Deck 6: Monopoly and Imperfect Competition

Question 1

A monopolistically competitive business has a demand curve that is:

A)unit elastic
B)inelastic
C)perfectly inelastic
D)perfectly elastic
E)elastic

Answer 1

E

Question 2

If a kink exists in an oligopolist's demand curve:

A)products are differentiated
B)an abrupt change in price elasticity occurs
C)the business will ignore price cuts by rivals, but will match their price increases
D)there is a gap in marginal costs
E)products in the market are standardized

Answer 2

B

Question 3

A manufacturing firm is the sole seller of a specialized machine. The demand schedule for this product is shown in the table below.

$\begin{array} { | c | c | c | c | c | c | c | c | } \hline \text { Price } & \$ 700000 & \$ 600000 & \$ 500000 & \$ 400000 & \$ 300000 & \$ 200000 & \$ 100000 \\\hline \begin{array} { c } \text { Quantity } \\\text { Demanded }\end{array} & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline\end{array}$

-For this firm,the marginal revenue of the fourth machine is:

A)$600 000
B)$400 000
C)$200 000
D)$0
E)-$200 000

Answer 3

$0

Question 4

A monopolist's demand curve:

A)is less elastic than a perfectly competitive business's demand curve
B)is perfectly elastic
C)coincides with its marginal revenue curve
D)is perfectly inelastic
E)is very elastic

Question 5

A manufacturing firm is the sole seller of a specialized machine. The demand schedule for this product is shown in the table below.

$\begin{array} { | c | c | c | c | c | c | c | c | } \hline \text { Price } & \$ 700000 & \$ 600000 & \$ 500000 & \$ 400000 & \$ 300000 & \$ 200000 & \$ 100000 \\\hline \begin{array} { c } \text { Quantity } \\\text { Demanded }\end{array} & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline\end{array}$

-For this firm,as quantity increases:

A)price and marginal revenue both fall, with their values equal to one another at each quantity level
B)price and marginal revenue are constant and equal to one another at each quantity level
C)price falls while marginal revenue stays constant
D)marginal revenue falls while price stays constant
E)price and marginal revenue both fall, with marginal revenue below price at each quantity level beyond zero

Question 6

With respect to the monopolist's demand curve,it can be said that:

A)the stronger the barriers to entry, the more elastic is this demand curve
B)it will be identical to the market demand curve
C)demand is perfectly inelastic
D)marginal revenue equals price at all levels of output
E)demand is perfectly elastic

Question 7

A monopolist's demand curve:

A)is kinked at the profit-maximizing price
B)coincides with its marginal revenue curve
C)lies above its marginal revenue curve
D)lies below its marginal revenue curve
E)has two separate linear segments with different slopes

Question 8

A kinked demand curve:

A)has three segments
B)is typical of rival oligopolists
C)has a flat section below the business's original price
D)has a steep section above the business's original price
E)is faced by monopolistic competitors

Question 9

The kinked demand curve of an oligopoly assumes a business's rivals will:

A)ignore a price cut but match a price increase
B)ignore a price increase but match a price cut
C)match any price change
D)ignore any price change
E)sell their product for free

Question 10

A manufacturing firm is the sole seller of a specialized machine. The demand schedule for this product is shown in the table below.

$\begin{array} { | c | c | c | c | c | c | c | c | } \hline \text { Price } & \$ 700000 & \$ 600000 & \$ 500000 & \$ 400000 & \$ 300000 & \$ 200000 & \$ 100000 \\\hline \begin{array} { c } \text { Quantity } \\\text { Demanded }\end{array} & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline\end{array}$

-In this market the firm is:

A)a monopolist
B)an oligopolist in a market characterized by rivalry
C)an oligopolist in a market characterized by cooperation
D)a monopolistic competitor
E)a perfect competitor

Question 11

The monopolistically competitive seller's demand curve will tend to become more elastic the:

A)more significant the barriers to entering the industry
B)greater the degree of product differentiation
C)larger the number of possible substitutes
D)smaller the number of competitors
E)lower the price of the seller's product

Question 12

In equilibrium,which of the following conditions is common to both unregulated monopoly and perfect competition?

A)MC = P
B)MC = AC
C)MR = MC
D)AR = AC
E)TR = TC

Question 13

The monopolist's demand curve is:

A)non-existent
B)perfectly elastic
C)unit-elastic
D)perfectly inelastic
E)identical to the market demand curve

Question 14

If Toyota establishes prices for new cars each year,and General Motors and Ford model their prices on General Motors' prices,this is known as:

A)predatory pricing
B)a cartel
C)competitive pricing
D)price leadership
E)monopoly pricing

Question 15

The mutual interdependence that characterizes an oligopoly arises because:

A)the products of various businesses are standardized
B)the products of various businesses are differentiated
C)there is only one business in the market
D)entry barriers are insignificant
E)a small number of businesses make up the market

Question 16

Monopolistic competition and oligopoly are alike in that:

A)the number of businesses is approximately the same in each
B)a kinked demand curve is typical for both
C)strong mutual interdependence exists among businesses in each
D)non-price competition is common to both
E)barriers to entry are significant in both

Question 17

Because of mutual interdependence,oligopolists must:

A)co-operate with their rivals
B)operate as rivals
C)ignore the actions of their competitors
D)take into account the potential reactions of competitors to actions they may take
E)act as if they were perfectly competitive

Question 18

A manufacturing firm is the sole seller of a specialized machine. The demand schedule for this product is shown in the table below.

