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In the first game, if firm B doesn't introduce a new product and firm A does, then firm A would
be better off if
A. both firms introduce new products in game 2.
304.
Answer the question based on the payoff matrix for a duopoly in which the numbers indicate
the profit from either opening a coffee shop in a small town or not opening the coffee
shop. If
both firms choose their strategies simultaneously, then
D.
both firms have a dominant strategy to not open a coffee shop.
305.
Answer the question based on the payoff matrix for a duopoly in which the numbers indicate
the profit from either opening a coffee shop in a small town or not opening the coffee
shop. If
the firms are playing a sequential game, then
A.
there is a dominant strategy for this game.
14-160
306.
Answer the question based on the payoff matrix for a duopoly in which the numbers indicate
the profit from either opening a coffee shop in a small town or not opening the coffee
shop. If
the firms are playing a sequential game, then
A.
there is first-mover advantage.
307.
In game theory, sequential games can be displayed or summarized in two forms,
A. collusive form and strategic form.
14-161
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written consent of McGraw-Hill Education.
C.
payoff matrix form and strategic form.
D.
extensive form and game-tree form.
308.
A Stackelberg duopoly (or leader-follower) game may occur in a
A.
repeated game with reciprocity.
True / False Questions
309.
Monopolistic competition and oligopoly are more common in the real world than pure
competition and monopoly.
310.
Mutual interdependence refers to the situation when entry by new firms into an industry
14-162
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written consent of McGraw-Hill Education.
will tend to shrink the profits of existing firms.
FA LSE
311.
Two important characteristics of oligopolists are that they have significant control over
price and that there is mutual interdependence among them.
312.
A homogeneous oligopoly means that the few firms in the industry have identical cost and
demand curves.
313.
Patents and copyrights were established by the government to reduce oligopoly and
monopoly power.
14-163
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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: 14-01 Describe the characteristics of oligopoly.
Test Bank: II
Topic:
Oligopoly
314.
Game-theory models analyze the interdependence of oligopolists' strategies.
315.
Game-theory analyzes oligopoly behavior by using concepts derived from the study of
games-of-chance such as dice games, solitaire, and roulette.
316.
When oligopolists collude, they collectively tend to achieve similar results as a
monopolist.
317.
One common factor that often weakens collusion among cartel members is the incentive
to cheat.
318.
Prices in oligopolistic industries are predicted to fluctuate widely and frequently
compared to other market structures.
319.
If an oligopolist's competitors follow its price cuts but ignore its price increases, the
oligopolist would end up holding its price constant even if its marginal cost changes.
320.
A cartel of four firms that controls 100 percent of the sales in a market, and faces the
same cost schedules of a monopolist, will set a price somewhat lower than the monopoly price
14-165
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written consent of McGraw-Hill Education.
for its product.
FA LSE
321.
OPEC functions as a classic example of a kinked demand curve oligopoly.
322.
The kinked-demand curve model applies to a noncollusive oligopoly situation.
323.
The kinked-demand curve model shows that oligopolistic firms tend to change their
prices frequently.
14-166
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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: 14-03 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
324.
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.
325.
Price leadership in an oligopoly entails an implicit or tacit form of collusion.
326.
Mutually cancelling advertising by oligopolistic firms tends to improve economic
efficiency in the industry.
14-167
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Di f f i cu l t y :
02 Medium
Learning Objective: 14-04 Contrast the potential positive and negative effects of
advertising.
Test Bank: II
Topic:
Oligopoly and Advertising
327.
Advertising increases the costs of firms and could be manipulative; therefore, it does not
really have a positive economic effect.
328.
If advertising succeeds in enhancing brand loyalty among consumers, it tends to enhance
the monopoly power of the seller.
329.
Advertising can increase a firm’s sales, thereby allowing the firm to gain economies of
scale, and that would be good for efficiency.
14-168
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written consent of McGraw-Hill Education.
advertising.
Test Bank: II
Topic:
Oligopoly and Advertising
330.
The adoption of a limit-pricing strategy by oligopolists would tend to make the price of
the product closer to marginal cost.
331.
Potential entry by new firms and competition from imports tend to worsen the economic
inefficiency in an oligopoly.
332.
Unlike a monopoly, an oligopoly tends to achieve allocative efficiency due to the rivalry
among several firms.
14-169
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written consent of McGraw-Hill Education.
Topic:
Oligopoly and Efficiency
333.
A zero-sum game is one where a player will always end up gaining nothing, regardless of
his strategy.
334.
According to the definition of a positive-sum game, both players get positive payoffs.
335.
Nash equilibrium is an outcome of a game from which neither rival will want to deviate.
336.
An empty threat is a statement of coercion that is not believed by the threatened firm.
14-170
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written consent of McGraw-Hill Education.
TRUE
337.
In game theory, credible threats can be used to maintain collusive agreements between
firms.
338.
Repeated games with reciprocity tend to reduce the payoffs for both players, as compared
to a one-time game with a similar payoff matrix.
339.
First-mover advantage cannot happen in a one-time simultaneous game.
14-171
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written consent of McGraw-Hill Education.
Ac c e s s i b i l i ty :
Keyboard Navigation
Blooms: Apply
Di f f i cu l t y :
03 Hard
Learning Objective: 14-06 Utilize additional game-theory terminology and demonstrate
how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: II
Topic:
Game Theory and Strategic Behavior
340.
A sequential game can be modeled in two forms: payoff-matrix form and game-tree form.
