Question 1

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) C) and D)
F) B) and C)

Question 2

OPEC functions as a classic example of a kinked demand curve oligopoly.

Accepted Answer

A) True 
 B)False

Question 3

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) A) and B)
F) A) and C)

Question 4

If an oligopolist's several rivals exactly match any price changes it initiates, the demand curve will be less elastic than if its price changes are ignored by its rivals.

Accepted Answer

A) True 
 B)False

Question 5

If the several oligopolistic firms that compose an industry behave collusively, the resulting price and output will most likely resemble those of

Accepted Answer

A)   bilateral monopoly.
B)   pure monopoly.
C)   monopolistic competition.
D)   pure competition.E) B) and D)
F) None of the above

Question 6

The kinked-demand curve model of oligopoly

Accepted Answer

A)   assumes a firm's rivals will ignore a price cut but match a price increase.
B)   embodies the possibility that changes in unit costs will have no effect on equilibrium price and output.
C)   assumes a firm's rivals will match any price change it may initiate.
D)   assumes a firm's rivals will ignore any price change it may initiate.E) All of the above
F) A) and B)

Question 7

The incentive to cheat within a cartel increases with an increase in the following factors, except

Accepted Answer

A)   the number of firms in the cartel.
B)   economic performance and industry sales.
C)   the number of potential entrants into the industry.
D)   the cost differences among firms.E) A) and C)
F) A) and D)

Question 8

Which of the following terms best defines the choices available to the players of a game?

Accepted Answer

A)   terminal nodes
B)   backward induction
C)   decision nodes
D)   subgame perfect Nash equilibriumE) B) and C)
F) B) and D)

Question 9

If the four-firm concentration ratio for industry X is 60,

Accepted Answer

A)   the four largest firms account for 60 percent of total sales.
B)   each of the four largest firms accounts for 15 percent of total sales.
C)   the four largest firms account for 60percent of total advertising expenditures.
D)   the industry is monopolistically competitive, but on the threshold of being an oligopoly.E) B) and C)
F) A) and B)

Question 10

Collusion among oligopolistic firms

Accepted Answer

A)   is common in world markets, but does not happen in the United States.
B)   becomes more difficult if there are fewer firms in the group.
C)   becomes easier during a recession, when sales are falling.
D)   becomes more difficult if the firms all have different cost and demand curves.E) C) and D)
F) B) and C)

Question 11

Which two market structures tend to be more commonly observed in the real world?

Accepted Answer

A)   pure competition and pure monopoly
B)   pure competition and monopolistic competition
C)   pure monopoly and monopolistic competition
D)   monopolistic competition and oligopolyE) A) and B)
F) A) and C)

Question 12

The conclusion that oligopoly is inefficient relative to the competitive ideal must be qualified because

Accepted Answer

A)   industry price leaders often select a price equal to marginal cost.
B)   over time oligopolistic industries may promote more rapid product development and greater improvement of production techniques than if they were purely competitive.
C)   increased output due to persuasive advertising may perfectly offset the restriction of output caused by monopoly power.
D)   many oligopolists sell their products in monopolistically competitive or even purely competitive industries.E) C) and D)
F) A) and C)

Question 13

Collusion refers to a situation where rival firms decide to

Accepted Answer

A)   compete aggressively against each other.
B)   cheat on each other.
C)   agree with each other to set prices and output.
D)   combine their operations and merge with each other.E) B) and C)
F) A) and B)

Question 14

Which statement concerning the kinked demand curve model of oligopoly is false?

Accepted Answer

A)   It addresses the question of price "stickiness."
B)   It assumes when one oligopolist raises the price, all others will follow.
C)   The portion of the demand curve above the "kink" is more elastic than the portion below.
D)   The firm's marginal costs can sometimes shift without changing the profit-maximizing price and output.E) None of the above
F) B) and C)

Question 15

Industry Y is dominated by five large firms that hold market shares of 20, 20, 25, 25, and 10. The Herfindahl index for this industry is

Accepted Answer

A)   1,560.
B)   2,150.
C)   2,340.
D)   3,500.E) B) and C)
F) A) and D)

Question 16

The Herfindahl index for an industry is 2,550. Which of the following sets of market shares and industry with four firms would produce such an index?

Accepted Answer

A)   20, 20, 30, and 30
B)   25, 25, 25, and 25
C)   20, 25, 25, and 30
D)   10, 20, 30, and 40E) A) and B)
F) C) and D)

Question 17

The term oligopoly indicates

Accepted Answer

A)   a one-firm industry.
B)   many producers of a differentiated product.
C)   a few firms producing either a differentiated or a homogeneous product.
D)   an industry whose four-firm concentration ratio is low.E) A) and C)
F) A) and B)

Question 18

Which of the following companies was not fined in 2011 for attempting to run an international cartel and fix prices?

Accepted Answer

A)   Intel
B)   Danfoss
C)   Panasonic
D)   WhirlpoolE) B) and D)
F) B) and C)

Question 19

Oligopoly is more difficult to analyze than other market models because

Accepted Answer

A)   the number of firms is so large that market behavior cannot be accurately predicted.
B)   the marginal cost and marginal revenue curves of an oligopolist play no part in the determination of equilibrium price and quantity.
C)   of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models.
D)   unlike the firms of other market models, it cannot be assumed that oligopolists are profit maximizers.E) A) and D)
F) C) and D)

Question 20

Advertising may be an efficiency-enhancing activity when it results in the following, except when it

Accepted Answer

A)   enhances competition among sellers.
B)   facilitates the introduction of new products.
C)   increases sales thereby allowing firms to obtain economies of scale.
D)   makes buyers more brand-attached, making their demand less elastic.E) None of the above
F) A) and B)

Exam 14: Oligopoly and Strategic Behavior

Which two market structures tend to be more commonly observed in the real world?

Correct AnswerverifiedShow Answer

The Herfindahl index for an industry is 2,550. Which of the following sets of market shares and industry with four firms would produce such an index?

Correct AnswerverifiedShow Answer

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

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Collusion among oligopolistic firms

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Industry Y is dominated by five large firms that hold market shares of 20, 20, 25, 25, and 10. The Herfindahl index for this industry is

Correct AnswerverifiedShow Answer

If the several oligopolistic firms that compose an industry behave collusively, the resulting price and output will most likely resemble those of

Correct AnswerverifiedShow Answer

A simultaneous game is said to exist when

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If the four-firm concentration ratio for industry X is 60,

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The incentive to cheat within a cartel increases with an increase in the following factors, except

Correct AnswerverifiedShow Answer

OPEC functions as a classic example of a kinked demand curve oligopoly.

Correct AnswerverifiedShow Answer

Advertising may be an efficiency-enhancing activity when it results in the following, except when it

Correct AnswerverifiedShow Answer

Oligopoly is more difficult to analyze than other market models because

Correct AnswerverifiedShow Answer

Which of the following terms best defines the choices available to the players of a game?

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Collusion refers to a situation where rival firms decide to

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If an oligopolist's several rivals exactly match any price changes it initiates, the demand curve will be less elastic than if its price changes are ignored by its rivals.

Correct AnswerverifiedShow Answer

The kinked-demand curve model of oligopoly

Correct AnswerverifiedShow Answer

The conclusion that oligopoly is inefficient relative to the competitive ideal must be qualified because

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Which of the following companies was not fined in 2011 for attempting to run an international cartel and fix prices?

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The term oligopoly indicates

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Which statement concerning the kinked demand curve model of oligopoly is false?

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