Question 1

Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will

Accepted Answer

A)  pursue a strategy to reduce advertising expenditures to maintain profits.
B)  decide to increase advertising expenditures even if it means a reduction in profits.
C)  make no changes in advertising expenditures because advertising is effective in the short run, but not the long run.
D)  increase the price of the product to improve profits and then increase advertising expenditures.E) B) and C)
F) A) and D)

Question 2

Game theory can be used to demonstrate that oligopolists

Accepted Answer

A)  rarely consider the potential reactions of rivals.
B)  experience economies of scale.
C)  can increase their profits through collusion.
D)  may be either homogeneous or differentiated.E) None of the above
F) C) and D)

Question 3

If one player in a game has a dominant strategy, the other player must also have a dominant strategy.

Accepted Answer

A) True 
 B)False

Question 4

If three or four homogeneous oligopolists collude, the resulting price and production outcomes will be similar to those of pure monopoly.

Accepted Answer

A) True 
 B)False

Question 5

The kinked-demand curve model helps to explain price rigidity because

Accepted Answer

A)  there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price.
B)  demand is inelastic above and elastic below the going price.
C)  the model assumes firms are engaging in some form of collusion.
D)  the associated marginal revenue curve is perfectly elastic at the going price.E) All of the above
F) B) and C)

Question 6

The effects of advertising on a firm's profits and efficiency

Accepted Answer

A)  are definitely positive.
B)  are definitely negative.
C)  may be positive or negative.
D)  are only observed in oligopoly.E) C) and D)
F) All of the above

Question 7

The automobile, household appliance, and automobile tire industries are all illustrations of

Accepted Answer

A)  homogeneous oligopoly.
B)  monopolistic competition.
C)  pure monopoly.
D)  differentiated oligopoly.E) All of the above
F) A) and D)

Question 8

Concentration ratios

Accepted Answer

A)  may overstate the degree of competition because they ignore imported products.
B)  may overstate the degree of competition because interindustry competition is ignored.
C)  may understate the degree of competition because they ignore imported products.
D)  provide detailed insights as to the price and output behavior of firms that compose the various industries.E) A) and B)
F) None of the above

Question 9

In game theory, the credibility of a threat

Accepted Answer

A)  determines whether or not a Nash equilibrium to a game exists.
B)  influences the degree of cooperation between two rivals.
C)  is relevant only in simultaneous games.
D)  determines whether or not a firm has a dominant strategy.E) C) and D)
F) A) and B)

Question 10

If enforcement of antitrust laws caused the two largest firms in this table to be divided in half, with each half having equal market share, the industry's four-firm concentration ratio would and its Herfindahl index would .

Accepted Answer

A)  fall; fall
B)  fall; rise
C)  remain the same; rise
D)  remain the same; fallE) B) and C)
F) C) and D)

Question 11

In a zero-sum game, the gains by one player will be exactly offset by the losses of the other.

Accepted Answer

A) True 
 B)False

Question 12

Advertising increases the costs of firms and could be manipulative; therefore, it does not really have a positive economic effect.

Accepted Answer

A) True 
 B)False

Question 13

In game theory, each player is assumed to have the following, except

Accepted Answer

A)  alternative strategies or actions.
B)  alternative outcomes or results.
C)  alternative payoffs or earnings.
D)  alternative partners or coplayers.E) A) and B)
F) B) and C)

Question 14

If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?

Accepted Answer

A)  the kinked demand curve model of oligopoly
B)  the price-leadership model of oligopoly
C)  the pure monopoly model
D)  the monopolistic competition modelE) A) and D)
F) B) and D)

Question 15

Limit pricing by a price leader in an oligopoly refers to the strategy of setting a price

Accepted Answer

A)  that blocks the entry of new firms.
B)  that ensures profits for the least efficient existing firm in the oligopoly.
C)  that maximizes profits for all firms in the oligopoly market.
D)  that maximizes profits for the price leader, but not necessarily for the other firms.E) B) and C)
F) A) and D)

Question 16

First-mover advantage cannot happen in a one-time simultaneous game.

Accepted Answer

A) True 
 B)False

Question 17

Clear-cut mutual interdependence with respect to the price-output policies exists in

Accepted Answer

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

Question 18

Negative-sum games do not exist, because neither player has an incentive to play the game.

Accepted Answer

A) True 
 B)False

Question 19

In a repeated game with reciprocity, the two players

Accepted Answer

A)  could each earn a higher payoff than if they aggressively countered each other's single-period strategy.
B)  tend to earn less than if they aggressively countered each other's single-period strategy.
C)  will have less incentive to collude explicitly or tacitly.
D)  often end up in a price war.E) A) and C)
F) A) and B)

Question 20

A potential negative effect of advertising for society is that it can

Accepted Answer

A)  be the major cause of price wars among firms in the industry.
B)  reduce mutual interdependence and increase competition.
C)  be self-canceling and contribute to economic inefficiency.
D)  lower barriers to entry and undermine profits in the industry.E) B) and C)
F) A) and D)

Exam 14: Oligopoly and Strategic Behavior

Game theory can be used to demonstrate that oligopolists

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In a repeated game with reciprocity, the two players

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If three or four homogeneous oligopolists collude, the resulting price and production outcomes will be similar to those of pure monopoly.

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Limit pricing by a price leader in an oligopoly refers to the strategy of setting a price

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Clear-cut mutual interdependence with respect to the price-output policies exists in

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The kinked-demand curve model helps to explain price rigidity because

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Negative-sum games do not exist, because neither player has an incentive to play the game.

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A potential negative effect of advertising for society is that it can

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Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will

Correct AnswerverifiedShow Answer

Advertising increases the costs of firms and could be manipulative; therefore, it does not really have a positive economic effect.

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If enforcement of antitrust laws caused the two largest firms in this table to be divided in half, with each half having equal market share, the industry's four-firm concentration ratio would and its Herfindahl index would .

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In game theory, each player is assumed to have the following, except

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The automobile, household appliance, and automobile tire industries are all illustrations of

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In game theory, the credibility of a threat

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The effects of advertising on a firm's profits and efficiency

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In a zero-sum game, the gains by one player will be exactly offset by the losses of the other.

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Concentration ratios

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If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?

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If one player in a game has a dominant strategy, the other player must also have a dominant strategy.

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First-mover advantage cannot happen in a one-time simultaneous game.

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