Question 1

Advertising can increase a firm's sales, thereby allowing the firm to gain economies of scale, and that would be good for efficiency.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is an illustration of differentiated oligopoly?

Accepted Answer

A)   the aluminum industry
B)   the steel industry
C)   the soft drink industry
D)   retail stores in large citiesE) B) and C)
F) A) and D)

Question 3

In 2014, advertising expenditures in the United States were

Accepted Answer

A)   10 to 12 percent of GDP.
B)   about $103 billion.
C)   about $141 billion.
D)   about $539 billion.E) A) and B)
F) B) and D)

Question 4

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) All of the above
F) None of the above

Question 5

Two industries that have the same four-firm concentration ratio can have significantly different Herfindahl indexes.

Accepted Answer

A) True 
 B)False

Question 6

A firm in a cartel typically cheats on its collusive agreement by raising its price and restricting output more than it agreed to with other cartel members.

Accepted Answer

A) True 
 B)False

Question 7

The primary advantage of displaying a game in extensive form instead of strategic form is that extensive form allows one to

Accepted Answer

A)   display the order in which decisions are made; strategic form does not.
B)   analyze repeated games; strategic form does not.
C)   determine the existence of a Nash equilibrium; strategic form does not.
D)   determine whether credible threats are possible; strategic form does not.E) A) and B)
F) B) and D)

Question 8

In a duopoly, if one firm increases its price, then the other firm can

Accepted Answer

A)   keep its price constant and thus increase its market share.
B)   keep its price constant and thus decrease its market share.
C)   increase its price and thus increase its market share.
D)   decrease its price and thus decrease its market share.E) B) and D)
F) C) and D)

Question 9

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

Question 10

Price leadership represents a situation where oligopolistic firms

Accepted Answer

A)   reduce their reliance on nonprice competition.
B)   form a cartel.
C)   face a kinked demand curve.
D)   tacitly collude.E) C) and D)
F) A) and B)

Question 11

One shortcoming of the kinked demand curve model of oligopoly is that it does not explain

Accepted Answer

A)   why the marginal revenue curve is kinked.
B)   how the current price gets determined.
C)   what the level of profits is for the firm.
D)   why the firm is a least-cost producer.E) A) and C)
F) C) and D)

Question 12

In competing with rivals, oligopolistic firms will tend to use

Accepted Answer

A)   price cuts because they do not add to costs like advertising.
B)   advertising because it is less easily duplicated than price cuts.
C)   collusion because it is a legal way to increase market share.
D)   price wars because they will increase the profits of firms.E) C) and D)
F) A) and B)

Question 13

A major prediction of the kinked demand curve model is

Accepted Answer

A)   price stability in oligopolies.
B)   price instability in oligopolies.
C)   stability of production costs in oligopolies.
D)   instability of costs in oligopolies.E) A) and C)
F) B) and C)

Question 14

A game has a Nash equilibrium when the two players' dominant strategies

Accepted Answer

A)   depend on what the other player does.
B)   intersect in a specific cell of the payoff matrix.
C)   result in the largest total payoff for the two players combined.
D)   result in no loss for either player.E) A) and B)
F) C) and D)

Question 15

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) A) and C)
F) C) and D)

Question 16

Which of the following is a unique feature of oligopoly?

Accepted Answer

A)   mutual interdependence
B)   advertising expenditures
C)   product differentiation
D)   nonprice competitionE) All of the above
F) A) and B)

Question 17

The kinked-demand curve model applies to a noncollusive oligopoly situation.

Accepted Answer

A) True 
 B)False

Question 18

A high concentration ratio indicates that

Accepted Answer

A)   the industry is highly profitable.
B)   the industry is highly competitive.
C)   many firms produce most of the output in an industry.
D)   few firms produce most of the output in an industry.E) A) and C)
F) A) and D)

Question 19

Which cannot be a characteristic of an oligopolistic industry?

Accepted Answer

A)   differentiated products
B)   a large number of consumers
C)   significant barriers to entry
D)   a perfectly elastic firm demand curveE) C) and D)
F) None of the above

Question 20

All other things equal, the larger the number of firms in an oligopolistic industry, the more difficult it is for those firms to collude.

Accepted Answer

A) True 
 B)False

Exam 14: Oligopoly and Strategic Behavior

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

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Advertising can increase a firm's sales, thereby allowing the firm to gain economies of scale, and that would be good for efficiency.

Correct AnswerverifiedShow Answer

A firm in a cartel typically cheats on its collusive agreement by raising its price and restricting output more than it agreed to with other cartel members.

Correct AnswerverifiedShow Answer

Two industries that have the same four-firm concentration ratio can have significantly different Herfindahl indexes.

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In a duopoly, if one firm increases its price, then the other firm can

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Which of the following is a unique feature of oligopoly?

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Which cannot be a characteristic of an oligopolistic industry?

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Price leadership represents a situation where oligopolistic firms

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The kinked-demand curve model applies to a noncollusive oligopoly situation.

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Advertising can enhance economic efficiency when it

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In 2014, advertising expenditures in the United States were

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Which of the following is an illustration of differentiated oligopoly?

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All other things equal, the larger the number of firms in an oligopolistic industry, the more difficult it is for those firms to collude.

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Obstacles to collusion among oligopolists include the following, except

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A high concentration ratio indicates that

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In competing with rivals, oligopolistic firms will tend to use

Correct AnswerverifiedShow Answer

A game has a Nash equilibrium when the two players' dominant strategies

Correct AnswerverifiedShow Answer

The primary advantage of displaying a game in extensive form instead of strategic form is that extensive form allows one to

Correct AnswerverifiedShow Answer

One shortcoming of the kinked demand curve model of oligopoly is that it does not explain

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A major prediction of the kinked demand curve model is

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