Deck 15: Oligopoly

Question 1

In a small town the level of demand is capable of supporting only two gas stations. This market is

A) a natural duopoly.
B) perfectly competitive because a homogeneous good is being sold.
C) operating as if it was a monopoly.
D) an example of monopolistic competition.

Answer 1

a natural duopoly.

Question 2

The key feature of an oligopoly is that there

A) are many buyers and sellers.
B) is one seller.
C) exists product differentiation.
D) are only a few sellers.

Answer 2

are only a few sellers.

Question 3

Which of the following is a distinguishing characteristic of oligopoly?

A) A large number of firms compete.
B) No one firm's actions directly affect the actions of the other firms.
C) Firms are free to enter and exit the industry.
D) Natural or legal barriers prevent the entry of new firms.

Answer 3

Natural or legal barriers prevent the entry of new firms.

Question 4

Consider a market in which each firm must predict the price and quantity decisions of other firms, as well as how those price and quantity decisions will affect the first firm's revenue and profit. This market is best described as

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

Question 5

Which of the following is a distinguishing characteristic of oligopoly?

A) A small number of firms compete.
B) No one firm's actions directly affect the actions of the other firms.
C) Firms are free to enter and exit the industry.
D) Natural barriers cannot prevent the entry of new firms.

Question 6

Oligopoly is

A) like monopoly because there are barriers to entry.
B) like perfect competition because oligopoly firms all sell homogeneous goods.
C) like monopolistic competition because oligopoly firms all sell differentiated goods.
D) like perfect competition because there are many firms in the industry.

Question 7

In oligopolistic markets,

A) there are many firms.
B) there are no barriers to entry.
C) there are only a few firms.
D) all firms are price takers.

Question 8

One difference between oligopoly and monopolistic competition is that

A) a monopolistically competitive industry has fewer firms.
B) in monopolistic competition, the products are identical.
C) monopolistic competition has barriers to entry.
D) fewer firms compete in oligopoly than in monopolistic competition.

Question 9

The distinguishing features of oligopoly are ________ and a ________ in the industry.

A) barriers to entry; large number of firms
B) no barriers to entry; few firms
C) barriers to entry; few firms
D) no barriers to entry; large number of firms

Question 10

In an oligopoly,

A) there are only a few firms.
B) there is no product differentiation.
C) there is free entry and exit.
D) firms' decisions are unrelated to each other.

Question 11

Which of the following is a defining characteristic of oligopoly?

A) barriers to entry
B) selling a homogeneous good
C) selling a differentiated good
D) collusion

Question 12

An oligopoly is a market structure in which there are

A) only a few buyers but many sellers.
B) only a few sellers selling either an identical or differentiated product.
C) many sellers selling a differentiated product.
D) a few products sold by many sellers.

Question 13

Which of the following is a distinguishing characteristic of oligopoly?

A) A large number of firms compete.
B) Each firm's actions influence the profits of all the other firms.
C) Firms are free to enter and exit the industry.
D) Natural barriers cannot prevent the entry of new firms.

Question 14

A market structure in which a small number of producers compete against each other is

A) monopolistic competition.
B) oligopoly.
C) monopoly.
D) perfect competition.

Question 15

When only a small number of producers compete with each other is a defining characteristic of

A) inelastic supply.
B) monopolistic competition.
C) efficient competition.
D) oligopoly.

Question 16

A market structure in which a small number of firms compete is called ________.

A) a monopoly
B) a small-number market
C) an oligopoly
D) monopolistic competition

Question 17

If firms in an industry differentiated their products and made economic profits in the short-run, what other characteristic would be important to determine if this is an oligopoly or a monopolistically competitive market?

A) the number of firms in the market
B) the number of close substitutes for the good being produced
C) the number of buyers in the market
D) if the good being sold is a normal or inferior good

Question 18

Natural oligopoly is a situation where

A) the level of demand can support only a few firms.
B) there is only one firm.
C) there are only two firms.
D) there are legal barriers to entry.

Question 19

A natural oligopoly can form

A) if there are economies of scale.
B) only if firms sell a differentiated good.
C) only if firms sell a homogeneous good.
D) if there is only one firm in the industry.

