Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
If we observe firms earning zero economic profits in the short run, we know that
1)
A)
there must not be any barriers to entry.
B)
any market structure is possible since firms under any market structure can earn zero profits
at some time.
C)
the industry must be perfectly competitive.
D)
the industry must be either perfectly competitive or monopolistically competitive.
2)
Monopolistically competitive markets and oligopolies are similar in that
2)
A)
the number of firms is identical.
B)
there is mutual interdependence amongst the firms.
C)
nonprice competition is a tool used.
D)
the kinked demand curve can be used to analyze the firms’ pricing decisions.
3)
Which of the following is an example of a vertical merger?
3)
A)
Northeastern Illinois University merging with Roosevelt University.
B)
Northeastern Illinois University going from a public to a private university.
C)
Northeastern Illinois University merging with McDonald’s.
D)
Northeastern Illinois University merging with a training academy for new professors.
4)
A group of firms that try to work together to earn monopoly profits is called a(n)
4)
A)
natural monopoly.
B)
public enterprise.
C)
patent.
D)
cartel.
5)
Suppose an industry has total sales of $25 million per year. The two largest firms have sales of $6
million each, the third largest firm has sales of $2 million, and the fourth largest firm has sales of $1
million. The four–firm concentration ratio for this industry is
5)
A)
25 percent.
B)
50 percent.
C)
60 percent.
D)
36 percent.
6)
A game in which all the players are better off at the end of the game is a
6)
A)
positive–sum game.
B)
dominant strategy game.
C)
noncooperative game.
D)
tit–for–tat game.
7)
An action that is the best choice under all conditions is known as the
7)
A)
tit–for–tat strategy.
B)
profit–maximizing strategy.
C)
prisoner’s dilemma.
D)
dominant strategy.
8)
If the United States’ largest bakery buys an agricultural firm that specializes in growing wheat, we
would have an example of
8)
A)
a monopoly.
B)
a horizontal merger.
C)
a vertical merger.
D)
excessive product differentiation.
9)
A noncooperative game would refer to a situation in which oligopoly firms
9)
A)
are too small to be interdependent.
B)
do not engage in collusive behavior together.
C)
behave as a joint monopoly.
D)
are made worse off by their actions.
10)
Monopolies and oligopolies both erect barriers to entry through the use of
10)
A)
patents.
B)
price cutting.
C)
franchising.
D)
advertising.
11)
Suppose a ten firm industry has total sales of $35 million per year. The largest firm have sales of
$10 million, the third largest firm has sales of $4 million, and the fourth largest firm has sales of $2
million. If fifth through tenth largest firms combined have annual sales of $12 million, the
four–firm concentration ratio for this industry is
11)
A)
80 percent.
B)
45.7 percent.
C)
65.7 percent.
D)
none fo the above.
C
12)
If Target were to merge with Wal–Mart, this would be referred to as a(n)
12)
A)
anti–competitive merger.
B)
horizontal merger.
C)
conglomerate merger.
D)
vertical merger.
B
13)
In industries in which strong network effects exist, which industry structure is likely to emerge?
13)
A)
Monopolistic competition
B)
Monopoly
C)
Oligopoly
D)
Perfect competition
C
14)
A situation where a consumer’s willingness to use an item depends on how many others use it is
14)
A)
a positive–sum game.
B)
a vertical merger.
C)
price–leadership.
D)
a network effect.
D
A
15)
If industry sales are $2,000, and the top four firms have sales of $170, $140, $100, and $80,
respectively, what will be the four–firm concentration ratio?
15)
A)
490 percent
B)
200/49
C)
49 percent
D)
24.5 percent
16)
An oligopolistic industry is characterized by
16)
A)
no interdependence.
B)
a large number of firms.
C)
a small number of firms.
D)
no barriers to entry.
17)
Actions that ignore the possible long–run benefits of cooperation and focus solely on short–run
gains are
17)
A)
opportunistic behavior.