$\begin{array} { | c | c | c | c | c | c | c | c | } \hline \text { Price } & \$ 700000 & \$ 600000 & \$ 500000 & \$ 400000 & \$ 300000 & \$ 200000 & \$ 100000 \\\hline \begin{array} { c } \text { Quantity } \\\text { Demanded }\end{array} & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline\end{array}$

-A monopolist will maximize profits by producing that output at which marginal cost is equal to:

A)average cost
B)average revenue
C)average variable cost
D)average fixed cost
E)marginal revenue

Question 19

A monopolist's demand curve is:

A)downward-sloping
B)upward-sloping
C)parallel to the vertical axis
D)parallel to the horizontal axis
E)necessarily concave

Question 20

A manufacturing firm is the sole seller of a specialized machine. The demand schedule for this product is shown in the table below.

$\begin{array} { | c | c | c | c | c | c | c | c | } \hline \text { Price } & \$ 700000 & \$ 600000 & \$ 500000 & \$ 400000 & \$ 300000 & \$ 200000 & \$ 100000 \\\hline \begin{array} { c } \text { Quantity } \\\text { Demanded }\end{array} & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline\end{array}$

-For this firm,the marginal revenue of the third machine is:

A)$600 000
B)$400 000
C)$200 000
D)$0
E)-$200 000

Question 21

This business's profit-maximizing price will be:

A)$10
B)$16
C)$13
D)$19
E)$0

Question 22

In equilibrium,the oligopolist:

A)is realizing an economic profit of ad per unit
B)should shut down in the short run
C)is realizing an economic loss
D)is realizing an economic profit of bd per unit
E)is realizing an economic profit of ac per unit

Question 23

Equilibrium price is:

A)0e
B)0d
C)0c
D)0b
E)0a

Question 24

A monopolistic competitor's marginal revenue curve:

A)is downward-sloping and coincides with the demand curve
B)coincides with the demand curve and is parallel to the horizontal axis
C)is downward-sloping and lies below the demand curve
D)does not exist because the business is a price-maker
E)is downward-sloping and lies above the demand curve

Question 25

The demand and marginal revenue curves of a monopolistic competitor are:

A)equal at all levels of output
B)equal only at their initial points
C)both equal to the average revenue curve
D)identical except at their initial points
E)never equal

Question 26

In long-run equilibrium,a monopolistic competitor's price will:

A)be less than both MC and AC
B)exceed AC, but equal MC
C)exceed both MC and AC
D)be equal to both MC and AC
E)exceed MC, but equal AC

Question 27

If this industry is perfectly competitive,the profit-maximizing price and quantity will be:

A)P₃ and Q₃
B)P₁ and Q₁
C)P₂ and Q₂
D)P₁ and Q₃
E)indeterminate on the basis of the information given

Question 28

The supply curve of a perfectly competitive industry turned monopolist:

A)is merely an extension of the perfectly competitive supply curve
B)is the same as that of an oligopolist
C)is its average variable cost curve
D)is its average cost curve
E)does not exist because prices are not "given" to a monopolist

Question 29

The following are demand and cost data for a monopolist:

$\begin{array} { | c | c | c | c | } \hline &{ \text { Demand Data } } & { \text { Cost Data } } \\\hline \text { Price } & \text { Quantity Demanded } & \text { Output } & \text { Total Cost } \\\hline \$ 5.50 & 3 & 3 & \$ 5.00 \\\hline 5.00 & 4 & 4 & 6.00 \\\hline 4.50 & 5 & 5 & 6.50 \\\hline 3.85 & 6 & 6 & 7.50 \\\hline 3.35 & 7 & 7 & 9.00 \\\hline 2.90 & 8 & 8 & 11.00 \\\hline 2.50 & 9 & 9 & 14.00 \\\hline\end{array}$

-Equilibrium price for the monopolist will be:

A)$5.00
B)$2.90
C)$3.35
D)$4.50
E)$3.85

Question 30

If this industry is composed of only one seller,the profit-maximizing price and quantity will be:

A)P₃ and Q₃
B)P₁ and Q₁
C)P₂ and Q₂
D)P₁ and Q₃
E)indeterminate on the basis of the information given

Question 31

Equilibrium output is:

A)0i
B)0h
C)0f
D)0g
E)zero

Question 32

In the long run,businesses will:

A)leave this industry causing demand to shift downward
B)enter this industry causing demand to shift upward
C)enter this industry causing demand to shift downward
D)enter this industry causing demand to stay the same
E)neither leave nor enter this industry, so that demand will not shift

