Question 1

In a sequential game with two firms,the first mover into a new market:

Accepted Answer

A)   is guaranteed positive economic profits.
B)   is assured of blocking any potential second mover from entering the market.
C)   runs the risk that the untested new market will not provide enough customers.
D)   will likely set a high price to reap greater profits until the second mover enters.E) All of the above
F) A) and B)

Question 2

A monopolistically competitive industry combines elements of both competition and monopoly.It is correct to say that the competitive element results from:

Accepted Answer

A)   a relatively large number of firms and the monopolistic element from product differentiation.
B)   product differentiation and the monopolistic element from high entry barriers.
C)   a perfectly elastic demand curve and the monopolistic element from low entry barriers.
D)   a highly inelastic demand curve and the monopolistic element from advertising and product promotion.E) C) and D)
F) A) and B)

Question 3

As it relates to oligopoly,game theory focuses on the strategic behavior of rival firms.

Accepted Answer

A) True 
 B)False

Question 4

If one player in a game has a dominant strategy,the other player must also have a dominant strategy.

Accepted Answer

A) True 
 B)False

Question 5

If some firms leave a monopolistically competitive industry,the demand curves of the remaining firms will:

Accepted Answer

A)   be unaffected.
B)   shift to the left.
C)   become more elastic.
D)   shift to the right.E) B) and C)
F) A) and D)

Question 6

The kinked-demand curve model of oligopoly is useful in explaining:

Accepted Answer

A)   the way that collusion works.
B)   why oligopolistic prices and outputs are extremely sensitive to changes in marginal cost.
C)   why oligopolistic prices might change only infrequently.
D)   the process by which oligopolists merge with one another.E) None of the above
F) All of the above

Question 7

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 Aluminum.E) B) and D)
F) All of the above

Question 8

Assume six firms comprising 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) None of the above

Question 9

Collusive agreements between two firms are most likely to be honored when the game:

Accepted Answer

A)   is a one-time game with the opportunity for a prisoner's dilemma.
B)   has a Nash equilibrium that differs from the outcome that maximizes the payoffs to the two firms.
C)   is a zero-sum game.
D)   is repeated and both firms offer credible threats if the other violates the agreement.E) A) and B)
F) A) and C)

Question 10

The automobile,household appliance,and automobile tire industries are all illustrations of:

Accepted Answer

A)   homogeneous oligopoly.
B)   monopolistic competition.
C)   pure monopoly.
D)   differentiated oligopoly.E) B) and D)
F) A) and D)

Question 11

A monopolistically competitive firm has a:

Accepted Answer

A)   highly elastic demand curve.
B)   highly inelastic demand curve.
C)   perfectly inelastic demand curve.
D)   perfectly elastic demand curve.E) All of the above
F) A) and B)

Question 12

Advertising can impede economic efficiency when it:

Accepted Answer

A)   reduces entry barriers.
B)   reduces brand loyalty.
C)   leads to greater monopoly power.
D)   provides consumers with useful information about product quality.E) B) and D)
F) All of the above

Question 13

Game theory can be used to demonstrate that oligopolists:

Accepted Answer

A)   rarely consider the potential reactions of rivals.
B)   experience economies of scale.
C)   can increase their profits through collusion.
D)   may be either homogeneous or differentiated.E) A) and B)
F) A) and C)

Question 14

One characteristic of sequential games is that they all have first-mover advantages.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Secret conspiracies to fix prices are examples of:

Accepted Answer

A)   cartels.
B)   price leadership.
C)   overt collusion.
D)   covert collusion.E) B) and C)
F) None of the above

Question 17

In the long run,economic theory predicts that a monopolistically competitive firm will:

Accepted Answer

A)   earn an economic profit.
B)   realize all economies of scale.
C)   equate price and marginal cost.
D)   have excess production capacity.E) A) and D)
F) None of the above

Question 18

The economic inefficiencies of monopolistic competition may be offset by the fact that:

Accepted Answer

A)   advertising expenditures shift the average cost curve upward.
B)   available capacity is fully utilized.
C)   resources are optimally allocated to the production of the product.
D)   consumers have increased product variety.E) C) and D)
F) B) and D)

Question 19

One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the following cases?

Accepted Answer

A)   A rather large number of firms producing a differentiated product.
B)   A very small number of firms producing a differentiated product.
C)   A rather large number of firms producing a homogeneous product.
D)   A very small number of firms producing a homogeneous product.E) B) and D)
F) B) and C)

Question 20

A positive-sum game occurs:

Accepted Answer

A)   when the sum of the two firms' outcomes is positive.
B)   whenever any of the values in the payoff matrix are positive.
C)   when the gains received by one player are exactly offset by the losses to the other.
D)   whenever the payoffs to the two players are equal.E) B) and C)
F) A) and C)

Exam 13: Monopolistic Competition and Oligopoly

Collusive agreements between two firms are most likely to be honored when the game:

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In the long run,economic theory predicts that a monopolistically competitive firm will:

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In a sequential game with two firms,the first mover into a new market:

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Advertising can impede economic efficiency when it:

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Assume six firms comprising 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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If some firms leave a monopolistically competitive industry,the demand curves of the remaining firms will:

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A positive-sum game occurs:

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

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A monopolistically competitive firm has a:

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The automobile,household appliance,and automobile tire industries are all illustrations of:

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One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the following cases?

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The economic inefficiencies of monopolistic competition may be offset by the fact that:

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If one player in a game has a dominant strategy,the other player must also have a dominant strategy.

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One characteristic of sequential games is that they all have first-mover advantages.

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A monopolistically competitive industry combines elements of both competition and monopoly.It is correct to say that the competitive element results from:

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As it relates to oligopoly,game theory focuses on the strategic behavior of rival firms.

Correct AnswerverifiedShow Answer

The kinked-demand curve model of oligopoly is useful in explaining:

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Game theory can be used to demonstrate that oligopolists:

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Secret conspiracies to fix prices are examples of:

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