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706 Miller Economics Today, 16th Edition
94) The number of firms in an oligopolistic industry
A) must be less than 10.
B) must be less than 20.
C) must be small enough that firms are interdependent.
D) must be large enough for firms to be independent.
95) The outputs of an oligopolistic industry
A) can be homogeneous or differentiated.
B) must cost above $100 on the market.
C) always have excise taxes imposed on them.
D) have no substitutes on the market.
96) Oligopolistic industries are characterized by a
A) few large firms and no barriers to entry.
B) large number of firms and no barriers to entry.
C) few large firms and substantial barriers to entry.
D) large number of firms and substantial barriers to entry.
97) Economies of scale
A) do not arise in oligopolistic industries.
B) can exist but are rare in oligopolistic industries.
C) can exist but fail to create barriers to entry in oligopolistic industries.
D) are commonplace and often a barrier to entry in oligopolistic industries.
98) Suppose an industry is composed of 10 firms. Each firm s share of total sales in the industry is 10
percent. If two of the firms merge, then the four firm concentration ratio in the industry will
A) remain unchanged.
B) decrease as there are fewer firms in the industry.
C) increase.
D) depend on the market condition faced by the industry.
99) Suppose an industry is composed of 10 firms. Each firm s share of total sales in the industry is 10
percent. If two of the firms merge, then the four firm concentration ratio in the industry is
A) 40 percent. B) 45 percent.
C) 50 percent. D) unable to determine.
100) The merger of two pizza restaurant chains would be an example of
A) a horizontal merger. B) a vertical merger.
C) a conglomerate merger. D) an independent merger.
101) If the four firm concentration ratio for an industry is 84 percent, then
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 four largest firms in the industry account for 84 percent of the total sales.
D) the remaining firms in the industry accounts for 84 percent of the total sales.
102) Using the concentration ratio to measure the degree of competition
A) may understate the degree of competition because it ignores imported goods.
B) may overstate the degree of competition because it ignores imported goods.
C) may overstate the degree of competition because inter industry competition is ignored.
D) may understate the degree of competition because market share changes annually.
103) All of the following can create an oligopolistic structure EXCEPT
A) low barriers to entry. B) economies of scale.
C) government licensing rules. D) mergers.
104) Suppose Nabisco merges with both a wheat firm and milling firm. This is an example of a
A) vertical merger. B) horizontal merger.
C) parallel merger. D) diagonal merger.
105) What is oligopoly? How does oligopoly differ from the other kinds of market structure?
106) What is meant by the concentration of an industry? How is concentration measured? What are
likely causes of high concentration?
107) Distinguish between a horizontal merger and a vertical merger.
108) Oligopoly is the only market structure in which rivalry among firms takes place. Do you agree
or disagree? Why?
109) 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
26.2 Strategic Behavior and Game Theory
1) Within a game theory model, if a change in decision making raises corporation A s profits by
$50 and lowers corporation B s profits by $50, the game is a
A) negative sum game. B) zero sum game.
C) positive sum game. D) cooperative game.
2) Within a game theory model, if a change in decision making raises corporation A s profits by
$50 and lowers corporation B s profits by $40, the game is a
A) negative sum game. B) zero sum game.
C) positive sum game. D) cooperative game.
3) Within a game theory model, if a change in decision making raises corporation A s profits by
$50 and lowers corporation B s profits by $60, the game is a
A) negative sum game. B) zero sum game.
C) positive sum game. D) cooperative game.
4) Game theory would classify a cartel under the topic of
A) zero sum games. B) cooperative games.
C) noncooperative games. D) dominant strategy games.
5) A game in which players as a group lose at the end of the game is referred to as
A) zero sum game. B) negative sum game.
C) positive sum game. D) tit for tat game.
6) A game in which players as a group gain at the end of the game is referred to as
A) zero sum game. B) negative sum game.
C) positive sum game. D) tit for tat game.
