167)
The dominant strategy allows a firm to
167)
A)
transform a zero–sum game into a positive–sum game.
B)
obtain the highest benefit, regardless of its rivals’ actions.
C)
transform a negative–sum game into a positive–sum game.
D)
escape from a Prisoners’ Dilemma situation.
168)
Strategic behavior and game theory are features of which market structure?
168)
A)
B)
C)
D)
169)
The situation of oligopoly suggests
169)
A)
B)
C)
D)
170)
Economies of scale
170)
A)
can exist but are rare in oligopolistic industries.
B)
can exist but fail to create barriers to entry in oligopolistic industries.
C)
do not arise in oligopolistic industries.
D)
are commonplace and often a barrier to entry in oligopolistic industries.
171)
An association of producers that fixes common prices and output quotas is known as a
171)
A)
B)
C)
D)
172)
A game in which players as a group lose at the end of the game is referred to as
172)
A)
B)
C)
D)
173)
Because all of his friends stopped exclusively wearing black clothes, Doug wears anything but
black clothes. This is known as
173)
A)
B)
C)
D)
Explanation:
174)
The recent merger of Southwest Bell (SBC) and AT&T companies is an example of a
174)
A)
B)
C)
D)
Explanation:
175)
Which is FALSE about perfect competition?
175)
A)
There are numerous sellers.
B)
There is no ability to set price.
C)
There is considerable product differentiation.
D)
Market entry and exit is unrestricted.
Explanation:
176)
Between 1986 and 1998 the De Beers company controlled the world diamond market. De Beers and
its affiliated association of producers restricted diamond sales to maximize profits. De Beers and its
association was “the only game in town” and had what is
176)
A)
B)
C)
D)
Explanation:
Explanation:
177)
Long–run economic profits are possible under
177)
A)
B)
C)
D)
Firm Annual Sales Firm Annual Sales
A$1000 G $800
B900 H1200
C120 I 1050
D 75 J 90
E50 K75
F40 L600
178)
According to the above table, the four–firm concentration ratio of this industry is
178)
A)
67.5 percent.
B)
66.7 percent.
C)
69.2 percent.
D)
35.1 percent.
179)
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 best
strategy for Greenco if Ajax decides on charging a high price?
179)
A)
high price
B)
low price
C)
There is no best strategy.
D)
Not enough information is given to determine the best strategy.
Four–Firm Concentration Ratios
Industry Ratio (percent)
W 72
X30
Y84
Z55
180)
The most competitive industry of those presented in the above table is likely to be industry
180)
A)
W.
B)
X.
C)
Y.
D)
Z.
181)
When there is a tendency for a particular product to come into favor with additional consumers
because other consumers have chosen to purchase the product
181)
A)
B)
C)
D)
182)
The industry concentration ratio measures the
182)
A)
difference between price and marginal cost for the largest firms in the industry.
B)
percentage of industry sales accounted for by the top four or eight firms.
C)
degree of product differentiation in the market.
D)
value of the assets owned by the largest corporations in the market.
183)
If Target were to merge with Wal–Mart, this would be referred to as a(n)
183)
A)
B)
C)
D)
184)
Credit card companies that operate as intermediary firms between credit card holders and business
vendors are best described as
184)
A)
B)
C)
D)
185)
In a zero–sum game
185)
A)
both players collude to make both of them better off.
B)
both players are worse off at the end of the game.
C)
both players are better off at the end of the game.
D)
one player’s losses are exactly offset by another player’s gains.
D
186)
A group of producers that agree to coordinate their production is called a
186)
A)
B)
C)
D)
D
187)
Oligopolies can result from any of the following EXCEPT
187)
A)
B)
C)
D)
D
188)
In which market structures is there product differentiation?
188)
A)
perfect competition and monopolistic competition
B)
monopolistic competition and oligopoly
C)
oligopoly and monopoly
D)
perfect competition and monopoly
B
A
189)
The measurement of industry concentration which calculates the percentage of all sales contributed
by a specific number of leading firms is called the
189)
A)
B)
C)
D)
190)
In oligopoly, any action by one firm to change price, output, or quality causes
190)
A)
B)
C)
D)
A
Explanation:
191)
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
191)
A)
B)
C)
D)
A
Explanation:
192)
Which of the following is NOT subject to a network effect?
192)
A)
using a fax machine
B)
purchasing a new high–definition DVD player
C)
the layout of the keys on your keyboard
D)
rotating your tires every six months
D
Explanation:
193)
In a two–sided market with network effects, the platform will most likely
193)
A)
combine the two groups of the market before setting its price.
B)
set different prices for the two sides of the market.
C)
set the same prices for the two sides of the market.
D)
set a price of zero for both sides of the market.
B
Explanation:
C
Explanation:
194)
A game in which any gains by the group are exactly offset by equal losses by the end of the game is
called the
194)
A)
B)
C)
D)
195)
If an industry has 25 firms that collectively have $150 million in total sales and the top three firms
in this industry account for $78 million in sales and the fifth through twenty–fifth firms account for
$60 million in sales, what is the amount of sales for the fourth largest firm?
