Question 1

A merger between two firms occurs when

Accepted Answer

A)  two firms agree to work temporarily on a single project, which is why we constantly read about mergers occurring and splitting up 
B)  one firm splits into two or more firms, such as General Motors splitting into divisions of Buick, Pontiac, and so on 
C)  each of the two firms agrees not to sell in each other's markets 
D)  the two firms become one firm, as in the newspaper industry when the Chicago Sun and the Chicago Times became the Chicago Sun-Times 
E)  one firm quits the industry and another takes over its market share 
A)  two firms agree to work temporarily on a single project, which is why we constantly read about mergers occurring and splitting up 
B)  one firm splits into two or more firms, such as General Motors splitting into divisions of Buick, Pontiac, and so on 
C)  each of the two firms agrees not to sell in each other's markets 
D)  the two firms become one firm, as in the newspaper industry when the Chicago Sun and the Chicago Times became the Chicago Sun-Times 
E)  one firm quits the industry and another takes over its market share

Question 2

In an unbalanced oligopoly, the sales of the leading firms

Accepted Answer

A)  are unevenly distributed 
B)  are larger than the sales of all other firms 
C)  are larger than their market shares 
D)  are smaller than in a balanced oligopoly 
E)  grow faster than in a balanced oligopoly 
A)  are unevenly distributed 
B)  are larger than the sales of all other firms 
C)  are larger than their market shares 
D)  are smaller than in a balanced oligopoly 
E)  grow faster than in a balanced oligopoly

Question 3

In a price leadership situation, where one firm sets a price for others to follow, the leading firm is the one with the

Accepted Answer

A)  largest market share 
B)  highest quality good 
C)  most elastic demand curve 
D)  least elastic demand curve 
E)  most efficient production 
A)  largest market share 
B)  highest quality good 
C)  most elastic demand curve 
D)  least elastic demand curve 
E)  most efficient production

Question 4

Price discrimination allows the firm to

Accepted Answer

A)  segment the market and thereby capture consumer surplus 
B)  create excess demand which will force price upward 
C)  shift the equilibrium price to eliminate price competition among discriminating buyers 
D)  behave like a monopolist 
E)  select a small set from among its customers in order to charge the highest price possible 
A)  segment the market and thereby capture consumer surplus 
B)  create excess demand which will force price upward 
C)  shift the equilibrium price to eliminate price competition among discriminating buyers 
D)  behave like a monopolist 
E)  select a small set from among its customers in order to charge the highest price possible

Question 5

The avoidance of a worst case scenario strategy in a two-firm balanced oligopoly can best be described as a strategy

Accepted Answer

A)  taken by the more powerful of the two firms, the other follows to avoid a worst case outcome 
B)  taken by the less powerful of the two firms in order to avoid a worst case outcome 
C)  that is best for the firm regardless of the strategy taken by its rival 
D)  that avoids a Nash equilibrium outcome 
E)  that allows both firms to obtain cartel-like profits 
A)  taken by the more powerful of the two firms, the other follows to avoid a worst case outcome 
B)  taken by the less powerful of the two firms in order to avoid a worst case outcome 
C)  that is best for the firm regardless of the strategy taken by its rival 
D)  that avoids a Nash equilibrium outcome 
E)  that allows both firms to obtain cartel-like profits

Question 6

What oligopolist pricing theory is based on firm awareness of how competing firms will react to actions it takes and develops strategies based on that reaction?

Accepted Answer

A)  game theory 
B)  profit-maximizing theory 
C)  price leadership theory 
D)  price discrimination theory 
E)  theory of competition 
A)  game theory 
B)  profit-maximizing theory 
C)  price leadership theory 
D)  price discrimination theory 
E)  theory of competition

Question 7

Over the years, many food and beverage producers began merging with other companies. Nabisco merged with a tobacco firm; Campbell's Soup purchased mushroom farms; and, Anheuser-Busch purchased, among others, malt, yeast, and canning companies. Pepsi purchased Kentucky Fried Chicken, Taco Bell, and Pizza Hut. Which of these merging firms engaged in either vertical or conglomerate mergers?

Accepted Answer

A)  none 
B)  all 
C)  only Campbell's Soup 
D)  only Anheuser-Busch 
E)  only Pepsi 
A)  none 
B)  all 
C)  only Campbell's Soup 
D)  only Anheuser-Busch 
E)  only Pepsi

Question 8

Prices in an oligopoly industry tend to be higher than in a competitive industry.

Accepted Answer

A) True 
 B)False

Question 9

Most cartels self-destruct because cartel members cheat.

