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Chapter 16 Oligopoly

Test A
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Markets with only a few sellers, each offering a product similar or identical to the others, are typically referred to as a. monopoly markets. b. perfectly competitive markets. c. monopolistically competitive markets. d. oligopoly markets. ANSW !" d. oligopoly markets. #$% " M & $1"' S (#)*N"1 *+, (#)- " 1 !AN'*M"$
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/irms in industries that have competitors but, at the same time, do not face so much competition that they are price takers, are operating in either a0n1 a. monopoly or monopolistically competitive market. b. monopolistically competitive or perfectly competitive market. c. oligopoly or monopoly market. d. oligopoly or monopolistically competitive market. ANSW !" d. oligopoly or monopolistically competitive market. #$% " M & $1"' S (#)*N"1 *+, (#)- " 1 !AN'*M"$
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/irms in the 3nited States are typically classified as a. duopolists. b. imperfectly competitive. c. oligopolists. d. perfectly competitive. ANSW !" b. imperfectly competitive. #$% " M & $1"' S (#)*N"1 *+, (#)- " 1 !AN'*M"$
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Which list contains all market structures having many firms5 a. oligopoly and perfect competition b. oligopoly and monopolistic competition c. perfect competition and monopolistic competition. d. oligopoly, perfect competition, and monopolistic competition. ANSW !" c. perfect competition and monopolistic competition. #$% " M & $1"' S (#)*N"1 *+, (#)- " 1 !AN'*M"$
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As a group, oligopolists are always better7off collectively if they a. decrease prices. b. limit production. c. increase production. d. each operate according to their own self7interest. ANSW !" b. limit production. #$% " M & $1"' S (#)*N". *+, (#)- " . !AN'*M"$

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1:; (hapter 1;<*ligopoly


;

+ecause each oligopolist cares about its own profit rather than the collective profit of their industry a. society is worse7off. b. they are unable to maintain monopoly power. c. they are able to ma=imi>e industry profits. d. All of the above are correct. ANSW !" b. they are unable to maintain monopoly power. #$% " M & $1"' S (#)*N". *+, (#)- " . !AN'*M"$ #he information in the table depicts the total demand for premium channel digital cable #- subscriptions in a small urban market. Assume that digital cable #- operators each pay a fi=ed cost of ?@A,AAA 0per year1 to provide premium digital channels in their market area and that the marginal cost of providing the premium channel service to a household is >ero. Buantity A .,AAA 4,AAA ;,AAA @,AAA 1A,AAA 1.,AAA
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%rice0per year1 ?1.A ?1AA ?@A ?;A ?4A ?.A ?A

According to this table, assume that there are two profit7ma=imi>ing digital cable #- companies operating in this market. /urther assume that they are able to CcolludeD on price and Euantity of premium digital channel subscriptions to sell. As part of their collusive agreement they decide to take an eEual share of the market. 9ow much profit will each company make5 a. ?1;A,AAA b. ?14A,AAA c. ?1.A,AAA d. ?1AA,AAA ANSW !" b. ?14A,AAA #$% " M & $1"' S (#)*N". *+, (#)- " . !AN'*M"N )NS#!3(#)*N" 1
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According to this table, what will be the Euantity produced if the market is a monopoly5 What will be the Euantity produced if the market is a two7firm oligopoly where the two firms are unable to collude and reach a Nash eEuilibrium5 a. monopoly production 4,AAA, oligopoly production @,AAA b. monopoly production ;,AAA, oligopoly production @,AAA c. monopoly production @,AAA, oligopoly production 1A,AAA d. None of the above is correct ANSW !" b. monopoly production ;,AAA, oligopoly production @,AAA #$% " M & $1"' S (#)*N". *+, (#)- " . !AN'*M" N )NS#!3(#)*N" 1
F

