1.

In general, oligopolists compete

A) on research and development.
B) on marketing and advertising.
C) on price.
D) All of the above are correct.
2. To determine their optimal strategy, oligopolists must ________ to their strategy.
A) anticipate the reaction of their customers
B) anticipate the reaction of their rivals
C) anticipate the reaction of government
D) both A and B are correct.
3. A monopolistic industry has
A) a homogeneous product and easy entry.
B) many differentiated products and easy entry.
C) either a standardized product or differentiated products.
D) a single, unique product and blocked entry.
4. Which of the following is the best example of an oligopolistic industry?
A) passenger airline service
B) convenience stores
C) public utilities
D) clothing manufacturing
5. Products ________ in the oligopolistic market structure.
A) are always unique
B) may be homogeneous or differentiated
C) are always homogeneous
D) are always differentiated
6. A concentrated industry has ________ that dominate a market.
A) three or fewer firms
B) an infinite number of firms
C) a relatively small number of firms
D) a large number of firms
7. Oligopolistic firms are
A) able to influence price only if the oligopolist's products are differentiated.
B) unable to influence price regardless of whether or not the product is differentiated or standardized.
C) able to influence price only if the oligopolist's products are standardized.
D) able to influence price regardless of whether or not the product is differentiated or standardized by
virtue of their size.
8. According to the Five Forces Model, the five competitive forces that determine the level of competition and
profitability in an industry are
A) buyers, suppliers, government, foreign competition, and weather.
B) rivals, government, foreign competition, labor, and weather.
C) rivals, buyers, suppliers, substitutes, and potential entrants.
D) rivals, consumers, labor, weather, and government.

9. The share of ________ by the top firms is known as the concentration ratio.
A) the labor force employed
B) resources used in production
C) outstanding shares of stock issued
D) industry output in sales or employment accounted for
10. We define a market as contestable if entry into the market is ________ and exit from the market is ________.
A) difficult; easy
B) easy; easy
C) easy; difficult
D) difficult; difficult
11. In ________ markets, large oligopolistic firms end up behaving like perfectly competitive firms.
A) monopolistically competitive
B) contestable
C) blocked
D) monopoly
12. In which of the following oligopoly models do firms not always produce where price exceeds marginal cost?
A) kinked demand curve model
B) collusive oligopoly model
C) contestable market model
D) Cournot model
13. An oligopolistic model in which firms produce exactly the same results as would exist if the industry were
________ is called the collusion model.
A) monopolistically competitive
B) government regulated
C) perfectly competitive
D) a monopoly

Refer to the information provided in Figure 14.7 below to answer the questions that follow.

Figure 14.7
14. Refer to Figure 14.7. Four firms that produce chewing gum form a cartel. The cartel faces the market demand
curve given by D. At the profit-maximizing output, the total cost for the cartel is
A) $3,000.
B) $3,720.
C) $4,800.
D) $5,600.
15. Refer to Figure 14.7. Four chewing gum producing firms form a cartel. The firms have identical cost
structures. If the cartel produces the profit-maximizing output level, each firm should produce
A) 3,000 packs of chewing gum.
B) 4,000 packs of chewing gum.
C) 12,000 packs of chewing gum.
D) indeterminate output levels from this information.
16. Refer to Figure 14.7. Four firms that produce chewing gum form a cartel. The cartel faces the market demand
curve given by D. At the profit-maximizing output, the profit on each pack of gum is
A) $0.04.
B) $0.09.
C) $0.15.
D) $0.25.
17. A colluding oligopoly will face market demand and produce up until the point at which
A) P = MR = MC.
B) P < MR > MC.
C) P > MR = MC.
D) P < MR = MC.
18. If the government stops enforcing its collusion laws and oligopolies are now able to collude, they will
________ the price charged and ________ the total output produced.
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease

19. In an oligopolistic industry where the oligopolists collude, the price firms charge would be ________, and the
quantity they produce would be ________, if the industry were a monopoly.
A) higher than; lower than
B) higher than; higher than
C) the same as; the same as
D) lower than; lower than
20. You read that 40 firms that grow and export strawberries to the United States decide to form a cartel. The
cartel aims to raise the price of strawberries and reduce output to increase profits for the strawberry growers.
You predict that this cartel will probably
A) not be successful because the number of firms is unmanageable and there are a number of good
substitutes for strawberries.
B) not be successful because there are too few firms that are trying to organize the cartel.
C) be successful because it will be very easy to enforce the rules among only 40 firms.
D) be successful because the demand for strawberries is very elastic.
21. Tacit collusion occurs when price- and quantity-fixing agreements among producers
A) are legal.
B) are implicit.
C) are explicit.
D) are nonexistent.
22. Tacit collusion is ________ to be successful in increasing industry profits when there are ________ similar
firms in the industry.
A) less likely; a few
B) more likely; a few
C) always; no
D) more likely; many
23. When a new firm begins production in the ________ model, it assumes its demand curve is the market
demand less the amount the other firm is selling.
A) price leadership
B) Cournot
C) cartel
D) collusion
24. All of the following are assumptions of the Cournot model EXCEPT:
A) Each firm takes the output of the other firm as given.
B) There are two firms in an industry.
C) The firms behave so as to maximize their profits.
D) If the first firm cuts price, the second firm will follow and if the first raises price, the second will
not follow.
25. The demand curve facing a dominant firm in the ________ model is derived by subtracting the amount
supplied by the smaller firms from market demand.
A) price leadership
B) collusion
C) Cournot
D) cartel