195)
A)
B)
C)
D)
B
196)
The analytical framework in which two or more individuals, companies, or nations compete for
certain payoffs that depend on the strategy that others employ is
196)
A)
B)
C)
D)
C
197)
Which does NOT cause an industry that might otherwise be competitive to tend toward oligopoly?
197)
A)
B)
C)
D)
B
198)
A market with many sellers, some influence over price, low barriers to entry, a differentiated
product, and non–price competition often taking the form of advertising is known as
198)
A)
B)
C)
D)
B
C
199)
Other things being equal, which market structure is most likely to yield the greatest industry
long–run economic profit?
199)
A)
B)
C)
D)
200)
Oligopolistic industries are characterized by a
200)
A)
large number of firms and substantial barriers to entry.
B)
few large firms and no barriers to entry.
C)
large number of firms and no barriers to entry.
D)
few large firms and substantial barriers to entry.
201)
Refer to the above figure. The figure gives the payoff matrix for two individuals who are being
accused of robbing a bank together. If Bob confesses, what is the best strategy for Harry?
201)
A)
B)
C)
D)
202)
Based on the table below, the four–firm concentration ratio equals what percentage of annual sales?
Annual Sales
Firm ($ millions)
1 20
2 30
3 5
4 5
5 through 100 40
Total 100
202)
A)
33 percent
B)
40 percent
C)
100 percent
D)
60 percent
203)
A merger between firms that are in the same industry is called a
203)
A)
B)
C)
D)
C
204)
A cartel will break down more easily if
204)
A)
B)
C)
D)
D
205)
Which of the following is TRUE of an oligopoly?
205)
A)
They do not react to actions of their competitors.
B)
Each firm produces a small portion of the total output.
C)
Firms do not care what their competitors do.
D)
They engage in nonprice competition.
D
D
206)
A cartel is likely to last longer if
206)
A)
market prices vary more over time.
B)
more new firms enter the market.
C)
there are more firms in the industry.
D)
the profits of participating members are relatively stable.
207)
An association of producers such as OPEC that agrees to set common pricing or output goals is
referred to as a
207)
A)
partnership.
B)
monopoly.
C)
conglomerate.
D)
cartel.
D
208)
Why would Apple subsidize developers of mobile applications that operate with its iPhone’s
operating system?
208)
A)
Apple attempts to ensure that all developers of mobile applications are profitable.
B)
Apple thinks iPhones are too cheap for consumers.
C)
There is a positive market feedback from the mobile applications to consumer’s willingness to
buy iPhones.
D)
Applies attempts to create competition among developers of its mobile applications.
C
209)
Within a game theory model, if a change in decision–making raises corporation A’s profits by $100
and lowers corporation B’s profits by $100, the game is a
209)
A)
B)
C)
D)
B
D
210)
In a two–sided market, the platform may offer different prices to different group of end users due
to
210)
A)
different network effects between groups of end users.
B)
substitution effects between the end users and the platform.
C)
a lack of product differentiation in the products sold.
D)
the budget constraints of end users.
211)
Straight Cut beauty salon merges with Clean–Cut beauty salon. This is an example of
211)
A)
B)
C)
D)
212)
In the wireless communication industry, firms that provide broadband access to the Internet are
best regarded as
212)
A)
B)
C)
D)
213)
The existence of economies of scale is one reason oligopolies exist because
213)
A)
as output increases average total cost decreases leading to large–scale firms.
B)
of strategic dependence.
C)
a firm is able to increase price leading to increased profits.
D)
the marginal cost decreases as output increases.
214)
A concentration ratio measures
214)
A)
the excess capacity found in a particular oligopolistic industry.
B)
the share of industry sales accounted for by the largest firms in the industry.
C)
the average size of the firms in the industry.
D)
the sales of the three largest firms in the industry minus the costs of these three largest firms
in the industry.
215)
The Herfindahl–Hirschman index is a measure of
215)
A)
market size.
B)
the degree of collusion among firms in a market.
C)
the profit margin of an industry.
D)
the degree of concentration among firms in a market.
216)
How do economies of scale contribute to the development of an oligopoly?
216)
A)
Economies of scale are guaranteed when a patent is granted.
B)
Economies of scale are based on control of a key resource, without which other firms cannot
enter an industry.
C)
Economies of scale make small–scale producers inefficient.
D)
Economies of scale make it legally difficult for new firms to enter.
217)
Refer to the above payoff matrix (in years of sentence) for two people (A and B) charged for robbery.
Which of the following is the outcome of the dominant strategy without cooperation?
217)
A)
B)
C)
D)
218)
For which market structure do economists have the least precise model of price determination?
218)
A)
B)
C)
D)
Annual Sales
Firm ($ million)
1 350
2 200
3 150
4 100
5 75
6 through 30 50
Total 925
219)
Refer to the above table. The four–firm concentration ratio is
219)
A)
33.3 percent.
B)
86.5 percent.
C)
11.6 percent.
D)
13.3 percent.
Annual Sales
Firm ($ millions)
170
230
328
4 22
5 10
6 through 25 40
Total 200
220)
Use the above table. If firms 3 and 4 merge, the four–firm concentration ratio will
220)
A)
B)
C)
D)
221)
In the television broadcasting industry, ________ is an end user and ________ is a platform.
