Question 1

Competition from substitute goods is more of a threat when switching costs are high.

Accepted Answer

A) True 
 B)False

Question 2

Oligopoly differs from perfect competition and monopolistic competition in that

Accepted Answer

A) barriers to entry are lower in oligopoly industries than they are in perfectly competitive and monopolistically competitive industries. 
B) demand and marginal revenue curves are more useful for analyzing oligopoly than they are for analyzing perfect competition and monopolistic competition. 
C) because oligopoly firms often react when other firms in their industry change their prices,it is difficult to know what the oligopolist's demand curve looks like. 
D) the concentration ratios of oligopoly industries are lower than they are for perfectly competitive and monopolistically competitive industries. 
A) barriers to entry are lower in oligopoly industries than they are in perfectly competitive and monopolistically competitive industries. 
B) demand and marginal revenue curves are more useful for analyzing oligopoly than they are for analyzing perfect competition and monopolistic competition. 
C) because oligopoly firms often react when other firms in their industry change their prices,it is difficult to know what the oligopolist's demand curve looks like. 
D) the concentration ratios of oligopoly industries are lower than they are for perfectly competitive and monopolistically competitive industries.

Question 3

An oligopolist differs from a perfect competitor in that

Accepted Answer

A) there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power. 
B) firms in an oligopoly do not produce homogeneous products while firms in perfect competition do. 
C) the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry. 
D) there are no entry barriers in perfect competition but there are entry barriers in oligopoly. 
A) there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power. 
B) firms in an oligopoly do not produce homogeneous products while firms in perfect competition do. 
C) the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry. 
D) there are no entry barriers in perfect competition but there are entry barriers in oligopoly.

Question 4

Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow.Each firm must decide on whether to increase its advertising spending to compete for customers.Table 14-1 shows the payoff matrix for this advertising game.
-Refer to Table 14-1.Is there a dominant strategy for Star Connections and if so,what is it?

Accepted Answer

A) No,its outcome depends on what Godrickporter does. 
B) Yes,Star Connections should increase its advertising budget. 
C) Yes,Star Connections should not change its advertising budget. 
D) Yes,Star Connections' dominant strategy is to collude with Godrickporter. 
A) No,its outcome depends on what Godrickporter does. 
B) Yes,Star Connections should increase its advertising budget. 
C) Yes,Star Connections should not change its advertising budget. 
D) Yes,Star Connections' dominant strategy is to collude with Godrickporter.

Question 5

All of the following are examples of oligopolistic markets except

Accepted Answer

A) the broadcasting industry. 
B) aircraft manufacture. 
C) college bookstores. 
D) seafood restaurant chains. 
A) the broadcasting industry. 
B) aircraft manufacture. 
C) college bookstores. 
D) seafood restaurant chains.

Question 6

There are two mobile home manufacturers in Nevada,Sturdy Homes (S)and My Haven (M).Sturdy Homes has been in the market for a long time and must now compete with newcomer,My Haven.Suppose that Sturdy Homes believes that My Haven will match any price it sets.Use Table 14-6 to answer the following question and assume throughout that Sturdy Homes believes that My Haven will match any price it sets.
-Refer to Table 14-6.What price will Sturdy Homes charge and what profit does Sturdy Homes expect to make?

Accepted Answer

A) Price = $8,000;expected profit = $7 million 
B) Price = $8,000;expected profit = $4 million 
C) Price = $10,000;expected profit = $5 million 
D) Price = $12,000;expected profit = $3 million 
A) Price = $8,000;expected profit = $7 million 
B) Price = $8,000;expected profit = $4 million 
C) Price = $10,000;expected profit = $5 million 
D) Price = $12,000;expected profit = $3 million

Question 7

A sequential game can be used to analyze whether a retail firm should build a large store or a small store in a city,when the correct choice depends on whether a competing firm will build a new store in the same city.Which of the following is used to analyze this type of decision?

Accepted Answer

A) a decision tree 
B) a decision matrix 
C) a sequential matrix 
D) an either-or graph 
A) a decision tree 
B) a decision matrix 
C) a sequential matrix 
D) an either-or graph

Question 8

An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.This entry barrier is known as

Accepted Answer

A) a copyright. 
B) a patent. 
C) an exclusive marketing agreement. 
D) a tariff. 
A) a copyright. 
B) a patent. 
C) an exclusive marketing agreement. 
D) a tariff.

