Question 1

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) None of the above
F) C) and D)

Question 2

Assume six firms composing an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl index for this industry is

Accepted Answer

A)  2,000.
B)  2,200.
C)  1,600.
D)  80.E) B) and C)
F) None of the above

Question 3

Industries X and Y both have four-firm concentration ratios of 53 percent, but the Herfindahl index for X is 1,965, while that for Y is 2,019. These data suggest

Accepted Answer

A)  greater market power in X than in Y.
B)  greater market power in Y than in X.
C)  that X is more technologically progressive than Y.
D)  that price competition is stronger in Y than in X.E) B) and C)
F) All of the above

Question 4

Aluminum competes with copper in the market for power transmission lines. This illustrates

Accepted Answer

A)  mutual interdependence.
B)  differentiated oligopoly.
C)  interindustry competition.
D)  homogeneous oligopoly.E) A) and D)
F) B) and C)

Question 5

The kinked-demand model of oligopoly assumes that

Accepted Answer

A)  rivals will ignore price increases but will match price cuts.
B)  rivals will ignore price cuts but will match price increases.
C)  the oligopolistic firms are colluding.
D)  a firm faces a more elastic demand curve if it cuts its price, and less elastic if it raises its price.E) A) and D)
F) A) and C)

Question 6

Differentiated oligopoly exists where a small number of firms are

Accepted Answer

A)  producing goods that differ in terms of quality and design.
B)  setting price and output collusively.
C)  setting price and output independently.
D)  producing virtually identical products.E) B) and C)
F) A) and B)

Question 7

A statement of coercion by one firm is

Accepted Answer

A)  an empty threat if it is believed by the other firm.
B)  a credible threat if it is not believed by the other firm.
C)  always a credible threat whether or not it is believed by the other firm.
D)  a credible threat if it is believed by the other firm.E) None of the above
F) A) and B)

Question 8

In some games, one firm may avoid taking advantage of another firm because it knows that the other firm can take advantage of it in subsequent games. This behavior is called

Accepted Answer

A)  the first-mover advantage.
B)  reciprocity.
C)  price leadership.
D)  preemption of entry.E) B) and C)
F) All of the above

Question 9

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)  93 percent and 2,537, respectively.
B)  100 percent and 2,537, respectively.
C)  87 percent and 2,586, respectively.
D)  93 percent and 2,586, respectively.E) A) and D)
F) B) and D)

Question 10

What's a price war?

Accepted Answer

A price war consists of successive, comp...

Question 11

How is the prisoner's dilemma similar to two firms competing for market share as described in the text?

Accepted Answer

The "confess-confess" outcome of the pri...

Question 12

Firms are more likely to collude when the economy is in a recession.

Accepted Answer

A) True 
 B)False

Question 13

In this payoff matrix,

Accepted Answer

A)  both firms have a dominant strategy.
B)  neither firm has a dominant strategy.
C)  Alpha has a dominant strategy, but Beta does not.
D)  Beta has a dominant strategy, but Alpha does not.E) B) and C)
F) A) and D)

Question 14

Patents and copyrights were established by the government to reduce oligopoly and monopoly power.

Accepted Answer

A) True 
 B)False

Question 15

Nash equilibrium is an outcome of a game from which neither rival will want to deviate.

Accepted Answer

A) True 
 B)False

Question 16

Game theory, which is used in studying oligopoly behavior, originated from the study of games such as the following, except

Accepted Answer

A)  poker.
B)  solitaire.
C)  chess.
D)  bridge.E) B) and D)
F) B) and C)

Question 17

On the graph, if the oligopolist's MC curve shifts from MC ₁ to MC ₂, the firm will charge

Accepted Answer

A)  a higher price than before and total revenue will increase.
B)  the same price as before and sell more output; total revenue will increase.
C)  the same price as before and sell the same amount of output; total revenue will remain the same.
D)  a higher price than before and sell less output; it can't be determined whether total revenue will change.E) A) and B)
F) C) and D)

Question 18

Mutual interdependence means that

Accepted Answer

A)  a firm's behavior is affected by other firms' actions.
B)  a firm's profits are affected by other firms' entry or exit.
C)  a firm's costs are affected by other firms' costs.
D)  a firm's revenues are affected by other firms' demand for its product.E) A) and C)
F) C) and D)

Question 19

Refer to the payoff matrix. Suppose that Speedy Bike and Power Bike are the only two bicycle manufacturing firms serving the market. Both can choose large or small advertising budgets. If this is a repeated game and the firms cooperate to maximize profits, which of the following outcomes would we expect to occur?

