Question 1

The Herfindahl index is a measure of

Accepted Answer

A)  profitability in an industry.
B)  the price level in an industry.
C)  the costs in an industry.
D)  market power in an industry.E) C) and D)
F) All of the above

Question 2

In the U.S. market, people often refer to the "Big Three" in autos and the "Big Four" in accounting. These terms suggest that these two industries are

Accepted Answer

A)  purely competitive.
B)  monopolistically competitive.
C)  monopolies.
D)  oligopolies.E) All of the above
F) None of the above

Question 3

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) All of the above
F) B) and C)

Question 4

Which of the following has not contributed to the development of oligopolies in the U.S. economy?

Accepted Answer

A)  mergers
B)  patents
C)  economies of scale
D)  interindustry competitionE) B) and C)
F) None of the above

Question 5

Advertising can enhance economic efficiency when it

Accepted Answer

A)  increases brand loyalty.
B)  expands sales such that firms achieve substantial economies of scale.
C)  keeps new firms from entering profitable industries.
D)  is undertaken by pure competitors.E) B) and D)
F) A) and B)

Question 6

Which of the following is not true of covert collusion?

Accepted Answer

A)  It occurs when formal cartels are not legal.
B)  It has been historically referred to as "gentlemen's agreements."
C)  Numerous examples of it have been found in the United States.
D)  No case of it has been proven in the United States.E) A) and D)
F) None of the above

Question 7

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 8

A positive-sum game occurs

Accepted Answer

A)  when the sum of the two firms' outcomes is positive.
B)  whenever any of the values in the payoff matrix are positive.
C)  when the gains received by one player are exactly offset by the losses to the other.
D)  whenever the payoffs to the two players are equal.E) B) and D)
F) All of the above

Question 9

Refer to the data. Suppose that enforcement of antitrust laws resulted in any firm in this industry with market share of 20 percent or above to be split into two firms, with each having equal market share. That would cause this industry to

Accepted Answer

A)  remain monopolistically competitive.
B)  change from monopolistic competition to oligopoly.
C)  change from oligopoly to monopolistic competition.
D)  remain an oligopoly.E) A) and D)
F) All of the above

Question 10

Industries X and Y both have four-firm concentration ratios of 70 percent, but the Herfindahl index for X is 2,500, while that for Y is 2,000. These data suggest

Accepted Answer

A)  greater market power in Y than in X.
B)  greater market power in X than in Y.
C)  that X is more technologically progressive than Y.
D)  that price competition is stronger in X than in Y.E) None of the above
F) A) and D)

Question 11

Collusion among firms always involves formal agreements.

Accepted Answer

A) True 
 B)False

Question 12

In the payoff matrix shown,

Accepted Answer

A)  neither firm has a dominant strategy.
B)  both firms have a dominant strategy to price high.
C)  both firms have a dominant strategy to price low.
D)  one firm has a dominant strategy to price high, the other to price low.E) None of the above
F) A) and D)

Question 13

OPEC provides an example of

Accepted Answer

A)  an unwritten, informal understanding.
B)  non-collusive oligopoly.
C)  an international cartel.
D)  a monopolistically competitive industry.E) A) and B)
F) B) and D)

Question 14

Refer to the profits-payoff table for a duopoly. Which of the following statements is true about Nash equilibrium in this game?

Accepted Answer

A)  A Nash equilibrium exists where X charges $7 and Y charges $5, because that is the cell that maximizes the combined profits of the two firms.
B)  There are multiple Nash equilibriums in this game.
C)  There is no Nash equilibrium in this game.
D)  Nash equilibriums occur in this game only where the two firms are charging the same price.E) A) and C)
F) A) and B)

Question 15

Assume that an industry is significantly affected by import competition from foreign suppliers. Taking this factor into account, it would mean that

Accepted Answer

A)  the Herfindahl index would be significantly higher in that industry because there are more firms in the industry.
B)  the industry is less concentrated than suggested by domestic concentration ratios.
C)  there is a high degree of interindustry competition.
D)  there is a low degree of interindustry competition.E) B) and D)
F) None of the above

Question 16

An empty threat is a statement of coercion that is not believed by the threatened firm.

Accepted Answer

A) True 
 B)False

Question 17

Obstacles to collusion among oligopolists include the following, except

Accepted Answer

A)  demand and costs differences among firms.
B)  long-lasting economic recession and poor industry performance.
C)  potential new entrants into the market.
D)  "gentlemen's agreements" among the firms.E) A) and B)
F) C) and D)

Question 18

In game theory, a credible threat of coercion by a dominant firm tends to

Accepted Answer

A)  prevent cheating in collusive agreements.
B)  increase the incentives to cheat.
C)  reduce discipline among cartel members.
D)  discourage collusive agreements.E) A) and B)
F) B) and D)

Question 19

Explain the collusive pricing model of oligopoly behavior.

Accepted Answer

If oligopolistic firms face identical or...

Question 20

If firms E and F in this table merged into a single firm, the Herfindahl index would

Accepted Answer

A)  not change.
B)  rise, as would the four-firm concentration ratio.
C)  rise, but the four-firm concentration ratio would remain unchanged.
D)  fall.E) All of the above
F) A) and B)

Exam 14: Oligopoly and Strategic Behavior

Explain the collusive pricing model of oligopoly behavior.

Correct AnswerverifiedIf oligopolistic firms face identical or...View AnswerShow Answer

The Herfindahl index is a measure of

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Refer to the profits-payoff table for a duopoly. Which of the following statements is true about Nash equilibrium in this game?

Correct AnswerverifiedShow Answer

If firms E and F in this table merged into a single firm, the Herfindahl index would

Correct AnswerverifiedShow Answer

Industries X and Y both have four-firm concentration ratios of 70 percent, but the Herfindahl index for X is 2,500, while that for Y is 2,000. These data suggest

Correct AnswerverifiedShow Answer

Refer to the data. Suppose that enforcement of antitrust laws resulted in any firm in this industry with market share of 20 percent or above to be split into two firms, with each having equal market share. That would cause this industry to

Correct AnswerverifiedShow Answer

OPEC provides an example of

Correct AnswerverifiedShow Answer

Collusion among firms always involves formal agreements.

Correct AnswerverifiedShow Answer

Obstacles to collusion among oligopolists include the following, except

Correct AnswerverifiedShow Answer

Which of the following is not true of covert collusion?

Correct AnswerverifiedShow Answer

A positive-sum game occurs

Correct AnswerverifiedShow Answer

Assume that an industry is significantly affected by import competition from foreign suppliers. Taking this factor into account, it would mean that

Correct AnswerverifiedShow Answer

In game theory, a credible threat of coercion by a dominant firm tends to

Correct AnswerverifiedShow Answer

In the U.S. market, people often refer to the "Big Three" in autos and the "Big Four" in accounting. These terms suggest that these two industries are

Correct AnswerverifiedShow Answer

Advertising can enhance economic efficiency when it

Correct AnswerverifiedShow Answer

In the payoff matrix shown,

Correct AnswerverifiedShow Answer

Which of the following has not contributed to the development of oligopolies in the U.S. economy?

Correct AnswerverifiedShow Answer

An empty threat is a statement of coercion that is not believed by the threatened firm.

Correct AnswerverifiedShow Answer

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If oligopolistic firms face identical or...
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