Question 1

A Stackelberg duopoly (or leader-follower) game may occur in a

Accepted Answer

A)  repeated game with reciprocity. 
B)  repeated game without reciprocity. 
C)  sequential game with preemption of entry. 
D)  sequential game without preemption of entry.

Question 2

Collusive agreements between two firms are most likely to be honored when the game

Accepted Answer

A)  is a one-time game with the opportunity for a prisoner's dilemma. 
B)  has a Nash equilibrium that differs from the outcome that maximizes the payoffs to the two firms. 
C)  is a zero-sum game. 
D)  is repeated and both firms offer credible threats if the other violates the agreement.

Question 3

Cartels are difficult to maintain in the long run because

Accepted Answer

A)  they are illegal in all industrialized countries. 
B)  individual members may find it profitable to cheat on agreements. 
C)  it is more profitable for the industry to charge a lower price and produce more output. 
D)  entry barriers are insignificant in oligopolistic industries.

Question 4

The study of how people behave and decide in strategic situations is called

Accepted Answer

A)  game theory. 
B)  collusion. 
C)  market structure. 
D)  product differentiation.

Question 5

The U.S. steel industry is an example of homogeneous oligopoly.

Accepted Answer

A) True 
 B)False

Question 6

Game theory

Accepted Answer

A)  is the analysis of how people (or firms) behave in strategic situations. 
B)  is best suited for analyzing purely competitive markets. 
C)  reveals that mergers between rival firms are self-defeating. 
D)  reveals that price-fixing among firms reduces profits.

Question 7

In which of the following market models do demand and marginal revenue not diverge?

Accepted Answer

A)  pure competition 
B)  monopolistic competition 
C)  pure monopoly 
D)  oligopoly

Question 8

Firms must consider the possible reaction of rivals to their own decisions and actions in

Accepted Answer

A)  monopolistic competition only. 
B)  monopolistic competition and oligopoly. 
C)  oligopoly only. 
D)  pure competition and oligopoly.

Question 9

Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a differentiated oligopolist in a highly concentrated industry?

Accepted Answer

A)  Subway Sandwiches 
B)  Pittsburgh Plate Glass 
C)  Ford Motor Company 
D)  Kaiser Aluminum

Question 10

OPEC provides an example of

Accepted Answer

A)  an unwritten, informal understanding. 
B)  noncollusive oligopoly. 
C)  an international cartel. 
D)  a monopolistically competitive industry.

Question 11

Concentration ratios measure the

Accepted Answer

A)  geographic distribution of the largest corporations in each industry. 
B)  degree to which a particular firm accounts for sales in a given metropolitan area. 
C)  percentage of total industry sales accounted for by the largest firms in the industry. 
D)  dependence of an industry on its resource suppliers.

Question 12

(Last Word) Microsoft

Accepted Answer

A)  dominates the primary Internet markets. 
B)  is attempting to gain market share in the Internet, smartphone, and tablet markets in an effort to offset a shrinking PC market. 
C)  has colluded with Amazon and Google to fix online advertising prices. 
D)  holds a near-monopoly in the Internet search market.

Question 13

Advertising can enhance economic efficiency when it

Accepted Answer

A)  increases brand loyalty. 
B)  raises entry barriers. 
C)  increases consumer awareness of substitute products. 
D)  boosts average total cost.

Question 14

(Last Word) In the Internet search market,

Accepted Answer

A)  Yahoo, Bing, and Google have roughly equal market shares. 
B)  the Herfindahl index value is 10,000. 
C)  Google holds about 64 percent of the market, while Bing and Yahoo together hold about 34 percent. 
D)  government subsidies ensure that search engines are provided at no cost to all Internet users.

Question 15

In a sequential game with two firms, the first mover into a new market

Accepted Answer

A)  is guaranteed positive economic profits. 
B)  is assured of blocking any potential second mover from entering the market. 
C)  runs the risk that the untested new market will not provide enough customers. 
D)  will likely set a high price to reap greater profits until the second mover enters.

Question 16

The larger the Herfindahl index, the

Accepted Answer

A)  less the degree of import competition in an industry. 
B)  greater the degree of import competition in an industry. 
C)  less the degree of market power in an industry. 
D)  greater the degree of market power in an industry.

Question 17

We would expect a cartel to achieve

Accepted Answer

A)  both allocative efficiency and productive efficiency. 
B)  allocative efficiency but not productive efficiency. 
C)  productive efficiency but not allocative efficiency. 
D)  neither allocative efficiency nor productive efficiency.

Question 18

A prediction from the kinked demand curve model of oligopoly is that, for an individual firm, small changes in

Accepted Answer

A)  demand will lead to changes in price or output. 
B)  marginal revenue will lead to changes in price and output. 
C)  marginal cost will lead to changes in price and output. 
D)  marginal cost will not lead to changes in price or output.

Question 19

In an oligopoly, producers' agreements to restrict output tend to be unstable because each firm has an incentive to

Accepted Answer

A)  produce more than its output quota. 
B)  lower both its price and its output. 
C)  raise its price above the cooperative price. 
D)  establish competitive price and output levels.

Question 20

Game trees are most useful for

Accepted Answer

A)  showing Nash equilibrium. 
B)  identifying dominant strategies. 
C)  mapping out sequential games. 
D)  determining whether a game is positive-sum, zero-sum, or negative-sum.

Exam 14: Oligopoly and Strategic Behavior