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The Department Stores industry is highly concentrated.What does this mean?


A) There are many large stores such as Hudson Bay Company, Target, and Giant Tiger/Tigre Géant, in this industry.
B) A few large stores account for a significant portion of industry sales.
C) There is cut-throat competition in this industry because there are no entry barriers.
D) The sales volume in this industry is consistently high.

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Producing a differentiated product occurs in which of the following industries?


A) oligopoly, monopolistic competition and perfect competition
B) monopolistic competition only
C) oligopoly only
D) monopolistic competition and oligopoly

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If economies of scale are significant, the typical firm will not reach the minimum point on its long-run average cost curve until it has produced a large fraction of industry sales.

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A characteristic found only in oligopolies is


A) break even level of profits.
B) interdependence of firms.
C) independence of firms.
D) products that are slightly different.

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The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium.

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In Michael Porter's five competitive forces model, what do the competitive forces determine?

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The five competitive forces determine the level of competition in an industry.

According to an article the Wall Street Journal, "The big car makers are pushing a wide Array of new technology into production, responding to relentless competitive pressure, Rising energy prices and consumer demand for better safety. Source: Joseph B.White, "Ford, GM Eye Shift in Buying Habits," Wall Street Journal, May 22, 2006. Which of Porter's competitive forces does this statement allude to?


A) the threat of competition from new entrants
B) competition from foreign auto manufacturers
C) competition from existing firms within the industry
D) competition from substitute products from outside the industry

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A member of a cartel like OPEC has an incentive to


A) argue for larger production quotas for each member of the cartel.
B) agree to a low cartel production level and then produce more than its quota.
C) abide by its individual production quota.
D) support equal production quotas for each member.

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Which of the following is important in determining the extent of competition in an industry?


A) the minimum level of short run average total costs of production
B) the minimum efficient scale of production relative to market demand
C) whether or not the industry product is differentiated or standardized
D) the level of market demand for the industry's product

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An oligopolistic industry is characterized by a few large firms acting independently.

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What is a sequential game? How are decision trees used to analyze sequential games?

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In a sequential game one player (firm)ac...

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Figure 12.2 Figure 12.2 The government of a developing country plans to award two firms, Gigacom and Xenophone, the exclusive rights to share the market for high speed internet service. Gigacom and Xenophone can both provide the service either via television cable lines or via direct subscriber line (DSL) . Suppose the government is considering a proposal to delay one firm's entry into the market on the grounds that it wants to prevent harmful competition. Figure 12.2 shows the decision tree for this game. -Refer to Figure 12.2.Now suppose that the government delays Xenophone's entry and Gigacom moves first, what is the likely outcome in the market? A) Both offer internet service via cable line; Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million. B) Both offer DSL internet service; Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million. C) Xenophone offers DSL internet service and earns a profit of $5 million while Gigacom offer internet service via cable line and earns a profit of $6.5 million. D) Xenophone offers internet service via cable line and earns a profit of $4 million while Gigacom offers DSL internet service and earns a profit of $4.5 million. The government of a developing country plans to award two firms, Gigacom and Xenophone, the exclusive rights to share the market for high speed internet service. Gigacom and Xenophone can both provide the service either via television cable lines or via direct subscriber line (DSL) . Suppose the government is considering a proposal to delay one firm's entry into the market on the grounds that it wants to prevent "harmful" competition. Figure 12.2 shows the decision tree for this game. -Refer to Figure 12.2.Now suppose that the government delays Xenophone's entry and Gigacom moves first, what is the likely outcome in the market?


A) Both offer internet service via cable line; Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million.
B) Both offer DSL internet service; Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million.
C) Xenophone offers DSL internet service and earns a profit of $5 million while Gigacom offer internet service via cable line and earns a profit of $6.5 million.
D) Xenophone offers internet service via cable line and earns a profit of $4 million while Gigacom offers DSL internet service and earns a profit of $4.5 million.

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A

Figure 12.4 Figure 12.4 Rainbow Writer (RW) is a small online company selling a highly rated software package for printing color labels directly onto CDs. The firm currently earns a profit of $2 million per year selling its package exclusively on its Web site. Odeon, the producer of the most popular software package for editing and burning CDs and DVDs, has expressed interest in bundling Rainbow Writer's product into its own package. Odeon expects that bundling would further boost its sales and allow it to sell the new bundled product at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 12.4 shows the decision tree for the Rainbow Writer-Odeon bargaining game. -Refer to Figure 12.4.What is the equilibrium outcome in this game and is this a subgame-perfect equilibrium? A) In the equilibrium, neither offer is accepted as Rainbow Writer holds out for a better deal. The two rejection outcomes are subgame-perfect equilibria. B) In the equilibrium, Odeon offers $40 per copy of the software package and is accepted but this is not a subgame-perfect equilibrium. C) Either offer of $30 or $40 per copy of the software package is accepted and these two equilibria are subgame-perfect equilibria. D) Either offer of $30 or $40 per copy of the software package is accepted but these are not are subgame-perfect equilibria. Rainbow Writer (RW) is a small online company selling a highly rated software package for printing color labels directly onto CDs. The firm currently earns a profit of $2 million per year selling its package exclusively on its Web site. Odeon, the producer of the most popular software package for editing and burning CDs and DVDs, has expressed interest in bundling Rainbow Writer's product into its own package. Odeon expects that bundling would further boost its sales and allow it to sell the new bundled product at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 12.4 shows the decision tree for the Rainbow Writer-Odeon bargaining game. -Refer to Figure 12.4.What is the equilibrium outcome in this game and is this a subgame-perfect equilibrium?


A) In the equilibrium, neither offer is accepted as Rainbow Writer holds out for a better deal. The two rejection outcomes are subgame-perfect equilibria.
B) In the equilibrium, Odeon offers $40 per copy of the software package and is accepted but this is not a subgame-perfect equilibrium.
C) Either offer of $30 or $40 per copy of the software package is accepted and these two equilibria are subgame-perfect equilibria.
D) Either offer of $30 or $40 per copy of the software package is accepted but these are not are subgame-perfect equilibria.

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Oligopolies exist and do not attract new rivals because


A) of competition.
B) of barriers to entry.
C) the firms keep profits and prices so low that no rivals are attracted.
D) there can be no product differentiation.

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In Porter's Five Competitive Forces model, "competition from substitute goods or services" refers to


A) substitute products that come from outside the industry.
B) substitute products that come from domestic competitors in the same industry.
C) substitute products that come from foreign competitors in the same industry.
D) competition from producers of substitutes who outsource their production.

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A dominant strategy


A) is one that is the best for a firm, no matter what strategies other firms use.
B) is one that a firm is forced into following by government policy.
C) involves colluding with rivals to maximize joint profits.
D) involves deciding what to do after all rivals have chosen their own strategies.

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What is meant by the term "government-imposed barrier to entry"? Why would a government be willing to impose barriers to entering an industry?

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Government imposed barriers to entry are...

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What is an oligopoly? Give two examples of oligopolistic industries in Canada.

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Oligopoly is a market structur...

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A four-firm concentration ratio measures


A) the fraction of an industry's sales accounted for by the four largest firms.
B) the production of any four firms in an industry.
C) how the four largest firms became so concentrated.
D) the fraction of employment of the four largest firms in an industry.

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A

An oligopolistic industry is characterized by all of the following except


A) existence of entry barriers.
B) the possibility of reaping long run economic profits.
C) firms pursuing aggressive business strategies, independent of rivals' strategies.
D) production of standardized products.

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