231.
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
collude
to maximize joint profits, the total profits for the two firms will be
A. $1,200,000.
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232.
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 do not collude, the most likely profit is
D.
$625,000 for firm X and $625,000 for firm Y.
in order to capture a greater market share, it is most likely that other firms in that industry
will
A. pursue a strategy to reduce advertising expenditures to maintain profits.
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AACSB: Knowledge Application
Ac c e s s i b i l i ty:
Keyboard Navigation
Blooms: Understand
Di f f i cu l t y :
02 Medium
Learning Objective: 14–02 Discuss how game theory relates to oligopoly.
Test Bank: II
Topic:
Oligopoly Behavior: A Game-Theory Overview
234.
One inherent factor that tends to destroy collusion among oligopolists is the
C.
mutual interdependence.
D.
leadership of the dominant firm.
235.
Which of the following is not a reason for there being no single standard model of
oligopoly?
A. There is great diversity of situations in oligopoly markets.
236.
Two characteristics of oligopoly pricing that have frequently been observed are that
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written consent of McGraw-Hill Education.
B.
oligopolistic firms’ prices tend to fluctuate a lot, and these prices tend to move together
with each other.
C.
oligopolists tend to practice a lot of price discrimination, and there tends to be a wide
variance in oligopoly pricing.
D.
oligopolistic firms’ prices tend to fluctuate a lot, and there tends to be a wide variance in
oligopoly pricing.
237.
The kinked-demand model of oligopoly assumes that
D.
a firm faces a more elastic demand curve if it cuts its price, and less elastic if it raises its
price.
238.
If an oligopolist’s demand curve has a “kink” in it, then over some interval,
A.
the oligopolist’s marginal cost curve will have a break in it.
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kinked-demand theory, collusive pricing, and price leadership.
Test Bank: II
Topic:
Three Oligopoly Models
239.
A major prediction of the kinked demand curve model is
D.
instability of costs in oligopolies.
240.
Which statement concerning the kinked demand curve model of oligopoly is false?
A. It addresses the question of price “stickiness.”
241.
In the kinked-demand model of oligopoly, if one firm increases its price, the most likely
reaction of the other firms will be to
A.
decrease their prices.
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242.
If output is set at the kink of the kinked-demand model, then there
A.
is a strong incentive for rivals to decrease prices.
243.
A prediction from the kinked demand curve model of oligopoly is that, for an individual
firm, small changes in
A.
demand will lead to changes in price or output.
244.
One shortcoming of the kinked demand curve model of oligopoly is that it does not
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explain
A. why the marginal revenue curve is kinked.
245.
On the graph, if the oligopolist’s MC curve shifts from MC1 to MC2, the firm will charge
A.
a higher price than before and total revenue will increase.
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C. the same price as before and sell the same amount of output; total revenue will remain the
same.
D. a higher price than before and sell less output; it can’t be determined whether total revenue
will change.
246.
Given the oligopolistic firm pictured in the graph, what is the profit-maximizing price?
A.
P1
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Blooms: Understand
Di f f i cu l t y :
02 Medium
Learning Objective: 14–03 Explain the three main models of oligopoly pricing and output:
kinked-demand theory, collusive pricing, and price leadership.
Test Bank: II
Topic:
Three Oligopoly Models
247.
Collusive control over price may permit oligopolists to
A.
use new technology, achieve economies of scale, and get government subsidies.
248.
If oligopolistic firms facing similar cost and demand conditions successfully collude,
price and output results in this industry will be most accurately predicted by which of the
following models?
A.
the kinked demand curve model of oligopoly
249.
A cartel is
A.
a form of covert collusion.
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written consent of McGraw-Hill Education.
B.
legal in the United States.
C.
always successful in raising profits.
D. a formal agreement among firms to collude.
250.
A major reason that firms form a cartel is to
A.
reduce the elasticity of demand for the product.
251.
Collusion among oligopolistic firms
A.
is common in world markets, but does not happen in the United States.
252.
The incentive to cheat within a cartel increases with an increase in the following factors,
except
A. the number of firms in the cartel.
253.
