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Which of the following best explains why airlines often cut their ticket prices at the last-minute in order to fill the remaining empty seats on their flights?


A) Fixed costs in the airline industry are very large, but the marginal cost of flying one more passenger is very low.
B) Airlines receive a subsidy from the government for each flight that is fully booked and departs on time.
C) The Federal Aviation Administration ranks each airline based on the percentage of flights that are fully booked. These rankings affect the decisions of firms to use a particular airline to fly their employees to business meetings.
D) Cutting prices makes the airlines more popular with their customers, who may fly with the same airline in the future as the result of buying low-price tickets.

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Table 14-8 Table 14-8 Two rival oligopolists in the athletic supplements industry, the Power Fuel Company and the Brawny Juice Company, have to decide on their pricing strategy. Each can choose either a high price or a low price. Table 14-8 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts. -Refer to Table 14-8.If Brawny Juice selects a high price,what is Power Fuel's best strategy and what will Power Fuel earn as a result of this strategy? A) Power Fuel will select a low price and earn $8 million. B) Power Fuel will select a low price and earn $16 million. C) Power Fuel will select a high price and earn $12 million. D) Power Fuel will select a high price and earn $16 million. Two rival oligopolists in the athletic supplements industry, the Power Fuel Company and the Brawny Juice Company, have to decide on their pricing strategy. Each can choose either a high price or a low price. Table 14-8 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts. -Refer to Table 14-8.If Brawny Juice selects a high price,what is Power Fuel's best strategy and what will Power Fuel earn as a result of this strategy?


A) Power Fuel will select a low price and earn $8 million.
B) Power Fuel will select a low price and earn $16 million.
C) Power Fuel will select a high price and earn $12 million.
D) Power Fuel will select a high price and earn $16 million.

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A four-firm concentration ratio measures


A) the extent to which industry sales are concentrated among the four largest firms in the industry.
B) the price elasticity of demand among the four largest firms in an industry.
C) the number of firms in an industry.
D) the price elasticity of demand in an industry.

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Which of the following is not necessarily a consequence of occupational licensing laws?


A) They restrict competition.
B) Consumers pay higher prices for the services of licensed professions.
C) They result in a higher quality of service.
D) They ensure that licensed professionals meet some minimum qualifications.

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Consider two single-malt whiskey distillers,Laphroaig and Knockando.If they advertise,they can both sell more whiskey and increase their revenue.However,the cost of advertising more than offsets the increased revenue so that each distiller ends up with a lower profit than if they do not advertise.On the other hand,if only one advertises,that distiller increases its market share and also its profit. a.Construct a payoff matrix using the following hypothetical information: If neither distiller advertises: each earns a profit of $35 million per year.If both advertise: each earns a profit of $20 million per year.If one advertises and the other does not: the distiller who advertises earns a profit of $50 million and the distiller who does not advertise earns a profit of $9 million. b.If the two distillers agree to coordinate their strategies,what is the outcome?

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a.The payoff matrix: blured image b.If the...

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All of the following are examples of oligopolistic markets except


A) the broadcasting industry
B) aircraft manufacture
C) college bookstores
D) seafood restaurant chains

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Which of the following is the best example of an oligopolistic industry?


A) the beef market
B) the pharmaceutical industry
C) public education
D) the beauty products industry

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Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?


A) producing more of its product
B) advertising that it will match its rival's price
C) reneging on a previous tacit agreement with rival firms to charge identical high prices
D) ignoring the pricing decisions of the other firms

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Figure 14-2 Figure 14-2 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 14-2 shows the decision tree for this game. -Refer to Figure 14-2.If the government delays Gigacom's entry and Xenophone moves first,is a threat by Gigacom that it will provide DSL service if Gigacom provides cable service a credible threat? A) No, because Gigacom will lose $4.5 million in profits if it carries out its threat. B) Yes, because Gigacom's DSL service will drive Xenophone out of business. C) No, because as a second mover, it has no choice but to abide by the choices of the first mover. D) Yes, Xenophone stands to lose $3 million in profit. 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 14-2 shows the decision tree for this game. -Refer to Figure 14-2.If the government delays Gigacom's entry and Xenophone moves first,is a threat by Gigacom that it will provide DSL service if Gigacom provides cable service a credible threat?