B)
a negative–sum game.
C)
tit–for–tat strategic behavior.
D)
a zero–sum game.
18)
Refer to the above figure. The figure gives the payoff matrix for two individuals who are being
accused of robbing a bank together. What is dominant strategy for Bob?
18)
A)
Confess.
B)
Don’t confess.
C)
Flip a coin to decide what to do.
D)
There is no dominant strategy.
19)
Which of the following is NOT a characteristic of oligopoly firms?
19)
A)
Perfectly elastic demand curves
B)
Product differentiation
C)
Strategic dependence
D)
Non–price competition, such as advertising and promotions
20)
The market structure of monopolistic competition exists when
20)
A)
there are many producers of a homogeneous product.
B)
there are a small number of interdependent firms that constitute the entire market.
C)
there is a single producer of a product.
D)
there are many producers of differentiated products.
21)
The number of firms in an oligopolistic industry
21)
A)
must be less than 20.
B)
must be small enough that firms are interdependent.
C)
must be large enough for firms to be independent.
D)
must be less than 10.
22)
A cartel most likely forms in
22)
A)
a monopolistically competitive market.
B)
an oligopolistic market.
C)
a perfectly competitive market.
D)
a heavily regulated industry.
23)
The joining of firms that are producing or selling a similar product is
23)
A)
a vertical merger.
B)
a hostile takeover.
C)
competition by merger.
D)
a horizontal merger.
24)
All of the following are true regarding oligopoly EXCEPT
24)
A)
entry and exit is partially restricted.
B)
there is no competition.
C)
there is some ability to set price.
D)
there are few sellers.
25)
A market situation in which there are a few large firms is called
25)
A)
oligopoly.
B)
monopoly.
C)
monopolistic competition.
D)
imperfect competition.
A
26)
The situation in which firms wish to coordinate but cannot agree on how to do so is called
26)
A)
a Tweedle Dee–Tweedle Dum game.
B)
Battle of the Sexes.
C)
a cartel.
D)
the prisoners‘ dilemma.
B
27)
A tendency for a good to come into favor with consumers because other consumers have chosen to
buy the item is
27)
A)
negative market feedback.
B)
negative–sum game.
C)
positive market feedback.
D)
price–leadership.
C
28)
Which of the following is NOT a characteristic of pure monopoly?
28)
A)
restricted ability to enter market
B)
considerable price setting ability
C)
long–run economic profits are possible
D)
many sellers
D
B
Explanation:
29)
If a retail food chain merged with a meat packing company, this would be an example of a
29)
A)
conglomerate merger.
B)
vertical merger.
C)
diagonal merger.
D)
horizontal merger.
30)
If the four–firm concentration ratio for an industry is 84 percent, then
30)
A)
each of the firms account for 21 percent of total sales.
B)
the four largest firms in the industry account for 16 percent of the total sales.
C)
the remaining firms in the industry accounts for 84 percent of the total sales.
D)
the four largest firms in the industry account for 84 percent of the total sales.
31)
Use the above table. If firms 4 and 5 merge, the four–firm concentration ratio will be
31)
A)
80 percent.
B)
64 percent.
C)
75 percent.
D)
50 percent.
32)
In which market structures is there product differentiation?
32)
A)
Oligopoly and monopoly
B)
Monopolistic competition and oligopoly
C)
Perfect competition and monopolistic competition
D)
Perfect competition and monopoly
33)
A reaction function is
33)
A)
when plans made by firms are known as game strategies.
B)
companies colluding in order to make higher than competitive rates of return.
C)
a game in which firms will not negotiate in any way.
D)
the manner in which one oligopolist reacts to a change in price made by another oligopolist in
the industry.
34)
Oligopoly is a market situation in which
34)
A)
there is no product differentiation.
B)
there are very few sellers.
C)
only homogeneous products are sold.
D)
firms seldom react to price changes.
35)
Which of the following would best exemplify an oligopolistic industry?
