an economist named

Accepted Answer

A) John Nash. 
B) John Maynard Keynes. 
C) Oskar Morgenstern. 
D) Milton Friedman. 
A) John Nash. 
B) John Maynard Keynes. 
C) Oskar Morgenstern. 
D) Milton Friedman.

Question 5

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real-world results?

Accepted Answer

A) Prisoner's dilemma games do not permit people or firms from reneging on agreements,which often occurs in real-word situations. 
B) The prisoner's dilemma does not apply to most business situations that are repeated over and over. 
C) Prisoner's dilemma games predict the behavior of people and firms that engage in illegal activity;most people and firms do not resort to illegal activity. 
D) Most real-world situations involve more than two people or firms;the prisoner's dilemma is only applicable to situations that involve two parties. 
A) Prisoner's dilemma games do not permit people or firms from reneging on agreements,which often occurs in real-word situations. 
B) The prisoner's dilemma does not apply to most business situations that are repeated over and over. 
C) Prisoner's dilemma games predict the behavior of people and firms that engage in illegal activity;most people and firms do not resort to illegal activity. 
D) Most real-world situations involve more than two people or firms;the prisoner's dilemma is only applicable to situations that involve two parties.

Question 6

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 7

According to Porter's Five Competitive Forces Model,which kinds of products are most likely to limit the ability of firms in an industry to raise prices?

Accepted Answer

A) differentiated products that target a small subsegment of the industry 
B) substitutable products produced by firms in different industries 
C) similar products produced by similar industries in low-cost countries 
D) complementary products produced by different firms in the same industry 
A) differentiated products that target a small subsegment of the industry 
B) substitutable products produced by firms in different industries 
C) similar products produced by similar industries in low-cost countries 
D) complementary products produced by different firms in the same industry

Question 8

Price leadership is a form of explicit collusion where one firm in an oligopoly announces a price change and expects all other firms to follow suit.

Accepted Answer

A) True 
 B)False

Question 9

Collusion makes firms better off because if they act as a single entity (a cartel)they can reduce output and increase their prices and profits.But some cartels have failed and others are unstable.Which of the following is a reason why cartels often break down?

Accepted Answer

A) Most cartels do not have a dominant strategy. 
B) When a cartel is profitable the amount of competition it faces increases. 
C) Members of a cartel may resent having to share their profits equally. 
D) Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement. 
A) Most cartels do not have a dominant strategy. 
B) When a cartel is profitable the amount of competition it faces increases. 
C) Members of a cartel may resent having to share their profits equally. 
D) Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement.

Question 10

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 11

In a Nash equilibrium,all players select non-dominant strategies.

Accepted Answer

A) True 
 B)False

Question 12

If economies of scale are relatively unimportant in an industry,the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales.The industry will be ________.

Accepted Answer

A) large;competitive 
B) large;an oligopoly 
C) small;competitive 
D) small;an oligopoly 
A) large;competitive 
B) large;an oligopoly 
C) small;competitive 
D) small;an oligopoly

Question 13

Table 14-9  
-Refer to Table 14-9.Saudi Arabia and Yemen must decide how much oil to produce.Since the demand for oil is inelastic,relatively low production rates drive up prices and profits.Saudi Arabia,the world's largest and lowest-cost producer,is able to influence market price;it has an incentive to keep output low.Yemen,on the other hand,is a relatively high-cost producer with much smaller reserves.Use the payoff matrix in Table 14-9 to answer the following questions.
a.What is the dominant strategy for Saudi Arabia?
b.What is the dominant strategy for Yemen?
c.What is the Nash equilibrium?

Accepted Answer

a.Saudi Arabia's dominant strategy is to

Question 14

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

Accepted Answer

A) deciding on how to manage relations with suppliers 
B) choosing what new technologies to adopt 
C) selecting which new markets to enter 
D) independently setting a product's price without consideration of its rivals' pricing policies 
A) deciding on how to manage relations with suppliers 
B) choosing what new technologies to adopt 
C) selecting which new markets to enter 
D) independently setting a product's price without consideration of its rivals' pricing policies

Question 15

Does the strength of each of the five competitive forces from Michael Porter's model remain constant over time? Briefly explain.