Question 20

Suppose that all pizza companies have the same costs and the minimum average total cost is $12 per pizza. The pizza companies have an efficient scale of 100 pies per night. In the small town of Coatsville, at the price of $12 per pizza the quantity demanded is approximately 300 pizzas per night. This market, therefore, can best be characterized as

A) perfectly competitive.
B) a natural monopoly.
C) a natural duopoly.
D) a natural oligopoly.

Question 21

When producers agree to restrict output, raise the price, and increase profits, the agreement is called ________.

A) a pricing agreement
B) an oligopoly agreement
C) a collusive agreement
D) a monopoly agreement

Question 22

Game theory can be used for studying which of the following types of market structure?

A) monopoly
B) monopolistic competition
C) oligopoly
D) perfect competition

Question 23

A duopoly occurs when ________.

A) there are only two producers of a particular good competing in the same market
B) there are two producers of two goods competing in an oligopoly market
C) there are numerous producers of two goods competing in a competitive market
D) the one producer of two goods sells the goods in a monopoly market

Question 24

Which of the following is characteristic of oligopoly, but NOT of monopolistic competition?

A) The choices made by one firm have a significant effect on other firms.
B) Each firm faces a downward-sloping demand curve.
C) Firms are profit-maximizers.
D) There is more than one firm in the industry.

Question 25

Game theory is applicable to oligopoly behavior because oligopolists

A) use strategic behavior.
B) ignore rival firms.
C) are price takers.
D) can only be profitable if they collude.

Question 26

If firms in an industry make output decisions that are partially based on the price and output decisions of their competitors, then these firms are in ________ market have ________ with the other firms in the market.

A) an oligopoly; interdependence
B) an oligopoly; no interdependence
C) an oligopoly or monopolistically competitive; interdependence
D) a monopolistically competitive; no interdependence

Question 27

Game theory is most useful for analyzing

A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.

Question 28

Of the following, the best example of oligopoly is

A) wheat farming.
B) the restaurant industry.
C) the cigarette industry.
D) the clothing industry.

Question 29

In ________ market structure, a firm's output depends ________.

A) an oligopoly; only on its own marginal revenue and marginal cost curves
B) a monopolistically competitive; in part on its competitors' price and quantity decisions
C) an oligopoly; in part on its competitors' price and quantity decisions
D) a monopolistically competitive; only on its marginal revenue curve

Question 30

A duopoly is a form of

A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.

Question 31

Game theory is most useful for determining the outcome when ________.

A) the market structure is oligopoly
B) monopolistic competition exists
C) prison terms are involved
D) the market is dominated by a monopoly

Question 32

________ is a group of firms that have colluded to limit their output and raise their price.

A) A cartel
B) An oligopoly
C) A strategy
D) A duopoly

Question 33

Of the following market structures, which has the fewest number of firms competing against each other?

A) monopolistic competition
B) oligopoly
C) perfect competition
D) Both answers A and C are correct.

Question 34

Game theory is used to explain firms' decisions in

A) a monopoly.
B) an oligopoly.
C) a perfectly competitive market.
D) a monopolistically competitive market.

Question 35

In the market for batteries, the four largest firms earn 90% of the total revenue and there are 35 firms in the industry. This industry is best described as

A) oligopoly.
B) monopoly.
C) monopolistic competition.
D) perfect competition.

Question 36

In the figure, D is the demand curve for taxi rides in a town, and ATC is the average total cost curve of a taxi company.

-In the scenario above, the market is:

A) A natural duopoly.
B) A natural oligopoly with three firms.
C) A natural monopoly.
D) Monopolistically competitive.

Question 37

A monopolistically competitive firm is like an oligopolistic firm insofar as

A) both face perfectly elastic demand.
B) both can earn an economic profit in the long run.
C) both have MR curves that lie beneath their demand curves.
D) neither is protected by high barriers to entry.

Question 38

In the figure, D is the demand curve for taxi rides in a town, and ATC is the average total cost curve of a taxi company.

-In an oligopoly market, the Herfindahl-Hirschman Index is usually:

A) Greater than 1,000.
B) Below 1,000.
C) Between 100 and 1,000.
D) Between 200 and 2,000.

Question 39

The small town of Narberth has two pizza stores. Which of the following statements are correct? I. The profits of each store depend on the price of the pizza at the other store.
II) Both stores would increase their profit if they cooperated in setting their prices.

