Question 1

Assume the firms in an oligopoly produce a differentiated product and are initially colluding.If each firm begins to cheat (to increase sales) by underpricing the other firms, as the amount of cheating increases, the resulting industry price and output will approach the outcome for:

Accepted Answer

A)  perfect competition.
B)  monopolistic competition.
C)  noncooperative monopoly.
D)  noncooperative oligopoly.E) A) and B)
F) A) and C)

Question 2

Because each firm has a relatively large share of the market, the actions of one firm do not have much effect on the decision making of other firms in an oligopolistic market.

Accepted Answer

A) True 
 B)False

Question 3

Firms in an oligopoly market will have a more difficult time maintaining price coordination when:

Accepted Answer

A)  demand for the firms' products remains stable.
B)  the firms' cost structures are similar.
C)  the firms' products are highly differentiated.
D)  each firm controls the same share of the market.E) A) and B)
F) A) and C)

Question 4

The airline industry is best classified as:

Accepted Answer

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

Question 5

Which of the following is cited as a problem with the kinked demand curve model?

Accepted Answer

A)  It assumes that firms do not attempt to maximize profits.
B)  It assumes that firms determine the profit-maximizing level of output by equating marginal cost and average variable cost.
C)  It does not explain how the equilibrium market price is determined.
D)  It does not explain the price stickiness that is routinely observed in oligopolistic markets.E) All of the above
F) A) and B)

Question 6

In game theory, a Nash equilibrium is defined as:

Accepted Answer

A)  the dominant strategy of each player.
B)  a set of strategies for which all players are choosing their best strategy, given the actions of the other players.
C)  the set of strategies that result in the maximum payoff to each player.
D)  the set of strategies chosen when the players in a game can cooperate with each other.E) B) and C)
F) A) and C)

Question 7

From the airlines' perspective, amenities competition is preferable to price competition because revenues are not adversely affected and it is easier to determine the strategies of one's competitors.

Accepted Answer

A) True 
 B)False

Question 8

Firms have tried a number of different strategies to reduce the negative effects of competition on their ability to earn economic profits.Which of the following strategies is most desirable from the viewpoint of economic efficiency and consumer well being?

Accepted Answer

A)  Collusion.
B)  Price leadership.
C)  Formation of cartels.
D)  Investment in research and development.E) A) and C)
F) A) and B)

Question 9

The success of a predatory pricing strategy in an oligopolistic market depends on all of the following except:

Accepted Answer

A)  the number of firms operating in the industry prior to enactment of the policy.
B)  how far the predatory price is below cost.
C)  the period of time for which the predatory price is in effect.
D)  the length of time over which recoupment of profits occurs.E) A) and B)
F) C) and D)

Question 10

Which of the following best illustrates the mutual interdependence among firms in the airline industry?

Accepted Answer

A)  The considerable efforts made by the various competitors to coordinate fare increases.
B)  The unwillingness of individual firms to match increased amenities offered by other firms.
C)  The substantial profits airlines have earned over the past several years.
D)  The virtual absence of control over costs by any of the firms operating in the industry.E) B) and D)
F) All of the above

Question 11

In the prisoner's dilemma game, each player's dominant strategy leaves her with a larger payoff than she could receive by cooperating with the other player; however, the "prisoner's dilemma" is that as a result of noncooperation she cannot chose her dominant strategy.

Accepted Answer

A) True 
 B)False

Question 12

The soft drink industry can best be described as:

Accepted Answer

A)  an oligopoly.
B)  a monopoly.
C)  perfectly competitive.
D)  monopolistically competitive.E) A) and D)
F) None of the above

Question 13

One of the implications of the kinked demand curve model is that even if a firm's costs change by a measurable amount, market price is unlikely to change.This helps explain the price rigidity observed in many oligopolistic markets.

Accepted Answer

A) True 
 B)False

Question 14

Explain the difference between a cartel and tacit collusion.Is tacit collusion illegal in the United States? Explain.

Accepted Answer

A cartel consists of a formal agreement ...