Question 33

A monopolistic competitor maximizes short-run profits by:

A)setting price equal to marginal cost
B)equating demand and average revenue
C)finding the price that equates average revenue to marginal cost
D)finding the quantity of output that equates marginal revenue and marginal cost
E)setting price equal to average cost

Question 34

A monopolistic competitor will:

A)realize economic profits in the short run but economic losses in the long run
B)realize persistent economic losses in both the short run and long run
C)realize either economic profits or economic losses in the short run, but tend to realize only a normal profit in the long run
D)persistently realize economic profits in both the short run and long run
E)realize economic losses in the short run but economic profits in the long run

Question 35

If an oligopolist is faced with a marginal revenue curve that has a gap in it,we may assume that:

A)it is colluding with its rivals to maximize joint profits
B)its demand curve is kinked
C)it is selling a standardized product
D)it is selling a differentiated product
E)it is the price leader in the industry

Question 36

Because a monopolist has no competitors due to entry barriers,it is able to:

A)keep price constant in the long run
B)satisfy both minimum-cost and marginal-cost pricing conditions
C)satisfy only the minimum-cost pricing condition
D)satisfy only the marginal-cost pricing
E)keep on raising price in the long run

Question 37

Government regulation of natural monopolies is:

A)a complex task, as it requires estimating consumer desires
B)needed to ensure the operation of natural monopolies in the long run
C)needed to ensure that the cost savings resulting from increasing returns to scale are passed on to the consumer
D)totally unnecessary, as free markets operate efficiently and equitably
E)no longer used in Canada

Question 38

A monopolist is producing an output such that AC = $4,P = $5,MC = $2,and MR = $3.From this information we can say that the business is realizing:

A)an economic loss that could be reduced by producing more output
B)an economic loss that could be reduced by producing less output
C)an economic profit that could be increased by producing less output
D)an economic profit that could be increased by producing more output
E)zero economic profit

Question 39

This business will realize an economic:

A)loss of $320
B)loss of $280
C)profit of $600
D)loss of $300
E)profit of $480

Question 40

The following are demand and cost data for a monopolist:

$\begin{array} { | c | c | c | c | } \hline &{ \text { Demand Data } } & { \text { Cost Data } } \\\hline \text { Price } & \text { Quantity Demanded } & \text { Output } & \text { Total Cost } \\\hline \$ 5.50 & 3 & 3 & \$ 5.00 \\\hline 5.00 & 4 & 4 & 6.00 \\\hline 4.50 & 5 & 5 & 6.50 \\\hline 3.85 & 6 & 6 & 7.50 \\\hline 3.35 & 7 & 7 & 9.00 \\\hline 2.90 & 8 & 8 & 11.00 \\\hline 2.50 & 9 & 9 & 14.00 \\\hline\end{array}$

-This monopolist will realize a:

A)profit of $8.50
B)profit of $7.50
C)profit of $16.00
D)loss of $9.50
E)$15.60

Question 41

Game theory is:

A)a set of mathematical models which prove it is always better for individuals to cooperate than to compete with one another
B)a set of mathematical models which prove it is always better for individuals to compete than cooperate with one another
C)an analysis of how interdependent actors typically reduce their own benefits when they attempt to use strategy to achieve their goals
D)an analysis of how interdependent actors can use strategy to achieve their goals
E)an analysis of how all of life's decisions can be compared to a poker game

Question 42

The table below shows annual profits received by two oligopolists, Alpha and Beta, depending on whether each company decides whether to live within the collusive agreement they have signed to charge a high price, or to cheat and charge a lower price.

$\begin{array}{}& \text {beta's Strategies }\\ \text {AlPHA'sStrategies }&\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { Don't } \\\text { }\end{array} & \text { Cheat } \\\hline \text { Don'tCheat} & \begin{array}{c}\text { B: } \$ 5 \mathrm{~m} \\\text { A: } \$ 5 \mathrm{~m}\end{array} & \begin{array}{c}\text { B: } \$ 6 \mathrm{~m} \\\text { A } \$ 3 \mathrm{~m}\end{array} \\\hline & \begin{array}{c}\text { B: } \$ 3 \mathrm{~m}\end{array} & \text { B: } \$ 4 \mathrm{~m} \\ \text { Cheat } & \$ 6 \mathrm{~m} & \text { A: } \$ 4 \mathrm{~m} \\\hline\end{array}\\\end{array}$

-Based on the table,if both Alpha and Beta charge the high price they agreed upon,then:

A)they both receive a profit of $4 million
B)they both receive a profit of $5 million
C)Alpha receives a profit of $6 million and Beta receives a profit of $3 million
D)Alpha receives a profit of $3 million and Beta receives a profit of $6 million
E)Alpha receives a profit of $20 million and Beta receives a profit of $18 million

Question 43

The table below shows the number of years of jail time that two burglars, Alf and Doug, will receive, depending on whether each decides to confess and implicate his partner, or to remain silent.