A) I only
B) II only
C) Both I and II
D) Neither I nor II

Question 40

An market in which the Herfindahl-Hirschman Index (HHI) is 1,250 is considered to be

A) an oligopoly.
B) monopolistically competitive.
C) a monopoly.
D) perfectly competitive.

Question 41

In a prisoner's dilemma, the Nash equilibrium occurs where

A) neither person ends up with their best outcome.
B) both end up with their best outcome.
C) only one ends up with his best outcome.
D) the one who goes first ends up with his best outcome.

Question 42

In the prisoners' dilemma game, when each player takes the best possible action given the action of the other player, ________.

A) a competitive equilibrium is reached
B) one player denies and one player confesses
C) both players deny
D) a Nash equilibrium is reached

Question 43

The simplest prisoners' dilemma is a game that, in part, requires

A) two players who are able to communicate with each other.
B) two players who are unable to communicate with each other.
C) monopolistic competition.
D) an oligopoly with one very large firm.

Question 44

Bob

-The table above displays the possible outcomes for Bob and Joe, who have been arrested for armed robbery and car theft. Which of the following is true?

A) If Joe confesses, Bob should not confess.
B) If Bob confesses, Joe should confess.
C) The dominant equilibrium is that Joe and Bob both serve 2 years.
D) If Joe does not confess, Bob should not confess.

Question 45

Which group of features is shared by all games?

A) rules, strategies, payoffs, outcome
B) rules, profit, payoffs, outcome
C) profit, strategies, payoffs, cheating
D) rules, cheating, payoffs, outcome

Question 46

In the prisoners' dilemma game, each player

A) has only one possible strategy.
B) can choose from two strategies.
C) can choose from three strategies.
D) can choose from four strategies.

Question 47

In game theory, strategies include ________.

A) all possible actions of each player
B) only the winning action of each player
C) all possible actions and payoffs of each player
D) the payoff matrix

Question 48

In a prisoners' dilemma game, in the Nash equilibrium

A) both players have another outcome that does not occur but is more favorable.
B) neither player has another outcome that does not occur and is more favorable.
C) one player has another outcome that does not occur and is more favorable.
D) collusion would not alter the outcome.

Question 49

Consider the prisoner's dilemma model where two criminals have two options (confess or deny), and each criminal must make their decision without speaking to the other criminal first. If they both confess they each get 3 years, if only one confesses then he gets 1 and his partner gets 10, and if neither confesses then they each get 0. They are in fact both guilty. In this game, the Nash equilibrium is where

A) both confess.
B) neither one confesses.
C) only one will confess.
D) It is impossible to say.

Question 50

In a prisoners' dilemma game, which of the following strategies gives the best outcome for both prisoners?

A) Both deny (collusion).
B) Both confess (not collude).
C) One confesses while the other denies.
D) none of the above

Question 51

The prisoners' dilemma describes a single-play game that features

A) an outcome in which the participants collude.
B) a large number of rivals cooperating with each other.
C) a situation in which one player has better odds than the other.
D) two players who are unable to communicate with each other.

Question 52

The outcome of a prisoners' dilemma game with a Nash equilibrium is that ________.

A) both players deny
B) one player denies and one player confesses
C) both players confess
D) there is no equilibrium

Question 53

Ann and Lynn have been arrested by the police, who have evidence that will convict them of robbing a bank. If convicted, each will receive a sentence of 6 years for the robbery. During questioning, the police suspect that Ann and Lynn are responsible for a series of bank robberies. If both confess to the series, each will receive 12 years in jail. If only one confesses, she will receive 4 years and the one who does not confess will receive 14 years. What is the equilibrium for this game?

A) Both confess.
B) Ann confesses and Lynn does not confess.
C) Lynn confesses and Ann does not confess.
D) Neither confess.

Question 54

The prisoners' dilemma has an equilibrium in which

A) both players deny.
B) both players confess.
C) the player who confesses wins.
D) the player who denies wins.

Question 55

Game theory is a tool for studying ________.

A) Nash behavior
B) payoff dilemmas
C) rational dilemmas
D) strategic behavior

Question 56

The prisoners' dilemma has an equilibrium that is

A) a Nash equilibrium and both players confess.
B) not a Nash equilibrium and both players confess.
C) a Nash equilibrium and both players deny.
D) not a Nash equilibrium and both players deny.