Accepted Answer

A)  In repeated playing, the outcomes would alternate between cells A and D.
B)  In repeated playing, the outcomes would alternate between cells B and C.
C)  The two firms will agree to keep their advertising budgets small over time.
D)  The game will reach a Nash equilibrium at cell A.E) A) and B)
F) A) and C)

Question 20

Three major means of collusion by oligopolists are

Accepted Answer

A)  cartels, informal understandings, and price leadership.
B)  market sharing, mutual interdependence, and product differentiation.
C)  cartels, kinked-demand pricing, and product differentiation.
D)  informal understandings, P = MC pricing, and mutual interdependence.E) A) and D)
F) None of the above

Exam 14: Oligopoly and Strategic Behavior

What's a price war?

Correct Answer
verified
A price war consists of successive, comp...
View Answer

Industries X and Y both have four-firm concentration ratios of 53 percent, but the Herfindahl index for X is 1,965, while that for Y is 2,019. These data suggest

Correct Answer
verified

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

Correct Answer
verified

How is the prisoner's dilemma similar to two firms competing for market share as described in the text?

Correct Answer
verified
The "confess-confess" outcome of the pri...
View Answer

Firms are more likely to collude when the economy is in a recession.

Correct Answer
verified

On the graph, if the oligopolist's MC curve shifts from MC ₁ to MC ₂, the firm will charge

Correct Answer
verified

Mutual interdependence means that

Correct Answer
verified

The kinked-demand model of oligopoly assumes that

Correct Answer
verified

In this payoff matrix,

Correct Answer
verified

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

Correct Answer
verified

Game theory, which is used in studying oligopoly behavior, originated from the study of games such as the following, except

Correct Answer
verified

Three major means of collusion by oligopolists are

Correct Answer
verified

Patents and copyrights were established by the government to reduce oligopoly and monopoly power.

Correct Answer
verified

In some games, one firm may avoid taking advantage of another firm because it knows that the other firm can take advantage of it in subsequent games. This behavior is called

Correct Answer
verified

Correct Answer
verified

Differentiated oligopoly exists where a small number of firms are

Correct Answer
verified

Aluminum competes with copper in the market for power transmission lines. This illustrates

Correct Answer
verified

Nash equilibrium is an outcome of a game from which neither rival will want to deviate.

Correct Answer
verified

Assume six firms composing an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl index for this industry is

Correct Answer
verified

A statement of coercion by one firm is

Correct Answer
verified

Exam 14: Oligopoly and Strategic Behavior

What's a price war?

Correct AnswerverifiedA price war consists of successive, comp...View AnswerShow Answer

Industries X and Y both have four-firm concentration ratios of 53 percent, but the Herfindahl index for X is 1,965, while that for Y is 2,019. These data suggest

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

How is the prisoner's dilemma similar to two firms competing for market share as described in the text?

Correct AnswerverifiedThe "confess-confess" outcome of the pri...View AnswerShow Answer

Firms are more likely to collude when the economy is in a recession.

Correct AnswerverifiedShow Answer

On the graph, if the oligopolist's MC curve shifts from MC ₁ to MC ₂, the firm will charge

Correct AnswerverifiedShow Answer

Mutual interdependence means that

Correct AnswerverifiedShow Answer

The kinked-demand model of oligopoly assumes that

Correct AnswerverifiedShow Answer

In this payoff matrix,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Game theory, which is used in studying oligopoly behavior, originated from the study of games such as the following, except

Correct AnswerverifiedShow Answer

Three major means of collusion by oligopolists are

Correct AnswerverifiedShow Answer

Patents and copyrights were established by the government to reduce oligopoly and monopoly power.

Correct AnswerverifiedShow Answer

In some games, one firm may avoid taking advantage of another firm because it knows that the other firm can take advantage of it in subsequent games. This behavior is called

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Differentiated oligopoly exists where a small number of firms are

Correct AnswerverifiedShow Answer

Aluminum competes with copper in the market for power transmission lines. This illustrates

Correct AnswerverifiedShow Answer

Nash equilibrium is an outcome of a game from which neither rival will want to deviate.

Correct AnswerverifiedShow Answer

Assume six firms composing an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl index for this industry is

Correct AnswerverifiedShow Answer

A statement of coercion by one firm is

Correct AnswerverifiedShow Answer

Correct Answer
verified
A price war consists of successive, comp...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The "confess-confess" outcome of the pri...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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