Question 1

In an oligopoly, each firm knows that its profits

Accepted Answer

A)  depend only on how much output it produces. 
B)  depend only on how much output its rival firms produce. 
C)  depend on both how much output it produces and how much output its rival firms produce. 
D)  will be zero in the long run because of free entry.

Question 2

The market for hand tools in South Africa (such as hammers and screwdrivers) is dominated by three major tool manufacturers. This market is best described as

Accepted Answer

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

Question 3

Even when allowed to collude, firms in an oligopoly may choose to cheat on their agreements with the rest of the cartel. Why?

Accepted Answer

The answer of Even when allowed to collude, firms in...

Question 4

The prisoners' dilemma demonstrates why it is difficult to maintain cooperation even when cooperation is mutually beneficial.

Accepted Answer

A) True 
 B)False

Question 5

Table 1
 
-Refer to Table 1. Boitumelo and Yusuf own the only two bicycle repair shops in town. Each must choose between a low price for repair work and a high price. The yearly economic profits from each strategy are indicated in the table. The figures on the right side of each rectangle indicate Boitumelo's profits; the figures on the left side indicate Yusuf's profits. Which of the following statements is correct for a one trial game?

Accepted Answer

A)  The market equilibrium price is the high price. 
B)  A market equilibrium price cannot be established unless Boitumelo and Yusuf collude. 
C)  A market equilibrium price cannot be established without repeated trials. 
D)  The equilibrium price is the low price.

Question 6

A situation in which oligopolists interacting with one another each choose their best strategy given the strategies that all the other oligopolists have chosen is known as a

Accepted Answer

A)  Nash equilibrium. 
B)  dominant strategy. 
C)  cartel. 
D)  collusion solution.

Question 7

When an oligopolist individually chooses its level of production to maximise its profits, it produces

Accepted Answer

A)  more than the level produced by a monopoly and less than the level produced by a competitive market. 
B)  less than the level produced by a monopoly and more than the level produced by a competitive market. 
C)  less than the level produced by either monopoly or a competitive market. 
D)  more than the level produced by either monopoly or a competitive market.

Question 8

As the number of firms in an oligopoly increases, the

Accepted Answer

A)  price approaches marginal cost, and the quantity approaches the socially efficient level. 
B)  price and quantity approach the monopoly levels. 
C)  price effect exceeds the output effect. 
D)  individual firms' profits increase.

Question 9

As a group, oligopolists would always earn the highest profit if they would

Accepted Answer

A)  produce the perfectly competitive quantity of output. 
B)  produce more than the perfectly competitive quantity of output. 
C)  charge the same price that a monopolist would charge if the market were a monopoly. 
D)  operate according to their own individual self-interests.

Question 10

An oligopoly is a market structure in which many firms sell products that are similar but not identical.

Accepted Answer

A) True 
 B)False

Question 11

There is a constant tension in an oligopoly between cooperation and self-interest, because after an agreement to reduce production is reached, it is profitable for each individual firm to cheat and produce more.

Accepted Answer

A) True 
 B)False

Question 12

As the number of firms in an oligopoly increases, the magnitude of the

Accepted Answer

A)  output effect increases. 
B)  output effect decreases. 
C)  price effect increases. 
D)  price effect decreases.

Question 13

The primary purpose of competition legislation is to

Accepted Answer

A)  protect small businesses. 
B)  protect consumers. 
C)  ensure firms earn only a fair profit. 
D)  All of the above.

Question 14

Nike and Adidas are considering whether to advertise heavily during the Soccer World Cup. Devise a simple prisoners' dilemma game to demonstrate the strategic considerations that are relevant to this decision. Does the repeated game scenario differ from a single period game? Is it possible that a repeated game (without collusive agreements) could lead to an outcome that is better than a single period game? Explain the circumstances in which this may be true.

Accepted Answer

The answer of Nike and Adidas are considering whether to...

Question 15

An agreement between two duopolists to function as a monopolist usually breaks down because

Accepted Answer

A)  they cannot agree on the price that a monopolist would charge. 
B)  they cannot agree on the output that a monopolist would produce. 
C)  each duopolist wants a larger share of the market in order to capture more profit. 
D)  each duopolist wants to charge a higher price than the monopoly price.

Question 16

In markets characterised by oligopoly,

Accepted Answer

A)  the oligopolists earn the highest profit when they cooperate and behave like a monopolist. 
B)  collusive agreements will always prevail. 
C)  collective profits are always lower with cartel arrangements than they are without cartel arrangements. 
D)  pursuit of self-interest by profit-maximising firms always maximises collective profits in the market.

Question 17

Collusion is difficult for an oligopoly to maintain

Accepted Answer

A)  because, in the case of oligopoly, self-interest is in conflict with cooperation. 
B)  if additional firms enter of the oligopoly. 
C)  because competition laws make collusion illegal. 
D)  all of the answers are correct.

Question 18

In general, game theory is the study of

Accepted Answer

A)  how people behave in strategic situations. 
B)  how people behave when the possible actions of other people are irrelevant. 
C)  oligopolistic markets. 
D)  all types of markets, including competitive markets, monopolistic markets, and oligopolistic markets.

Question 19

When firms cooperate with one another, it is generally good for society as a whole.

Accepted Answer

A) True 
 B)False

Question 20

Explain the practice of resale price maintenance and discuss why it is controversial.

Accepted Answer

The answer of Explain the practice of resale price maintenance...

Exam 16: Market Structures Iii: Oligopoly

In an oligopoly, each firm knows that its profits

The market for hand tools in South Africa (such as hammers and screwdrivers) is dominated by three major tool manufacturers. This market is best described as

Even when allowed to collude, firms in an oligopoly may choose to cheat on their agreements with the rest of the cartel. Why?

The prisoners' dilemma demonstrates why it is difficult to maintain cooperation even when cooperation is mutually beneficial.

A situation in which oligopolists interacting with one another each choose their best strategy given the strategies that all the other oligopolists have chosen is known as a

When an oligopolist individually chooses its level of production to maximise its profits, it produces

As the number of firms in an oligopoly increases, the

As a group, oligopolists would always earn the highest profit if they would

An oligopoly is a market structure in which many firms sell products that are similar but not identical.

There is a constant tension in an oligopoly between cooperation and self-interest, because after an agreement to reduce production is reached, it is profitable for each individual firm to cheat and produce more.

As the number of firms in an oligopoly increases, the magnitude of the

The primary purpose of competition legislation is to

An agreement between two duopolists to function as a monopolist usually breaks down because

In markets characterised by oligopoly,

Collusion is difficult for an oligopoly to maintain

In general, game theory is the study of

When firms cooperate with one another, it is generally good for society as a whole.

Explain the practice of resale price maintenance and discuss why it is controversial.