Chapter 11 Refer Table 252 Assume There Are

89.

Refer to Table 25.2. Assume there are only four firms in the pool sweeper industry. What is the market share

for Blue Lagoon?

90.

Refer to Table 25.2. Assume there are only four firms in the pool sweeper industry. What is the

Herfindahl-Hirschman Index for this industry?

91.

Refer to Table 25.2. Assume there are only four firms in the pool sweeper industry. The U.S. Justice

Department would most likely

92.

Refer to Table 25.2. Assume there are only four firms in the pool sweeper industry. If Clean Sweep

manages to increase its sales to $3,000 per week at the current price and the size of the market does not

change, the combined weekly sales of the three other firms will

93.

Refer to Figure 25.1 for an oligopoly firm. Assume that the existing price and quantity are $10 and 2,000 units.

Which of the following statements is most likely correct?

94.

Refer to Figure 25.1 for an oligopoly firm. Assume that the existing price and quantity are $10 and 2,000 units.

Which of the following statements is most likely correct?

95.

Refer to Figure 25.1 for an oligopoly firm. The existing price and quantity are $10 and 2,000 units. If we assume

that rival firms match price decreases but not price increases, the firm’s demand curve will most likely be (from

left to right)

96. The demand curve facing an oligopoly firm is kinked because

97. An imperfection in the market mechanism that prevents optimal outcomes is called

98. Market power leads to market failure when it results in

A. Decreased market output.

99. Collusion is undesirable and illegal because

100. When oligopoly firms collude to raise prices,

101. Oligopolistic behavior includes

102. Often antitrust enforcers

103. All of the following are arguments to have less antitrust enforcement except for

104. The Herfindahl-Hirshman Index is the sum of the

A. Squared market shares of the firms in the market.

105. The Herfindahl-Hirshman Index is

A. Used to identify cases worthy of antitrust concern.

106. Suppose there are 51 firms in a market. The largest firm has sales of $50 million and each of the other

firms has sales of $1 million. The Herfindahl-Hirshman Index of this industry is

107. Suppose there are three firms in a market. The largest firm has sales of $50 million, and each of the other two

firms has sales of $25 million. The Herfindahl-Hirschman Index of this industry is

108. An In the News article titled “Eliminating the Competition with Low Prices” indicates that, in order to protect their

prices and profits, the major carriers operating at the Washington, DC, Dulles airport

109. According to an In The News article titled “Major Airlines Match Southwest’s Fare Cuts,”

110. According to “Coke and Pepsi May Call Off Pricing Battle,” price discounting (price wars) can destroy oligopoly

111. According to “OPEC Agrees to Maintain Its Oil Output Ceiling at 30 Million Barrels per Day,” OPEC wants to

behave like a monopoly, choosing a rate of industry output that maximizes total industry profit. The challenges

for all cartels, OPEC in particular, include all of the following except

A. Preventing some members from decreasing production.

monopoly outcomes.

112. In the article “ATamp;T Plan to Buy T-Mobile Means Higher Prices, Fewer Phones,” the opportunity cost of

the merger between ATamp;T and T-Mobile is

113. ATamp;T argued that the merger with T-Mobile should be approved by the Justice Department because

114. If close substitutes are available that have only slight product differentiation, a firm can still be a monopoly.

115. Oligopoly is a type of industry in which firms are independent.

116. Monopolistic competition is an industry in which products are differentiated, but in oligopolies products are

standardized.

117. Small firms can never achieve market power.

118. Adding together the market share of the largest firms in an industry results in the concentration ratio for

a market.

119. The concentration ratio computed nationally tends to understate the market power in local markets.

120. A high concentration ratio is the only way to achieve market power.

121. Since there are many college bookstores in the United States, college bookstores have no power to influence

book prices on campus.

122. Market share is the percentage of total output produced by a single firm.

123. Product differentiation is used by an oligopoly in an effort to gain market share.

124. In an oligopolistic market structure, other firms will not notice if one firm experiences increased sales.

125. An increase in the market share of one oligopolist will not affect the market share of the other firms in the

industry.

126. The kinked demand curve is really a composite of two separate demand curves.

127. An attempt by one oligopolist to increase its market share by cutting prices will leave competitors unaffected.

128. The kinked demand curve demonstrates that if an oligopolist raises its prices, it is likely to gain market share.

Topic: THE KINKED DEMAND CURVE

129. A demand curve will be kinked if rivals match price reductions but not price increases.

130. The shape of the demand curve facing an oligopolist depends on the responses of its rivals to a change in the

price of its own output.

131. Oligopolists consider the possible responses of rivals when making decisions.

132. Oligopolies can be characterized as a strategic game among rival companies.

133. The payoff to an oligopolist’s price cut depends on how its rivals respond.

134. Game theory is the study of strategic interaction between rival firms.

135. Colluding oligopolists face a conflict between maximizing joint market profit or their own market share.

136. An oligopoly will maximize profits where price equals marginal cost, just like a perfectly competitive firm.

137. The joint and individual interests of oligopolists are to maximize industry profit.

138. One type of explicit price-fixing is known as price leadership.

139. Price-fixing is an explicit agreement among producers to sell a good at a particular price.

140. A cartel is a group of firms with an implicit, informal agreement to fix prices and output shares in a particular

market.

141. Predatory pricing is a permanent price reduction designed to alter market shares or drive out competition.

142. Patents are a barrier to entry.

143. Advertising cannot serve as a barrier to entry because any firm can advertise its product.

144. Advertising makes it expensive for new firms to enter an industry.

145. An oligopolistic market may be difficult to enter because of government regulation or the expense of nonprice

competition.

146. Market power can cause market failure if it results in a misallocation of resources.

147. Since 1996, the U.S. Justice Department has shifted its focus from the concept of “unfair competition” to an

emphasis on consumer welfare.

TRUE

148. Mergers and acquisitions can act as a barrier to entry.

149. Explain how market power is measured.

150. Why is there an emphasis on nonprice competition in oligopoly markets rather than on lowering prices to gain

market share?

151. Explain the behavioral and structural approaches to government antitrust policy. Identify one practical

problem with each approach.

152. Discuss specific firm behavior that reduced the level of competition in an industry. What are the opportunity

costs of greater concentration?

Chapter 11 Test Bank Summary