Quiz 11
Microeconomics
Oligopoly, ch. 13
1. The characteristic most closely associated with oligopoly is:
a.
easy entry into the industry.
c. product standardization.
b.
a few large producers.
d. no control over price. e. zero profits
2. Which of the following is the poorest example of an oligopoly market?
a. breakfast cereals in the US
c. OPEC
b. domestic cars in the US
d. bars/night clubs in NYC
e. universities in Manhattan
3. A group of firms that colludes by agreeing to restrict output to increase prices and profits is called:
a. duopoly.
b. conglomerate.
c. oligopoly.
d. cartel.
4. OPEC as a cartel will, in comparison to a competitive industry:
a.
Produce less output and charge a higher price
b.
Produce greater output and charge a higher price
c.
Produce greater output and charge a lower price
d.
Produce less output and charge a lower price
5. The incentive to cheat is strong in a cartel because:
a. each firm can increase its output and thus its profits by cutting price.
b. the marginal revenue is greater than marginal cost at the profit-maximizing price set by the cartel.
c. there is a significant lack of government regulation of cartels, especially those in worldwide production.
d. the costs of production are the same for each firm, but the product demand differs.
6. Mutual interdependence of firms in oligopolistic markets means that:
a. product differentiation exists, that is, firms produce close substitutes, but not identical products.
b. each seller faces a completely inelastic demand curve.
c. each firm must consider the possible reactions of rivals when establishing price policy.
d. when a pure monopolist chooses a price, it also necessarily chooses some specific level of output.
7. A game theory analysis of deterring entry concludes that:
a. deterring entry may be a good or a bad idea, depending on the circumstances.
b. It is difficult to predict whether deterring entry is a good or a bad idea.
c. deterring entry is always a good idea.
d. deterring entry is always a bad idea.
8. If automobile companies have significant bargaining power when buying tires, you would expect that tire prices are
_______ and the profitability of tire manufacturers is __________.
a. low; unlimited b. high; limited
c. low; limited
d. high; unlimited
9. Which of the following strategies has been more successful in the recent history of the airline industry?
a. Identifying a segment of the market and shaping the company to fit that segment.
b. Deterring entry by building a large fleet of airplanes and cutting labor costs.
c. Using game theory to analyze the actions of existing and potential firms in the market.
d. Entering as many segments of the market as possible and confronting competitors through steep price cuts.
10. When the player of a game chooses a dominant strategy,
a. it is the best strategy only if other players are cooperative
b. it is always leads to a Nash equilibrium that makes all players equally well off
c. the game can never reach a Nash equilibrium
d. it is the best strategy, regardless of choices made by other players
11. Name 2-3 industries in manufacturing that are considered to be highly concentrated. How is it measured?
Firm A
price high
price low
Firm B
price high
(15,15)A
(25,2)C
price low
(2,25)B
(5,5)D
12. Each cell in the strategic chart above shows (payoff to Firm A, payoff to Firm B) given two different price strategies.
Mark each firm’s dominant strategy and answer the following question. Equilibrium would occur:
a. in box A, the Pareto optimal choice
b. in box C, an example of the prisoner’s dilemma
c. in box B, if Firm A knew that Firm B would lower prices.
d. in box D, an example of a Nash equilibrium
e. more than one choice above
13. Boeing an Airbus are considering whether to build a new factory. What is the Nash equilibrium of this game?
a. A
b. B
c. C
d. D
Boeing
Build
Don’t build
Air Bus
Build
(-10, -10)A
(-5, 5)C
Don’t Build
(-5, -15)B
(10, 0)D
14. Answer any two of the questions below:
a. Give several examples of barriers to entry for new firms.
b. Why do firms have an incentive to collude? How can collusion make firms better off?
c. How do firms use low price guarantees to signal that they would like to maintain high prices?
d. What are the five forces that determine the level of competition in an industry?