$\begin{array}{}& \text {Doug's Strategies }\\ \text {Alf'sStrategies }&\begin{array} { |l|c|c| } \hline & \text { Confess } & \begin{array}{c}\text { Don't } \\\text { Confess }\end{array} \\\hline \text { Confess } & \begin{array}{c}\text { Doug: 4 } \\\text { A.f: } 4\end{array} & \begin{array}{c}\text { Doug: } 9 \\\text { A.f: 0 }\end{array} \\\hline \text { Don't } & \text { Doug: 0 } & \text { Doug: 1 } \\\text { Confess } & \text { Alf: } 9 & \text { A.f: 1 } \\\hline\end{array}\\\end{array}$

-The available strategies in the table exhibit the prisoner's dilemma because if the prisoners:

A)independently pursue their own self interest they will end up being set free
B)independently pursue their self-interest, their actions will be self-defeating, relative to other strategies they could have chosen instead
C)cooperate, their actions will be self-defeating
D)each pursue different actions, with one confessing and the other remaining silent, they will both be better off than otherwise
E)try to escape, they will be caught

Question 44

The table below shows the number of years of jail time that two burglars, Alf and Doug, will receive, depending on whether each decides to confess and implicate his partner, or to remain silent.

$\begin{array}{}& \text {Doug's Strategies }\\ \text {Alf'sStrategies }&\begin{array} { |l|c|c| } \hline & \text { Confess } & \begin{array}{c}\text { Don't } \\\text { Confess }\end{array} \\\hline \text { Confess } & \begin{array}{c}\text { Doug: 4 } \\\text { A.f: } 4\end{array} & \begin{array}{c}\text { Doug: } 9 \\\text { A.f: 0 }\end{array} \\\hline \text { Don't } & \text { Doug: 0 } & \text { Doug: 1 } \\\text { Confess } & \text { Alf: } 9 & \text { A.f: 1 } \\\hline\end{array}\\\end{array}$

-Based on this table,if Alf confesses and Doug stays silent,then Alf:

A)is set free, and Doug receives a sentence of 9 years
B)receives a sentence of 9 years, and Doug is set free
C)receives a sentence of one year, and Doug is set free
D)is set free, and Doug receives a sentence of one year
E)and Doug both receive sentences of 4 years

Question 45

The table below shows the number of years of jail time that two burglars, Alf and Doug, will receive, depending on whether each decides to confess and implicate his partner, or to remain silent.

$\begin{array}{}& \text {Doug's Strategies }\\ \text {Alf'sStrategies }&\begin{array} { |l|c|c| } \hline & \text { Confess } & \begin{array}{c}\text { Don't } \\\text { Confess }\end{array} \\\hline \text { Confess } & \begin{array}{c}\text { Doug: 4 } \\\text { A.f: } 4\end{array} & \begin{array}{c}\text { Doug: } 9 \\\text { A.f: 0 }\end{array} \\\hline \text { Don't } & \text { Doug: 0 } & \text { Doug: 1 } \\\text { Confess } & \text { Alf: } 9 & \text { A.f: 1 } \\\hline\end{array}\\\end{array}$

-Based on this table,if Doug and Alf both confess,then they:

A)each receive a sentence of one year
B)each receive a sentence of 4 years
C)each receive a sentence of 9 years
D)are both set free
E)each receive a sentence of 13 years

Question 46

The kinked demand curve indicates a situation in which an oligopolist will be:

A)interested in maintaining the going price even as costs change
B)eager to either raise or lower price
C)willing to raise price but not to lower it
D)eager to lower price but not to raise it
E)be willing to sell it product at exactly its average cost

Question 47

The prisoner's dilemma shows that:

A)self-interested behaviour is always the best strategy for individual players
B)it is difficult to distinguish between the benefits of cooperation and the benefits of self-interested behaviour
C)self-interested actions can sometimes be self-defeating
D)prisoners are always better off if they choose to cooperate with police interrogators
E)there are cases where prisoners are uncertain about whether or not to try to escape

Question 48

The table below shows annual profits received by two oligopolists, Alpha and Beta, depending on whether each company decides whether to live within the collusive agreement they have signed to charge a high price, or to cheat and charge a lower price.

$\begin{array}{}& \text {beta's Strategies }\\ \text {AlPHA'sStrategies }&\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { Don't } \\\text { }\end{array} & \text { Cheat } \\\hline \text { Don'tCheat} & \begin{array}{c}\text { B: } \$ 5 \mathrm{~m} \\\text { A: } \$ 5 \mathrm{~m}\end{array} & \begin{array}{c}\text { B: } \$ 6 \mathrm{~m} \\\text { A } \$ 3 \mathrm{~m}\end{array} \\\hline & \begin{array}{c}\text { B: } \$ 3 \mathrm{~m}\end{array} & \text { B: } \$ 4 \mathrm{~m} \\ \text { Cheat } & \$ 6 \mathrm{~m} & \text { A: } \$ 4 \mathrm{~m} \\\hline\end{array}\\\end{array}$

-Based on the table,if Alpha charges a lower price than the one agreed upon between the two companies,while Beta doesn't cheat,then Alpha receives an annual profit of:

A)$3 million and Beta receives an annual profit of $6 million
B)$5 million and Beta also receives an annual profit of $5 million
C)$6 million and Beta receives an annual profit of $3 million
D)$4 million and Beta also receives an annual profit of $4 million
E)$20 million and Beta receives an annual profit of $18 million

Question 49

The table below shows annual profits received by two oligopolists, Alpha and Beta, depending on whether each company decides whether to live within the collusive agreement they have signed to charge a high price, or to cheat and charge a lower price.