When an oligopoly market is in Nash eEuilibrium, a. a firmGs best pricing strategy depends on the strategy of other firms. b. market price will be different for each firm. c. individual firms will not behave as profit ma=imi>ers. d. All of the above are correct. ANSW !" a. a firmGs best pricing strategy depends on the strategy of other firms. #$% " M & $1"' S (#)*N". *+, (#)- " . !AN'*M"$

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(hapter 1;<*ligopoly 1::


1A

(artels are often short7lived because a. laws often prohibit e=plicit collusive agreements among competitors. b. self7interest often conflicts with cooperation. c. it is difficult to enforce agreements reached by cartels. d. All of the above are correct. ANSW !" d. All of the above are correct. #$% " M & $1"' S (#)*N". *+, (#)- " . !AN'*M"$
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As the number of firms in an oligopoly grows larger, price and output in that market approach a. those in a competitive market. b. those in a monopoly. c. the Nash eEuilibrium of a duopoly. d. None of the above is correct. ANSW !" a. those in a competitive market. #$% " M & $1"' S (#)*N". *+, (#)- " . !AN'*M"$ #wo firms are suspected of dumping to=ic chemicals at a location unknown to the government who will be unable to find the site unless one of the firms reveals it. ach firm has been presented with an opportunity to lower their liability in the suit if they reveal the site to the government. Firm A !eveal the site. !eveal the site. Firm B &eep the site secret. /irm A profit H I?16 b /irm + profit H I?;A b
1.

&eep the site secret. /irm A profit H I?;A b /irm + profit H I?16 b /irm A profit H I?.A b /irm + profit H I?.A b

/irm A profit H I?2A b /irm + profit H I?.6 b

According to this decision bo=, if both firms follow a dominant strategy, the losses of /irm A and /irm + respectively will be a. I?2A b and I?.6 b. b. I?;A b and I?16 b. c. I?16 b andI?;A b. d. I?.A b and I?.A b. ANSW !" a. I?2A b and I?.6 b. #$% " M & $1"' S (#)*N"2 *+, (#)- " 2 !AN'*M" N )NS#!3(#)*N" .
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According to this decision bo=, which of the following is the dominant strategies for the firms5 a. /irm A should reveal the site and /irm + should keep it secret. b. /irm A should keep the site secret and /irm + should reveal it. c. +oth firms should reveal the site. d. +oth firms should keep the site secret. ANSW !" c. +oth firms should reveal the site. #$% " M & $1"' S (#)*N"2 *+, (#)- " 2 !AN'*M" N )NS#!3(#)*N" .
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)n a world with only two countries, the noncooperative outcome to an Carms raceD game is clearly a. bad for society. b. the best possible outcome for society. c. optimal for one player at the e=pense of the other. d. better than the cooperative outcome. ANSW !" a. bad for society. #$% " M & $1"' S (#)*N"2 *+, (#)- " 2 !AN'*M"$

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1:@ (hapter 1;<*ligopoly


16

-ery often, the reason that players can solve the prisonersG dilemma game and reach the most profitable outcome is that a. the game becomes more competitive. b. they play the game not once, but many times. c. each player tries to capture a large portion of the market share. d. All of the above can solve the prisonersG dilemma. ANSW !" b. they play the game not once, but many times. #$% " M & $1"' S (#)*N"2 *+, (#)- " 2 !AN'*M"$
1;

)n a two7person repeated game, a tit7for7tat strategy starts with a. cooperation and then each player mimics the other playerGs last move. b. cooperation and then each player is unresponsive to the strategic moves of the other player. c. non7cooperation and then each player pursues his or her own self7interest. d. non7cooperation and then each player cooperates when the other player demonstrates a desire for the cooperative solution. ANSW !" a. cooperation and then each player mimics the other playerGs last move. #$% " M & $1"' S (#)*N"2 *+, (#)- " 2 !AN'*M"$
1:

