Question 1

The four-firm concentration ratio of the aircraft industry is over 80 percent.Most economists would consider this industry an oligopoly.

Accepted Answer

A) True 
 B)False

Question 2

The people firms hire to attempt to convince state legislators and members of Congress to pass laws that are favorable to the economic interests of the firms are called

Accepted Answer

A) economic advisors. 
B) legislative assistants. 
C) government bureaucrats. 
D) lobbyists. 
A) economic advisors. 
B) legislative assistants. 
C) government bureaucrats. 
D) lobbyists.

Question 3

A game in which each player adopts its dominant strategy

Accepted Answer

A) will not lead to an equilibrium. 
B) must be a cooperative game. 
C) could result in a Nash equilibrium. 
D) can never result in a Nash equilibrium. 
A) will not lead to an equilibrium. 
B) must be a cooperative game. 
C) could result in a Nash equilibrium. 
D) can never result in a Nash equilibrium.

Question 4

The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.

Accepted Answer

A) True 
 B)False

Question 5

There are two firms in the residential paint industry,Cool Shades (C)and Warm Hues (W).They collude to share the market equally.They jointly set a monopoly price and split the quantity demanded at that price.Here are their options:
i.They continue to collude (no cheating)and make $12 million each in profits.
ii.One firm cheats and the other does not.The firm that cheats makes a profit of $14 million whereas the firm that doesn't makes a profit of $9 million.
iii.They both cheat and each firm makes a profit of $7 million.
a.Construct a payoff matrix for these two firms.
b.How does this situation relate to the prisoner's dilemma?
c.If each firm acted noncooperatively,how much profit would each make?
d.Are the firms better off colluding (with no cheating)or competing? Explain.

Accepted Answer

a.The payoff matrix:
 @#IMG-DLM& b.With a prisoner

Question 6

The prisoner's dilemma illustrates

Accepted Answer

A) how oligopolists engage in implicit collusion under strategic situations. 
B) why firms will not cooperate if they behave strategically. 
C) why firms have an incentive to cheat on agreements. 
D) how cooperation in strategic situations leads to the economically efficient market outcome. 
A) how oligopolists engage in implicit collusion under strategic situations. 
B) why firms will not cooperate if they behave strategically. 
C) why firms have an incentive to cheat on agreements. 
D) how cooperation in strategic situations leads to the economically efficient market outcome.

Question 7

The justification for occupational licensing laws is that they protect the public from incompetent practitioners (for example,lawyers and medical doctors),but the laws also result in

Accepted Answer

A) higher prices and restrictions on the number of people who can enter the professions affected by the laws. 
B) economies of scale. 
C) ownership of a key input. 
D) an increase in the amount of output required to achieve minimum efficient scale. 
A) higher prices and restrictions on the number of people who can enter the professions affected by the laws. 
B) economies of scale. 
C) ownership of a key input. 
D) an increase in the amount of output required to achieve minimum efficient scale.

Question 8

Ocean Spray is considered to be an oligopoly firm because,until the 1990s,it faced little competition in the market for fresh and frozen cranberries.Why?

Accepted Answer

A) Ocean Spray had a patent on the production of cranberries that gave the company the exclusive right to market its product for 20 years.The 20-year period ended in the 1990s. 
B) Until the 1990s,Ocean Spray controlled almost the entire supply of cranberries. 
C) Ocean Spray was able to achieve significant economies of scale in the production of cranberries.Beginning in the 1990s,other firms finally achieved economies of scale as well,but Ocean Spray still controls about 80 percent of the cranberry market. 
D) The federal government imposed a high tariff on cranberry imports.During the 1990s the tariff was eliminated,but Ocean Spray still controls about 80 percent of the cranberry market. 
A) Ocean Spray had a patent on the production of cranberries that gave the company the exclusive right to market its product for 20 years.The 20-year period ended in the 1990s. 
B) Until the 1990s,Ocean Spray controlled almost the entire supply of cranberries. 
C) Ocean Spray was able to achieve significant economies of scale in the production of cranberries.Beginning in the 1990s,other firms finally achieved economies of scale as well,but Ocean Spray still controls about 80 percent of the cranberry market. 
D) The federal government imposed a high tariff on cranberry imports.During the 1990s the tariff was eliminated,but Ocean Spray still controls about 80 percent of the cranberry market.

Question 9

A large majority of the personal computers (PCs)in the United States use an operating system purchased from Microsoft.Microsoft's relationship with PC manufacturers is an example of which of Porter's competitive forces?

Accepted Answer

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

Question 10

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.If Alistair assumes that Baine would increase its advertising budget,what should it do?

