Question 1

Economies of scale can lead to an oligopolistic market structure because

Accepted Answer

A)  if larger firms have lower costs,new small entrants will not be able to produce at the low costs achieved by the big established firms.
B)  if economies of scale are insignificant,only a few firms are able to produce at the low costs achieved by the big established firms.
C)  a few firms can force rivals to produce at low levels of output.
D)  a few firms can use high profits to keep out new entrants.

Question 2

Rainbow Writer (RW) is a small online company selling a highly rated software package for engraving words onto objects produced by 3D printers.The firm currently earns a profit of $2 million per year selling its package exclusively on its Website.Odeon,the producer of the most popular 3D printers has expressed interest in bundling Rainbow Writer's product with its printers.Odeon expects that bundling would further boost its sales and allow it to sell its printers at a higher price,thus raising its profits beyond its current profit of $12 million.Figure 14.4 shows the decision tree for the Rainbow Writer-Odeon bargaining game.
-Refer to Figure 14-4.How will Rainbow Writer respond to Odeon's two possible offers?

Accepted Answer

A)  Rainbow Writer will reject either offer.
B)  Rainbow Writer will only accept an offer of $30 per copy of the software package.
C)  Rainbow Writer will only accept an offer of $40 per copy of the software package.
D)  Rainbow Writer will accept either offer.

Question 3

A patent is an example of

Accepted Answer

A)  how ownership of a key input creates a barrier to entry.
B)  a government-imposed barrier to entry.
C)  occupational licensing.
D)  how market failure can lead to oligopoly.

Question 4

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.

Accepted Answer

A) True 
 B)False

Question 5

All of the following are ways by which existing firms can deter the entry of new firms into an industry except

Accepted Answer

A)  continuously producing new and improved products.
B)  earning less than maximum profit.
C)  advertising products aggressively.
D)  threatening to raise prices.

Question 6

Natural resource cartels such as OPEC are inherently unstable because their members operate with excess capacity and have an incentive to cheat on their output quotas.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not among Porter's competitive forces?

Accepted Answer

A)  power of buyers
B)  power of suppliers
C)  threat of new entrants
D)  changing consumer tastes

Question 8

Since 1972,the world price of oil has been largely determined by OPEC,which controls about 75 percent of the world's proven oil reserves.Since 1972 the price of oil has

Accepted Answer

A)  fluctuated.OPEC's situation is an example of a prisoner's dilemma.
B)  risen slowly,but steadily.Members of OPEC fear that if they raise the price of oil too quickly this will lead oil-buying nations to accuse OPEC of price gouging,which is illegal under international law.
C)  steadily fallen through the 1970s,then risen continually in the years since then.OPEC's actions are an example of implicit collusion.
D)  been tied by OPEC to the rate of inflation in the United States.If,for example,the rate of inflation is 5 percent in one year,OPEC will raise the price of oil by 5 percent the next year.

Question 9

A characteristic found only in oligopolies is

Accepted Answer

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

Question 10

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.What is the Nash equilibrium in this game?

Accepted Answer

A)  There is no Nash equilibrium.
B)  Godrickporter increases its advertising budget,but Star Connections does not.
C)  Star Connections increases its advertising budget,but Godrickporter does not.
D)  Both Godrickporter and Star Connections increase their advertising budgets.

Question 11

OPEC periodically meets to agree to restrict the cartel's oil output,and yet almost every member of OPEC produces more than its own output quota.This suggests that OPEC has

Accepted Answer

A)  a cooperative equilibrium.
B)  a noncooperative equilibrium.
C)  new potential entrants.
D)  a threat of substitute goods.

Question 12

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,what is the likely outcome in the market?

Accepted Answer

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.

Question 13

Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 4.At the start of the game each firm charges a low price and each earns a profit of $7,000.
-Refer to Table 14-2.For each firm,is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000?

Accepted Answer

A)  Yes,the firms can implicitly collude and agree to charge a higher price.
B)  No,there is no incentive for each firm to consider any other strategy.
C)  No,any other strategy hurts consumers.
D)  Yes,each firm can implicitly agree to increase output and not to deviate from a low price.

Question 14

Two firms would sometimes be better off if they got together and agreed to charge a high price,rather than to compete and risk having to charge a lower,competitive price.What is the greatest deterrent to this strategy?

Accepted Answer

A)  The firms may find that the price they charge is greater than the price that would maximize their profits.
B)  An agreement by firms to charge high prices is illegal.The government can fine the firms and send their managers to jail.
C)  Consumers may resent having to pay high prices and not buy from either of the firms.
D)  One of the firms may decide to lower its price and take business away from the firm that charged the high price.