Question 15

The key distinguishing characteristic of an oligopoly is the:

Accepted Answer

A)  presence of long-run economic profits.
B)  fact that in all cases firms produce a standardized product.
C)  mutual interdependence of the firms in the market.
D)  near total absence of advertising.E) C) and D)
F) A) and C)

Question 16

In order for "limit pricing" to be effective, the firm practicing such a strategy must be able to charge a price that is:

Accepted Answer

A)  lower than the potential entrant's ATC but greater than the firm's own ATC.
B)  greater than the potential entrant's ATC but lower than the firm's own ATC.
C)  lower than the potential entrant's ATC but greater than the firm's own AVC.
D)  greater than the potential entrant's ATC but lower than the firm's own AVC.E) A) and C)
F) A) and D)

Question 17

The text's discussion of the airline industry, the soft drink industry, and the doughnut industry reveals a common theme when it comes to the types of competitive practices firms in each industry engage in.What is it and what advantage does it offer firms?

Accepted Answer

Firms in each of the industries listed a...

Question 18

Which of the following statements regarding cartels is not correct?

Accepted Answer

A)  Cartels are sometimes difficult to maintain because a member can cheat by raising its price above the agreed price.
B)  Cartels restrict industry output in order to raise price.
C)  Cartels are inherently stable, because oligopolistic firms rarely change price.
D)  are easier to establish and maintain when the cost functions of the individual members are more similar to one another.E) B) and D)
F) B) and C)

Question 19

According to the kinked demand curve model, regardless of whether a firm increases or decreases price, its total revenues will decrease as a result of the price change.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following best describes the basic characteristics of noncooperative oligopoly models?

Accepted Answer

A)  Managers make decisions based on the strategy they think their rivals will pursue.
B)  Managers attempt to deliberately mislead their rivals regarding the strategy they will pursue.
C)  When making decisions, managers basically ignore the mutual interdependence that exists among rivals.
D)  Managers refuse to negotiate with their rivals when it comes to such decisions as what price to charge.E) None of the above
F) All of the above

Exam 9: Market Structure: Oligopoly

The soft drink industry can best be described as:

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Explain the difference between a cartel and tacit collusion.Is tacit collusion illegal in the United States? Explain.

Correct AnswerverifiedA cartel consists of a formal agreement ...View AnswerShow Answer

Which of the following best illustrates the mutual interdependence among firms in the airline industry?

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Because each firm has a relatively large share of the market, the actions of one firm do not have much effect on the decision making of other firms in an oligopolistic market.

Correct AnswerverifiedShow Answer

From the airlines' perspective, amenities competition is preferable to price competition because revenues are not adversely affected and it is easier to determine the strategies of one's competitors.

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Which of the following best describes the basic characteristics of noncooperative oligopoly models?

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In the prisoner's dilemma game, each player's dominant strategy leaves her with a larger payoff than she could receive by cooperating with the other player; however, the "prisoner's dilemma" is that as a result of noncooperation she cannot chose her dominant strategy.

Correct AnswerverifiedShow Answer

Which of the following is cited as a problem with the kinked demand curve model?

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Assume the firms in an oligopoly produce a differentiated product and are initially colluding.If each firm begins to cheat (to increase sales) by underpricing the other firms, as the amount of cheating increases, the resulting industry price and output will approach the outcome for:

Correct AnswerverifiedShow Answer

According to the kinked demand curve model, regardless of whether a firm increases or decreases price, its total revenues will decrease as a result of the price change.

Correct AnswerverifiedShow Answer

The airline industry is best classified as:

Correct AnswerverifiedShow Answer

In order for "limit pricing" to be effective, the firm practicing such a strategy must be able to charge a price that is:

Correct AnswerverifiedShow Answer

Firms have tried a number of different strategies to reduce the negative effects of competition on their ability to earn economic profits.Which of the following strategies is most desirable from the viewpoint of economic efficiency and consumer well being?

Correct AnswerverifiedShow Answer

Firms in an oligopoly market will have a more difficult time maintaining price coordination when:

Correct AnswerverifiedShow Answer

Which of the following statements regarding cartels is not correct?

Correct AnswerverifiedShow Answer

The success of a predatory pricing strategy in an oligopolistic market depends on all of the following except:

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In game theory, a Nash equilibrium is defined as:

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The key distinguishing characteristic of an oligopoly is the:

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The text's discussion of the airline industry, the soft drink industry, and the doughnut industry reveals a common theme when it comes to the types of competitive practices firms in each industry engage in.What is it and what advantage does it offer firms?

Correct AnswerverifiedFirms in each of the industries listed a...View AnswerShow Answer

One of the implications of the kinked demand curve model is that even if a firm's costs change by a measurable amount, market price is unlikely to change.This helps explain the price rigidity observed in many oligopolistic markets.

Correct AnswerverifiedShow Answer

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A cartel consists of a formal agreement ...
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Firms in each of the industries listed a...
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