Question 9

Figure 14-6  
-Refer to Figure 14-6 Use the decision tree to determine whether Pizza Hut should deter Domino's from entering the market for pasta salad.Assume that each firm must earn a 25% return on investment to break even.Explain Pizza Hut's decision process.

Accepted Answer

If Pizza Hut charges $7.49 for its pasta

Question 10

A reason why there is more competition among restaurants than among large discount department stores is that restaurants

Accepted Answer

A) have to cater to a variety of consumer tastes while department stores do not. 
B) unlike department stores,have to abide by government sanitation rules. 
C) unlike department stores,do not have significant economies of scale. 
D) have more elastic demand for their product compared to department stores. 
A) have to cater to a variety of consumer tastes while department stores do not. 
B) unlike department stores,have to abide by government sanitation rules. 
C) unlike department stores,do not have significant economies of scale. 
D) have more elastic demand for their product compared to department stores.

Question 11

Suppose two firms in a duopoly implicitly collude and charge a high price.How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

Accepted Answer

A) The offer to match prices is a way of deterring entry by other large firms,thereby keeping the market share of the existing firms intact. 
B) The advertisement ensures that the other firm does not cheat.If a firm cheats on the agreement and charges the lower price,the rival firm will retaliate by doing the same. 
C) The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion. 
D) The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available. 
A) The offer to match prices is a way of deterring entry by other large firms,thereby keeping the market share of the existing firms intact. 
B) The advertisement ensures that the other firm does not cheat.If a firm cheats on the agreement and charges the lower price,the rival firm will retaliate by doing the same. 
C) The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion. 
D) The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available.

Question 12

Which government agency publishes four-firm concentration ratios?

Accepted Answer

A) the Economic Council 
B) the Federal Reserve System 
C) the U.S.Bureau of the Census 
D) the Treasury Department 
A) the Economic Council 
B) the Federal Reserve System 
C) the U.S.Bureau of the Census 
D) the Treasury Department

Question 13

In 2015,the Educational Testing Service (ETS)charged $52.50 to take the Scholastic Aptitude Test (SAT)but $195 to take the Graduate Record Exam (GRE).One reason for this difference in price is

Accepted Answer

A) more people took the SAT than the GRE in 2015. 
B) the GRE is a longer test with more questions. 
C) an average,those who take the GRE have higher incomes than those who take the SAT. 
D) the ETS faces competition in the market for the SAT but no competition for the GRE. 
A) more people took the SAT than the GRE in 2015. 
B) the GRE is a longer test with more questions. 
C) an average,those who take the GRE have higher incomes than those who take the SAT. 
D) the ETS faces competition in the market for the SAT but no competition for the GRE.

Question 14

The government of a developing country plans to award two firms,Gigacom and Xenophone,the exclusive rights to share the market for high speed internet service.Gigacom and Xenophone can both provide the service either via television cable lines or via direct subscriber line (DSL).Suppose the government is considering a proposal to delay one firm's entry into the market on the grounds that it wants to prevent "harmful" competition.Figure 14-2 shows the decision tree for this game.
-Refer to Figure 14-2.Now suppose that the government delays Xenophone's entry and Gigacom moves first,what is the likely outcome in the market?

Accepted Answer

A) Both offer internet service via cable line;Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million. 
B) Both offer DSL internet service;Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million. 
C) Xenophone offers DSL internet service and earns a profit of $5 million while Gigacom offer internet service via cable line and earns a profit of $6.5 million. 
D) Xenophone offers internet service via cable line and earns a profit of $4 million while Gigacom offers DSL internet service and earns a profit of $4.5 million. 
A) Both offer internet service via cable line;Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million. 
B) Both offer DSL internet service;Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million. 
C) Xenophone offers DSL internet service and earns a profit of $5 million while Gigacom offer internet service via cable line and earns a profit of $6.5 million. 
D) Xenophone offers internet service via cable line and earns a profit of $4 million while Gigacom offers DSL internet service and earns a profit of $4.5 million.