7) A noncooperative game would refer to a situation in which oligopoly firms
A) are too small to be interdependent.
B) do not engage in collusive behavior together.
C) are made worse off by their actions.
D)
b
ehave as a joint monopoly.
8) In game theory, the strategy that always yields the highest benefit for the player using it is the
A) dominant strategy. B) cooperative strategy.
C) prisoners strategy. D) matrix strategy.
9) Collusion always involves firms engaging in a
A) vertical merger. B) horizontal merger.
C) cooperative game. D) noncooperative game.
10) A noncooperative game situation may occur when
A) firms collude. B) firms find collusion too costly.
C) firms merge. D) firms agree to price fixing.
11) The dominant strategy allows a firm to
A) obtain the highest benefit, regardless of its rivals actions.
B) transform a negative sum game into a positive sum game.
C) transform a zero sum game into a positive sum game.
D) escape from a Prisoners Dilemma situation.
12) Suppose a firm can charge a relatively low price to try to compete actively with its rivals, or it
can charge a relatively high, collusive price. If its strategy is to charge the low price regardless of
the other firms decisions, this low price is the firm s
A) dependent strategy. B) independent strategy.
C) dominant strategy. D) positive sum strategy.
13) In a zero sum game
A)
b
oth players are better off at the end of the game.
B)
b
oth players are worse off at the end of the game.
C) one player s losses are exactly offset by another player s gains.
D)
b
oth players collude to make both of them better off.
14) When decisions are guided strictly by short run gains, this is known as
A) opportunistic behavior. B) the prisoners dilemma.
C) tit for tat strategy. D) a positive sum game.
15) A tit for tat strategy is one in which oligopolies
A) cooperate as long as other members cooperate, but if anyone cheats, they cut the price
until the cheater reverts to cooperation.
B) cooperate almost all of the time, but occasionally do not cooperate in order to fool the
antitrust authorities.
C) keep cutting prices to punish rivals until the competitive price is reached.
D) try to avoid the problems of the prisoners dilemma, but actually make themselves worse
off.
16) The dominant strategy in the prisoners dilemma is for
A) neither player to confess. B)
b
oth players to confess.
C) only the dominant player to confess. D) the dominant player not to confess.
17) The prisoners dilemma is a game in which
A) the dominant strategy for all participants is to choose a strategy that makes them all worse
off.
B) the dominant strategy is to cooperate.
C) only one of the firms is able to make above normal profits.
D) each firm, in making decisions on the basis of its own self interest, also makes decisions
that benefit the group as a whole.
18)
Refer to the above payoff matrix (in years of sentence) for two people (Bo and Max) charged for
robbery. Which of the following is the outcome of the dominant strategy without cooperation?
A) Both Bo and Max confess.
B) Both Bo and Max do not confess.
C) Bo confesses while Max does not confess.
D) Bo does not confess while Max confesses.
19)
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?
A) Both A and B confess. B) Both A and B do not confess.
C) A confesses while B does not confess. D) A does not confess while B confesses.
20)
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?
A) Both firm A and firm B choose 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) Firm A chooses the high price while firm B chooses the low price.
21)
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?
A) Both firm A and firm B choose the high price.
B) Both firm A and firm B choose the low price.
C) Firm A chooses the low price while firm B chooses the high price.
D) Firm A chooses the high price while firm B chooses the low price.
22)
Refer to the above payoff matrix for the profits (in $ millions) of two firms (A and B) making a
decision to advertise or not. Which of the following is the outcome of the dominant strategy
without cooperation?
A) Both firm A and firm B choose not to advertise.
B) Both firm A and firm B choose to advertise.
C) Firm A chooses to advertise while firm B chooses not to advertise.
D) Firm A chooses not to advertise while firm B chooses to advertise.
23)
Refer to the above payoff matrix for the profits (in $ millions) of two firms (X and Y) making a
decision to advertise or not. Which of the following is the outcome of the dominant strategy
without cooperation?