Question 57

In a prisoner's dilemma game, each person will pick

A) their best outcome given what the other person will do
B) their best outcome.
C) their worse outcome.
D) their best outcome after consulting with the other person.

Question 58

Player A

-The table above shows the payoff matrix for a prisoners' dilemma game. The Nash equilibrium is that

A) both prisoners do not confess.
B) both prisoners confess.
C) prisoner A confesses while prisoner B does not confess.
D) prisoner A does not confess while prisoner B confesses.

Question 59

Player A

-The table above shows the payoff matrix for a prisoners' dilemma. In the Nash equilibrium,

A) both prisoners get 3 years in jail.
B) both prisoners get 2 years in jail.
C) both prisoners get 1 year in jail.
D) both prisoners get 10 years in jail.

Question 60

Game theory is distinctive in that its elements are

A) costs, prices, and profits.
B) revenues, elasticity, and profits.
C) rules, strategies, payoffs, and outcomes.
D) patents, copyrights, and barriers to entry.

Question 61

Firm 1

-Two software firms have developed an identical new software application. They are debating whether to give the new application away free and then sell add-ons or sell the application at $30 a copy. The payoff matrix is above and the payoffs are profits in millions of dollars. What is Firm 1's best strategy?

A) Give away the application regardless of what Firm 2 does.
B) Sell the application at $30 a copy regardless of what Firm 2 does.
C) Give away the application only if Firm 2 sells the application.
D) Give away the application only if Firm 2 gives away the application.

Question 62

In what type of market is a cartel possible?

A) a market in which there are only a few firms and barriers to entry exist
B) a market in which firms sell a homogeneous good
C) a market in which firms sell a differentiated good
D) a market in which there are many firms

Question 63

Firm A

-Firms A and B can conduct research and development (R&D) or not conduct it. R&D is costly but can increase the quality of the product and increase sales. The payoff matrix is the economic profits of the two firms and is given above, where the numbers are millions of dollars. A's best strategy is to

A) conduct R&D regardless of what B does.
B) not conduct R&D regardless of what B does.
C) conduct R&D only if B conducts R&D.
D) conduct R&D only if B does not conduction R&D.

Question 64

Dr. Smith

-Libertyville has two optometrists, Dr. Smith and Dr. Jones. Each optometrist can choose to advertise his service or not. The incomes of each optometrist, in thousands of dollars, are given in the payoff matrix above. Which of the following statements correctly describes Dr. Smith's strategy given what Dr. Jones may do?

A) Dr. Smith should advertise no matter what Dr. Jones does.
B) Dr. Smith should not advertise no matter what Dr. Jones does.
C) Dr. Smith should advertise only if Dr. Jones doesn't advertise.
D) Dr. Smith should advertise only if Dr. Jones advertises.

Question 65

A group of firms that has entered into a collusive agreement to restrict output and increase prices and profits is called

A) a compliance.
B) a cartel.
C) an oligopoly.
D) a duopoly.

Question 66

Student 1

-Two students are assigned a group project. Each has the option to work or not work to achieve a high grade. The payoffs are shown in the above table. Student 1 should

A) work only if student 2 works.
B) work regardless of the decision made by student 2.
C) not work if student 2 works.
D) not work regardless of what student 2 decides.

Question 67

A cartel is a group of firms which agree to

A) behave competitively.
B) raise the price of their product.
C) lower the price of their product.
D) increase the amount they produce.

Question 68

Jane

-The payoff matrix of economic profits above displays the possible outcomes for Bob and Jane who are involved in game of whether or not to advertise. After each player chooses his or her best strategy and sees the result,

A) only Bob would like to change his decision.
B) neither player would be willing to change his or her decision unless the other player also changes his or her decision.
C) if Jane does not change her decision, Bob would like to change his.
D) if Bob does not change his decision, Jane would like to change hers.

Question 69

A cartel is a group of firms that

A) produce differentiated products.
B) produce products that are complements.
C) agree to restrict output to boost their profit.
D) agree to boost output to boost their profit.

