Question 1

Secret conspiracies to fix prices are examples of

Accepted Answer

A)   cartels.
B)   price leadership.
C)   overt collusion.
D)   covert collusion.E) C) and D)
F) B) and D)

Question 2

The study of how people (or firms)  behave in strategic situations is called

Accepted Answer

A)   cost-benefit analysis.
B)   recursive analysis.
C)   normative economics.
D)   game theory.E) A) and B)
F) None of the above

Question 3

Mutual interdependence refers to the situation when entry by new firms into an industry will tend to shrink the profits of existing firms.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following has not contributed to the development of oligopolies in the U.S. economy?

Accepted Answer

A)   mergers
B)   patents
C)   economies of scale
D)   interindustry competitionE) B) and D)
F) None of the above

Question 5

Mutual interdependence means that

Accepted Answer

A)   a firm's behavior is affected by other firms' actions.
B)   a firm's profits are affected by other firms' entry or exit.
C)   a firm's costs are affected by other firms' costs.
D)   a firm's revenues are affected by other firms' demand for its product.E) B) and D)
F) None of the above

Question 6

Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will

Accepted Answer

A)   pursue a strategy to reduce advertising expenditures to maintain profits.
B)   decide to increase advertising expenditures even if it means a reduction in profits.
C)   make no changes in advertising expenditures because advertising is effective in the short run, but not the long run.
D)   increase the price of the product to improve profits and then increase advertising expenditures.E) B) and C)
F) A) and C)

Question 7

Which of the following best describes a Nash equilibrium?

Accepted Answer

A)   An outcome from which one or both competitors can improve their position by adopting an alternative strategy.
B)   The unstable outcome of a repeated game.
C)   An outcome that is stable only because of credible threats.
D)   An outcome that both competitors see as optimal, given the strategy of their rival.E) All of the above
F) A) and D)

Question 8

An empty threat is a statement of coercion that is not believed by the threatened firm.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)   price leadership exists in this industry.
B)   the concentration ratio is more than 80 percent.
C)   this industry is a differentiated oligopoly.
D)   the firms in this industry face a kinked demand curve.E) All of the above
F) B) and D)

Question 10

Which of the following factors tends to foster the development of an oligopoly?

Accepted Answer

A)   economies of scale
B)   foreign competition
C)   antitrust legislation
D)   low barriers to entryE) A) and B)
F) A) and C)

Question 11

If an oligopolist's competitors follow its price cuts but ignore its price increases, the oligopolist would end up holding its price constant even if its marginal cost changes.

Accepted Answer

A) True 
 B)False

Question 12

Concentration ratios

Accepted Answer

A)   may overstate the degree of competition because they ignore imported products.
B)   may overstate the degree of competition because interindustry competition is ignored.
C)   may understate the degree of competition because they ignore imported products.
D)   provide detailed insights as to the price and output behavior of firms that compose the various industries.E) B) and C)
F) All of the above

Question 13

The four-firm concentration ratio for an industry measures the

Accepted Answer

A)   profitability of the four largest firms in the industry.
B)   extent to which the four largest firms dominate the sales of a good.
C)   percentage of the industry's workforce employed by the four largest firms.
D)   degree of product variation in the industry.E) A) and C)
F) None of the above

Question 14

Potential entry by new firms and competition from imports tend to worsen the economic inefficiency in an oligopoly.

Accepted Answer

A) True 
 B)False

Question 15

A Nash equilibrium can only occur in repeated games.

Accepted Answer

A) True 
 B)False

Question 16

A two-player or firm game in which one firm's gain must equal the other firm's loss is called a

Accepted Answer

A)   positive-sum game.
B)   zero-sum game.
C)   negative-sum game.
D)   one-time game.E) A) and B)
F) B) and C)

Question 17

If the four-firm concentration ratio in an oligopolistic five-firm industry is 80 percent, and each firm has an equal percentage of sales, the Herfindahl index is

Accepted Answer

A)   8,000.
B)   2,000.
C)   2,500.
D)   1,600.E) A) and B)
F) B) and D)

Question 18

Which of the following is not true of covert collusion?

Accepted Answer

A)   It occurs when formal cartels are not legal.
B)   It has been historically referred to as "gentlemen's agreements."
C)   Numerous examples of it have been found in the United States.
D)   No case of it has been proven in the United States.E) B) and D)
F) B) and C)

Question 19

The four-firm concentration ratio for the national industry does not capture the effects of all of the following, except

Accepted Answer

A)   localized markets when transportation costs are high.
B)   interindustry competition.
C)   import competition when there is world trade.
D)   market coverage of the four largest firms.E) None of the above
F) C) and D)

Question 20

Game theory is best suited to analyze the pricing behavior of

Accepted Answer

A)   pure monopolists.
B)   pure competitors.
C)   monopolistic competitors.
D)   oligopolists.E) C) and D)
F) A) and C)

Exam 14: Oligopoly and Strategic Behavior

Mutual interdependence means that

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Which of the following best describes a Nash equilibrium?

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Which of the following factors tends to foster the development of an oligopoly?

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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

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Potential entry by new firms and competition from imports tend to worsen the economic inefficiency in an oligopoly.

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The study of how people (or firms) behave in strategic situations is called

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If an oligopolist's competitors follow its price cuts but ignore its price increases, the oligopolist would end up holding its price constant even if its marginal cost changes.

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The four-firm concentration ratio for the national industry does not capture the effects of all of the following, except

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If the four-firm concentration ratio in an oligopolistic five-firm industry is 80 percent, and each firm has an equal percentage of sales, the Herfindahl index is

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Which of the following is not true of covert collusion?

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Secret conspiracies to fix prices are examples of

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A Nash equilibrium can only occur in repeated games.

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Game theory is best suited to analyze the pricing behavior of

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Concentration ratios

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Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will

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The four-firm concentration ratio for an industry measures the

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Mutual interdependence refers to the situation when entry by new firms into an industry will tend to shrink the profits of existing firms.

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Which of the following has not contributed to the development of oligopolies in the U.S. economy?

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A two-player or firm game in which one firm's gain must equal the other firm's loss is called a

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An empty threat is a statement of coercion that is not believed by the threatened firm.

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