Accepted Answer

The strength of these forces c

Question 16

Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito.Each firm must decide on whether to increase its advertising budget to compete for customers.If one firm increases its advertising budget but the other does not,then the firm with the higher advertising budget will increase its profit.Table 14-4 shows the payoff matrix for this advertising game.
-Refer to Table 14-4.Does Baine have a dominant strategy and if so,what is it?

Accepted Answer

A) Yes,Baine should increase its advertising budget. 
B) Yes,Baine should keep its advertising budget as is. 
C) There are two dominant strategies: if Alistair increases its advertising budget,then Baine's best bet is to keep its budget the same but if Alistair does not increase its budget then Baine should raise its advertising budget 
D) No,there is no dominant strategy. 
A) Yes,Baine should increase its advertising budget. 
B) Yes,Baine should keep its advertising budget as is. 
C) There are two dominant strategies: if Alistair increases its advertising budget,then Baine's best bet is to keep its budget the same but if Alistair does not increase its budget then Baine should raise its advertising budget 
D) No,there is no dominant strategy.

Question 17

When large firms in oligopoly markets cut their prices

Accepted Answer

A) rival firms will also cut their prices to avoid losing sales. 
B) rival firms will not change their prices because most of their customers have signed contracts that commit them to doing business with the same firms for the life of their contracts. 
C) we don't know for sure how rival firms will respond. 
D) rival firms will not cut their prices because they fear that the federal government will accuse them of collusion. 
A) rival firms will also cut their prices to avoid losing sales. 
B) rival firms will not change their prices because most of their customers have signed contracts that commit them to doing business with the same firms for the life of their contracts. 
C) we don't know for sure how rival firms will respond. 
D) rival firms will not cut their prices because they fear that the federal government will accuse them of collusion.

Question 18

In economics,the study of the decisions of firms in industries where the profits of each firm depend on its interactions with other firms is called

Accepted Answer

A) decision theory. 
B) game theory. 
C) market structure analysis. 
D) profit analysis. 
A) decision theory. 
B) game theory. 
C) market structure analysis. 
D) profit analysis.

Question 19

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 20

An oligopoly between two firms is called

Accepted Answer

A) a biopoly. 
B) an oligopoly;there are no special terms used for oligopolies with different numbers of firms. 
C) a dual-firm oligopoly. 
D) a duopoly. 
A) a biopoly. 
B) an oligopoly;there are no special terms used for oligopolies with different numbers of firms. 
C) a dual-firm oligopoly. 
D) a duopoly.

Exam 14: Oligopoly: Firms in Less Competitive Markets

A dominant strategy is

Explain why member firms of a cartel like OPEC have incentives to agree to a low cartel production level and then produce more than its quota.

A cooperative equilibrium results when firms

Game theory was developed in the 1940s by John von Neuman,a mathematician,and an economist named

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real-world results?

The bargaining power of buyers increases if

According to Porter's Five Competitive Forces Model,which kinds of products are most likely to limit the ability of firms in an industry to raise prices?

Price leadership is a form of explicit collusion where one firm in an oligopoly announces a price change and expects all other firms to follow suit.

Collusion makes firms better off because if they act as a single entity (a cartel)they can reduce output and increase their prices and profits.But some cartels have failed and others are unstable.Which of the following is a reason why cartels often break down?

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

In a Nash equilibrium,all players select non-dominant strategies.

If economies of scale are relatively unimportant in an industry,the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales.The industry will be ________.

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

Does the strength of each of the five competitive forces from Michael Porter's model remain constant over time? Briefly explain.

When large firms in oligopoly markets cut their prices

In economics,the study of the decisions of firms in industries where the profits of each firm depend on its interactions with other firms is called

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

An oligopoly between two firms is called

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

Filters

If economies of scale are relatively unimportant in an industry,the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a fraction of total industry sales.The industry will be .