Question 1

Negative-sum games do not exist, because neither player has an incentive to play the game.

Accepted Answer

A) True 
 B)False

Question 2

A strategy that is better than any alternative strategy-regardless of what the other firm does-is called a

Accepted Answer

A)   dominant strategy.
B)   simultaneous strategy.
C)   positive-sum strategy.
D)   one-time strategy. A

Question 3

As a general rule, oligopoly exists when the four-firm concentration ratio

Accepted Answer

A)   equals the Herfindahl index.
B)   yields a Herfindahl index below 500.
C)   is 40 percent or more.
D)   is 50 percent or more.

Question 4

Unlike a monopoly, an oligopoly tends to achieve allocative efficiency due to the rivalry among several firms.

Accepted Answer

A) True 
 B)False

Question 5

In game theory, a credible threat of coercion by a dominant firm tends to

Accepted Answer

A)   prevent cheating in collusive agreements.
B)   increase the incentives to cheat.
C)   reduce discipline among cartel members.
D)   discourage collusive agreements.

Question 6

If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?

Accepted Answer

A)   the kinked demand curve model of oligopoly
B)   the price-leadership model of oligopoly
C)   the pure monopoly model
D)   the monopolistic competition model C

Question 7

Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlines and Friendly Flyers are looking to enter that market. (They are the only two.)  The figure shows in extensive form the possible outcomes of the two firms' decisions. The payoffs represent, in thousands per month, the profit (or loss)  the firm will realize from its decision. Assuming the two firms have perfect information about this game, what can we conclude about the existence of a Nash equilibrium?

Accepted Answer

A)   The solution to the game is a Nash equilibrium.
B)   There are multiple Nash equilibria for this game.
C)   There is no Nash equilibrium for this game.
D)   There is a Nash equilibrium for this game, but it does not coincide with the solution to the game.

Question 8

Aluminum competes with copper in the market for power transmission lines. This illustrates

Accepted Answer

A)   mutual interdependence.
B)   differentiated oligopoly.
C)   interindustry competition.
D)   homogeneous oligopoly.

Question 9

One major problem with four-firm concentration ratios is that they fail to take into account

Accepted Answer

A)   the localized market for products.
B)   excess capacity in production.
C)   price leadership.
D)   mutual interdependence.

Question 10

When oligopolists collude, they collectively tend to achieve similar results as a monopolist.

Accepted Answer

A) True 
 B)False

Question 11

Which one of the following is not illustrated by the so-called Prisoner's Dilemma?

Accepted Answer

A)   Each player in the game ends up with results that depend on the other player's action.
B)   It does not pay for the players to collude with each other.
C)   Both players would be better off, if they could only agree on which action to take.
D)   The results for each player in the game are uncertain, if they are not able to communicate. B

Question 12

The terminal nodes in an extensive form representation

Accepted Answer

A)   are used solely to show payoffs that represent a Nash equilibrium.
B)   represent the starting points for a sequential game.
C)   indicate the strategies available to the players of a game.
D)   indicate the possible outcomes of a game.

Question 13

A sequential game can be modeled in two forms: payoff-matrix form and game-tree form.

Accepted Answer

A) True 
 B)False

Question 14

In game theory, credible threats can be used to maintain collusive agreements between firms.

Accepted Answer

A) True 
 B)False

Question 15

In the long run, an oligopoly

Accepted Answer

A)   will produce less than a monopoly.
B)   may be able to earn positive economic profits.
C)   will always produce in the range of decreasing returns to scale.
D)   will produce on the portion of the demand curve where demand is price-inelastic.

Question 16

A player is said to have a dominant strategy when one of the options available is superior, regardless of what strategy the other player chooses.

Accepted Answer

A) True 
 B)False

Question 17

A natural monopoly's preemption of entry by other firms by exploiting its economies of scale is an example of

Accepted Answer

A)   first-mover advantage.
B)   a repeated game with reciprocity.
C)   Nash equilibrium in a single-period game.
D)   collusion in game theory.

Question 18

(Consider This)  The story about three sellers of Native American arts and crafts best illustrates the idea of

Accepted Answer

A)   strategic behavior.
B)   excess capacity.
C)   the role of advertising.
D)   product differentiation.