26. The price-leadership model assumes all of the following EXCEPT:

A) A dominant firm allows the smaller firms to sell all they want at the price the leader has set.
B) Demand elasticity in response to an increase in price is different from the demand elasticity in
response to a price cut.
C) A dominant firm maximizes profit.
D) The industry is made up of one large firm and a number of smaller, competitive firms.
27. Predatory pricing occurs when a large, powerful firm drives smaller firms out of the market by
A) temporarily selling at an artificially low price.
B) permanently selling at an artificially low price.
C) permanently selling at an artificially high price.
D) temporarily selling at an artificially high price.

Refer to the information provided in Table 14.1 below to answer the question that follows.

Raise
Price

Raise Price
A's profit $6,000
B's profit $6,000

Table 14.1
B's Strategy
Don't Raise Price
A's profit $20,000
B's profit $30,000

Don't
Raise

A's profit $30,000

B's profit $20,000

A's profit $10,000

B's profit $10,000

A's Strategy

28. Refer to Table 14.1. Firm A's optimal strategy is

A) dependent on what Firm B does.
B) to not raise the price of its product.
C) to raise the price of its product.
D) indeterminate from this information, as no information is provided on Firm A's risk preference.
29. Refer to Table 14.1. The Nash equilibrium in the game is ________.
A) (Raise Price, Don't Raise Price)
B) (Don't Raise Price, Raise Price)
C) (Don't Raise Price, Don't Raise Price)
D) Both A and B are correct.
30. Refer to Table 14.1. If both firms follow a maximin strategy, the equilibrium in the game is ________.
A) (Raise Price, Don't Raise Price)
B) (Don't Raise Price, Raise Price)
C) (Raise Price, Raise Price)
D) (Don't Raise Price, Don't Raise Price)
31. Because the players are prevented from cooperating, each player in a prisoners' dilemma game has a
dominant strategy that leaves ________ than if they could cooperate.
A) them both worse off
B) them both better off
C) the first player to confess better off and the other player worse off
D) the first player to confess worse off and the other player better off

32. A Nash equilibrium occurs if all players in a game play their best strategies
A) given what their competitors do.
B) without knowing what their competitors do.
C) only if their competitors are unaware of their strategies.
D) before their competitors do.
33. A player chooses a ________ strategy to maximize the minimum gain the player can earn.
A) tit-for-tat
B) Cournot
C) prisoners' dilemma
D) maximin
34. Tit-for-tat is a ________ game strategy in which a player ________ an opponent's play.
A) repeated; ignores
B) single; responds in kind to
C) single; ignores
D) repeated; responds in kind to
Refer to the information provided in Table 14.2 below to answer the question that follows.

Advertise

Table 14.2
B's Strategy
Advertise
Don't Advertise
A's profit $200 million A's profit $400 million
B's profit $200 million B's profit $100 million

Don't
Advertise

A's profit $100 million A's profit $150 million

B's profit $400 million B's profit $150 million

A's Strategy

35. Refer to Table 14.2. Firm A's dominant strategy is to not advertise.
Answer:
True
False

36. The economist Joseph Schumpeter argued that industrial concentration, in which a relatively ________
number of firms control the market place, actually ________ the rate of technological advance.
A) small; decreased
B) large, decreased
C) small; increased
D) large; increased

37. If the Herfindahl-Hirschman Index of an industry is greater than 1,800, then the Antitrust Division of the
Justice Department
A) will not challenge any merger.
B) considers the industry moderately concentrated.
C) considers the industry unconcentrated.
D) will challenge any merger that raises the index by more than 50 points.

38. If there are four firms in an industry and each has a 25 percent market share, then the Herfindahl-Hirschman
Index equals
A) 2,500.
B) 2,800.
C) 5,000.
D) 6,600.
39. A pure monopoly has an HHI value of
A) 1,000.
B) 5,000.
C) 10,000.
D) 100,000.