Question 1

The highest possible value of the Herfindahl index is 1,000.

Accepted Answer

A) True 
 B)False

Question 2

The four-firm concentration ratio for an industry measures the

Accepted Answer

A)  profitability of the four largest firms in the industry.
B)  extent to which the four largest firms dominate the sales of a good.
C)  percentage of the industry's workforce employed by the four largest firms.
D)  degree of product variation in the industry.E) B) and C)
F) A) and B)

Question 3

The primary advantage of displaying a game in extensive form instead of strategic form is that extensive form allows one to

Accepted Answer

A)  display the order in which decisions are made; strategic form does not.
B)  analyze repeated games; strategic form does not.
C)  determine the existence of a Nash equilibrium; strategic form does not.
D)  determine whether credible threats are possible; strategic form does not.E) A) and D)
F) A) and C)

Question 4

The strategy of establishing a price that prevents the entry of new firms is called

Accepted Answer

A)  cartel pricing.
B)  limit pricing.
C)  price leadership.
D)  profit maximizing price.E) A) and B)
F) A) and C)

Question 5

One common factor that often weakens collusion among cartel members is the incentive to cheat.

Accepted Answer

A) True 
 B)False

Question 6

(Consider This)  The prisoner's dilemma reveals that

Accepted Answer

A)  collusive agreements will always fail.
B)  the price leadership model does not work.
C)  nonprice competition is more profitable than price competition.
D)  sometimes when individuals act independently in their own self-interest, everyone is worse off than if they had cooperated.E) A) and B)
F) A) and C)

Question 7

A cartel of four firms that controls 100 percent of the sales in a market, and faces the same cost schedules of a monopolist, will set a price somewhat lower than the monopoly price for its product.

Accepted Answer

A) True 
 B)False

Question 8

If competing oligopolists completely ignore oligopolist X's price changes, then X's

Accepted Answer

A)  demand curve will be less elastic than if the other oligopolists matched X's price changes.
B)  demand curve will be more elastic than if the other oligopolists matched X's price changes.
C)  marginal revenue curve will have a vertical gap.
D)  demand and marginal revenue curves will coincide.E) A) and C)
F) C) and D)

Question 9

Firm Market Share (%)  A 20 B 20
C 20
D 20
E 10
F 10
The industry characterized by these data is

Accepted Answer

A)  an oligopoly.
B)  a monopolistically competitive industry.
C)  a purely competitive industry.
D)  a pure monopoly.E) All of the above
F) B) and D)

Question 10

Firm Market Share (%)  A 20 B 20
C 20
D 20
E 10
F 10
Refer to the data.Suppose that firms A and F merged into a single firm.The four-firm concentration ratio and the Herfindahl index would be

Accepted Answer

A)  90 percent and 2,100, respectively.
B)  80 percent and 2,100, respectively.
C)  100 percent and 2,200, respectively.
D)  90 percent and 2,200, respectively.E) A) and D)
F) B) and D)

Question 11

A simultaneous game is said to exist when

Accepted Answer

A)  firms are playing pricing games in different markets at the same time.
B)  firms choose their strategies at the same time as their rivals.
C)  firms can set multiple prices for the same good at the same time.
D)  strategies are set without regard to possible interactions in future time periods.E) All of the above
F) A) and C)

Question 12

Which would be a qualification to the view that oligopoly is allocatively and productively inefficient?

Accepted Answer

A)  Less foreign competition has stimulated more price competition in oligopolies.
B)  Oligopolies are less technologically competitive, so they lose market share.
C)  Oligopolies may purposely keep prices below short-run profit-maximizing levels to bolster barriers to entry.
D)  The more collusive practices of oligopolies lead to more profit-sharing among firms in the industry.E) None of the above
F) B) and D)

Question 13

An industry having a four-firm concentration ratio of 85 percent

Accepted Answer

A)  approximates pure competition.
B)  is monopolistically competitive.
C)  is a pure monopoly.
D)  is an oligopoly.E) A) and D)
F) B) and D)

Question 14

If the firms in an oligopolistic industry can establish an effective cartel, the resulting output and price will approximate those of

Accepted Answer

A)  a purely competitive producer.
B)  a pure monopoly.
C)  a monopolistically competitive producer.
D)  an industry with a low four-firm concentration ratio.E) A) and B)
F) A) and C)

Question 15

When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of

Accepted Answer

A)  interindustry competition.
B)  limit pricing.
C)  price leadership.
D)  collusion.E) A) and C)
F) A) and B)

Question 16

One shortcoming of the kinked demand curve model of oligopoly is that it does not explain

Accepted Answer

A)  why the marginal revenue curve is kinked.
B)  how the current price gets determined.
C)  what the level of profits is for the firm.
D)  why the firm is a least-cost producer.E) None of the above
F) All of the above

Question 17

Two important characteristics of oligopolists are that they have significant control over price and that there is mutual interdependence among them.

Accepted Answer

A) True 
 B)False

Question 18

An oligopolistic firm tends to have less control over its own pricing decisions than a firm in

Accepted Answer

A)  pure competition or monopolistic competition.
B)  monopoly only.
C)  pure competition or monopoly.
D)  pure competition only.E) C) and D)
F) A) and C)

Question 19

In game theory, credible threats can be used to maintain collusive agreements between firms.

Accepted Answer

A) True 
 B)False

Question 20

A natural monopoly's preemption of entry by other firms by exploiting its economies of scale is an example of

Accepted Answer

A)  first-mover advantage.
B)  a repeated game with reciprocity.
C)  Nash equilibrium in a single-period game.
D)  collusion in game theory.E) A) and C)
F) A) and B)

Exam 14: Oligopoly and Strategic Behavior

The four-firm concentration ratio for an industry measures the

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The primary advantage of displaying a game in extensive form instead of strategic form is that extensive form allows one to

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An industry having a four-firm concentration ratio of 85 percent

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A natural monopoly's preemption of entry by other firms by exploiting its economies of scale is an example of

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A simultaneous game is said to exist when

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A cartel of four firms that controls 100 percent of the sales in a market, and faces the same cost schedules of a monopolist, will set a price somewhat lower than the monopoly price for its product.

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If competing oligopolists completely ignore oligopolist X's price changes, then X's

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An oligopolistic firm tends to have less control over its own pricing decisions than a firm in

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If the firms in an oligopolistic industry can establish an effective cartel, the resulting output and price will approximate those of

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(Consider This) The prisoner's dilemma reveals that

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Two important characteristics of oligopolists are that they have significant control over price and that there is mutual interdependence among them.

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One shortcoming of the kinked demand curve model of oligopoly is that it does not explain

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The highest possible value of the Herfindahl index is 1,000.

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When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of

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Firm Market Share (%) A 20 B 20 C 20 D 20 E 10 F 10 Refer to the data.Suppose that firms A and F merged into a single firm.The four-firm concentration ratio and the Herfindahl index would be

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Which would be a qualification to the view that oligopoly is allocatively and productively inefficient?

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In game theory, credible threats can be used to maintain collusive agreements between firms.

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One common factor that often weakens collusion among cartel members is the incentive to cheat.

Correct AnswerverifiedShow Answer

Firm Market Share (%) A 20 B 20 C 20 D 20 E 10 F 10 The industry characterized by these data is

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The strategy of establishing a price that prevents the entry of new firms is called

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