1. Chapter 26: Oligopoly and Strategic Behavior

2. Which of the following does NOT help explain why oligopolies exist?
economies of scale
mergers
product homogeneity
barriers to entry
Answer: C

3. A merger between firms that are in the same industry is called a
conglomerate merger.
horizontal merger.
vertical merger.
none of the above.
Answer: B

4. Within a game theory model, if a change in decision-making raises corporation A's profits by $50 and lowers corporation B's profits by $50, the game is a
negative-sum game.
zero-sum game.
positive-sum game.
cooperative game.
Answer: B

5. Both firm A and firm B choose not to advertise.
Refer to the payoff matrix below for the profits (in $ millions) of two firms (A and B) making a decision to advertise or not. Which of the following is the outcome of the dominant strategy without cooperation?
Both firm A and firm B choose not to advertise.
Both firm A and firm B choose to advertise.
Firm A chooses to advertise while firm B chooses not to advertise.
Firm A chooses not to advertise while firm B chooses to advertise.
Answer: B

6. A group of firms that try to work together to earn monopoly profits is called a(n)
patent.
public enterprise.
cartel.
natural monopoly.
Answer: C

7. In a cartel, firms jointly act as
a monopolistic competitive firm.
a perfectly competitive firm.
a monopoly firm.
an oligopolistic firm.
Answer: C

8. decreasing production. decreasing prices. advertising.
After participating members of a cartel form an agreement on common prices and output quotas, then an individual firm can increase its own profits by
decreasing production.
decreasing prices.
advertising.
paying its employees higher wages.
Answer: B

9. a monopolistic competitive firm. a perfectly competitive firm.
A cartel behaves like
a monopolistic competitive firm.
a perfectly competitive firm.
a monopolist.
an oligopolistic firm.
Answer: C

10. an advertising gimmick.
When a consumer's willingness to buy a good or service is influenced by the number of people who have purchased that good or service, this is called
a switching cost.
an opportunity cost.
a network effect.
an advertising gimmick.
Answer: C

11. positive market feedback. nondynamic market feedback.
The idea that if enough consumers cut back on their use of a product it induces other consumers to do the same is referred to as
positive market feedback.
nondynamic market feedback.
negative market feedback.
elicit market feedback.
Answer: C

12. An example of a positive market feedback is
the emergence of the iPod.
routine maintenance on a car.
the declining use of land-line telephones for long-distance calls.
the use of telegraph services in the twenty-first century.
Answer: A

13. Jane purchases snickle-dees only because her friends do. This is
price-leadership.
negative-sum game.
positive market feedback.
negative market feedback.
Answer: C

14. Product compatibility is
the capability of a product sold by one firm to compete with another firm's product.
the capability of a product sold by one firm to function together with another firm's complementary product.
the sensitivity of the price of one product is to the change of the price of another product.
how much one product can be substituted for another product.
Answer: B

15. Both firm X and firm Y choose product format A.
Refer to the payoff matrix below for the profits (in $ millions) of two firms (X and Y) and two product formats (A and B) in an industry. A possible outcome of the dominant strategy is:
Both firm X and firm Y choose product format A.
Both firm X and firm Y choose product format B.
Firm X would be willing to choose product format A while firm Y simultaneously would wish to choose product format B.
Firm X would be willing to choose product format B as long as firm Y wishes simultaneously also to choose product format B.
Answer: C

16. They are complementary. They involve network effects.
Which of the following would NOT be an adequate description of the relationship between Blu-Ray discs and Blu-Ray disc players?
They are compatible.
They are complementary.
They involve network effects.
They are substitutable.
Answer: D

17. a Tweedle Dee-Tweedle Dum game a Battle of the Sexes game
Which of the following provides firms incentives to work together to develop one common product format?
a Tweedle Dee-Tweedle Dum game
a Battle of the Sexes game
prisoners' dilemma
none of the above
Answer: B

18. A market situation in which there are a few large firms is called
monopolistic competition.
imperfect competition.
oligopoly.
monopoly.
Answer: C

19. monopolistic competition perfect competition
Other things being equal, which market structure would produce the least output and the highest average product price?
monopoly
oligopoly
monopolistic competition
perfect competition
Answer: A

20. monopolistic competition oligopoly perfect competition
In which market structure does a firm have the LEAST influence over the market price?
monopoly
monopolistic competition
oligopoly
perfect competition
Answer: D

21. The market structure of monopoly exists when
there are a small number of interdependent firms that constitute the entire market.
there is a single producer of a product.
there are many producers of differentiated products.
there are many producers of a homogeneous product.
Answer: B