A) Both firm X and firm Y choose not to advertise.
B) Both firm X and firm Y choose to advertise.
C) Firm X chooses to advertise while firm Y chooses not to advertise.
D) Firm X chooses not to advertise while firm Y chooses to advertise.
24) The mutual interdependence of oligopolists ensures that each oligopolist has
A) a unique demand curve.
B) a perfectly elastic demand curve.
C) a reaction function.
D) a fundamental dilemma about whether to collude or not.
25) A reaction function is
A) companies colluding in order to make higher than competitive rates of return.
B) the manner in which one oligopolist reacts to a change in price made by another
oligopolist in the industry.
C) a game in which firms will not negotiate in any way.
D) when plans made by firms are known as game strategies.
26) The manner in which one oligopolist reacts to a change in price, output, or quality made by
another oligopolist in the industry is
A) a cooperative game. B) the reaction function.
C) a zero sum game. D) the concentration ratio.
27) In a game, strategies are
A) the reactions of firms to the changes in the economy.
B) the laws regulating the industry.
C) the plans made by the participants.
D) the potential returns the participants may get.
28) The analytical framework in which two or more firms compete for certain payoffs that depend
on the strategy that the others employ is
A) game theory. B) the concentration ratio.
C) a horizontal merger. D) network effect.
29) A noncooperative game is
A) companies colluding in order to make higher than competitive rates of return.
B) the manner in which one oligopolist reacts to a change in price made by another
oligopolist in the industry.
C) a game in which firms will not negotiate in any way.
D) when plans made by firms are known as game strategies.
30) A cooperative game is
A) companies colluding in order to make higher than competitive rates of return.
B) the manner in which one oligopolist reacts to a change in price made by another
oligopolist in the industry.
C) a game in which firms will not negotiate in any way.
D) when plans made by firms are known as game strategies.
31) A game in which the players explicitly coordinate their decisions to make themselves better off
is a
A) cooperative game. B) noncooperative game.
C) zero sum game. D) negative sum game.
32) 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?
A) Confess. B) Don t confess.
C) Flip a coin to decide what to do. D) There is no best strategy.
33) 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?
A) Confess. B) Don t confess.
C) Flip a coin to decide what to do. D) There is no best strategy.
34) 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?
A) Confess. B) Don t confess.
C) Flip a coin to decide what to do. D) There is no dominant strategy.
35) Refer to the above figure. The figure gives the payoff matrix for two individuals who are being
accused of robbing a bank together. Which of the following is the outcome of the dominant
strategy without cooperation?
A) Both confess.
B) Both don t confess.
C) Bob confesses while Harry does not confess.
D) Harry confesses while Bo does not confess.
36) Refer to the above figure. The figure gives the payoff matrix for two individuals who are being
accused of robbing a bank together. Which of the following is the outcome with cooperation?
A) Both confess.
B) Both don t confess.
C) Bob confesses while Harry does not confess.
D) Harry confesses while Bo does not confess.
37) 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?
A) High price
B) Low price
C) There is no best strategy.
D) Not enough information is given to determine the best strategy.
38) 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 low price?
A) High price.
B) Low price.
C) There is no best strategy.
D) Not enough information is given to determine the best strategy.
39) 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?
A) High price.
B) Low price.
C) There is no best strategy.
D) Not enough information is given to determine the best strategy.
40) Refer to above figure, which represents a duopoly industry. What would be the likely total
industry payoff or profit?
A) $8 million
B) $9 million
C) $10 million
D) $14 million
E) zero
41) 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
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)
b
oth to select high prices.
D)
b
oth to select low prices.
42) A game in which the players neither negotiate nor coordinate in any way is a
A) cooperative game. B) noncooperative game.
C) zero sum game. D) negative sum game.
43) An example of a zero sum game is
A) exchange.
B) a consumer purchasing a used car from a used car dealer.
C) the prisoners dilemma.
