Question 1

Apple and Toshiba are deciding whether to develop and sell a laptop-tablet hybrid to compete with the one developed by Intel.This best describes which of the five competitive forces?

Accepted Answer

A) the bargaining power of buyers 
B) the threat from potential entrants 
C) competition from substitute goods or services 
D) the bargaining power of suppliers

Question 2

List the competitive forces in the five competitive forces model.

Accepted Answer

The answer of List the competitive forces in the five...

Question 3

Oligopolies are difficult to analyze because

Accepted Answer

A) the firms are so large. 
B) demand and cost curves do not exist for these types of industries. 
C) how firms respond to a price change by a rival is uncertain. 
D) oligopolies are a recent development so economists have not had time to develop models.

Question 4

Which of the following economists did not help to develop game theory analysis?

Accepted Answer

A) Adam Smith 
B) John Nash 
C) John von Neumann 
D) Oskar Morgenstern

Question 5

Marginal revenue for an oligopolist is

Accepted Answer

A) identical to the demand for the firm's product. 
B) difficult to determine because the firm's demand curve is typically unknown. 
C) downward sloping beneath the firm's demand curve. 
D) horizontal on a price-quantity diagram.

Question 6

An oligopolist differs from a perfect competitor in that

Accepted Answer

A) there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power. 
B) firms in an oligopoly do not produce homogeneous products while firms in perfect competition do. 
C) the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry. 
D) there are no entry barriers in perfect competition but there are entry barriers in oligopoly.

Question 7

Patents, tariffs and quotas are all examples of

Accepted Answer

A) government-imposed barriers. 
B) economic regulations that increase efficiency. 
C) entry barriers that improve a country's standard of living. 
D) entry barriers that protect consumers.

Question 8

Figure 12.3
  
Rainbow Writer (RW)is a small online company selling a highly rated software package for printing color labels directly onto CDs. The firm currently earns a profit of $2 million per year selling its package exclusively on its Web site. Odeon, the producer of the most popular software package for editing and burning CDs and DVDs has expressed interest in bundling Rainbow Writer's product into its own package. Odeon expects that bundling would further boost its sales and allow it to sell the new bundled product at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14.3 shows the decision tree for the Rainbow Writer-Odeon bargaining game.
-Refer to Figure 12.3.What is the equilibrium outcome in this game and is this a subgame-perfect equilibrium?

Accepted Answer

A) Odeon's offer of $40 per copy of the software package is accepted and this is a subgame-perfect equilibrium. 
B) In the equilibrium, Odeon offers $40 per copy of the software package and is accepted but this is not a subgame-perfect equilibrium. 
C) In the equilibrium, Odeon offers $30 per copy of the software package and is rejected, and this is a subgame-perfect equilibrium. 
D) There is no equilibrium in this game.

Question 9

If an industry is made up of five identical firms, the four-firm concentration ratio is

Accepted Answer

A) 5%. 
B) 20%. 
C) 80%. 
D) 100%.

Question 10

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

Accepted Answer

A) True 
 B)False

Question 11

Figure 12.2
  
The government of a developing country plans to award two firms, Gigacom and Xenophone, the exclusive rights to share the market for high speed internet service. Gigacom and Xenophone can both provide the service either via television cable lines or via direct subscriber line (DSL). Suppose the government is considering a proposal to delay one firm's entry into the market on the grounds that it wants to prevent "harmful" competition. Figure 12.2 shows the decision tree for this game.
-Refer to Figure 12.2.If the government delays Gigacom's entry and Xenophone moves first, is a threat by Gigacom that it will provide DSL service if Gigacom provides cable service a credible threat?

Accepted Answer

A) No, because Gigacom will lose $4.5 million in profits if it carries out its threat. 
B) Yes, because Gigacom's DSL service will drive Xenophone out of business. 
C) No, because as a second mover, it has no choice but to abide by the choices of the first mover. 
D) Yes, Xenophone stands to lose $3 million in profit.

Question 12

The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called

Accepted Answer

A) Nash equilibrium. 
B) the prisoner's dilemma. 
C) game theory. 
D) dominant strategy equilibrium.

Question 13

Table 12.3
  
Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 12.3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota.
-Refer to Table 12.3.Is there a dominant strategy for Saudi Arabia and, if so, what is it?

Accepted Answer

A) Yes, the dominant strategy is to produce a high output. 
B) Yes, the dominant strategy is to produce a low output. 
C) No, there is no dominant strategy. 
D) Yes, it has a dominant strategy depending on what Nigeria does.

Question 14

Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally

Accepted Answer

A) prevent rival airlines from competing in that market. 
B) increase marginal revenue more than marginal cost. 
C) maximize marginal revenue. 
D) discourage rivals from matching price cuts.

Question 15

The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.

Accepted Answer

A) True 
 B)False

Question 16

An entry barrier exists when firms in an industry charge the lowest price possible for their products.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is the best example of an oligopolistic industry?

Accepted Answer

A) the beef market 
B) the pharmaceutical industry 
C) public education 
D) the beauty products industry

Question 18

Suppose two firms in a duopoly implicitly collude and charge a high price.How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

Accepted Answer

A) The offer to match prices is a way of deterring entry by other large firms, thereby keeping the market share of the existing firms intact. 
B) The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same. 
C) The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion. 
D) The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available.

Question 19

The Potash Corporation of Saskatchewan (PotashCorp)was able to block competition through

Accepted Answer

A) economies of scale. 
B) ownership of an essential input. 
C) government-imposed barriers. 
D) differentiating its product.

Question 20

Economies of scale can lead to an oligopolistic market structure because

Accepted Answer

A) if larger firms have lower costs, new small entrants will not be able to produce at the low costs achieved by the big established firms. 
B) if economies of scale are insignificant, only a few firms are able to produce at the low costs achieved by the big established firms. 
C) a few firms can force rivals to produce at low levels of output. 
D) a few firms can use high profits to keep out new entrants.

Exam 12: Oligopoly: Firms in Less Competitive Markets

Apple and Toshiba are deciding whether to develop and sell a laptop-tablet hybrid to compete with the one developed by Intel.This best describes which of the five competitive forces?

List the competitive forces in the five competitive forces model.

Oligopolies are difficult to analyze because

Which of the following economists did not help to develop game theory analysis?

Marginal revenue for an oligopolist is

An oligopolist differs from a perfect competitor in that

Patents, tariffs and quotas are all examples of

If an industry is made up of five identical firms, the four-firm concentration ratio is

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called

Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally

The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.

An entry barrier exists when firms in an industry charge the lowest price possible for their products.

Which of the following is the best example of an oligopolistic industry?

Suppose two firms in a duopoly implicitly collude and charge a high price.How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

The Potash Corporation of Saskatchewan (PotashCorp) was able to block competition through

Economies of scale can lead to an oligopolistic market structure because