221)
A)
B)
C)
D)
Four–Firm Concentration Ratios
Industry Ratio (percent)
W 72
X30
Y84
Z55
222)
The most oligopolistic industry of those presented in the above table is likely to be industry
222)
A)
W.
B)
X.
C)
Y.
D)
Z.
223)
Strategic dependence is found in
223)
A)
B)
C)
D)
224)
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
224)
A)
B)
C)
D)
A
225)
There are 30 firms in an industry. What happens to that industry’s four–firm concentration when
the third– and fourth–largest firms merge?
225)
A)
The industry’s concentration ratio will increase.
B)
Nothing, because their shares are already included in the concentration calculation.
C)
It is impossible to know without more information.
D)
The industry’s concentration ratio will fall.
A
226)
A realtor in the real estate market is an example of
226)
A)
B)
C)
D)
D
A
227)
A horizontal merger involves
227)
A)
the separation of management from ownership.
B)
the joining of two firms at different stages of the production process.
C)
the exchange of debt for stock.
D)
the joining of two firms selling similar products.
228)
Cheating in a cartel is more likely to occur if the industry
228)
A)
B)
C)
D)
229)
A dominant strategy is one that
229)
A)
turns a negative–sum game into a positive–sum game.
B)
every participant in the game will follow.
C)
always yields the highest benefit regardless of what the other players do.
D)
yields a position of the winner so long as the other participants act as planned.
230)
When decisions are guided strictly by short–run gains, this is known as
230)
A)
B)
C)
D)
231)
All of the following can create an oligopolistic structure EXCEPT
231)
A)
B)
C)
D)
232)
When managers in oligopolistic firms make decisions that affect output or price, they must
232)
A)
anticipate the reactions of their rivals and plan accordingly.
B)
also be sure they erect barriers to entry to prevent new entrants from affecting their plans.
C)
inform the regulators of their industry about their plans.
D)
register with the Antitrust Division of the Department of Justice.
233)
Over the past several decades, U.S. firms have faced more competition from overseas firms. Does
this have any impact on the market power of U.S. oligopoly firms?
233)
A)
Yes, competition from overseas firms can substantially limit domestic firms‘ market power.
B)
no, because domestic firms in oligopoly markets are always so dominant that overseas
producers have little or no impact on those markets
C)
There is no way to know.
D)
no, because the United States government has effectively blocked all imports that might
compete with domestic firms in oligopoly industries
234)
In general, horizontal mergers will
234)
A)
increase competition in an industry.
B)
decrease the number of firms in an industry.
C)
increase the number of firms in an industry.
D)
reduce economic profits in an industry.
235)
If Verizon Wireless and T–mobile, another wireless service company, were to merge, this would
represent
235)
A)
B)
C)
D)
236)
The goal of a cartel is to
236)
A)
B)
C)
D)
237)
Which of the following is NOT a common characteristic of oligopoly?
237)
A)
product differentiation
B)
marginal cost pricing.
C)
barriers to entry
D)
strategic dependence among firms in the industry
238)
A network effect exists whenever
238)
A)
a consumer’s willingness to purchase a particular good or service is influenced by the prices
of other complementary or substitute items.
B)
a firm’s willingness to purchase a particular factor of production depends on the other types
of inputs it utilizes to manufacture an item.
C)
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.
D)
a consumer‘s willingness to purchase a particular good or service is influenced by how many
others also buy or have bought the item.
239)
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?
239)
A)
high price
B)
low price
C)
There is no best strategy.
D)
Not enough information is given to determine the best strategy.
240)
If the four–firm concentration ratio for an industry is 84 percent, then
240)
A)
the four largest firms in the industry account for 16 percent of the total sales.
B)
the four largest firms in the industry account for 84 percent of the total sales.
C)
each of the firms account for 21 percent of total sales.
D)
the remaining firms in the industry accounts for 84 percent of the total sales.
241)
The prisoners’ dilemma is a game in which
241)
A)
the dominant strategy for all participants is to choose a strategy that makes them all worse off.
B)
only one of the firms is able to make above–normal profits.
C)
each firm, in making decisions on the basis of its own self–interest, also makes decisions that
benefit the group as a whole.
D)
the dominant strategy is to cooperate.
242)
An example of a zero–sum game is
242)
A)
poker.
B)
a consumer purchasing a used car from a used car dealer.
C)
the prisoners‘ dilemma.
D)
exchange.
243)
A reaction function is
243)
A)
the manner in which one oligopolist reacts to a change in price made by another oligopolist in
the industry.
B)
a game in which firms will not negotiate in any way.
C)
when plans made by firms are known as game strategies.
D)
companies colluding in order to make higher than competitive rates of return.
244)
Which of the following is NOT true about a cartel?
244)
A)
Members experience large economies to scale relative to industry demand.
B)
Members earn economic profits.
C)
Cartels will set common prices for their members.
D)
Members of a cartel will have production quotas.
245)
Which one of the following industries is best classified as an oligopoly?
245)
A)
B)
C)
D)