D) poker.
44) A game in which any gains within the group are exactly offset by equal losses by the end of the
game is a
A) positive sum game. B) zero sum game.
C) strategy. D) negative sum game.
45) Any rule that is used to make a choice is
A) positive sum game. B) zero sum game.
C) strategy. D) negative sum game.
46) Your teacher decides to play a game where every student must contribute a dollar. All money
collected is distributed at the end of the game among the students. This is an example of a
A) positive sum game. B) zero sum game.
C) strategy. D) negative sum game.
47) A dominant strategy is one that
A) yields a position of the winner so long as the other participants act as planned.
B) every participant in the game will follow.
C) turns a negative sum game into a positive sum game.
D) always yields the highest benefit regardless of what the other players do.
48) Actions that ignore the possible long run benefits of cooperation and focus solely on short run
gains are
A) a zero sum game. B) a negative sum game.
C) tit for tat strategic behavior. D) opportunistic behavior.
49) Cooperation that continues as long as the players continue to cooperate is
A) a zero sum game. B) a negative sum game.
C) tit for tat strategic behavior. D) opportunistic behavior.
50) People do not usually behave in a noncooperative fashion even when it is in their immediate
interest to do so because
A) they realize such behavior is immoral.
B) they know there can be 2 winners.
C) they know they will have repeated dealings with the other people.
D) they understand the difficulties with game theory.
51) When oligopolistic companies engage in collusion, the companies are involved in a
A) noncooperative game. B) negative sum game.
C) competitive game. D) cooperative game.
52) 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)
A) opportunistic strategy. B) dominant strategy.
C) tit for tat strategy. D) aggressive strategy.
53) A game in which all the players are better off at the end of the game is a
A) tit for tat game. B) dominant strategy game.
C) positive sum game. D) noncooperative game.
54) A game in which all the players are worse off at the end of the game is a
A) negative sum game. B) dominant strategy game.
C) positive sum game. D) noncooperative game.
55) A game in which any gains by the group are exactly offset by equal losses by the end of the
game is called the
A) negative sum game. B) zero sum game.
C) positive sum game. D) cooperative game.
56) The manner in which one oligopolist reacts to a change in price, output, or quantity on the part
of another oligopolist in the industry is known as
A) a positive sum game. B) the reaction function.
C) a noncooperative game. D) a zero sum game.
57) 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
A) game theory. B) opportunistic behavior.
C) the dominant equilibrium. D) the tit for tat equilibrium.
58) Decision makers in oligopolistic firms must devise a strategy. One that yields the highest
benefit, regardless of what the other players do is a
A) pricing strategy. B) coherent strategy.
C) dominant strategy. D) revenue strategy.
59) The payoff matrix shows all of the following EXCEPT
A) if both oligopolists choose a high price, each makes $6 million.
B) if they both choose a low price, each makes $4 million.
C) if one chooses a low price and the other doesn t, the low priced firm will make $8 million.
D) if one oligopolist chooses a high price and the other doesn t, the high priced firm makes
$8 million.
60) In game theory, actions such as cheating that focus solely on short run gains are referred to as
A) territorial behavior. B) tit for tat strategic behavior.
C) predatory behavior. D) opportunistic behavior.
61) In game theory, behavior that results in cooperation as long as the other players continue to
cooperate, is referred to as
A) nice behavior. B) tit for tat strategic behavior.
C) simple behavior. D) opportunistic behavior.
62) The way in which an oligopolist acts in response to a price change by a competitor is known as a
A) zero sum game. B) positive sum game.
C) reaction function. D) cooperative game.
63) When OPEC meets to set production levels, this organization is playing a
A) negative sum game. B) cooperative game.
C) non cooperative game. D) reaction function game.
64) When Goodyear increases its production when Michelin reduces its production, Goodyear is
playing a
A) negative sum game. B) cooperative game.
C) non cooperative game. D) reaction function game.