$\begin{array}{}& \text {beta's Strategies }\\ \text {AlPHA'sStrategies }&\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { Don't } \\\text { }\end{array} & \text { Cheat } \\\hline \text { Don'tCheat} & \begin{array}{c}\text { B: } \$ 5 \mathrm{~m} \\\text { A: } \$ 5 \mathrm{~m}\end{array} & \begin{array}{c}\text { B: } \$ 6 \mathrm{~m} \\\text { A } \$ 3 \mathrm{~m}\end{array} \\\hline & \begin{array}{c}\text { B: } \$ 3 \mathrm{~m}\end{array} & \text { B: } \$ 4 \mathrm{~m} \\ \text { Cheat } & \$ 6 \mathrm{~m} & \text { A: } \$ 4 \mathrm{~m} \\\hline\end{array}\\\end{array}$

-Anti-combines legislation in Canada was largely unsuccessful prior to 1986 because:

A)it combined criminal and civil provisions
B)Canadian governments placed supreme importance on domestic competition
C)its penalties were too extreme
D)it was difficult to establish the guilt required to prove a criminal offence
E)it led to so many convictions that it became highly controversial

Question 50

The table below shows annual profits received by two oligopolists, Alpha and Beta, depending on whether each company decides whether to live within the collusive agreement they have signed to charge a high price, or to cheat and charge a lower price.

$\begin{array}{}& \text {beta's Strategies }\\ \text {AlPHA'sStrategies }&\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { Don't } \\\text { }\end{array} & \text { Cheat } \\\hline \text { Don'tCheat} & \begin{array}{c}\text { B: } \$ 5 \mathrm{~m} \\\text { A: } \$ 5 \mathrm{~m}\end{array} & \begin{array}{c}\text { B: } \$ 6 \mathrm{~m} \\\text { A } \$ 3 \mathrm{~m}\end{array} \\\hline & \begin{array}{c}\text { B: } \$ 3 \mathrm{~m}\end{array} & \text { B: } \$ 4 \mathrm{~m} \\ \text { Cheat } & \$ 6 \mathrm{~m} & \text { A: } \$ 4 \mathrm{~m} \\\hline\end{array}\\\end{array}$

-Under the 1986 Competition Act,mergers can be prevented only if:

A)they result in an unacceptable lessening of competition
B)they are in the same industry
C)they result in more than half the industry's output being controlled by one company
D)the companies are controlled by non-residents
E)the companies are government-owned

Question 51

The table below shows annual profits received by two oligopolists, Alpha and Beta, depending on whether each company decides whether to live within the collusive agreement they have signed to charge a high price, or to cheat and charge a lower price.

$\begin{array}{}& \text {beta's Strategies }\\ \text {AlPHA'sStrategies }&\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { Don't } \\\text { }\end{array} & \text { Cheat } \\\hline \text { Don'tCheat} & \begin{array}{c}\text { B: } \$ 5 \mathrm{~m} \\\text { A: } \$ 5 \mathrm{~m}\end{array} & \begin{array}{c}\text { B: } \$ 6 \mathrm{~m} \\\text { A } \$ 3 \mathrm{~m}\end{array} \\\hline & \begin{array}{c}\text { B: } \$ 3 \mathrm{~m}\end{array} & \text { B: } \$ 4 \mathrm{~m} \\ \text { Cheat } & \$ 6 \mathrm{~m} & \text { A: } \$ 4 \mathrm{~m} \\\hline\end{array}\\\end{array}$

-The available strategies in the table show that:

A)if both companies pursue their own self interest by cheating they will do better than if they cooperate
B)the agreements entered into by oligopolists such as Alpha and Beta are not necessarily long-lasting, given the incentives to cheat
C)if each company pursues different actions, with the one cheating and the other living within their agreement, they are both better off than if both live within the agreement
D)if each company pursues different actions, with the one cheating and the other living within their agreement, they are both worse off than if they both live within the agreement
E)the agreements entered into by oligopolists such as Alpha and Beta are always long-lasting given the penalties associated with cheating

Question 52

The table below shows the number of years of jail time that two burglars, Alf and Doug, will receive, depending on whether each decides to confess and implicate his partner, or to remain silent.

