64)
Cheating in a cartel is more likely to occur if the industry
64)
A)
has little variation in prices.
B)
has homogeneous products.
C)
has a large number of firms.
D)
has easily observable prices
65)
All of the following are reasons for an oligopoly to occur EXCEPT
65)
A)
economies to scale.
B)
merger.
C)
barriers to entry.
D)
independence among firms.
D
66)
Suppose that an industry consists of 100 firms, and the top 4 firms have annual sales of $1 million,
$1.5 million, $2 million, and $2.5 million, respectively. If the entire industry has annual sales of $8.5
million, the four–firm concentration ratio is approximately
66)
A)
82 percent.
B)
50 percent.
C)
70 percent.
D)
94 percent.
A
67)
Which of the following is a condition that helps enforce a cartel agreement?
67)
A)
relatively differentiated products
B)
a large number of firms
C)
easily observable prices
D)
large variation in prices
C
68)
Long–run economic profits are possible under
68)
A)
oligopoly and monopoly.
B)
monopolistic competition and oligopoly.
C)
monopolistic competition and monopoly.
D)
perfect competition and oligopoly.
A
C
69)
If a company that drilled for and produced oil acquired a firm which refined oil into gasoline, this
would be referred to as a
69)
A)
vertical merger.
B)
horizontal merger.
C)
conglomerate merger.
D)
reverse merger.
70)
Firms face downward sloping demand curves in
70)
A)
monopolies and oligopolies that collude only.
B)
monopolies only.
C)
all market structures except perfect competition.
D)
monopolies and oligopolies only.
C
71)
In which market structures do firms engage in nonprice competition?
71)
A)
Perfect competition and monopoly
B)
Perfect competition and monopolistic competition
C)
Monopolistic competition and oligopoly
D)
Oligopoly and monopoly
C
72)
The college textbooks market is an example of
72)
A)
monopolistic competition.
B)
oligopoly.
C)
perfect competition.
D)
monopoly.
B
A
73)
Refer to the above payoff matrix for the profits (in $ millions) of two firms (A and B) and two
pricing strategies (high and low). Which of the following is the outcome of the dominant strategy
without cooperation?
73)
A)
Firm A chooses the high price while firm B chooses the low price.
B)
Both firm A and firm B choose the high price.
C)
Firm A chooses the low price while firm B chooses the high price.
D)
Both firm A and firm B choose the low price.
74)
Other things being equal, which market structure is most likely to yield the greatest industry
long–run economic profit?
74)
A)
Perfect competition
B)
Oligopoly
C)
Monopolistic competition
D)
Monopoly
75)
Refer to the above figure. The figure gives the payoff matrix for two individuals who are being
accused of robbing a bank together. If Bob does not confess, what is the best strategy for Harry?
75)
A)
Confess.
B)
Don’t confess.
C)
Flip a coin to decide what to do.
D)
There is no best strategy.
76)
Which of the following is most likely to be sold in an oligopoly market?
76)
A)
Pizza
B)
Electricity
C)
Cell phone service
D)
Computer software
77)
A noncooperative game is
77)
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)
the manner in which one oligopolist reacts to a change in price made by another oligopolist in
the industry.
D)
a game in which firms will not negotiate in any way.
78)
When oligopolistic firms in an industry form a cartel, then it is most likely that
78)
A)
industry output will increase while prices will decrease.
B)
both industry output and prices will increase.
C)
industry output will decrease while prices will increase.
D)
both industry output and prices will decrease.
79)
Any rule that is used to make a choice is
79)
A)
negative–sum game.
B)
positive–sum game.
C)
zero–sum game.
D)
strategy.
80)
Refer to the above figure. Ajax and Greenco are oligopolists. Above you are given the payoff matrix
for the two firms giving the payoff associated with different pricing strategies. What is the
dominant strategy for Greenco?
80)
A)
High price.
B)
Low price.
C)
There is no best strategy.
D)
Not enough information is given to determine the best strategy.
81)
When a cartel breaks down and its members start cheating, the behavior in the industry becomes a
81)
A)
positive sum game.
B)
zero–sum game.
C)
high stakes game.
D)
noncooperative game.
82)
In which market structures do firms earn long–term profits of zero?
82)
A)
Perfect competition and monopoly
B)
Oligopoly and monopoly
C)
Perfect competition and monopolistic competition
D)
Monopolistic competition and oligopoly
83)
There are 30 firms in an industry. What happens to that industry’s four–firm concentration when
the third– and fourth–largest firms merge?
83)
A)
The industry’s concentration ratio will fall.
B)
It is impossible to know without more information.
C)
Nothing, because their shares are already included in the concentration calculation.
D)
The industry’s concentration ratio will increase.
84)
A game in which all the players are worse off at the end of the game is a
84)
A)
positive–sum game.
B)
noncooperative game.
C)
dominant strategy game.
D)
negative–sum game.
85)
A game in which any gains within the group are exactly offset by equal losses by the end of the
game is a
85)
A)
strategy.
B)
positive–sum game.
C)
negative–sum game.
