Question 1

When an oligopoly market is in Nash equilibrium,

Accepted Answer

A)   firms have colluded to set their prices.
B)   firms will not behave as profit maximisers.
C)   a firm will not take into account the strategies of its rivals.
D)   a firm will choose its best pricing strategy, given the strategies that it observes other firms have taken.E) A) and B)
F) None of the above

Question 2

In a sequential game, one firm will act first and then other firms will respond.

Accepted Answer

A) True 
 B)False

Question 3

Game theory was developed in the 1940s by John von Neuman, a mathematician, and an economist named

Accepted Answer

A)   John Nash.
B)   John Maynard Keynes.
C)   Oskar Morgenstern.
D)   Milton Friedman.E) A) and D)
F) A) and C)

Question 4

OPEC periodically meets to agree to restrict the cartel's oil output, and yet almost every member of OPEC produces more than its own output quota. This suggests that OPEC has

Accepted Answer

A)   a cooperative equilibrium.
B)   a noncooperative equilibrium.
C)   new potential entrants.
D)   a threat of substitute goods.E) A) and C)
F) All of the above

Question 5

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

Accepted Answer

A)   an earnings table.
B)   a payoff table.
C)   a payoff matrix.
D)   a strategic matrix.E) B) and C)
F) A) and C)

Question 6

A dominant strategy is

Accepted Answer

A)   an equilibrium where each firm chooses the best strategy, given the strategies of other firms.
B)   a strategy chosen by two firms that decide to charge the same price or otherwise not to compete.
C)   a strategy that is obviously the best for each firm that is a party to a business decision.
D)   a strategy that is the best for a firm no matter what strategies other firms use.E) A) and C)
F) A) and B)

Question 7

Suppose two firms in a duopoly implicitly collude and charge a high price. How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

Accepted Answer

A)   The offer to match prices is a way of deterring entry by other large firms, thereby keeping the market share of the existing firms intact.
B)   The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same.
C)   The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion.
D)   The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available.E) B) and C)
F) A) and B)

Question 8

A supplier of an input is unlikely to have bargaining power if

Accepted Answer

A)   the input supplied is specialised.
B)   many firms can supply the input.
C)   it is the sole supplier of the input.
D)   it has a patent on the input.E) C) and D)
F) A) and C)

Question 9

A reason why there is more competition among restaurants than among large discount department stores is that restaurants

Accepted Answer

A)   have to cater to a variety of consumer tastes while department stores do not.
B)   unlike department stores, have to abide by government sanitation rules.
C)   unlike department stores, do not have significant economies of scale.
D)   have more elastic demand for their product compared to department stores.E) All of the above
F) B) and D)

Question 10

One reason why, in the last four decades, the number of new auto makers in the world has been very small compared to the past is that

Accepted Answer

A)   the automobile cannot be improved upon in any way by new producers.
B)   new auto makers cannot obtain necessary inputs to produce new cars.
C)   governments restrict who can produce automobiles.
D)   new producers cannot match the economies of scale of existing auto makers.E) A) and C)
F) None of the above

Question 11

An oligopolist differs from a perfect competitor in that

Accepted Answer

A)   there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power.
B)   firms in an oligopoly do not produce homogeneous products while firms in perfect competition do.
C)   the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward sloping in an oligopolistic industry.
D)   there are no entry barriers in perfect competition but there are entry barriers in oligopoly.E) B) and C)
F) All of the above

Question 12

The five competitive forces model was developed by

Accepted Answer

A)   Michael Porter.
B)   John Nash.
C)   Michael Spence.
D)   Porter Smith.E) A) and D)
F) B) and C)

Question 13

Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6000 units of output. In this case, this industry would be

Accepted Answer

A)   perfectly competitive if the market quantity demanded is 20 000 units.
B)   monopolistically competitive if the market quantity demanded is 12 000 units.
C)   an oligopoly if the market quantity demanded is 18 000 units.
D)   an oligopoly if the four-firm concentration ratio is more than 10 per cent.E) B) and C)
F) All of the above

Question 14

Explain why selling output at a price below that at which marginal revenue equals marginal cost (MR = MC) might serve to deter entry of a potential competitor.

