Question 1

An example of a supplier that used its bargaining power to charge high prices to its customers is

Accepted Answer

A) Wal-Mart,which required many of its suppliers to alter their distribution systems to accommodate Wal-Mart's need to control the flow of goods to its stores. 
B) the firms that supply paper napkins to McDonald's restaurants. 
C) the Technicolor Company,the sole producer of cameras and film that movie studios needed to produce color movies in the 1930s and 1940s. 
D) the publishers of the Encyclopedia Britannica. 
A) Wal-Mart,which required many of its suppliers to alter their distribution systems to accommodate Wal-Mart's need to control the flow of goods to its stores. 
B) the firms that supply paper napkins to McDonald's restaurants. 
C) the Technicolor Company,the sole producer of cameras and film that movie studios needed to produce color movies in the 1930s and 1940s. 
D) the publishers of the Encyclopedia Britannica.

Question 2

Which of the following explains why two firms,Apex and Bongo,would engage in implicit collusion,rather than explicit collusion?

Accepted Answer

A) Implicit collusion allows Apex to increase its profits at the expense of Bongo without Bongo knowing that collusion has occurred;if Apex engages in explicit collusion,Bongo will realize collusion has taken place and retaliate against Apex. 
B) Implicit collusion is less costly to both firms than explicit collusion;therefore,profits will be greater for both firms if they engage in implicit collusion. 
C) explicit collusion is illegal;if the managers of Apex and Bongo engage in implicit collusion they may be within the law. 
D) Implicit collusion always has an enforcement mechanism that forces both firms to collude;explicit collusion does not have an enforcement mechanism. 
A) Implicit collusion allows Apex to increase its profits at the expense of Bongo without Bongo knowing that collusion has occurred;if Apex engages in explicit collusion,Bongo will realize collusion has taken place and retaliate against Apex. 
B) Implicit collusion is less costly to both firms than explicit collusion;therefore,profits will be greater for both firms if they engage in implicit collusion. 
C) explicit collusion is illegal;if the managers of Apex and Bongo engage in implicit collusion they may be within the law. 
D) Implicit collusion always has an enforcement mechanism that forces both firms to collude;explicit collusion does not have an enforcement mechanism.

Question 3

An oligopolist's demand curve is

Accepted Answer

A) identical to that of a perfectly competitive firm. 
B) identical to that of a monopolistically competitive firm. 
C) vertical on a price-quantity diagram. 
D) unknown because a response of firms to price changes by rivals is uncertain. 
A) identical to that of a perfectly competitive firm. 
B) identical to that of a monopolistically competitive firm. 
C) vertical on a price-quantity diagram. 
D) unknown because a response of firms to price changes by rivals is uncertain.

Question 4

The fraction of an industry's sales that are accounted for by the largest firms is called

Accepted Answer

A) the four-firm competition ratio. 
B) the four-firm concentration ratio. 
C) the four-firm industry ratio. 
D) the four-firm oligopoly ratio. 
A) the four-firm competition ratio. 
B) the four-firm concentration ratio. 
C) the four-firm industry ratio. 
D) the four-firm oligopoly ratio.

Question 5

An entry barrier exists when firms in an industry charge the lowest price possible for their products.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) meeting worker health and safety standards required of all firms 
B) deciding the level of total output of a new product 
C) determining the amount of advertising a new product needs 
D) setting the product's price after considering what rivals will do 
A) meeting worker health and safety standards required of all firms 
B) deciding the level of total output of a new product 
C) determining the amount of advertising a new product needs 
D) setting the product's price after considering what rivals will do

Question 7

What is the dominant strategy in the prisoner's dilemma?

Accepted Answer

A) Each prisoner confesses because this is the rational action to pursue. 
B) Do nothing in the hope that the other prisoner will also do nothing. 
C) Do not confess because the other prisoner will most likely confess. 
D) There is no dominant strategy. 
A) Each prisoner confesses because this is the rational action to pursue. 
B) Do nothing in the hope that the other prisoner will also do nothing. 
C) Do not confess because the other prisoner will most likely confess. 
D) There is no dominant strategy.

Question 8

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.What is the equilibrium outcome in this game and is this a subgame-perfect equilibrium?

Accepted Answer

A) Odeon's offer of $40 per copy of the software package is accepted and this is a subgame-perfect equilibrium. 
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) In the equilibrium,Odeon offers $30 per copy of the software package and is rejected,and this is a subgame-perfect equilibrium. 
D) There is no equilibrium in this game. 
A) Odeon's offer of $40 per copy of the software package is accepted and this is a subgame-perfect equilibrium. 
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) In the equilibrium,Odeon offers $30 per copy of the software package and is rejected,and this is a subgame-perfect equilibrium. 
D) There is no equilibrium in this game.

Question 9

A subgame-perfect equilibrium is a Nash equilibrium in which no player can make himself better off by changing his decision at any decision node.