Question 15

Of all barriers to entry,the most important are those that are due to

Accepted Answer

A) ownership of a key input. 
B) economies of scale. 
C) government-imposed barriers. 
D) the Herfindahl-Hirschman Index. 
A) ownership of a key input. 
B) economies of scale. 
C) government-imposed barriers. 
D) the Herfindahl-Hirschman Index.

Question 16

Which of the following is not one of the five competitive forces?

Accepted Answer

A) the threat from potential entrants 
B) the bargaining power of buyers 
C) the firm's ability to differentiate its product 
D) the bargaining power of suppliers 
A) the threat from potential entrants 
B) the bargaining power of buyers 
C) the firm's ability to differentiate its product 
D) the bargaining power of suppliers

Question 17

Producing a differentiated product occurs in which of the following industries?

Accepted Answer

A) oligopoly,monopolistic competition,and perfect competition 
B) monopolistic competition only 
C) oligopoly only 
D) monopolistic competition and oligopoly 
A) oligopoly,monopolistic competition,and perfect competition 
B) monopolistic competition only 
C) oligopoly only 
D) monopolistic competition and oligopoly

Question 18

An agreement among firms to charge the same price or otherwise not to compete is called

Accepted Answer

A) a payoff matrix. 
B) a subgame-perfect equilibrium. 
C) a Nash equilibrium. 
D) collusion. 
A) a payoff matrix. 
B) a subgame-perfect equilibrium. 
C) a Nash equilibrium. 
D) collusion.

Question 19

Which of the following is not an example of a government-imposed entry barrier?

Accepted Answer

A) patents 
B) occupational licensing 
C) barriers to international trade 
D) antitrust legislation 
A) patents 
B) occupational licensing 
C) barriers to international trade 
D) antitrust legislation

Question 20

In recent years,online bookseller Amazon.com has lowered its profits by offering some of its customers free shipping and building more warehouses to hold its inventories.Which of the following explains Amazon.com's actions?

Accepted Answer

A) Amazon.com feared government regulation if its profits were too high. 
B) Amazon.com took these actions to deter entry into its market by new online booksellers. 
C) Amazon.com took these actions to compete more effectively with existing online booksellers. 
D) Amazon.com was forced to take these actions because of the bargaining power of its suppliers. 
A) Amazon.com feared government regulation if its profits were too high. 
B) Amazon.com took these actions to deter entry into its market by new online booksellers. 
C) Amazon.com took these actions to compete more effectively with existing online booksellers. 
D) Amazon.com was forced to take these actions because of the bargaining power of its suppliers.

Exam 14: Oligopoly: Firms in Less Competitive Markets

Competition from substitute goods is more of a threat when switching costs are high.

Oligopoly differs from perfect competition and monopolistic competition in that

An oligopolist differs from a perfect competitor in that

All of the following are examples of oligopolistic markets except

A sequential game can be used to analyze whether a retail firm should build a large store or a small store in a city,when the correct choice depends on whether a competing firm will build a new store in the same city.Which of the following is used to analyze this type of decision?

An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.This entry barrier is known as

Figure 14-6 -Refer to Figure 14-6 Use the decision tree to determine whether Pizza Hut should deter Domino's from entering the market for pasta salad.Assume that each firm must earn a 25% return on investment to break even.Explain Pizza Hut's decision process.

A reason why there is more competition among restaurants than among large discount department stores is that restaurants

Suppose two firms in a duopoly implicitly collude and charge a high price.How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

Which government agency publishes four-firm concentration ratios?

In 2015,the Educational Testing Service (ETS)charged $52.50 to take the Scholastic Aptitude Test (SAT)but $195 to take the Graduate Record Exam (GRE).One reason for this difference in price is

Of all barriers to entry,the most important are those that are due to

Which of the following is not one of the five competitive forces?

Producing a differentiated product occurs in which of the following industries?

An agreement among firms to charge the same price or otherwise not to compete is called

Which of the following is not an example of a government-imposed entry barrier?

In recent years,online bookseller Amazon.com has lowered its profits by offering some of its customers free shipping and building more warehouses to hold its inventories.Which of the following explains Amazon.com's actions?

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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