#wo students are suspected of cheating together on an e=am. )f both confess they each get an / on the e=am. )f one confesses she gets an / in the course and the other student is e=pelled. )f neither student confesses there is no penalty. (onsidering only these conseEuences a student should a. confess if he is certain the other will not confess. b. never confess. c. always confess. d. confess if he is certain the other will confess. ANSW !" d. confess only if he is certain the other will confess. #$% " M & $1"' S (#)*N" 2 *+, (#)- " 2 !AN'*M"$
1@

#he Sherman Antitrust Act a. was passed to encourage Judicial leniency in the review of cooperative agreements. b. was concerned with Nash eEuilibria dominated by self7interest in prisonersG dilemma games. c. provided ta= advantages to firms who engaged in competitive behavior. d. restricted the ability of competitors to engage in cooperative agreements. ANSW !" d. restricted the ability of competitors to engage in cooperative agreements. #$% " M & $1"' S (#)*N"4 *+, (#)- " 4 !AN'*M"$
1F

Antitrust laws in general are used to a. prevent oligopolists from acting in ways that make markets less competitive. b. help oligopolists resolve their version of the prisonerGs dilemma. c. encourage oligopolists to pursue cooperative7interest at the e=pense of self7interest. d. All of the above are correct. ANSW !" a. prevent oligopolists from acting in ways that make markets less competitive. #$% " M & $1"' S (#)*N"4 *+, (#)- " 4 !AN'*M"$
.A

Suppose discount electronics retailers free ride on information about products provided by nondiscount retailers. #he information that is provided about products is a. greater than the optimal Euantity. b. the optimal Euantity. c. less than the optimal Euantity. d. Not necessarily any one of the above. ANSW !" c. less than the optimal Euantity. #$% " M & $1"' S (#)*N" 4 *+, (#)- " 4 !AN'*M"$

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(hapter 1;<*ligopoly 1:F


.1

#he practice of reEuiring someone to buy two or more items together is a. illegal because it allows firms to form collusive arrangements. b. not illegal because it increases the well7being of society. c. illegal because it allows firms to e=pand their market power. d. not illegal because collusive agreements are conducive to cooperative outcomes. ANSW !" c. illegal because it allows firms to e=pand their market power. #$% " M & $1"' S (#)*N"4 *+, (#)- " 4 !AN'*M"$
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#he practice of selling a product to retailers and reEuiring the retailers to charge a specific price for the product is called a. resale price maintenance. b. fi=ed retail pricing. c. unfair trade. d. cost plus pricing. ANSW !" a. resale price maintenance. #$% " M & $1"' S (#)*N"4 *+, (#)- " 4 !AN'*M"$
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)n 1F:1, (ongress passed a law that banned cigarette advertising on television. After the ban it is most likely that, 0i1 the prisonersG dilemma for the two companies with respect to television advertising was solved. 0ii1 profits of cigarette companies fell. 0iii1 profits of cigarette companies rose. a. 0i1 and 0ii1 b. 0ii1 and 0iii1 c. 0i1 and 0iii1 d. All of the above are correct. ANSW !" c. 0i1 and 0iii1 #$% " M & $1"' S (#)*N"2 *+, (#)- " 2 !AN'*M"$
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%redatory pricing is best e=emplified when a firm a. e=ercises its monopoly power by raising its price. b. cuts its prices in order to make itself more competitive. c. cuts its prices temporarily in order to drive out any competition. d. e=ercises its oligopoly power by raising its price through the formation of a cartel. ANSW !" c. cuts its prices temporarily in order to drive out any competition. #$% " M & $1"' S (#)*N"4 *+, (#)- " 4 !AN'*M"$
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A central issue in the Microsoft antitrust lawsuit involved MicrosoftGs integrating its )nternet browser into its Windows operating system, to be sold as one unit. #his practice is known as a. collusion. b. tying. c. resale price maintenance. d. price fi=ing. ANSW !" b. tying. #$% " M & $1"' S (#)*N"4 *+, (#)- " 4 !AN'*M"$