D)
zero–sum game.
86)
Suppose two firms are in a game situation, and they each must decide on a strategy regarding
whether to select a high price or a low price. Profits for a firm are highest when it selects a low
price, while the other selects a high price; profits are lowest if one selects a high price, while the
other selects a low price; profits are in between when both select low prices; and profits are slightly
higher when both select high prices. In the absence of collusion we expect
86)
A)
one of the firms to select a high price and the other a low price.
B)
one firm to select a high price and the other a low price in the first period, followed by a
reversal in the second period.
C)
both to select high prices.
D)
both to select low prices.
87)
Strategic dependence is found in
87)
A)
monopoly markets.
B)
perfect competitive markets.
C)
monopolistic competitive markets.
D)
oligopolistic markets.
88)
When OPEC meets to set production levels, this organization is playing a
88)
A)
cooperative game.
B)
reaction function game.
C)
negative sum game.
D)
non–cooperative game.
89)
The joining of firms that are producing or selling a similar product is
89)
A)
always an illegal merger.
B)
a vertical merger.
C)
a horizontal merger.
D)
a conglomerate merger.
90)
The manner in which one oligopolist reacts to a change in price, output, or quality made by another
oligopolist in the industry is
90)
A)
the concentration ratio.
B)
the reaction function.
C)
a cooperative game.
D)
a zero–sum game.
91)
When a player in a game adopts a strategy which always yields the highest benefit regardless of
what the other player does, that player is using a(n)
91)
A)
tit–for–tat strategy.
B)
aggressive strategy.
C)
dominant strategy.
D)
opportunistic strategy.
92)
A game in which the players neither negotiate nor coordinate in any way is a
92)
A)
noncooperative game.
B)
negative–sum game.
C)
zero–sum game.
D)
cooperative game.
93)
Which of the following is true of an oligopoly?
93)
A)
They engage in nonprice competition.
B)
They do not react to actions of their competitors.
C)
Firms do not care what their competitors do.
D)
Each firm produces a small portion of the total output.
94)
Games can be judged according to the payoffs
94)
A)
as collusive or noncollusive games.
B)
as zero–sum, negative–sum, and positive–sum games.
C)
whether all companies participate or not.
D)
as competitive or noncompetitive games.
95)
A market with many sellers, some influence over price, low barriers to entry, a differentiated
product, and non–price competition often taking the form of advertising is known as
95)
A)
perfect competition.
B)
monopoly.
C)
monopolistic competition.
D)
oligopoly.
96)
A concentration ratio is used to
96)
A)
determine the degree of homogeneity in the market.
B)
determine the importance of labor in the production process.
C)
determine whether a market structure is oligopoly.
D)
see if a firm qualifies for federal assistance.
C
97)
In an oligopolistic market, each firm
97)
A)
has a constant marginal cost.
B)
must consider the reaction of rival firms when making a pricing or output decision.
C)
faces a perfectly elastic demand function.
D)
produces at minimum average cost in the long run.
B
98)
A situation in which one firm’s actions with respect to price, quality, advertising and related
changes may be strategically countered by the reactions of one or more other firms in the industry
is known as
98)
A)
barriers to entry.
B)
strategic dependence.
C)
economies of scale.
D)
the concentration ratio.
B
99)
A game in which players collectively lose is known as a
99)
A)
zero–sum game.
B)
negative–sum game.
C)
cooperative game.
D)
positive–sum game.
B
C
100)
A Tweedle Dee–Tweedle Dum game situation occurs when
100)
A)
two firms choose compatible product formats.
B)
two firms produces products that are complementary to each other’s products.
C)
two firms choose incompatible product formats.
D)
the game is a positive sum.
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
101)
Firms faced with prisoners’ dilemma can always make more profits by engaging in
opportunistic behavior. Why is this type of behavior NOT commonly found even in
oligopolistic markets?
101)
102)
What are the main characteristics that make it more likely for a cartel to enforce
agreements among participating members?
102)
103)
Why do cartels often break down?
103)
104)
Explain how the prisoners’ dilemma can be used to examine pricing strategies in an
oligopoly.
104)
105)
How can network effects lead an industry to become an oligopoly?
105)
106)
“A firm should always make complementary products incompatible with those of other
firms.” Do you agree or disagree? Why?
106)
107)
What is oligopoly? How does oligopoly differ from the other kinds of market structure?
107)
108)
Using the information in the table, develop the four–firm concentration ratio. Would you
classify this industry as an oligopoly? Explain your answer.
Annual Sales
Firm ($ millions)
1 350
2 200
3 150
4 100
5 40
6 through 20 20
810
108)
109)
Why do firms form a cartel? How do cartels achieve their goals?
109)
110)
Explain the basic operations of an economic game.
110)
111)
According to the textbook, what is the reason for the success of Apple’s strategy of opting
for product incompatibility for its iPod but the failure of Sony’s same strategy for its Beta
videocassettes?
111)
Answer Key
Testname: C26
Answer Key
Testname: C26
Answer Key
Testname: C26
30