Question 1

Which of the following is a unique feature of oligopoly?

Accepted Answer

A)  mutual interdependence
B)  advertising expenditures
C)  product differentiation
D)  nonprice competitionE) A) and D)
F) A) and C)

Question 2

Other things being equal, a firm in a cartel will most likely cheat on a price-fixing agreement by

Accepted Answer

A)  increasing price and restricting its output.
B)  organizing promotions of the product.
C)  secretly increasing sales to a large number of small customers.
D)  secretly lowering price and increasing sales to a few customers.E) C) and D)
F) All of the above

Question 3

Refer to the data. Suppose that enforcement of antitrust laws resulted in any firm in this industry with market share of 20 percent or above to be split into two firms, with each having equal market share. That would cause this industry to

Accepted Answer

A)  remain monopolistically competitive.
B)  change from monopolistic competition to oligopoly.
C)  change from oligopoly to monopolistic competition.
D)  remain an oligopoly.E) C) and D)
F) B) and D)

Question 4

What is the price leadership model of oligopoly pricing?

Accepted Answer

Price leadership entails a type of infor...

Question 5

Describe the positive effects of advertising.

Accepted Answer

The positive effects of advertising are ...

Question 6

This industry shown in this table illustrates

Accepted Answer

A)  pure competition.
B)  monopolistic competition.
C)  oligopoly.
D)  pure monopoly.E) A) and B)
F) A) and C)

Question 7

Which of the following statements is true?

Accepted Answer

A)  Nash equilibriums exist only in games with dominant strategies.
B)  Dominant strategies do not exist in repeated games.
C)  Collusive agreements will always break down in repeated games.
D)  Games with a known ending date undermine reciprocity strategies.E) A) and D)
F) B) and C)

Question 8

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 9

Refer to the payoff matrix. Suppose that Speedy Bike and Power Bike are the only two bicycle manufacturing firms serving the market. Both can choose large or small advertising budgets. If this is a one-time, simultaneous game, which cell represents the final outcome we would expect to occur?

Accepted Answer

A)  A
B)  B
C)  C
D)  DE) All of the above
F) A) and D)

Question 10

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

Question 11

A firm in an oligopoly is similar to a monopoly in that

Accepted Answer

A)  both firms do not face competition from others.
B)  both firms could have significant market power and control over price.
C)  both firms face very inelastic demand for their products.
D)  both firms do not need to advertise.E) A) and D)
F) B) and C)

Question 12

Oligopoly is more difficult to analyze than other market models because

Accepted Answer

A)  the number of firms is so large that market behavior cannot be accurately predicted.
B)  the marginal cost and marginal revenue curves of an oligopolist play no part in the determination of equilibrium price and quantity.
C)  of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models.
D)  unlike the firms of other market models, it cannot be assumed that oligopolists are profit maximizers.E) A) and D)
F) A) and B)

Question 13

The economic inefficiency in an oligopoly may be reduced by the following, except

Accepted Answer

A)  increased competition from foreign producers.
B)  limit pricing due to potential entrants.
C)  economic profits used to fund technological advance.
D)  aggressive advertising by rivals.E) B) and C)
F) B) and D)

Question 14

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 15

Refer to the data. Suppose that firms A and F merged into a single firm. The four-firm concentration ratio and the Herfindahl index would be

Accepted Answer

A)  90 percent and 2,100, respectively.
B)  80 percent and 2,100, respectively.
C)  100 percent and 2,200, respectively.
D)  90 percent and 2,200, respectively.E) None of the above
F) A) and B)

Question 16

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

Question 17

Answer the question based on the payoff matrix for a duopoly in which the numbers indicate the profit in thousands of dollars for a high-price or a low-price strategy. If both firms operate independently and actively compete with each other, the most likely profit is

Accepted Answer

A)  $400,000 for firm X and $400,000 for firm Y.
B)  $725,000 for firm X and $475,000 for firm Y.
C)  $475,000 for firm X and $725,000 for firm Y.
D)  $625,000 for firm X and $625,000 for firm Y.E) None of the above
F) A) and D)

Question 18

Suppose that firms A and D in this table merged into a single firm. The four-firm concentration ratio and the Herfindahl index would

Accepted Answer

A)  remain unchanged and rise, respectively.
B)  rise and remain unchanged, respectively.
C)  both fall.
D)  both rise.E) A) and D)
F) A) and C)

Question 19

If output is set at the kink of the kinked-demand model, then there

Accepted Answer

A)  is a strong incentive for rivals to decrease prices.
B)  is a strong incentive for rivals to increase prices.
C)  is one price at which marginal revenue equals marginal cost.
D)  are several prices at which marginal revenue equals marginal cost.E) C) and D)
F) A) and D)

Question 20

A homogeneous oligopoly means that the few firms in the industry have identical cost and demand curves.

Accepted Answer

A) True 
 B)False

Exam 14: Oligopoly and Strategic Behavior

This industry shown in this table illustrates

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In competing with rivals, oligopolistic firms will tend to use

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Other things being equal, a firm in a cartel will most likely cheat on a price-fixing agreement by

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

A homogeneous oligopoly means that the few firms in the industry have identical cost and demand curves.

Correct AnswerverifiedShow Answer

What is the price leadership model of oligopoly pricing?

Correct AnswerverifiedPrice leadership entails a type of infor...View AnswerShow Answer

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

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Describe the positive effects of advertising.

Correct AnswerverifiedThe positive effects of advertising are ...View AnswerShow Answer

If output is set at the kink of the kinked-demand model, then there

Correct AnswerverifiedShow Answer

Suppose that firms A and D in this table merged into a single firm. The four-firm concentration ratio and the Herfindahl index would

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Oligopoly is more difficult to analyze than other market models because

Correct AnswerverifiedShow Answer

Refer to the data. Suppose that firms A and F merged into a single firm. The four-firm concentration ratio and the Herfindahl index would be

Correct AnswerverifiedShow Answer

Refer to the payoff matrix. Suppose that Speedy Bike and Power Bike are the only two bicycle manufacturing firms serving the market. Both can choose large or small advertising budgets. If this is a one-time, simultaneous game, which cell represents the final outcome we would expect to occur?

Correct AnswerverifiedShow Answer

The economic inefficiency in an oligopoly may be reduced by the following, except

Correct AnswerverifiedShow Answer

Refer to the data. Suppose that enforcement of antitrust laws resulted in any firm in this industry with market share of 20 percent or above to be split into two firms, with each having equal market share. That would cause this industry to

Correct AnswerverifiedShow Answer

Which of the following statements is true?

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A firm in an oligopoly is similar to a monopoly in that

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Which of the following is a unique feature of oligopoly?

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Answer the question based on the payoff matrix for a duopoly in which the numbers indicate the profit in thousands of dollars for a high-price or a low-price strategy. If both firms operate independently and actively compete with each other, the most likely profit is

Correct AnswerverifiedShow Answer

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Price leadership entails a type of infor...
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The positive effects of advertising are ...
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