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ANSW !" d. oligopoly markets. #$% " M & $1"' S (#)*N"1 *+, (#)- " 1 !AN'*M"$
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ANSW !" d. oligopoly or monopolistically competitive market. #$% " M & $1"' S (#)*N"1 *+, (#)- " 1 !AN'*M"$
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ANSW !" b. imperfectly competitive. #$% " M & $1"' S (#)*N"1 *+, (#)- " 1 !AN'*M"$
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ANSW !" c. perfect competition and monopolistic competition. #$% " M & $1"' S (#)*N"1 *+, (#)- " 1 !AN'*M"$
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ANSW !" b. limit production. #$% " M & $1"' S (#)*N". *+, (#)- " . !AN'*M"$
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ANSW !" b. they are unable to maintain monopoly power. #$% " M & $1"' S (#)*N". *+, (#)- " . !AN'*M"$
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ANSW !" b. ?14A,AAA #$% " M & $1"' S (#)*N". *+, (#)- " . !AN'*M"N )NS#!3(#)*N" 1
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ANSW !" b. monopoly production ;,AAA oligopoly production @,AAA #$% " M & $1"' S (#)*N". *+, (#)- " . !AN'*M" N )NS#!3(#)*N" 1
F

ANSW !" a. a firmGs best pricing strategy depends on the strategy of other firms. #$% " M & $1"' S (#)*N". *+, (#)- " . !AN'*M"$
1A

ANSW !" d. All of the above are correct. #$% " M & $1"' S (#)*N". *+, (#)- " . !AN'*M"$
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ANSW !" a. those in a competitive market. #$% " M & $1"' S (#)*N". *+, (#)- " . !AN'*M"$
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ANSW !" a. I?2A b and I?.6 b. #$% " M & $1"' S (#)*N"2 *+, (#)- " 2 !AN'*M" N )NS#!3(#)*N" .
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ANSW !" c. +oth firms should reveal the site. #$% " M & $1"' S (#)*N"2 *+, (#)- " 2 !AN'*M" N )NS#!3(#)*N" .
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ANSW !" a. bad for society. #$% " M & $1"' S (#)*N"2 *+, (#)- " 2 !AN'*M"$
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ANSW !" b. they play the game not once but many times.

#$% " M & $1"' S (#)*N"2 *+, (#)- " 2 !AN'*M"$


1;

ANSW !" a. cooperation and then each player mimics the other playerKs last move. #$% " M & $1"' S (#)*N"2 *+, (#)- " 2 !AN'*M"$
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ANSW !" d. confess if he is certain the other will confess. #$% " M & $1"' S (#)*N" 2 *+, (#)- " 2 !AN'*M"$
1@

ANSW !" d. restricted the ability of competitors to engage in cooperative agreements. #$% " M & $1"' S (#)*N"4 *+, (#)- " 4 !AN'*M"$
1F

ANSW !" a. prevent oligopolists from acting in ways that make markets less competitive. #$% " M & $1"' S (#)*N"4 *+, (#)- " 4 !AN'*M"$
.A

ANSW !" c. less than the optimal Euantity. #$% " M & $1"' S (#)*N" 4 *+, (#)- " 4 !AN'*M"$
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ANSW !" c. illegal because it allows firms to e=pand their market power. #$% " M & $1"' S (#)*N"4 *+, (#)- " 4 !AN'*M"$
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ANSW !" a. resale price maintenance. #$% " M & $1"' S (#)*N"4 *+, (#)- " 4 !AN'*M"$
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ANSW !" c. 0i1 and 0iii1 #$% " M & $1"' S (#)*N"2 *+, (#)- " 2 !AN'*M"$
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ANSW !" c. cuts its prices temporarily in order to drive out any competition. #$% " M & $1"' S (#)*N"4 *+, (#)- " 4 !AN'*M"$
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ANSW !" b. tying. #$% " M & $1"' S (#)*N"4 *+, (#)- " 4 !AN'*M"$