In an oligopoly, producers’ agreements to restrict output tend to be unstable because each
firm has an incentive to
D.
establish competitive price and output levels.
254.
Other things being equal, a firm in a cartel will most likely cheat on a price-fixing
agreement by
A.
increasing price and restricting its output.
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Ac c e s s i b i l i ty:
Keyboard Navigation
Blooms: Understand
Di f f i cu l t y :
02 Medium
Learning Objective: 14–03 Explain the three main models of oligopoly pricing and output:
kinked-demand theory, collusive pricing, and price leadership.
Test Bank: II
Topic:
Three Oligopoly Models
255.
Which would make it easier to maintain an effective collusive agreement in a cartel?
A. the emergence of a number of potential entrant firms
256.
The Organization of Petroleum Exporting Countries (OPEC) is an international cartel. If
the cartel were to hire a consulting firm to monitor the production rates of member countries,
the economic reason for this monitoring would be to
A.
make sure that each member country is producing at an output level at which price equals
marginal cost.
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Test Bank: II
Topic:
Three Oligopoly Models
257.
Informal collusion to restrict output and increase prices is sometimes referred to as a
D. kinked-demand oligopoly.
258.
Which constitutes an obstacle to collusion among oligopolists?
A. a standardized product
259.
Obstacles to collusion among oligopolists include the following, except
A.
demand and costs differences among firms.
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written consent of McGraw-Hill Education.
Blooms: Understand
Di f f i cu l t y :
02 Medium
Learning Objective: 14–03 Explain the three main models of oligopoly pricing and output:
kinked-demand theory, collusive pricing, and price leadership.
Test Bank: II
Topic:
Three Oligopoly Models
260.
Which of the following is not true of covert collusion?
A.
It occurs when formal cartels are not legal.
261.
The strategy of establishing a price that prevents the entry of new firms is called
A. cartel pricing.
262.
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
A.
markup pricing.
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written consent of McGraw-Hill Education.
B.
predatory pricing.
C. price leadership.
D. explicit price collusion.
263.
Price leadership represents a situation where oligopolistic firms
A.
reduce their reliance on nonprice competition.
264.
Limit pricing by a price leader in an oligopoly refers to the strategy of setting a price
D.
that maximizes profits for the price leader, but not necessarily for the other firms.
265.
Price wars among oligopolists tend to
A. strengthen the price leadership model.
266.
In competing with rivals, oligopolistic firms will tend to use
A. price cuts because they do not add to costs like advertising.
267.
The effects of advertising on a firm’s profits and efficiency
A.
are definitely positive.
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written consent of McGraw-Hill Education.
Learning Objective: 14–04 Contrast the potential positive and negative effects of
advertising.
Test Bank: II
Topic:
Oligopoly and Advertising
268.
A potential negative effect of advertising for society is that it can
A.
be the major cause of price wars among firms in the industry.
269.
A positive effect of advertising for society is that it
A. increases market share for the dominant firm in the industry.
270.
Advertising may be an efficiency-enhancing activity when it results in the following,
except when it
A.
enhances competition among sellers.
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271.
Economic efficiency can suffer as a result of advertising, when it
A.
enhances competition among oligopolistic firms.
272.
In an oligopolistic market, there is likely to be
A.
little consideration of the actions of rival firms.
273.
In the long run, an oligopoly
A. will produce less than a monopoly.
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C.
will always produce in the range of decreasing returns to scale.
D.
will produce on the portion of the demand curve where demand is price-inelastic.
274.
Which of the following best describes the efficiency results in oligopoly?
A.
P > MC and P = minimum ATC.
275.
Which would be a qualification to the view that oligopoly is allocatively and
productively inefficient?
A.
Less foreign competition has stimulated more price competition in oligopolies.
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Test Bank: II
Topic:
Oligopoly and Efficiency
276.
The economic inefficiency in an oligopoly may be reduced by the following, except
A.
increased competition from foreign producers.
277.
Which of the following factors tends to foster the development of an oligopoly?
D.
low barriers to entry
278.
Some observers assert that oligopolies are less socially desirable than pure monopolies
because
C.
mutual interdependence among firms in an oligopoly would lead to more inefficiencies than