A) No, because Gigacom will lose $4.5 million in profits if it carries out its threat.
B) Yes, because Gigacom's DSL service will drive Xenophone out of business.
C) No, because as a second mover, it has no choice but to abide by the choices of the first mover.
D) Yes, Xenophone stands to lose $3 million in profit.

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Collusion occurs when


A) a firm chooses a level of output to maximize its own profit.
B) two firms' price and output decisions come into conflict.
C) there is an agreement among firms to charge the same price or otherwise not to compete.
D) firms refuse to follow their price leaders.

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A subgame-perfect equilibrium is a Nash equilibrium in which no player can make himself better off by changing his decision at any decision node.

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The value of the four-firm concentration ratio that many economists consider indicative of the existence of an oligopoly in a particular industry is


A) anything greater than 10 percent.
B) anything greater than 20 percent.
C) anything greater than 30 percent.
D) anything greater than 40 percent.

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As a measure of competition in an industry,concentration ratios have several flaws.One of these flaws is that concentration ratios


A) assume that all industries have low barriers to entry.
B) assume that a ratio less than 40 percent means an industry is perfectly competitive.
C) assume there are only four firms in an industry.
D) are calculated for the national market, even though competition in some industries is mainly local.

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Table 14-3 Table 14-3 Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 14-3 shows the profits earned per day by each country. Low output corresponds to producing the OPEC assigned quota and high output corresponds to producing the maximum capacity beyond the assigned quota. -Refer to Table 14-3.Is there a dominant strategy for Saudi Arabia and,if so,what is it? A) Yes, the dominant strategy is to produce a high output. B) Yes, the dominant strategy is to produce a low output. C) No, there is no dominant strategy. D) Yes, it has a dominant strategy depending on what Nigeria does. Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 14-3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota. -Refer to Table 14-3.Is there a dominant strategy for Saudi Arabia and,if so,what is it?


A) Yes, the dominant strategy is to produce a high output.
B) Yes, the dominant strategy is to produce a low output.
C) No, there is no dominant strategy.
D) Yes, it has a dominant strategy depending on what Nigeria does.

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A patent is a government-imposed entry barrier because


A) it allows a firm to achieve economies of scale.
B) it is a key input owned by the firm that is granted the patent.
C) it limits the quantity of a good that can be imported into a country.
D) it gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.

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The justification for occupational licensing laws is that they protect the public from incompetent practitioners (for example,lawyers and medical doctors) ,but the laws also result in


A) higher prices and restrictions on the number of people who can enter the professions affected by the laws.
B) economies of scale.
C) ownership of a key input.
D) an increase in the amount of output required to achieve minimum efficient scale.

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A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a


A) Nash equilibrium.
B) dominant strategy.
C) collusion.
D) pay-off matrix.

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Economists use game theory to analyze oligopolies because


A) real markets are too complicated to analyze without using games.
B) it is more enjoyable for economists and students to learn by playing games.
C) game theory helps us to understand why interactions among firms are crucial in determining profitable business strategies.
D) game theory is useful in understanding the actions of firms that are price takers.

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Which of the following is not part of an oligopolist's business strategy?


A) deciding on how to manage relations with suppliers
B) choosing what new technologies to adopt
C) selecting which new markets to enter
D) independently setting a product's price without consideration of its rivals' pricing policies

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Table 14-1 Table 14-1 Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. Table 14-1 shows the payoff matrix for this advertising game. -Refer to Table 14-1.Is there a dominant strategy for Star Connections and if so,what is it? A) No, its outcome depends on what Godrickporter does. B) Yes, Star Connections should increase its advertising spending. C) Yes, Star Connections should reduce its advertising spending. D) Yes, Star Connections' dominant strategy is to collude with Godrickporter. Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. Table 14-1 shows the payoff matrix for this advertising game. -Refer to Table 14-1.Is there a dominant strategy for Star Connections and if so,what is it?


A) No, its outcome depends on what Godrickporter does.
B) Yes, Star Connections should increase its advertising spending.
C) Yes, Star Connections should reduce its advertising spending.
D) Yes, Star Connections' dominant strategy is to collude with Godrickporter.

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