Accepted Answer

A) True 
 B)False

Question 10

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 earns a profit of $30 million. 
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 earns a profit of $30 million. 
D) There is no Nash equilibrium.

Question 11

Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 4.At the start of the game each firm charges a low price and each earns a profit of $7,000.
-Refer to Table 14-2.Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not,why and what is the Nash equilibrium?

Accepted Answer

A) No,it is not a Nash equilibrium because each firm can do better by charging the high price.The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000. 
B) No,the current situation is not a Nash equilibrium;it is a dominant strategy equilibrium.There is no Nash equilibrium in this game. 
C) No,the current situation is not a Nash equilibrium.The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price. 
D) Yes,the current situation is a Nash equilibrium. 
A) No,it is not a Nash equilibrium because each firm can do better by charging the high price.The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000. 
B) No,the current situation is not a Nash equilibrium;it is a dominant strategy equilibrium.There is no Nash equilibrium in this game. 
C) No,the current situation is not a Nash equilibrium.The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price. 
D) Yes,the current situation is a Nash equilibrium.

Question 12

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.Which of the following statements is true?

Accepted Answer

A) The Nash equilibrium is a noncooperative,dominant strategy equilibrium. 
B) The Nash equilibrium is a cooperative equilibrium. 
C) The Nash equilibrium is a collusive equilibrium. 
D) There is no Nash equilibrium in this game because each party pursues its dominant strategy. 
A) The Nash equilibrium is a noncooperative,dominant strategy equilibrium. 
B) The Nash equilibrium is a cooperative equilibrium. 
C) The Nash equilibrium is a collusive equilibrium. 
D) There is no Nash equilibrium in this game because each party pursues its dominant strategy.

Question 13

Prices of PlayStation 4 game systems are similar at almost every large retailer and little price competition occurs among these retailers.An explanation for this is

Accepted Answer

A) retailers are all price takers. 
B) retailers have lobbied state governments to allow them to collude legally to set the prices of certain products. 
C) pricing PlayStation 4 game systems is a repeated game.Over a long period of time a cooperative equilibrium has been reached where retailers charge high prices for these systems. 
D) retailers are in a prisoner's dilemma which causes them to all charge the same price for PlayStation 4 game systems. 
A) retailers are all price takers. 
B) retailers have lobbied state governments to allow them to collude legally to set the prices of certain products. 
C) pricing PlayStation 4 game systems is a repeated game.Over a long period of time a cooperative equilibrium has been reached where retailers charge high prices for these systems. 
D) retailers are in a prisoner's dilemma which causes them to all charge the same price for PlayStation 4 game systems.

Question 14

Who won a Nobel Prize in economics for his work in the development of game theory?

Accepted Answer

A) John von Neuman 
B) Oskar Morgenstern 
C) John Nash 
D) Howard Schultz 
A) John von Neuman 
B) Oskar Morgenstern 
C) John Nash 
D) Howard Schultz

Question 15

An oligopolistic industry is characterized by a few large firms acting independently.

Accepted Answer

A) True 
 B)False

Question 16

A supplier of paper napkins to the fast food industry is unlikely to have significant bargaining power.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not a barrier to entry?

Accepted Answer

A) an inelastic demand curve 
B) economies of scale 
C) ownership of a key input 
D) a patent 
A) an inelastic demand curve 
B) economies of scale 
C) ownership of a key input 
D) a patent

Question 18

Hewlett-Packard will not raise the prices of its personal computers without first considering how Dell might respond.This is evidence of

Accepted Answer

A) interdependence. 
B) collusion. 
C) cutthroat competition. 
D) price fixing. 
A) interdependence. 
B) collusion. 
C) cutthroat competition. 
D) price fixing.

Exam 14: Oligopoly: Firms in Less Competitive Markets

An example of a supplier that used its bargaining power to charge high prices to its customers is

Which of the following explains why two firms,Apex and Bongo,would engage in implicit collusion,rather than explicit collusion?

An oligopolist's demand curve is

The fraction of an industry's sales that are accounted for by the largest firms is called

An entry barrier exists when firms in an industry charge the lowest price possible for their products.

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

What is the dominant strategy in the prisoner's dilemma?

A subgame-perfect equilibrium is a Nash equilibrium in which no player can make himself better off by changing his decision at any decision node.

Prices of PlayStation 4 game systems are similar at almost every large retailer and little price competition occurs among these retailers.An explanation for this is

Who won a Nobel Prize in economics for his work in the development of game theory?

An oligopolistic industry is characterized by a few large firms acting independently.

A supplier of paper napkins to the fast food industry is unlikely to have significant bargaining power.

Which of the following is not a barrier to entry?

Hewlett-Packard will not raise the prices of its personal computers without first considering how Dell might respond.This is evidence of

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

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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

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Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

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