Question 1

Differentiated oligopoly exists where a small number of firms are

Accepted Answer

A)  producing goods that differ in terms of quality and design.
B)  setting price and output collusively.
C)  setting price and output independently.
D)  producing virtually identical products.E) A) and C)
F) None of the above

Question 2

In which market model is there mutual interdependence?

Accepted Answer

A)  monopolistic competition
B)  pure competition
C)  pure monopoly
D)  oligopolyE) A) and D)
F) B) and C)

Question 3

If an industry evolves from monopolistic competition to oligopoly, we would expect

Accepted Answer

A)  the four-firm concentration ratio to decrease.
B)  the four-firm concentration ratio to increase.
C)  the four-firm concentration ratio to remain the same.
D)  barriers to entry to weaken.E) A) and D)
F) None of the above

Question 4

Game trees are most useful for

Accepted Answer

A)  showing Nash equilibrium.
B)  identifying dominant strategies.
C)  mapping out sequential games.
D)  determining whether a game is positive-sum, zero-sum, or negative-sum.E) A) and B)
F) A) and C)

Question 5

In an oligopolistic market, there is likely to be

Accepted Answer

A)  little consideration of the actions of rival firms.
B)  price-taking behavior on the part of firms.
C)  product homogeneity,not differentiation.
D)  neither allocative nor productive efficiency.E) A) and B)
F) A) and C)

Question 6

Oligopolistic industries are characterized by

Accepted Answer

A)  a few dominant firms and substantial entry barriers.
B)  a few dominant firms and no barriers to entry.
C)  a large number of firms and low entry barriers.
D)  a few dominant firms and low entry barriers.E) A) and B)
F) A) and C)

Question 7

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) B) and C)
F) All of the above

Question 8

In a duopoly, if one firm increases its price, then the other firm can

Accepted Answer

A)  keep its price constant and thus increase its market share.
B)  keep its price constant and thus decrease its market share.
C)  increase its price and thus increase its market share.
D)  decrease its price and thus decrease its market share.E) A) and B)
F) All of the above

Question 9

Collusion among oligopolistic firms

Accepted Answer

A)  is common in world markets, but does not happen in the United States.
B)  becomes more difficult if there are fewer firms in the group.
C)  becomes easier during a recession, when sales are falling.
D)  becomes more difficult if the firms all have different cost and demand curves.E) All of the above
F) A) and B)

Question 10

Assume six firms composing an industry have market shares of 30, 30, 10, 10, 10, and 10 percent.The Herfindahl index for this industry is

Accepted Answer

A)  2,000.
B)  1,600.
C)  2,200.
D)  80.E) A) and B)
F) A) and C)

Question 11

Firms are more likely to collude when the economy is in a recession.

Accepted Answer

A) True 
 B)False

Question 12

A breakdown in price leadership leading to successive rounds of price cuts is known as

Accepted Answer

A)  limit pricing.
B)  a price war.
C)  informal pricing.
D)  price discrimination.E) C) and D)
F) A) and B)

Question 13

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) A) and B)
F) All of the above

Question 14

Interindustry competition means that

Accepted Answer

A)  in oligopolistic industries, a few large firms compete with one another in bidding down product price.
B)  in some markets, the producers of a particular product might face competition from products produced by other industries.
C)  firms that sell a product at one stage of production are faced with firms that buy the product at the next stage of production.
D)  in most industries, there are usually a number of firms producing identical products.Difficulty: 02 MediumE) A) and D)
F) A) and B)

Question 15

The U.S.breakfast cereal industry is an example of differentiated oligopoly.

Accepted Answer

A) True 
 B)False

Question 16

A major reason that firms form a cartel is to

Accepted Answer

A)  reduce the elasticity of demand for the product.
B)  enlarge the market share for each producer.
C)  minimize the costs of production.
D)  maximize joint profits.E) B) and C)
F) A) and B)

Question 17

In the kinked-demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to

Accepted Answer

A)  decrease their prices.
B)  increase their prices.
C)  not change their prices.
D)  reduce their quantity.E) A) and B)
F) A) and C)

Question 18

Suppose that Firm B in this table was found guilty of antitrust violations and split into two firms with equal market share.This would cause the Herfindahl index to

Accepted Answer

A)  rise to 2,500.
B)  fall to 2,500.
C)  fall to 2,450.
D)  rise to 2,450.E) C) and D)
F) A) and C)

Question 19

Use your basic knowledge and your understanding of market structures to answer this question.Which of the following companies most closely approximates a differentiated oligopolist in a highly concentrated industry?

Accepted Answer

A)  Subway Sandwiches
B)  Pittsburgh Plate Glass
C)  Ford Motor Company
D)  Kaiser AluminumE) A) and C)
F) A) and B)

Question 20

Patents and copyrights were established by the government to reduce oligopoly and monopoly power.

Accepted Answer

A) True 
 B)False

Exam 14: Oligopoly and Strategic Behavior

Which of the following best describes a Nash equilibrium?

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Use your basic knowledge and your understanding of market structures to answer this question.Which of the following companies most closely approximates a differentiated oligopolist in a highly concentrated industry?

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Suppose that Firm B in this table was found guilty of antitrust violations and split into two firms with equal market share.This would cause the Herfindahl index to

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Game theory is best suited to analyze the pricing behavior of

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Assume six firms composing an industry have market shares of 30, 30, 10, 10, 10, and 10 percent.The Herfindahl index for this industry is

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Interindustry competition means that

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Game trees are most useful for

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A major reason that firms form a cartel is to

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In which market model is there mutual interdependence?

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In an oligopolistic market, there is likely to be

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Collusion among oligopolistic firms

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In the kinked-demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to

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Oligopolistic industries are characterized by

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In a duopoly, if one firm increases its price, then the other firm can

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The U.S.breakfast cereal industry is an example of differentiated oligopoly.

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A breakdown in price leadership leading to successive rounds of price cuts is known as

Correct AnswerverifiedShow Answer

Firms are more likely to collude when the economy is in a recession.

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Differentiated oligopoly exists where a small number of firms are

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Patents and copyrights were established by the government to reduce oligopoly and monopoly power.

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If an industry evolves from monopolistic competition to oligopoly, we would expect

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