$\begin{array}{}& \text {Doug's Strategies }\\ \text {Alf'sStrategies }&\begin{array} { |l|c|c| } \hline & \text { Confess } & \begin{array}{c}\text { Don't } \\\text { Confess }\end{array} \\\hline \text { Confess } & \begin{array}{c}\text { Doug: 4 } \\\text { A.f: } 4\end{array} & \begin{array}{c}\text { Doug: } 9 \\\text { A.f: 0 }\end{array} \\\hline \text { Don't } & \text { Doug: 0 } & \text { Doug: 1 } \\\text { Confess } & \text { Alf: } 9 & \text { A.f: 1 } \\\hline\end{array}\\\end{array}$

-Based on this table,if Doug and Alf both stay silent,then they:

A)each receive a sentence of one year
B)each receive a sentence of 4 years
C)each receive a sentence of 9 years
D)are both set free
E)each receive a sentence of 13 years

Question 53

The table below shows the number of years of jail time that two burglars, Alf and Doug, will receive, depending on whether each decides to confess and implicate his partner, or to remain silent.

$\begin{array}{}& \text {Doug's Strategies }\\ \text {Alf'sStrategies }&\begin{array} { |l|c|c| } \hline & \text { Confess } & \begin{array}{c}\text { Don't } \\\text { Confess }\end{array} \\\hline \text { Confess } & \begin{array}{c}\text { Doug: 4 } \\\text { A.f: } 4\end{array} & \begin{array}{c}\text { Doug: } 9 \\\text { A.f: 0 }\end{array} \\\hline \text { Don't } & \text { Doug: 0 } & \text { Doug: 1 } \\\text { Confess } & \text { Alf: } 9 & \text { A.f: 1 } \\\hline\end{array}\\\end{array}$

-If each prisoner independently chooses the strategy that minimizes their possible jail time,then they:

A)each remain silent and receive a sentence of one year
B)each confess and receive a sentence of one year
C)each confess and receive a sentence of 4 years
D)each stay silent and receive a sentence of 4 years
E)both confess and both will be set free

Question 54

The behaviour of monopolistic competitors and oligopolists is similar because:

A)both maximize profits by equating price to marginal cost
B)neither satisfies the conditions for consumer benefit of minimum-cost and marginal-cost pricing
C)both face demand curves that are identical to marginal revenue curves
D)both have a tendency to keep price constant
E)both face mutual interdependence in their markets

Question 55

The table below shows annual profits received by two oligopolists, Alpha and Beta, depending on whether each company decides whether to live within the collusive agreement they have signed to charge a high price, or to cheat and charge a lower price.

$\begin{array}{}& \text {beta's Strategies }\\ \text {AlPHA'sStrategies }&\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { Don't } \\\text { }\end{array} & \text { Cheat } \\\hline \text { Don'tCheat} & \begin{array}{c}\text { B: } \$ 5 \mathrm{~m} \\\text { A: } \$ 5 \mathrm{~m}\end{array} & \begin{array}{c}\text { B: } \$ 6 \mathrm{~m} \\\text { A } \$ 3 \mathrm{~m}\end{array} \\\hline & \begin{array}{c}\text { B: } \$ 3 \mathrm{~m}\end{array} & \text { B: } \$ 4 \mathrm{~m} \\ \text { Cheat } & \$ 6 \mathrm{~m} & \text { A: } \$ 4 \mathrm{~m} \\\hline\end{array}\\\end{array}$

-Which of the following practices does not require proof that the actions taken "unduly restrain competition?"

A)conspiracy
B)abuse of a dominant position
C)predatory pricing
D)mergers
E)bid-rigging

Question 56

The table below shows annual profits received by two oligopolists, Alpha and Beta, depending on whether each company decides whether to live within the collusive agreement they have signed to charge a high price, or to cheat and charge a lower price.

$\begin{array}{}& \text {beta's Strategies }\\ \text {AlPHA'sStrategies }&\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { Don't } \\\text { }\end{array} & \text { Cheat } \\\hline \text { Don'tCheat} & \begin{array}{c}\text { B: } \$ 5 \mathrm{~m} \\\text { A: } \$ 5 \mathrm{~m}\end{array} & \begin{array}{c}\text { B: } \$ 6 \mathrm{~m} \\\text { A } \$ 3 \mathrm{~m}\end{array} \\\hline & \begin{array}{c}\text { B: } \$ 3 \mathrm{~m}\end{array} & \text { B: } \$ 4 \mathrm{~m} \\ \text { Cheat } & \$ 6 \mathrm{~m} & \text { A: } \$ 4 \mathrm{~m} \\\hline\end{array}\\\end{array}$

-Based on the table,if Alpha doesn't cheat,while Beta charges a lower price than the one agreed upon between the two companies,then Alpha receives an annual profit of:

A)$3 million and Beta receives an annual profit of $6 million
B)$5 million and Beta also receives an annual profit of $5 million
C)$6 million and Beta receives an annual profit of $3 million
D)$4 million and Beta also receives an annual profit of $4 million
E)$20 million and Beta receives an annual profit of $18 million

Question 57

The table below shows the number of years of jail time that two burglars, Alf and Doug, will receive, depending on whether each decides to confess and implicate his partner, or to remain silent.