Question 19

The likelihood of a cartel being successful is greater when

Accepted Answer

A)   firms are producing a differentiated, rather than a homogeneous, product.
B)   cost and demand curves of various participants are very similar.
C)   the number of firms involved is relatively large.
D)   the economy is in the recession phase of the business cycle.

Question 20

An industry having a four-firm concentration ratio of 85 percent

Accepted Answer

A)   approximates pure competition.
B)   is monopolistically competitive.
C)   is a pure monopoly.
D)   is an oligopoly.

Exam 14: Oligopoly and Strategic Behavior

Negative-sum games do not exist, because neither player has an incentive to play the game.

Correct Answer
verified

A strategy that is better than any alternative strategy-regardless of what the other firm does-is called a

Correct Answer
verified
A

As a general rule, oligopoly exists when the four-firm concentration ratio

Correct Answer
verified

Unlike a monopoly, an oligopoly tends to achieve allocative efficiency due to the rivalry among several firms.

Correct Answer
verified

In game theory, a credible threat of coercion by a dominant firm tends to

Correct Answer
verified

If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?

Correct Answer
verified
C

Correct Answer
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Aluminum competes with copper in the market for power transmission lines. This illustrates

Correct Answer
verified

One major problem with four-firm concentration ratios is that they fail to take into account

Correct Answer
verified

When oligopolists collude, they collectively tend to achieve similar results as a monopolist.

Correct Answer
verified

Which one of the following is not illustrated by the so-called Prisoner's Dilemma?

Correct Answer
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B

The terminal nodes in an extensive form representation

Correct Answer
verified

A sequential game can be modeled in two forms: payoff-matrix form and game-tree form.

Correct Answer
verified

In game theory, credible threats can be used to maintain collusive agreements between firms.

Correct Answer
verified

In the long run, an oligopoly

Correct Answer
verified

A player is said to have a dominant strategy when one of the options available is superior, regardless of what strategy the other player chooses.

Correct Answer
verified

A natural monopoly's preemption of entry by other firms by exploiting its economies of scale is an example of

Correct Answer
verified

(Consider This) The story about three sellers of Native American arts and crafts best illustrates the idea of

Correct Answer
verified

The likelihood of a cartel being successful is greater when

Correct Answer
verified

An industry having a four-firm concentration ratio of 85 percent

Correct Answer
verified

Exam 14: Oligopoly and Strategic Behavior

Negative-sum games do not exist, because neither player has an incentive to play the game.

Correct AnswerverifiedShow Answer

A strategy that is better than any alternative strategy-regardless of what the other firm does-is called a

Correct AnswerverifiedA

As a general rule, oligopoly exists when the four-firm concentration ratio

Correct AnswerverifiedShow Answer

Unlike a monopoly, an oligopoly tends to achieve allocative efficiency due to the rivalry among several firms.

Correct AnswerverifiedShow Answer

In game theory, a credible threat of coercion by a dominant firm tends to

Correct AnswerverifiedShow Answer

If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?

Correct AnswerverifiedC

Correct AnswerverifiedShow Answer

Aluminum competes with copper in the market for power transmission lines. This illustrates

Correct AnswerverifiedShow Answer

One major problem with four-firm concentration ratios is that they fail to take into account

Correct AnswerverifiedShow Answer

When oligopolists collude, they collectively tend to achieve similar results as a monopolist.

Correct AnswerverifiedShow Answer

Which one of the following is not illustrated by the so-called Prisoner's Dilemma?

Correct AnswerverifiedB

The terminal nodes in an extensive form representation

Correct AnswerverifiedShow Answer

A sequential game can be modeled in two forms: payoff-matrix form and game-tree form.

Correct AnswerverifiedShow Answer

In game theory, credible threats can be used to maintain collusive agreements between firms.

Correct AnswerverifiedShow Answer

In the long run, an oligopoly

Correct AnswerverifiedShow Answer

A player is said to have a dominant strategy when one of the options available is superior, regardless of what strategy the other player chooses.

Correct AnswerverifiedShow Answer

A natural monopoly's preemption of entry by other firms by exploiting its economies of scale is an example of

Correct AnswerverifiedShow Answer

(Consider This) The story about three sellers of Native American arts and crafts best illustrates the idea of

Correct AnswerverifiedShow Answer

The likelihood of a cartel being successful is greater when

Correct AnswerverifiedShow Answer

An industry having a four-firm concentration ratio of 85 percent

Correct AnswerverifiedShow Answer

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A

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C

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B

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