35)
A)
Retail clothing stores
B)
Hamburger restaurants
C)
Movie studios
D)
Local cable provider
36)
People’s willingness to buy the PC or Mac format of computer software depends on how popular
the software format is among other consumers. This is an example of
36)
A)
a network effect.
B)
a cartel.
C)
an opportunity cost.
D)
the prisoners‘ dilemma.
37)
Positive market feedback refers to a tendency for
37)
A)
potential entrants to an oligopolistic industry to respond to entry deterrence strategies by
contemplating setting their prices above prices established by firms already in the industry.
B)
potential entrants to an oligopolistic industry to respond to entry deterrence strategies by
contemplating producing more output than the quantities produced by firms already in the
industry.
C)
price leaders to respond to an increase in market demand by increasing the prices of their
products.
D)
a particular product to come into favor with additional consumers because other consumers
have chosen to purchase the product.
38)
A Tweedle Dee–Tweedle Dum outcome occurs when
38)
A)
firms cheat after forming a cartel.
B)
firms earn highest profits by adopting different product formats.
C)
firms earn highest profits by adopting the same product format.
D)
firms earn highest profits by cooperation.
39)
Which does NOT cause an industry that might otherwise be competitive to tend toward oligopoly?
39)
A)
mergers
B)
economies of scale
C)
barriers to entry
D)
strategic independence
40)
Economies of scale
40)
A)
do not arise in oligopolistic industries.
B)
are commonplace and often a barrier to entry in oligopolistic industries.
C)
can exist but fail to create barriers to entry in oligopolistic industries.
D)
can exist but are rare in oligopolistic industries.
41)
Which of the following is the reason why the product incompatibility strategy worked for Apple’s
iPod in the media industry but did not work for Sony’s Beta videocassettes in the videocassette
industry?
41)
A)
Both media and videocassette industries were subject to negative market feedback.
B)
Both media and videocassette industries were subject to positive market feedback.
C)
The media industry was subject to negative market feedback but the videocassette industry
was subject to positive market feedback.
D)
The media industry was subject to positive feedback but the videocassette industry was
subject to negative market feedback.
42)
The higher the concentration ratio is in an industry, the more likely it is that
42)
A)
the industry is perfectly competitive.
B)
the market share of the largest four firms is smaller.
C)
the market share of the smallest four firms is larger.
D)
the industry has an oligopoly.
D
43)
A group of producers that agree to coordinate their production is called a
43)
A)
vertical merger.
B)
free market competition.
C)
cartel.
D)
monopoly.
C
44)
An oligopoly is a market situation in which
44)
A)
all the sellers act independently of the others.
B)
there are many firms producing differentiated products.
C)
there are very few sellers and they recognize their strategic dependence on one another.
D)
there is a single firm producing several varieties of a product.
C
D
45)
When managers in oligopolistic firms make decisions that affect output or price, they must
45)
A)
inform the regulators of their industry about their plans.
B)
register with the Antitrust Division of the Department of Justice.
C)
also be sure they erect barriers to entry to prevent new entrants from affecting their plans.
D)
anticipate the reactions of their rivals and plan accordingly.
46)
A noncooperative game situation may occur when
46)
A)
firms collude.
B)
firms agree to price fixing.
C)
firms merge.
D)
firms find collusion too costly.
D
47)
As the definition of products narrows (i.e., becomes more specific), the concentration ratio
47)
A)
is not valid.
B)
tends to increase.
C)
does not change in any predictable manner.
D)
tends to decrease.
B
48)
Suppose a ten firm industry has total sales of $35 million per year. The largest firm have sales of
$10 million, the third largest firm has sales of $4 million, and the fourth largest firm has sales of $2
million. If the rest of the industry has annual sales of $12 million, the second largest firm has sales
of
48)
A)
$7 million.
B)
$8 million.
C)
$4 million.
D)
none fo the above.
