Question 1

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

Accepted Answer

A) Nash equilibrium. 
B) dominant strategy. 
C) collusion. 
D) payoff matrix. 
A) Nash equilibrium. 
B) dominant strategy. 
C) collusion. 
D) payoff matrix.

Question 2

Which of the following is not a shortcoming of the concentration ratio as a measure of the extent of competition in an industry?

Accepted Answer

A) Concentration ratios do not include sales in the United States by foreign firms. 
B) Concentration ratios are calculated for the national market,even though the competition in some industries is mainly local. 
C) Concentration ratios assign weights to only the four largest firms in an industry. 
D) Concentration ratios do not address the fact that competition sometimes exists between firms in different industries. 
A) Concentration ratios do not include sales in the United States by foreign firms. 
B) Concentration ratios are calculated for the national market,even though the competition in some industries is mainly local. 
C) Concentration ratios assign weights to only the four largest firms in an industry. 
D) Concentration ratios do not address the fact that competition sometimes exists between firms in different industries.

Question 3

Doctors and lawyers in every state need a license to practice.This is an example of

Accepted Answer

A) consumer protection laws. 
B) consumer advocacy. 
C) occupational licensing. 
D) ownership of a key input. 
A) consumer protection laws. 
B) consumer advocacy. 
C) occupational licensing. 
D) ownership of a key input.

Question 4

As word processing on personal computers expanded,sales of typewriters began to disappear.Which of Porter's competitive forces does this event demonstrate?

Accepted Answer

A) the threat of competition from new entrants 
B) bargaining power of suppliers 
C) bargaining power of buyers 
D) competition from substitute goods or services 
A) the threat of competition from new entrants 
B) bargaining power of suppliers 
C) bargaining power of buyers 
D) competition from substitute goods or services

Question 5

For years,economists believed that market structure explained the ability of some firms to earn economic profits.Today,economists and business strategists put greater emphasis on

Accepted Answer

A) the number of years a firm has been in business and the average price of the products sold by the firm. 
B) the number of countries in which a firm conducts business and the number of employees the firm has in each country. 
C) the characteristics of individual firms and the strategies their managements use to continue to earn economic profits. 
D) the size of a firm relative to the industry average and the number of firms in the domestic industry. 
A) the number of years a firm has been in business and the average price of the products sold by the firm. 
B) the number of countries in which a firm conducts business and the number of employees the firm has in each country. 
C) the characteristics of individual firms and the strategies their managements use to continue to earn economic profits. 
D) the size of a firm relative to the industry average and the number of firms in the domestic industry.

Question 6

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.Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor.What is the purpose of such a strategy?

Accepted Answer

A) to signal to each other not to charge below the current low price 
B) to signal to each other that they will not hesitate to initiate a price war 
C) to signal to each other that they intend to charge the high price 
D) to signal to each other to share the market equally 
A) to signal to each other not to charge below the current low price 
B) to signal to each other that they will not hesitate to initiate a price war 
C) to signal to each other that they intend to charge the high price 
D) to signal to each other to share the market equally

Question 7

What is a prisoner's dilemma?

Accepted Answer

A) a game that involves no dominant strategies 
B) a game in which prisoners are stumped because they cannot communicate with each other 
C) a game in which players act in rational,self-interested ways that leave everyone worse off 
D) a game in which players collude to outfox authorities 
A) a game that involves no dominant strategies 
B) a game in which prisoners are stumped because they cannot communicate with each other 
C) a game in which players act in rational,self-interested ways that leave everyone worse off 
D) a game in which players collude to outfox authorities

Question 8

Interdependence of firms is most common in

Accepted Answer

A) monopolistically competitive industries. 
B) monopolistic industries. 
C) monopolistically competitive and oligopolistic industries. 
D) oligopolistic industries. 
A) monopolistically competitive industries. 
B) monopolistic industries. 
C) monopolistically competitive and oligopolistic industries. 
D) oligopolistic industries.

Question 9

What is the difference between explicit collusion and implicit collusion?

Accepted Answer

Explicit collusion involves ma

Question 10

A cartel is

Accepted Answer

A) a temporary storage facility for automobiles. 
B) a group of firms that enter into an informal agreement to fix prices to maximize joint profits. 
C) a group of firms that enter into a formal agreement to fix prices to maximize joint profits. 
D) an example of a group of firms that collectively regulate a competitive industry. 
A) a temporary storage facility for automobiles. 
B) a group of firms that enter into an informal agreement to fix prices to maximize joint profits. 
C) a group of firms that enter into a formal agreement to fix prices to maximize joint profits. 
D) an example of a group of firms that collectively regulate a competitive industry.

Question 11

Netflix (N)was one of the first companies to offer streaming video services and is still considered a leader in the industry.Spotify (S)offers a music streaming service and is considering entering the video streaming business.At this point,Netflix has to decide whether or not to lower its subscription price in order to deter Spotify's entry into the market.Figure 14-5 shows the decision tree for the Netflix-Spotify entry game.
-Refer to Figure 14-5.If Netflix lowers its price,will this deter Spotify from setting up a streaming video service?

