Question 1

Interindustry competition refers to the fact that

Accepted Answer

A)   oligopolistic producers establish a common price for their products.
B)   products are identical in a purely competitive industry.
C)   firms that sell a product at one stage of production buy materials and parts from other firms at prior stages of production.
D)   in some markets, the producers of a certain commodity might face competition from products of other industries.E) C) and D)
F) All of the above

Question 2

Oligopolistic firms engage in collusion to

Accepted Answer

A)   minimize unit costs of production.
B)   realize allocative efficiency, that is, the P = MC level of output.
C)   earn greater profits.
D)   increase production.E) A) and B)
F) All of the above

Question 3

The characteristic most closely associated with oligopoly is

Accepted Answer

A)   easy entry into the industry.
B)   a few large producers.
C)   product standardization.
D)   no control over price.E) A) and D)
F) None of the above

Question 4

Suppose firms in a collusive oligopoly decide to establish their prices at a level that discourages new rivals from entering the industry. This is called

Accepted Answer

A)   mutual interdependence.
B)   pricing the demand curve.
C)   limit pricing.
D)   price leadership.E) B) and D)
F) B) and C)

Question 5

One inherent factor that tends to destroy collusion among oligopolists is the

Accepted Answer

A)   incentive to cheat.
B)   product differentiation.
C)   mutual interdependence.
D)   leadership of the dominant firm.E) None of the above
F) A) and D)

Question 6

Backward induction in an extensive form game

Accepted Answer

A)   allows the players to alter their strategies as the game is being played.
B)   is used to determine the Nash equilibrium of a game.
C)   is used to identify the decision nodes of a repeated game.
D)   is used primarily to establish whether players should compete or cooperate.E) A) and B)
F) B) and C)

Question 7

The so-called first-mover advantage may be observed in

Accepted Answer

A)   repeated games.
B)   multi-period games.
C)   sequential games
D)   credible games.E) A) and B)
F) B) and C)

Question 8

Repeated games may involve either simultaneous or sequential decision making.

Accepted Answer

A) True 
 B)False

Question 9

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 D)
F) B) and C)

Question 10

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

Question 11

If a particular bank regularly announces changes in its interest rate schedules before its competitors, who then set rates very close to those announced by that bank, this could be described as

Accepted Answer

A)   markup pricing.
B)   predatory pricing.
C)   price leadership.
D)   explicit price collusion.E) C) and D)
F) B) and C)

Question 12

In a Stackelberg duopoly,

Accepted Answer

A)   leader firms are always dominant.
B)   no Nash equilibrium is possible.
C)   the two firms move simultaneously.
D)   one firm is the leader; the other is the follower.E) C) and D)
F) A) and B)

Question 13

(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) B) and C)

Question 14

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

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Mutual interdependence means that each firm in an oligopoly

Accepted Answer

A)   faces a perfectly inelastic demand for its product.
B)   considers the reactions of its rivals when it determines its pricing policy.
C)   depends on the other firms for its inputs.
D)   depends on the other firms for its markets.E) A) and D)
F) A) and C)

Question 17

A major reason that firms form a cartel is to

Accepted Answer

A)   reduce the elasticity of demand for the product.
B)   enlarge the market share for each producer.
C)   minimize the costs of production.
D)   maximize joint profits.E) A) and C)
F) A) and B)

Question 18

If neither player has an incentive to deviate from the outcome of a game, the outcome is a Nash equilibrium.

Accepted Answer

A) True 
 B)False

Question 19

Industry Y is dominated by five large firms that hold market shares of 20, 25, 15, 10, and 25 percent. The four-firm concentration ratio for this industry is

Accepted Answer

A)   70 percent.
B)   80 percent.
C)   85 percent.
D)   90 percent.E) B) and C)
F) All of the above

Question 20

Suppose the only three existing manufacturers of video game players signed a written contract by which each agreed to charge the same price for products and to distribute their products only in the geographical area assigned them in the contract. This best describes

Accepted Answer

A)   cost-plus pricing.
B)   multiproduct pricing.
C)   a cartel.
D)   price leadership.E) B) and C)
F) B) and D)

Exam 14: Oligopoly and Strategic Behavior

If a particular bank regularly announces changes in its interest rate schedules before its competitors, who then set rates very close to those announced by that bank, this could be described as

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Repeated games may involve either simultaneous or sequential decision making.

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In a Stackelberg duopoly,

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Industry Y is dominated by five large firms that hold market shares of 20, 25, 15, 10, and 25 percent. The four-firm concentration ratio for this industry is

Correct AnswerverifiedShow Answer

If neither player has an incentive to deviate from the outcome of a game, the outcome is a Nash equilibrium.

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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

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(Consider This) The prisoner's dilemma reveals that

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One inherent factor that tends to destroy collusion among oligopolists is the

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The characteristic most closely associated with oligopoly is

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Suppose the only three existing manufacturers of video game players signed a written contract by which each agreed to charge the same price for products and to distribute their products only in the geographical area assigned them in the contract. This best describes

Correct AnswerverifiedShow Answer

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

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Oligopolistic firms engage in collusion to

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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

Correct AnswerverifiedShow Answer

A major reason that firms form a cartel is to

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

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The so-called first-mover advantage may be observed in

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Backward induction in an extensive form game

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Interindustry competition refers to the fact that

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Suppose firms in a collusive oligopoly decide to establish their prices at a level that discourages new rivals from entering the industry. This is called

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Mutual interdependence means that each firm in an oligopoly

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