Accepted Answer

A) True 
 B)False

Question 10

-In Exhibit L-3, representing the demand curves that make up the kinked demand curve, D2 is the

Accepted Answer

A)  demand curve applicable to any price increase above $50 
B)  demand curve applicable to any price decrease below $50 
C)  demand curve facing firms when a cartel is formed 
D)  market demand curve 
E)  demand curve facing the price leader 
A)  demand curve applicable to any price increase above $50 
B)  demand curve applicable to any price decrease below $50 
C)  demand curve facing firms when a cartel is formed 
D)  market demand curve 
E)  demand curve facing the price leader

Question 11

According to the text, why would firms in an industry follow the price leadership of another firm?

Accepted Answer

A)  fear of retribution from the price leader if they don't follow 
B)  smaller firms do not have the resources to determine optimal price 
C)  the price chosen by the leading firm is the optimal one for all 
D)  profit will be distributed in accordance with firms' market share 
E)  every firm in the industry has confidence the leading firm will act for the benefit of all firms 
A)  fear of retribution from the price leader if they don't follow 
B)  smaller firms do not have the resources to determine optimal price 
C)  the price chosen by the leading firm is the optimal one for all 
D)  profit will be distributed in accordance with firms' market share 
E)  every firm in the industry has confidence the leading firm will act for the benefit of all firms

Question 12

The primary objective of agricultural cooperatives is to

Accepted Answer

A)  prohibit imports of agricultural goods into the country 
B)  regulate price by controlling output 
C)  encourage domestic competition that lowers price because most agricultural cooperatives are consumer based 
D)  safeguard the quality of farm goods put on the market to avoid government interference in their markets 
E)  work to facilitate conglomerate mergers 
A)  prohibit imports of agricultural goods into the country 
B)  regulate price by controlling output 
C)  encourage domestic competition that lowers price because most agricultural cooperatives are consumer based 
D)  safeguard the quality of farm goods put on the market to avoid government interference in their markets 
E)  work to facilitate conglomerate mergers

Question 13

If the Shell and Mobil oil companies merge, what is this called?

Accepted Answer

A)  concentration merger 
B)  diversified merger 
C)  horizontal merger 
D)  vertical merger 
E)  conglomerate merger 
A)  concentration merger 
B)  diversified merger 
C)  horizontal merger 
D)  vertical merger 
E)  conglomerate merger

Question 14

The application of game theory to economics allows us to understand firm behavior in some forms of oligopoly. Game theory suggests that in a two-firm industry, each firm will

Accepted Answer

A)  avoid pricing high when the other prices low 
B)  select high prices and defend that selection because, in the long run, their profits are higher than if they competed by lowering prices 
C)  end up mistaking the other's intentions, which results in low prices and low profit for both in the long run 
D)  end up colluding with the other to form a cartel 
E)  agree with the other not to allow other firms to enter the industry 
A)  avoid pricing high when the other prices low 
B)  select high prices and defend that selection because, in the long run, their profits are higher than if they competed by lowering prices 
C)  end up mistaking the other's intentions, which results in low prices and low profit for both in the long run 
D)  end up colluding with the other to form a cartel 
E)  agree with the other not to allow other firms to enter the industry

Question 15

When firms negotiate price and market share among themselves in a way that is designed to limit competition, this practice is called

Accepted Answer

A)  horizontal cartelization 
B)  conspiracy to merge 
C)  anticapitalism 
D)  collusion 
E)  illicit conglomeration 
A)  horizontal cartelization 
B)  conspiracy to merge 
C)  anticapitalism 
D)  collusion 
E)  illicit conglomeration

Question 16

Game theory is most useful as a technique to model monopolistically competitive oligopolies.

Accepted Answer

A) True 
 B)False

Question 17

One of the most effective international cartels ever formed was in

Accepted Answer

A)  steel 
B)  iron 
C)  wheat 
D)  rubber 
E)  oil 
A)  steel 
B)  iron 
C)  wheat 
D)  rubber 
E)  oil

Question 18

A horizontal merger between two firms occurs when

Accepted Answer

A)  the goods produced by the merging firms are not related 
B)  one firm produces goods while the other produces services 
C)  one firm is a domestic firm and the other is a foreign firm 
D)  the firms were in a buyer-seller relationship before the merger 
E)  the merging firms produce identical or close substitute goods 
A)  the goods produced by the merging firms are not related 
B)  one firm produces goods while the other produces services 
C)  one firm is a domestic firm and the other is a foreign firm 
D)  the firms were in a buyer-seller relationship before the merger 
E)  the merging firms produce identical or close substitute goods

Question 19

Economists refer to pricing the same good at two or more different prices to two or more different consumers as

Accepted Answer

A)  price differentiation 
B)  price discrimination 
C)  price fixing 
D)  price collusion 
E)  unfair pricing 
A)  price differentiation 
B)  price discrimination 
C)  price fixing 
D)  price collusion 
E)  unfair pricing

Question 20

Recall some historical facts from the chapter: Which of the following firms grew primarily through vertical mergers?