Accepted Answer

A) yes,because Spotify stands to lose $1 million if it competes with Netflix 
B) yes,because Spotify will make a smaller profit than Netflix if it chooses to compete 
C) no,because Spotify will make a profit if it competes with Netflix 
D) no,because Spotify will make a larger profit than Netflix if it chooses to compete 
A) yes,because Spotify stands to lose $1 million if it competes with Netflix 
B) yes,because Spotify will make a smaller profit than Netflix if it chooses to compete 
C) no,because Spotify will make a profit if it competes with Netflix 
D) no,because Spotify will make a larger profit than Netflix if it chooses to compete

Question 12

A supplier of an input is unlikely to have bargaining power if

Accepted Answer

A) the input supplied is specialized. 
B) many firms can supply the input. 
C) it is the sole supplier of the input. 
D) it has a patent on the input. 
A) the input supplied is specialized. 
B) many firms can supply the input. 
C) it is the sole supplier of the input. 
D) it has a patent on the input.

Question 13

All games share three characteristics.Two of these characteristics are rule and strategies.What is the third characteristic called?

Accepted Answer

A) competition 
B) collusion 
C) results 
D) payoffs 
A) competition 
B) collusion 
C) results 
D) payoffs

Question 14

Competition in the form of advertising,better customer service,or longer warranties can also reduce profits by raising costs.

Accepted Answer

A) True 
 B)False

Question 15

The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called

Accepted Answer

A) Nash equilibrium. 
B) the prisoner's dilemma. 
C) game theory. 
D) dominant strategy equilibrium. 
A) Nash equilibrium. 
B) the prisoner's dilemma. 
C) game theory. 
D) dominant strategy equilibrium.

Question 16

Which of the following is an example of implicit collusion?

Accepted Answer

A) product differentiation 
B) a retaliation strategy 
C) a second-price auction 
D) price leadership 
A) product differentiation 
B) a retaliation strategy 
C) a second-price auction 
D) price leadership

Question 17

Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally

Accepted Answer

A) prevent rival airlines from competing in that market. 
B) increase marginal revenue more than marginal cost. 
C) maximize marginal revenue. 
D) discourage rivals from matching price cuts. 
A) prevent rival airlines from competing in that market. 
B) increase marginal revenue more than marginal cost. 
C) maximize marginal revenue. 
D) discourage rivals from matching price cuts.

Question 18

The bargaining power of suppliers increases if

Accepted Answer

A) the cost of switching suppliers is relatively low. 
B) there are only a few competitors to the supplier. 
C) the input in question is not a critical component of production. 
D) the input supplied is relatively standardized. 
A) the cost of switching suppliers is relatively low. 
B) there are only a few competitors to the supplier. 
C) the input in question is not a critical component of production. 
D) the input supplied is relatively standardized.

Question 19

Consider two single-malt whiskey distillers,Laphroaig and Knockando.If they advertise,they can both sell more whiskey and increase their revenue.However,the cost of advertising more than offsets the increased revenue so that each distiller ends up with a lower profit than if they do not advertise.On the other hand,if only one advertises,that distiller increases its market share and also its profit.
a.Construct a payoff matrix using the following hypothetical information: If neither distiller advertises: each earns a profit of $35 million per year.If both advertise: each earns a profit of $20 million per year.If one advertises and the other does not: the distiller who advertises earns a profit of $50 million and the distiller who does not advertise earns a profit of $9 million.
b.If the two distillers agree to coordinate their strategies,what is the outcome?

Accepted Answer

a.The payoff matrix: @#IMG-DLM& b.If the

Question 20

The approach economists use to analyze competition among oligopolists is called

Accepted Answer

A) marginal analysis. 
B) game theory. 
C) oligopoly theory. 
D) competition among the few. 
A) marginal analysis. 
B) game theory. 
C) oligopoly theory. 
D) competition among the few.

Exam 14: Oligopoly: Firms in Less Competitive Markets

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

Which of the following is not a shortcoming of the concentration ratio as a measure of the extent of competition in an industry?

Doctors and lawyers in every state need a license to practice.This is an example of

As word processing on personal computers expanded,sales of typewriters began to disappear.Which of Porter's competitive forces does this event demonstrate?

For years,economists believed that market structure explained the ability of some firms to earn economic profits.Today,economists and business strategists put greater emphasis on

What is a prisoner's dilemma?

Interdependence of firms is most common in

What is the difference between explicit collusion and implicit collusion?

A cartel is

A supplier of an input is unlikely to have bargaining power if

All games share three characteristics.Two of these characteristics are rule and strategies.What is the third characteristic called?

Competition in the form of advertising,better customer service,or longer warranties can also reduce profits by raising costs.

The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called

Which of the following is an example of implicit collusion?

Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally

The bargaining power of suppliers increases if

The approach economists use to analyze competition among oligopolists 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

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