Accepted Answer

A) Alistair should keep its own budget the same and allow Baine to incur the higher cost. 
B) Alistair should also increase its advertising budget. 
C) Alistair should not change its advertising budget. 
D) Being a duopolist,Alistair is not affected by Baine's choices because it has a secure 50 percent market share. 
A) Alistair should keep its own budget the same and allow Baine to incur the higher cost. 
B) Alistair should also increase its advertising budget. 
C) Alistair should not change its advertising budget. 
D) Being a duopolist,Alistair is not affected by Baine's choices because it has a secure 50 percent market share.

Question 11

Oligopolies exist and do not attract new rivals because

Accepted Answer

A) of competition. 
B) of barriers to entry. 
C) the firms keep profits and prices so low that no rivals are attracted. 
D) there can be no product differentiation. 
A) of competition. 
B) of barriers to entry. 
C) the firms keep profits and prices so low that no rivals are attracted. 
D) there can be no product differentiation.

Question 12

Which of the following is not a characteristic of oligopoly?

Accepted Answer

A) the ability to influence price 
B) a small number of firms 
C) low barriers to entry 
D) interdependent firms 
A) the ability to influence price 
B) a small number of firms 
C) low barriers to entry 
D) interdependent firms

Question 13

Why are decision trees useful to managers who plan business strategies?

Accepted Answer

A) Decision trees explain the level of concentration in an industry. 
B) Decision trees can be used to increase the amount of product differentiation;this enables managers to charge higher prices for their products. 
C) Decision trees provide a systematic way of thinking through the implications of a strategy. 
D) Using a decision tree always leads to a dominant strategy. 
A) Decision trees explain the level of concentration in an industry. 
B) Decision trees can be used to increase the amount of product differentiation;this enables managers to charge higher prices for their products. 
C) Decision trees provide a systematic way of thinking through the implications of a strategy. 
D) Using a decision tree always leads to a dominant strategy.

Question 14

The five competitive forces model was developed by

Accepted Answer

A) Michael Porter. 
B) John Nash. 
C) Michael Spence. 
D) Porter Smith. 
A) Michael Porter. 
B) John Nash. 
C) Michael Spence. 
D) Porter Smith.

Question 15

According to Porter's Five Competitive Forces Model,similar products produced by different firms within the industry affects a firm's ability to raise prices far more than substitutable products produced outside the industry.

Accepted Answer

A) True 
 B)False

Question 16

Figure 14-8  
-Refer to Figure 14-8 Use the decision tree to determine whether Microsoft should deter Toshiba from entering the market for electronic book readers (e-readers).Assume that each firm must earn a 20% return on investment to break even.Explain Microsoft's decision process.

Accepted Answer

If Microsoft charges $249 for its e-read

Question 17

An example of a barrier to entry is

Accepted Answer

A) product differentiation. 
B) high profits. 
C) superior technological knowledge. 
D) increasing marginal costs. 
A) product differentiation. 
B) high profits. 
C) superior technological knowledge. 
D) increasing marginal costs.

Question 18

What is a sequential game? How are decision trees used to analyze sequential games?

Accepted Answer

In a sequential game one player (firm)ac

Question 19

Explain why OPEC is caught in a prisoner's dilemma?

Accepted Answer

If every member of OPEC cooperates and p

Question 20

The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium.

Accepted Answer

A) True 
 B)False

Exam 14: Oligopoly: Firms in Less Competitive Markets

The four-firm concentration ratio of the aircraft industry is over 80 percent.Most economists would consider this industry an oligopoly.

The people firms hire to attempt to convince state legislators and members of Congress to pass laws that are favorable to the economic interests of the firms are called

A game in which each player adopts its dominant strategy

The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.

The prisoner's dilemma illustrates

The justification for occupational licensing laws is that they protect the public from incompetent practitioners (for example,lawyers and medical doctors),but the laws also result in

Ocean Spray is considered to be an oligopoly firm because,until the 1990s,it faced little competition in the market for fresh and frozen cranberries.Why?

A large majority of the personal computers (PCs)in the United States use an operating system purchased from Microsoft.Microsoft's relationship with PC manufacturers is an example of which of Porter's competitive forces?

Oligopolies exist and do not attract new rivals because

Which of the following is not a characteristic of oligopoly?

Why are decision trees useful to managers who plan business strategies?

The five competitive forces model was developed by

According to Porter's Five Competitive Forces Model,similar products produced by different firms within the industry affects a firm's ability to raise prices far more than substitutable products produced outside the industry.

Figure 14-8 -Refer to Figure 14-8 Use the decision tree to determine whether Microsoft should deter Toshiba from entering the market for electronic book readers (e-readers).Assume that each firm must earn a 20% return on investment to break even.Explain Microsoft's decision process.

An example of a barrier to entry is

What is a sequential game? How are decision trees used to analyze sequential games?

Explain why OPEC is caught in a prisoner's dilemma?

The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium.

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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