Question 70

Dr. Smith

-Libertyville has two optometrists, Dr. Smith and Dr. Jones. Each optometrist can choose to advertise his service or not. The incomes of each optometrist, in thousands of dollars, are given in the payoff matrix above. Which of the following statements correctly categorizes the Nash equilibrium for the game?

A) The game has a Nash equilibrium in which both optometrists advertise.
B) The game has a Nash equilibrium in which both optometrists do not advertise.
C) The game has a Nash equilibrium in which Dr. Smith advertises and Dr. Jones does not advertise.
D) The game has a Nash equilibrium in which Dr. Smith does not advertise and Dr. Jones does advertise.

Question 71

For a Nash equilibrium to be possible, all players must ________.

A) be able to predict their outcomes associated with all possible actions of the other players
B) have a way to communicate with the other players
C) have a strategy which allows for collusion
D) Both A and B

Question 72

In an oligopoly price-fixing game, each player tries to

A) minimize the market shares of its opponents.
B) maximize its own market share.
C) minimize the profits of its opponents.
D) maximize its own profit.

Question 73

Dr. Smith

-Libertyville has two optometrists, Dr. Smith and Dr. Jones. Each optometrist can choose to advertise his service or not. The incomes of each optometrist, in thousands of dollars, are given in the payoff matrix above. Which of the following statements correctly describes Dr. Jones' strategy given what Dr. Smith may do?

A) Dr. Jones should advertise no matter what Dr. Smith does.
B) Dr. Jones should not advertise no matter what Dr. Smith does.
C) Dr. Jones should advertise only if Dr. Smith doesn't advertise.
D) Dr. Jones should advertise only if Dr. Smith advertises.

Question 74

Firm A

-Firms A and B can conduct research and development (R&D) or not conduct it. R&D is costly but can increase the quality of the product and increase sales. The payoff matrix is the economic profits of the two firms and is given above, where the numbers are millions of dollars. The Nash equilibrium occurs when

A) both A and B conduct R&D.
B) only A conducts R&D.
C) only B conducts R&D.
D) neither A nor B conduct R&D.

Question 75

Player A

-The problem for the prisoners in the prisoners' dilemma game in the above table is that

A) the Nash equilibrium is not the best outcome.
B) there is no equilibrium outcome.
C) neither prisoner has a workable strategy.
D) None of the above answers is correct.

Question 76

Disney

-Disney and Fox must decide when to release their next films. The revenues received by each studio depend in part on when the other studio releases its film. Each studio can release its film at Thanksgiving or at Christmas. The revenues received by each studio, in millions of dollars, are depicted in the payoff matrix above. Which of the following statements correctly describes Fox's strategy given what Disney's release choice may be?

A) If Disney chooses a Thanksgiving release, Fox should choose a Christmas release.
B) If Disney chooses a Christmas release, Fox should choose a Thanksgiving release.
C) Fox should release on Christmas regardless of what Disney does.
D) Both answers A and B are correct.

Question 77

In the oligopoly price-fixing game, the payoffs are the

A) profits of the firms.
B) market shares of the firms.
C) sales of the firms.
D) reputations of the firms.

Question 78

Firm 1

-Two software firms have developed an identical new software application. They are debating whether to give the new application away free and then sell add-ons or sell the application at $30 a copy. The payoff matrix is above and the payoffs are profits in millions of dollars. What is the Nash equilibrium of the game?

A) Both Firm 1 and 2 will sell the software application at $30 a copy.
B) Both Firm 1 and 2 will give the software application away free.
C) Firm 1 will give the application away free and Firm 2 will sell it at $30.
D) There is no Nash equilibrium to this game.

Question 79

Disney

-Disney and Fox must decide when to release their next films. The revenues received by each studio depend in part on when the other studio releases its film. Each studio can release its film at Thanksgiving or at Christmas. The revenues received by each studio, in millions of dollars, are depicted in the payoff matrix above. Which of the following statements correctly describes Disney's strategy given what Fox's release choice may be?

A) If Fox chooses a Thanksgiving release, Disney should choose a Christmas release.
B) If Fox chooses a Christmas release, Disney should choose a Thanksgiving release.
C) Disney should release on Thanksgiving regardless of what Fox does.
D) Both answers A and B are correct.

Question 80

A cartel usually has a collusive agreement to

A) restrict output.
B) boost output.
C) lower the price.
D) increase the number of firms in the industry.