1. The commercial
jetliner industry, consisting of Boeing and Airbus, represents
a. perfect competition.
b. monopolistic competition.
c. oligopoly.
d. pure monopoly.
2. Which of the following
is a characteristic of oligopoly but NOT perfect competition?
a. advertising and sales promotion
b. profit maximization according to the MR = MC rule
c. firms being price takers rather than price makers
d. horizontal demand curve and marginal revenue curve
3. Imperfectly
competitive firms are characterized by
a. horizontal demand curves.
b. standardized products.
c. a large number of small firms.
d. price making ability.
4. A firm in a
monopolistically competitive market is similar to a monopolist in the sense
that it
a. must overcome significant barriers to entry.
b. faces a downward-sloping demand curve.
c. has no barriers to entry or exit.
d. it is only one seller of the good.
5. The U.S. market
for locomotives is divided between two producers: General Electric has 70
percent of the market and General Motors has 30 percent. This market is an
example of
a. monopolistic competition.
b. a collusive monopoly.
c. a duopoly.
d. a cartel.
6. The cigarette
industry consists of large firms that compete vigorously by advertising
heavily, which is directed at creating fantasy and image. Economists would
characterize this industry as
a. perfectly competitive.
b. monopolistically competitive.
c. oligopoly.
d. monopoly.
7. Cartels in the
United States are
a. legal if price is competitively determined.
b. legal if all firms in the industry agree to the terms of
the cartel.
c. legal if all conditions of the cartel are made public.
d. illegal.
8. The application of
game theory to economics allows us to understand firm behavior in some forms of
oligopoly. Game theory suggests that in a two-firm industry, each firm will
a. avoid pricing high when the other prices low.
b. select high prices and defend that selection because, in
the long run, their profits are higher than if they competed by lowering
prices.
c. end up mistaking the other’s intentions, which results in
low prices and low profit for both in the long run.
d. end up colluding with the other to form a cartel.
9. There will be a
greater tendency for cheating to take place with a cartel if
a. the number of firms in the market is relatively small.
b. the firms produce standardized products.
c. the costs of production differ among firms.
d. economic profits are being earned by the cartel.
10. Which of the
following would be most likely to contribute to the breakdown of a cartel in a
natural resource (e.g., bauxite) market?
a. high prices
b. low price elasticity of demand
c. high compatibility of member interests
d. unequal member ownership of the natural resources
11. An equilibrium in
which each firm in an oligopoly industry maximizes profit, given the actions of
its rivals, is called
a. a general equilibrium.
b. a dominant equilibrium.
c. a Nash equilibrium.
d. an oligopoly equilibrium.
12. An oligopoly
would tend to restrict output and drive up price if
a. barriers to entering the industry are negligible.
b. firms engage in informative advertising.
c. firms produce a standardized product.
d. firms collude and behave like a monopoly.
13. The application
of game theory to economics allows us to understand firm behavior in some forms
of oligopoly. Game theory suggests that in a two-firm industry, each firm will
a. avoid pricing high when the other prices low.
b. select high prices and defend that selection because, in
the long run, their profits are higher than if they competed by lowering
prices.
c. end up mistaking the other’s intentions, which results in
low prices and low profit for both in the long run.
d. end up colluding with the other to form a cartel.
14. In the prisoner’s
dilemma,
a. the prisoners easily collude in order to achieve the best
possible payoff for both.
b. only one player has a dominant strategy.
c. playing the dominant strategy leads to a better payoff
for one prisoner than would jointly selecting a different strategy.
d. each player has a dominant strategy.
15. A dominant
strategy is one that
a. makes every player better off.
b. makes at least one player better off without hurting the
competitiveness of any other player.
c. increases the total payoff for the player.
d. is best for the player, regardless of what strategy other
players follow.
16. An equilibrium
occurs in a game when
a. price equals marginal cost.
b. quantity supplied equals quantity demanded.
c. all independent strategies counterbalance all dominant
strategies.
d. all players follow a strategy that they have no incentive
to change.
17. The players in a
two-person game are choosing between Strategy X and Strategy Y. If the second
player chooses Strategy X, the first player’s best outcome is also to select X.
If the second player chooses Strategy Y, the first player’s best outcome is to
select X. For the first player, Strategy X is called a
a. dominant strategy.
b. collusive strategy.
c. repeated-trial strategy.
d. cartel strategy.
18. Brian and Matt
own the only two bicycle repair shops in town. Each must choose between a low
price for repair work and a high price. The yearly economic profits from each
strategy are indicated in the table. The upper right side of each rectangle
shows Brian’s profits; the lower left side shows Matt’s profits. Which of the
following statements is correct?
a. Matt’s dominant strategy is to charge a low price.
b. Brian’s dominant strategy is to charge a high price.
c. The dominant strategy for both Brian and Matt is to
charge a low price.
d. Matt’s dominant strategy is to charge a high price.
19. Brian and Matt
own the only two bicycle repair shops in town. Each must choose between a low
price for repair work and a high price. The yearly economic profits from each
strategy are indicated in the table. The upper right side of each rectangle
shows Brian’s profits; the lower left side shows Matt’s profits. Which of the
following statements is correct for a one-trial game?
a. The market equilibrium price is the high price.
b. A market equilibrium price cannot be established unless
Brian and Matt collude.
c. A market equilibrium price cannot be established without
repeated trials.
d. The equilibrium price is the low price.
20. After initial
success, the OPEC cartel saw the price of oil and the revenues of its members
decline due, in part, to
a. the low elasticity of demand for oil in the short run.
b. the large number of buyers from each member nation.
c. surging demand for oil in the early 1980s.
d. the greater long-run elasticity of demand for oil.
21. Which of the
following would make cheating on a collusive agreement more likely?
a. Greater ease of observing other firms’ prices.
b. A reduction in the number of sellers in the market.
c. A greater resulting impact on the market price.
d. More frequent shifts in market demand.
22. In order to prove
that a firm has engaged in predatory pricing, the Justice Department must show
that the firm’s price is below
a. average variable cost.
b. average total cost.
c. total cost.
d. other firms’ prices.
23. A key issue in
the Microsoft case involved whether or not the bundling of the Windows
operating system with new computer system consisted of
a. predatory pricing.
b. tying.
c. resale price maintenance.
d. price discrimination.
24. The primary
purpose of antitrust legislation is to
a. protect small businesses.
b. protect the competitiveness of U.S. businesses.
c. protect the prices of American-made products.
d. ensure firms earn only a fair profit.
25. A law that
encourages market competition by prohibiting firms from gaining or exercising
excessive market power is
a. a patent.
b. impossible to enforce.
c. antitrust law.
d. externality law.
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