Accepted Answer

A)  Exxon 
B)  American Can 
C)  General Electric 
D)  Anheuser-Busch 
E)  American Tobacco 
A)  Exxon 
B)  American Can 
C)  General Electric 
D)  Anheuser-Busch 
E)  American Tobacco

A merger between two firms occurs when

In an unbalanced oligopoly, the sales of the leading firms

In a price leadership situation, where one firm sets a price for others to follow, the leading firm is the one with the

Price discrimination allows the firm to

The avoidance of a worst case scenario strategy in a two-firm balanced oligopoly can best be described as a strategy

What oligopolist pricing theory is based on firm awareness of how competing firms will react to actions it takes and develops strategies based on that reaction?

Prices in an oligopoly industry tend to be higher than in a competitive industry.

Most cartels self-destruct because cartel members cheat.

-In Exhibit L-3, representing the demand curves that make up the kinked demand curve, D₂ is the

According to the text, why would firms in an industry follow the price leadership of another firm?

The primary objective of agricultural cooperatives is to

If the Shell and Mobil oil companies merge, what is this called?

The application of game theory to economics allows us to understand firm behavior in some forms of oligopoly. Game theory suggests that in a two-firm industry, each firm will

When firms negotiate price and market share among themselves in a way that is designed to limit competition, this practice is called

Game theory is most useful as a technique to model monopolistically competitive oligopolies.

One of the most effective international cartels ever formed was in

A horizontal merger between two firms occurs when

Economists refer to pricing the same good at two or more different prices to two or more different consumers as

Recall some historical facts from the chapter: Which of the following firms grew primarily through vertical mergers?

Introduction

Production Possibilities and Opportunity Costs

Demand and Supply

Elasticity

Happiness, Utility, and Consumer Choice

Price Ceilings and Price Floors

Entrepreneurship and Business Ownership

Costs of Production

Maximizing Profit

Identifying Markets and Market Structures

Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition

Antitrust and Regulation

Externalities, Market Failure, and Public Choice

Wage Rates in Competitive Labor Markets

Wages and Employment: Monopsony and Labor Unions

Interest, Rent, and Profit

Income Distribution and Poverty

International Trade

Exchange Rates, Balance of Payments, and International Debt

The Economic Problems of Less-Developed Economies

Filters

Exam 12: Price and Output Determination Under Oligopoly

A merger between two firms occurs when

In an unbalanced oligopoly, the sales of the leading firms

In a price leadership situation, where one firm sets a price for others to follow, the leading firm is the one with the

Price discrimination allows the firm to

The avoidance of a worst case scenario strategy in a two-firm balanced oligopoly can best be described as a strategy

What oligopolist pricing theory is based on firm awareness of how competing firms will react to actions it takes and develops strategies based on that reaction?

Prices in an oligopoly industry tend to be higher than in a competitive industry.

Most cartels self-destruct because cartel members cheat.

-In Exhibit L-3, representing the demand curves that make up the kinked demand curve, D2 is the

According to the text, why would firms in an industry follow the price leadership of another firm?

The primary objective of agricultural cooperatives is to

If the Shell and Mobil oil companies merge, what is this called?

The application of game theory to economics allows us to understand firm behavior in some forms of oligopoly. Game theory suggests that in a two-firm industry, each firm will

When firms negotiate price and market share among themselves in a way that is designed to limit competition, this practice is called

Game theory is most useful as a technique to model monopolistically competitive oligopolies.

One of the most effective international cartels ever formed was in

A horizontal merger between two firms occurs when

Economists refer to pricing the same good at two or more different prices to two or more different consumers as

Recall some historical facts from the chapter: Which of the following firms grew primarily through vertical mergers?

Introduction

Production Possibilities and Opportunity Costs

Demand and Supply

Elasticity

Happiness, Utility, and Consumer Choice

Price Ceilings and Price Floors

Entrepreneurship and Business Ownership

Costs of Production

Maximizing Profit

Identifying Markets and Market Structures

Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition

Antitrust and Regulation

Externalities, Market Failure, and Public Choice

Wage Rates in Competitive Labor Markets

Wages and Employment: Monopsony and Labor Unions

Interest, Rent, and Profit

Income Distribution and Poverty

International Trade

Exchange Rates, Balance of Payments, and International Debt

The Economic Problems of Less-Developed Economies

Filters

-In Exhibit L-3, representing the demand curves that make up the kinked demand curve, D₂ is the