A
D
49)
Refer to the above payoff matrix for the profits (in $ millions) of two firms (X and Y) and two
product formats (A and B) in an industry. The game with the dominant strategy is also called
49)
A)
the prisoners‘ dilemma.
B)
Tit–for–Tat.
C)
Tweedle Dee–Tweedle Dum.
D)
Pure Coordination Game.
50)
In a cartel, firms jointly act as
50)
A)
an oligopolistic firm.
B)
a monopolistic competitive firm.
C)
a perfectly competitive firm.
D)
a monopoly firm.
51)
Which of the following is NOTa reason why some industries are oligopolies?
51)
A)
Barriers to entry
B)
Mergers
C)
Economies of scale
D)
Strategic independence
52)
The main objective of the members of a cartel is to
52)
A)
earn economic profits.
B)
obtain a patent.
C)
produce efficiently.
D)
make the industry more competitive.
53)
A market with many sellers, no influence over price, no barriers to entry, a homogeneous product,
and an absence of non–price competition is known as
53)
A)
monopolistic competition.
B)
oligopoly.
C)
monopoly.
D)
perfect competition.
54)
A network effect exists whenever
54)
A)
a consumer‘s willingness to purchase a particular good or service is influenced by how many
others also buy or have bought the item.
B)
a firm’s willingness to produce a particular good or service is influenced by the costs of inputs
it must utilize in order to manufacture the item.
C)
a firm’s willingness to purchase a particular factor of production depends on the other types
of inputs it utilizes to manufacture an item.
D)
a consumer’s willingness to purchase a particular good or service is influenced by the prices
of other complementary or substitute items.
A
55)
The market structure of monopoly exists when
55)
A)
there is a single producer of a product.
B)
there are many producers of differentiated products.
C)
there are many producers of a homogeneous product.
D)
there are a small number of interdependent firms that constitute the entire market.
A
56)
Joe’s hotdog stand merges with a company that supplies the condiments to Joe’s. This is an example
of
56)
A)
horizontal merger.
B)
concentration ratio.
C)
vertical merger.
D)
conglomerate merger.
C
D
57)
A network effect arises whenever
57)
A)
a producer’s willingness to produce a good or service is influenced by how many other firms
also produce or have produced the item.
B)
firms in an oligopolistic industry engage in a zero–sum game.
C)
a consumer’s willingness to purchase a good or service is influenced by how many others also
buy or have bought the item.
D)
firms in an oligopolistic industry engage in limit pricing.
58)
If a firm is an oligopolist, which is NOT true?
58)
A)
It can sell all the units it wants at the going market price.
B)
It is engaged in a strategic game.
C)
It must pay attention to other firms’ prices.
D)
It is one of a relatively small number of firms dominating its industry.
59)
Refer to the above payoff matrix for the profits (in $ millions) of two firms (X and Y) and two
product formats (A and B) in an industry. The game with the dominant strategy is also called:
59)
A)
Tweedle Dee–Tweedle Dum.
B)
the prisoners‘ dilemma.
C)
Tit–for–Tat.
D)
Battle of the Sexes.
60)
Which of the following is likely among the most concentrated industries in the United States?
60)
A)
computers
B)
primary aluminum
C)
breakfast cereals
D)
printing and publishing
61)
Refer to the above payoff matrix for the profits (in $ millions) of two firms (X and Y) and two
product formats (A and B) in an industry. The game with the dominant strategy is also called:
61)
A)
Tit–for–Tat.
B)
Tweedle Dee–Tweedle Dum.
C)
Battle of the Sexes.
D)
the prisoners‘ dilemma.
B
62)
Which of the following is NOT a cause for an oligopoly to exist?
62)
A)
horizontal mergers
B)
barriers to entry
C)
structural dependence
D)
economies of scale
C
63)
A market situation in which there are a few firms that recognize their mutual interdependence is
63)
A)
oligopoly.
B)
monopoly.
C)
regulated monopoly.
D)
monopolistic competition.
A
C