$\begin{array}{}& \text {Doug's Strategies }\\ \text {Alf'sStrategies }&\begin{array} { |l|c|c| } \hline & \text { Confess } & \begin{array}{c}\text { Don't } \\\text { Confess }\end{array} \\\hline \text { Confess } & \begin{array}{c}\text { Doug: 4 } \\\text { A.f: } 4\end{array} & \begin{array}{c}\text { Doug: } 9 \\\text { A.f: 0 }\end{array} \\\hline \text { Don't } & \text { Doug: 0 } & \text { Doug: 1 } \\\text { Confess } & \text { Alf: } 9 & \text { A.f: 1 } \\\hline\end{array}\\\end{array}$

-Based on this table,if Doug confesses and Alf stays silent,then Alf:

A)is set free, and Doug receives a sentence of 9 years
B)receives a sentence of 9 years, and Doug is set free
C)receives a sentence of one year, and Doug is set free
D)is set free, and Doug receives a sentence of one year
E)and Doug both receive sentences of 4 years

Question 58

The table below shows annual profits received by two oligopolists, Alpha and Beta, depending on whether each company decides whether to live within the collusive agreement they have signed to charge a high price, or to cheat and charge a lower price.

$\begin{array}{}& \text {beta's Strategies }\\ \text {AlPHA'sStrategies }&\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { Don't } \\\text { }\end{array} & \text { Cheat } \\\hline \text { Don'tCheat} & \begin{array}{c}\text { B: } \$ 5 \mathrm{~m} \\\text { A: } \$ 5 \mathrm{~m}\end{array} & \begin{array}{c}\text { B: } \$ 6 \mathrm{~m} \\\text { A } \$ 3 \mathrm{~m}\end{array} \\\hline & \begin{array}{c}\text { B: } \$ 3 \mathrm{~m}\end{array} & \text { B: } \$ 4 \mathrm{~m} \\ \text { Cheat } & \$ 6 \mathrm{~m} & \text { A: } \$ 4 \mathrm{~m} \\\hline\end{array}\\\end{array}$

-Under the 1986 Competition Act,the maximum fine for conspiracy (to restrain competition)is:

A)$500 000
B)$1 million
C)$5 million
D)$10 million
E)$100 million

Question 59

The table below shows the number of years of jail time that two burglars, Alf and Doug, will receive, depending on whether each decides to confess and implicate his partner, or to remain silent.

$\begin{array}{}& \text {Doug's Strategies }\\ \text {Alf'sStrategies }&\begin{array} { |l|c|c| } \hline & \text { Confess } & \begin{array}{c}\text { Don't } \\\text { Confess }\end{array} \\\hline \text { Confess } & \begin{array}{c}\text { Doug: 4 } \\\text { A.f: } 4\end{array} & \begin{array}{c}\text { Doug: } 9 \\\text { A.f: 0 }\end{array} \\\hline \text { Don't } & \text { Doug: 0 } & \text { Doug: 1 } \\\text { Confess } & \text { Alf: } 9 & \text { A.f: 1 } \\\hline\end{array}\\\end{array}$

-If both prisoners are allowed to confer before being questioned and decide to cooperate,they:

A)each remain silent and receive a sentence of one year
B)each confess and receive a sentence of one year
C)each confess and receive a sentence of 4 years
D)each remain silent and receive a sentence of 4 years
E)both confess and are both set free

Question 60

The table below shows annual profits received by two oligopolists, Alpha and Beta, depending on whether each company decides whether to live within the collusive agreement they have signed to charge a high price, or to cheat and charge a lower price.

$\begin{array}{}& \text {beta's Strategies }\\ \text {AlPHA'sStrategies }&\begin{array}{|l|c|c|}\hline & \begin{array}{c}\text { Don't } \\\text { }\end{array} & \text { Cheat } \\\hline \text { Don'tCheat} & \begin{array}{c}\text { B: } \$ 5 \mathrm{~m} \\\text { A: } \$ 5 \mathrm{~m}\end{array} & \begin{array}{c}\text { B: } \$ 6 \mathrm{~m} \\\text { A } \$ 3 \mathrm{~m}\end{array} \\\hline & \begin{array}{c}\text { B: } \$ 3 \mathrm{~m}\end{array} & \text { B: } \$ 4 \mathrm{~m} \\ \text { Cheat } & \$ 6 \mathrm{~m} & \text { A: } \$ 4 \mathrm{~m} \\\hline\end{array}\\\end{array}$

-Based on the table,if both Alpha and Beta charge a lower price than the one they agreed upon,then:

A)they both receive a profit of $4 million
B)they both receive a profit of $5 million
C)Alpha receives a profit of $6 million and Beta receives a profit of $3 million
D)Alpha receives a profit of $3 million and Beta receives a profit of $6 million
E)Alpha receives a profit of $20 million and Beta receives a profit of $18 million

Question 61

If an industry has a four-firm concentration ratio of 85 percent,this suggests that the industry:

A)approximates perfect competition
B)is monopolistically competitive
C)is a monopoly
D)is an oligopoly
E)is either perfectly competitive or monopolistically competitive

Question 62

A vertical merger involves combining one or more businesses:

A)as the result of one business purchasing the assets of the other
B)operating in entirely different industries
C)operating at different stages of the production process in the same industry
D)operating at the same stage of the production process in an industry
E)as a result of one business selling its foreign subsidiaries to another

Question 63

Which of the following Canadian markets has a four-firm concentration ratio of over 50 percent?