Question 15

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?

Accepted Answer

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.

Question 16

An equilibrium in a game in which players pursue their own self-interest is called

Accepted Answer

A)  a Nash equilibrium.
B)  a cooperative equilibrium.
C)  a noncooperative equilibrium.
D)  a prisoner's dilemma.

Question 17

Table 14-7
  The payoff matrix shown above assumes that Perfect Plants and Florabunda Florist must decide whether to offer same-day delivery for their products.The matrix shows how much profit each firm will earn if it does or does not offer same-day delivery.The amount of profit for one firm depends on whether the other firm offers same-day delivery.
-Refer to Table 14-7.Which of the following statements is true?

Accepted Answer

A)  Given that Florabunda offers same-day delivery,Perfect's best strategy is to not offer same-day delivery.
B)  Given that Perfect offers same-day delivery,Florabunda's best strategy is to offer same-day delivery.
C)  Perfect and Florabunda will agree to collude in order to maximize their profits.
D)  Neither Perfect nor Florabunda will offer same-day delivery;this decision will decrease their costs and allow each firm to earn more than $1,800 million in profits.

Question 18

Ming and Henri each run one of the two dry cleaning facilities in the town of Scaraby.Both consider offering free pickup and delivery services.Table 14-5 shows the payoff matrix containing the expected quarterly profits for each firm.
-Refer to Table 14-5.Does Ming have a dominant strategy? If yes,what is it?

Accepted Answer

A)  Yes,Ming's dominant strategy is to offer free pickup and delivery.
B)  No,Ming does not a dominant strategy - his best outcome depends on what Henri does.
C)  Yes,Ming's dominant strategy is to not to offer free pickup and delivery.
D)  Yes,Ming's dominant strategy is to wait to see what Henri does first.

Question 19

A four-firm concentration ratio measures

Accepted Answer

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.

Question 20

A subgame is a simultaneous game embedded in a sequential game.

Accepted Answer

A) True 
 B)False

Exam 14: Oligopoly: Firms in Less Competitive Markets

A four-firm concentration ratio measures

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Two firms would sometimes be better off if they got together and agreed to charge a high price,rather than to compete and risk having to charge a lower,competitive price.What is the greatest deterrent to this strategy?

Correct Answer
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All of the following are ways by which existing firms can deter the entry of new firms into an industry except

Correct Answer
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Economies of scale can lead to an oligopolistic market structure because

Correct Answer
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A patent is an example of

Correct Answer
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Which of the following is not among Porter's competitive forces?

Correct Answer
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Natural resource cartels such as OPEC are inherently unstable because their members operate with excess capacity and have an incentive to cheat on their output quotas.

Correct Answer
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Since 1972,the world price of oil has been largely determined by OPEC,which controls about 75 percent of the world's proven oil reserves.Since 1972 the price of oil has

Correct Answer
verified

OPEC periodically meets to agree to restrict the cartel's oil output,and yet almost every member of OPEC produces more than its own output quota.This suggests that OPEC has

Correct Answer
verified

Correct Answer
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A subgame is a simultaneous game embedded in a sequential game.

Correct Answer
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A characteristic found only in oligopolies is

Correct Answer
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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.

Correct Answer
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An equilibrium in a game in which players pursue their own self-interest is called

Correct Answer
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Correct Answer
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Exam 14: Oligopoly: Firms in Less Competitive Markets

A four-firm concentration ratio measures

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Two firms would sometimes be better off if they got together and agreed to charge a high price,rather than to compete and risk having to charge a lower,competitive price.What is the greatest deterrent to this strategy?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

All of the following are ways by which existing firms can deter the entry of new firms into an industry except

Correct AnswerverifiedShow Answer

Economies of scale can lead to an oligopolistic market structure because

Correct AnswerverifiedShow Answer

A patent is an example of

Correct AnswerverifiedShow Answer

Which of the following is not among Porter's competitive forces?

Correct AnswerverifiedShow Answer

Natural resource cartels such as OPEC are inherently unstable because their members operate with excess capacity and have an incentive to cheat on their output quotas.

Correct AnswerverifiedShow Answer

Since 1972,the world price of oil has been largely determined by OPEC,which controls about 75 percent of the world's proven oil reserves.Since 1972 the price of oil has

Correct AnswerverifiedShow Answer

OPEC periodically meets to agree to restrict the cartel's oil output,and yet almost every member of OPEC produces more than its own output quota.This suggests that OPEC has

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A subgame is a simultaneous game embedded in a sequential game.

Correct AnswerverifiedShow Answer

A characteristic found only in oligopolies is

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

An equilibrium in a game in which players pursue their own self-interest is called

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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