Question 1

Decision trees can only be used to analyze sequential games.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Figure 14-3   Rainbow Writer (RW)is a small online company selling a highly rated software package for engraving words onto objects produced by 3D printers.The firm currently earns a profit of $2 million per year selling its package exclusively on its Website.Odeon,the producer of the most popular 3D printers has expressed interest in bundling Rainbow Writer's product with its printers.Odeon expects that bundling would further boost its sales and allow it to sell its printers at a higher price,thus raising its profits beyond its current profit of $12 million.Figure 14.3 shows the decision tree for the Rainbow Writer-Odeon bargaining game.
-Refer to Figure 14-3.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 6

Which of the following is an example of a way in which an oligopolistic firm can escape the prisoner's dilemma?

Accepted Answer

A) producing more of its product 
B) advertising that it will match its rival's price 
C) reneging on a previous tacit agreement with rival firms to charge identical high prices 
D) ignoring the pricing decisions of the other firms 
A) producing more of its product 
B) advertising that it will match its rival's price 
C) reneging on a previous tacit agreement with rival firms to charge identical high prices 
D) ignoring the pricing decisions of the other firms

Question 7

A four-firm concentration ratio measures

Accepted Answer

A) the fraction of an industry's sales accounted for by the four largest firms. 
B) the production of any four firms in an industry. 
C) how the four largest firms became so concentrated. 
D) the fraction of employment of the four largest firms in an industry. 
A) the fraction of an industry's sales accounted for by the four largest firms. 
B) the production of any four firms in an industry. 
C) how the four largest firms became so concentrated. 
D) the fraction of employment of the four largest firms in an industry.

Question 8

A dominant strategy

Accepted Answer

A) is one that is the best for a firm,no matter what strategies other firms use. 
B) is one that a firm is forced into following by government policy. 
C) involves colluding with rivals to maximize joint profits. 
D) involves deciding what to do after all rivals have chosen their own strategies. 
A) is one that is the best for a firm,no matter what strategies other firms use. 
B) is one that a firm is forced into following by government policy. 
C) involves colluding with rivals to maximize joint profits. 
D) involves deciding what to do after all rivals have chosen their own strategies.

Question 9

A Nash equilibrium is

Accepted Answer

A) reached when an oligopoly's market demand and supply intersect. 
B) reached when each player chooses the best strategy for himself and for the group. 
C) reached when each player chooses the best strategy for himself,given the other strategies chosen by the other players in the group. 
D) an equilibrium comprising non-dominant strategies only. 
A) reached when an oligopoly's market demand and supply intersect. 
B) reached when each player chooses the best strategy for himself and for the group. 
C) reached when each player chooses the best strategy for himself,given the other strategies chosen by the other players in the group. 
D) an equilibrium comprising non-dominant strategies only.

Question 10

An equilibrium in which each player chooses its best strategy given the strategies chosen by the other players is called a Nash equilibrium.

Accepted Answer

A) True 
 B)False

Question 11

According to an article the Wall Street Journal,"The big car makers are pushing a wide array of new technology into production,responding to relentless competitive pressure,
Rising energy prices and consumer demand for better safety.
Source: Joseph B.White,"Ford,GM Eye Shift in Buying Habits," Wall Street Journal,May 22,2006.
Which of Porter's competitive forces does this statement allude to?

Accepted Answer

A) the threat of competition from new entrants 
B) competition from foreign auto manufacturers 
C) competition from existing firms within the industry 
D) competition from substitute products from outside the industry 
A) the threat of competition from new entrants 
B) competition from foreign auto manufacturers 
C) competition from existing firms within the industry 
D) competition from substitute products from outside the industry

Question 12

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 13

In which of the following cartels is total cartel profit likely to be the highest?

Accepted Answer

A) a cartel made up of equal sized firms each producing different quantities of a differentiated product 
B) a cartel made up of firms of various sizes each producing different quantities of a homogeneous product 
C) a cartel made up of firms of various sizes each producing the same quantity of a differentiated product 
D) a cartel made up of identical firms each producing the same quantity of a homogeneous product 
A) a cartel made up of equal sized firms each producing different quantities of a differentiated product 
B) a cartel made up of firms of various sizes each producing different quantities of a homogeneous product 
C) a cartel made up of firms of various sizes each producing the same quantity of a differentiated product 
D) a cartel made up of identical firms each producing the same quantity of a homogeneous product

Question 14

Collusion between two firms occurs when

Accepted Answer

A) the firms independently pursue strategies that could hurt each other. 
B) firms explicitly or implicitly agree to adopt a uniform business strategy. 
C) announce that each will match its rival's market price. 
D) firms act altruistically to bring about the economically efficient outcome. 
A) the firms independently pursue strategies that could hurt each other. 
B) firms explicitly or implicitly agree to adopt a uniform business strategy. 
C) announce that each will match its rival's market price. 
D) firms act altruistically to bring about the economically efficient outcome.

Question 15

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 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

A form of implicit collusion where one firm in an oligopoly announces a price change which is matched by other firms in the same industry is

Accepted Answer

A) "follow the leader" pricing. 
B) price leadership. 
C) retaliation pricing. 
D) "tit-for-tat" pricing. 
A) "follow the leader" pricing. 
B) price leadership. 
C) retaliation pricing. 
D) "tit-for-tat" pricing.

Question 18

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 Alistair have a dominant strategy and if so,what is it?

Accepted Answer

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

Question 19

Marginal revenue for an oligopolist is

Accepted Answer

A) identical to the demand for the firm's product. 
B) difficult to determine because the firm's demand curve is typically unknown. 
C) downward sloping beneath the firm's demand curve. 
D) horizontal on a price-quantity diagram. 
A) identical to the demand for the firm's product. 
B) difficult to determine because the firm's demand curve is typically unknown. 
C) downward sloping beneath the firm's demand curve. 
D) horizontal on a price-quantity diagram.

Question 20

Rainbow Writer (RW)is a small online company selling a highly rated software package for engraving words onto objects produced by 3D printers.The firm currently earns a profit of $2 million per year selling its package exclusively on its Website.Odeon,the producer of the most popular 3D printers has expressed interest in bundling Rainbow Writer's product with its printers.Odeon expects that bundling would further boost its sales and allow it to sell its printers 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.

Exam 14: Oligopoly: Firms in Less Competitive Markets

Decision trees can only be used to analyze sequential games.

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

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

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

Which of the following is an example of a way in which an oligopolistic firm can escape the prisoner's dilemma?

A four-firm concentration ratio measures

A dominant strategy

A Nash equilibrium is

An equilibrium in which each player chooses its best strategy given the strategies chosen by the other players is called a Nash equilibrium.

Sequential games are used to analyze

In which of the following cartels is total cartel profit likely to be the highest?

Collusion between two firms occurs when

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

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

A form of implicit collusion where one firm in an oligopoly announces a price change which is matched by other firms in the same industry is

Marginal revenue for an oligopolist is

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