A)stock market
B)wheat industry
C)restaurant industry
D)construction industry
E)beer industry

Question 64

Suppose that total sales in an industry in a particular year are $600 million and sales by the top four sellers are $200 million,$150 million,$100 million and $50 million,respectively.We can conclude that:

A)price leadership exists in the industry
B)the concentration ratio is less than 80 percent
C)the industry is an oligopoly
D)the industry is a monopoly
E)the industry is perfectly competitive

Question 65

A merger between a maker of household detergents and a fast-food chain would be an example of:

A)a horizontal merger
B)a vertical merger
C)predatory pricing
D)abuse of a dominant position
E)a conglomerate merger

Question 66

Defenders of industrial concentration argue that:

A)only businesses with substantial market power will earn enough profit to sustain operations in the long run
B)only large businesses can take advantage of increasing returns to scale
C)large businesses often operate in perfectly competitive markets
D)competition should be enhanced in a concentrated market
E)small businesses are able to take advantage of decreasing returns to scale

Question 67

An industry composed of 40 firms,none of which has more than 3 percent of the total market for a differentiated product,can best be described as:

A)monopolistic competition
B)a monopoly
C)an oligopoly
D)perfect competition
E)competitive monopoly

Question 68

According to Thomas Schelling,military security for the United States in the era of the Cold War was best ensured by:

A)protecting the American people and their property from potential attacks by the Soviet Union
B)being willing to launch nuclear weapons at the slightest provocation by the Soviet Union
C)offering to protect Soviet nuclear weapons from the possibility of US attack
D)protecting American nuclear weapons from the possibility of Soviet attack
E)constant nuclear warfare

Question 69

A concentration ratio can be used to measure:

A)whether a few large companies in a certain industry possess significant market power
B)the size of a specific industry
C)the benefits to consumers of market domination by one company
D)how elastic a market demand curve will be
E)how inelastic a market demand curve will be

Question 70

Concentration ratios:

A)may overstate the degree of competition by ignoring imports
B)may overstate the degree of competition by including imports
C)may understate the degree of competition by including imports
D)provide detailed insights as to the price and output behaviour of businesses that make up various industries
E)may understate the degree of competition by ignoring imports

Question 71

Product differentiation and advertising are used by imperfectly competitive businesses to achieve the two goals of:

A)increased demand and demand elasticity
B)decreased demand elasticity and increased opportunity to engage in successful price fixing
C)the provision of consumer information and the promotion of consumer preferences
D)increased demand and decreased demand elasticity
E)decreased demand and increased demand elasticity

Question 72

If the four-firm concentration ratio for industry X is 80,this means that:

A)the four largest firms account for 80 percent of total sales
B)each of the four largest firms accounts for 20 percent of total sales
C)the four largest firms account for 20 percent of total sales
D)the industry is monopolistically competitive
E)the industry is perfectly competitive

Question 73

According to Thomas Schelling,cutbacks in the use of electricity on hot summer days is best ensured through:

A)not trying to sway consumers to cut back on their electricity consumption, since this involves coercive government regulation of a private activity
B)rules governing electricity consumption, with the imposition of penalties such as higher prices for excess usage
C)rules governing electricity consumption, but without the imposition of penalties such as higher prices for excess usage
D)government programs to encourage voluntary rationing of electricity use
E)banning the use of electric lighting

Question 74

Product differentiation and advertising are profitable ventures only when:

A)both revenues and costs increase
B)the gain in total revenue outweighs the extra cost
C)they do not affect entry barriers
D)the market is oligopolistic
E)the market is monopolistic

Question 75

A benefit of nonprice competition to the consumer includes:

A)increased product selection
B)decreased entry barriers
C)decreased prices through decreased per-unit costs
D)an overall increase in market power for established firms
E)increased entry barriers

Question 76

The four-firm concentration ratio for an industry measures the:

A)geographic concentration of firms
B)extent to which the four largest firms dominate the production and sale of a good
C)percentage of the industry's capital facilities owned by the four largest firms
D)level of production in the industry
E)total revenue earned by all firms in the industry

Question 77

Industrial concentration:

A)guarantees the continual introduction of technological innovation
B)promotes competition
C)sometimes limits innovation due to lack of competition
D)creates benefits to the consumer unmatched by other market structures
E)is uncommon in the Canadian economy

Question 78

If a product,such as cement or bricks,is costly to ship and,therefore,its markets are very localized,the concentration ratio for that industry:

A)must be greater than 50 percent
B)may overstate the level of competition
C)may overstate the degree of concentration
D)will yield an accurate impression of the degree of concentration
E)must be 100 percent