Question 1

Figure 13-3
​  
-The payoff matrix is a fundamental tool of

Accepted Answer

A) monopolistic competition. 
B) game theory. 
C) corporate finance theory. 
D) regulatory oversight. 
A) monopolistic competition. 
B) game theory. 
C) corporate finance theory. 
D) regulatory oversight.

Question 2

An oligopolist cares very much about what other firms in her industry are doing.

Accepted Answer

A) True 
 B)False

Question 3

A perfectly contestable market is one which a firm can enter and exit without losing its investment.

Accepted Answer

A) True 
 B)False

Question 4

An oligopoly using a maximin strategy must believe that the losses from underestimating a competitor's skill are worse than those from overestimating it.

Accepted Answer

A) True 
 B)False

Question 5

Oligopoly occurs when

Accepted Answer

A) a few firms sell many different products. 
B) a few firms sell to a few large buyers. 
C) many firms dominate a single market. 
D) a few firms dominate a single market. 
A) a few firms sell many different products. 
B) a few firms sell to a few large buyers. 
C) many firms dominate a single market. 
D) a few firms dominate a single market.

Question 6

Under monopolistic competition, profits cannot persist because new firms will be attracted to the market.

Accepted Answer

A) True 
 B)False

Question 7

The behavior of the monopolistic firm

Accepted Answer

A) maximizes the benefits to consumers, given the resources available to the economy. 
B) increases output in order to raise prices in the short term. 
C) results in excess capacity and inefficiency. 
D) results in entry into the market by other firms. 
A) maximizes the benefits to consumers, given the resources available to the economy. 
B) increases output in order to raise prices in the short term. 
C) results in excess capacity and inefficiency. 
D) results in entry into the market by other firms.

Question 8

Suppose that Bill and Steve are duopolists in the smartphone apps industry.At the beginning of the year, the two agree to work jointly as a monopoly, producing the monopoly level of output and the monopoly price for their apps.Halfway through the year each app firm is seriously considering breaking this agreement.Given these facts, what's likely to happen next?

Accepted Answer

A) Both Bill and Steve realize that their best outcome is to maintain the agreement. 
B) Both Bill and Steve will break the agreement, the profits each of them will fall. 
C) Both Bill and Steve will break the agreement, and each sees an increase in profits. 
D) Both Bill and Steve will break the agreement, output of apps goes up and prices rise. 
A) Both Bill and Steve realize that their best outcome is to maintain the agreement. 
B) Both Bill and Steve will break the agreement, the profits each of them will fall. 
C) Both Bill and Steve will break the agreement, and each sees an increase in profits. 
D) Both Bill and Steve will break the agreement, output of apps goes up and prices rise.

Question 9

For collusion to make sense, the payoff matrix must be a

Accepted Answer

A) positive-sum game. 
B) zero-sum game. 
C) negative-sum game. 
D) negative-positive-sum game. 
A) positive-sum game. 
B) zero-sum game. 
C) negative-sum game. 
D) negative-positive-sum game.

Question 10

The excess capacity theorem states that society would clearly benefit from a reduction in the number of monopolistic competitors.

Accepted Answer

A) True 
 B)False

Question 11

Price leadership may sometimes be an example of covert collusive behavior by oligopolies.

Accepted Answer

A) True 
 B)False

Question 12

A duopoly is a form of oligopoly with two firms.

Accepted Answer

A) True 
 B)False

Question 13

A cartel is

Accepted Answer

A) a group of oligopolists who try to behave like a single monopolist and split the benefits among themselves. 
B) a government-approved organization for the exchange of technical information among firms. 
C) a form of competition among oligopolists. 
D) a regulated industry that is officially permitted to set the price of its product above long-run average total cost. 
A) a group of oligopolists who try to behave like a single monopolist and split the benefits among themselves. 
B) a government-approved organization for the exchange of technical information among firms. 
C) a form of competition among oligopolists. 
D) a regulated industry that is officially permitted to set the price of its product above long-run average total cost.