Accepted Answer

If a potential entrant is unsure about t...

Question 15

The prisoner's dilemma is used to analyse business situations in which one firm acts first and then other firms respond.

Accepted Answer

A) True 
 B)False

Question 16

A patent is a government-imposed entry barrier because

Accepted Answer

A)   it allows a firm to achieve economies of scale.
B)   it is a key input owned by the firm that is granted the patent.
C)   it limits the quantity of a good that can be imported into a country.
D)   it gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.E) B) and C)
F) B) and D)

Question 17

An equilibrium in which each player chooses its best strategy given the strategies chosen by the other players is called a Nash equilibrium.

Accepted Answer

A) True 
 B)False

Question 18

What is an oligopoly? Give two examples of oligopolistic industries in Australia.

Accepted Answer

Oligopoly is a market structure in which...

Question 19

A form of implicit collusion where one firm in an oligopoly announces a price change which is matched by other firms in the same industry is

Accepted Answer

A)   'follow the leader' pricing.
B)   price leadership.
C)   retaliation pricing.
D)   'tit-for-tat' pricing.E) B) and D)
F) A) and B)

Question 20

-Refer to Table 11-3. How are the firms in this advertising game caught in a prisoner's dilemma?

Accepted Answer

A)   They are not in a prisoner's dilemma because there is one clear strategy for each.
B)   They would be more profitable if they refrained from advertising, but each fears that if it does not advertise, it will lose customers.
C)   Since each firm is uncertain about the other's behaviour, each will adopt a wait-and-see attitude which results in no increase in market share and no new customers.
D)   Only the first mover is caught in a prisoner's dilemma because the second has a chance to observe and respond.E) B) and C)
F) None of the above

Exam 11: Oligopoly : Firms in Less Competitve Markets

An oligopolist differs from a perfect competitor in that

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A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

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A patent is a government-imposed entry barrier because

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OPEC periodically meets to agree to restrict the cartel's oil output, and yet almost every member of OPEC produces more than its own output quota. This suggests that OPEC has

Correct AnswerverifiedShow Answer

The five competitive forces model was developed by

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The prisoner's dilemma is used to analyse business situations in which one firm acts first and then other firms respond.

Correct AnswerverifiedShow Answer

Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6000 units of output. In this case, this industry would be

Correct AnswerverifiedShow Answer

One reason why, in the last four decades, the number of new auto makers in the world has been very small compared to the past is that

Correct AnswerverifiedShow Answer

In a sequential game, one firm will act first and then other firms will respond.

Correct AnswerverifiedShow Answer

What is an oligopoly? Give two examples of oligopolistic industries in Australia.

Correct AnswerverifiedOligopoly is a market structure in which...View AnswerShow Answer

A dominant strategy is

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A reason why there is more competition among restaurants than among large discount department stores is that restaurants

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-Refer to Table 11-3. How are the firms in this advertising game caught in a prisoner's dilemma?

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Explain why selling output at a price below that at which marginal revenue equals marginal cost (MR = MC) might serve to deter entry of a potential competitor.

Correct AnswerverifiedIf a potential entrant is unsure about t...View AnswerShow Answer

An equilibrium in which each player chooses its best strategy given the strategies chosen by the other players is called a Nash equilibrium.

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A supplier of an input is unlikely to have bargaining power if

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A form of implicit collusion where one firm in an oligopoly announces a price change which is matched by other firms in the same industry is

Correct AnswerverifiedShow Answer

Suppose two firms in a duopoly implicitly collude and charge a high price. How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

Correct AnswerverifiedShow Answer

When an oligopoly market is in Nash equilibrium,

Correct AnswerverifiedShow Answer

Game theory was developed in the 1940s by John von Neuman, a mathematician, and an economist named

Correct AnswerverifiedShow Answer

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Oligopoly is a market structure in which...
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If a potential entrant is unsure about t...
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