Question 14

In a perfectly contestable market in the long run, each firm

Accepted Answer

A) produces at the minimum point on its long-run average total cost curve. 
B) earns a profit below its opportunity cost of capital. 
C) avoids making capital expenditures. 
D) All of the responses are correct. 
A) produces at the minimum point on its long-run average total cost curve. 
B) earns a profit below its opportunity cost of capital. 
C) avoids making capital expenditures. 
D) All of the responses are correct.

Question 15

Suppose that two drug manufacturers represent the only two producers in the industry and further suppose that the companies can spend a lot of money on research to develop new drug treatment.If only one develops a product, they make very high profits, but if they produce similar drugs, their profits are lower given the high research costs and they split the market for their products.But if they both sell their current products and spend little on research, they can still make good profits.The best outcome that they could achieve would be for the two firms to

Accepted Answer

A) ignore each other's behavior. 
B) always conduct research activities. 
C) form a cartel. 
D) reach a Nash equilibrium. 
A) ignore each other's behavior. 
B) always conduct research activities. 
C) form a cartel. 
D) reach a Nash equilibrium.

Question 16

The demand curve for a monopolistic competitor slopes downward because

Accepted Answer

A) demand drops to zero after a slight price increase. 
B) there are close but not perfect substitutes for the product. 
C) customers have no loyalty to the product. 
D) the product is undifferentiated. 
A) demand drops to zero after a slight price increase. 
B) there are close but not perfect substitutes for the product. 
C) customers have no loyalty to the product. 
D) the product is undifferentiated.

Question 17

A Nash equilibrium is

Accepted Answer

A) the same as a dominant strategy. 
B) is the outcome where a player has selected her best strategy, given the choices of the other players. 
C) occurs in a game when a cartel solution is reached. 
D) occurs when one player can change her strategy and be better off. 
A) the same as a dominant strategy. 
B) is the outcome where a player has selected her best strategy, given the choices of the other players. 
C) occurs in a game when a cartel solution is reached. 
D) occurs when one player can change her strategy and be better off.

Question 18

Cartels usually succumb to divisive forces caused by

Accepted Answer

A) limited information. 
B) members cheating by giving secret discounts. 
C) entry by new rivals seeking profits. 
D) insufficient profits compared to independent operations. 
A) limited information. 
B) members cheating by giving secret discounts. 
C) entry by new rivals seeking profits. 
D) insufficient profits compared to independent operations.

Question 19

Monopolistically competitive markets and monopoly market have a common characteristic: high barriers to entry.

Accepted Answer

A) True 
 B)False

Question 20

Figure 13-3
​  
-In Figure 13-3, demand curve CAD represents a market in which oligopolists will match the price changes of rivals and demand curve EAB represents a market in which oligopolists will ignore the price changes of rivals.According to the kinked demand model, the relevant demand curve will be

Accepted Answer

A) demand curve CAB. 
B) demand curve CAD. 
C) demand curve EAD. 
D) demand curve EAB. 
A) demand curve CAB. 
B) demand curve CAD. 
C) demand curve EAD. 
D) demand curve EAB.

Exam 13: Between Competition and Monopoly

Figure 13-3 ​ -The payoff matrix is a fundamental tool of

An oligopolist cares very much about what other firms in her industry are doing.

A perfectly contestable market is one which a firm can enter and exit without losing its investment.

An oligopoly using a maximin strategy must believe that the losses from underestimating a competitor's skill are worse than those from overestimating it.

Oligopoly occurs when

Under monopolistic competition, profits cannot persist because new firms will be attracted to the market.

The behavior of the monopolistic firm

For collusion to make sense, the payoff matrix must be a

The excess capacity theorem states that society would clearly benefit from a reduction in the number of monopolistic competitors.

Price leadership may sometimes be an example of covert collusive behavior by oligopolies.

A duopoly is a form of oligopoly with two firms.

A cartel is

In a perfectly contestable market in the long run, each firm

The demand curve for a monopolistic competitor slopes downward because

A Nash equilibrium is

Cartels usually succumb to divisive forces caused by

Monopolistically competitive markets and monopoly market have a common characteristic: high barriers to entry.

What Is Economics

The Economony: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

Contemporary Issues in the Useconomy

Filters

Figure 13-3 -The payoff matrix is a fundamental tool of