Question 1

Which of the following best explains why oligopolies exist in certain industries?

Accepted Answer

Oligopolies exist due to high barriers to entry, such as economies of scale, ownership of key inputs, and government-imposed restrictions.

Question 2

A four-firm concentration ratio above 40% typically indicates:

Accepted Answer

Oligopoly

Question 3

Which of the following is NOT a limitation of the four-firm concentration ratio?

Accepted Answer

It always accurately defines the relevant market for competition.

Question 4

Economies of scale are a barrier to entry because:

Accepted Answer

Established firms have lower average costs due to producing at a larger scale.

Question 5

Which scenario best illustrates government-imposed barriers to entry?

Accepted Answer

A state requires yoga instructors to obtain a license before teaching.

Question 6

In game theory, a Nash equilibrium occurs when:

Accepted Answer

Each firm chooses the best strategy given the strategies chosen by the other firms.

Question 7

Refer to the Netflix-Max payoff matrix. If both firms charge $15.99, what is the outcome?

Accepted Answer

Both firms earn $75 million profit.

Question 8

What is a dominant strategy in game theory?

Accepted Answer

A strategy that is best for a firm, no matter what strategies other firms use.

Question 9

Collusion among firms in an oligopoly is illegal because:

Accepted Answer

It restricts competition and leads to higher prices and reduced quality.

Question 10

A price match guarantee in a repeated game between Domino’s and Pizza Hut is an example of:

Accepted Answer

An enforcement mechanism to avoid price competition

Question 11

In the OPEC cartel payoff matrix, why is collusion difficult to maintain?

Accepted Answer

Some members, like Nigeria, have a dominant strategy to defect and produce high output.

Question 12

In a sequential game, what is a subgame-perfect equilibrium?

Accepted Answer

An equilibrium where no player can improve their outcome by changing their decision at any decision node.

Question 13

According to Michael Porter’s Five Competitive Forces Model, which force is illustrated by Wal-Mart threatening to buy goods from competitors?

Accepted Answer

Bargaining power of buyers

Question 14

Which of the following equations best represents the concept of economies of scale?

Accepted Answer

$$AC = \frac{TC}{Q}$$, where $$AC is $$average cost, $$TC is $$total cost, and $$Q is $$quantity produced.

Question 15

If a firm in an oligopoly acts as a price leader, what is the likely outcome?

Accepted Answer

Other firms will match the price leader’s price changes, resulting in higher prices and decreased quality.

Question 16

Which of the following is an example of competition from substitute goods?

Accepted Answer

Digital cameras replacing film cameras in the 1990s.

Question 17

In the context of oligopoly, what is the main difference between cooperative and noncooperative equilibrium?

Accepted Answer

Cooperative equilibrium involves firms coordinating their actions to increase mutual payoff, while noncooperative equilibrium involves firms pursuing their own self-interest.

Question 18

Which of the following best describes the prisoner’s dilemma in the context of oligopoly?

Accepted Answer

A game in which pursuing dominant strategies results in noncooperation that leaves everyone worse off.

Question 19

If Samsung wants to deter Apple from entering the foldable phone market, what pricing strategy should it use according to the sequential game model?

Accepted Answer

Charge $1,500 for the phone.

Question 20

Which of the following is a real-world example of the threat from potential entrants in Porter’s Five Forces?

Accepted Answer

Samsung charging a low price to deter Apple from entering the foldable phone market.

Oligopoly: Firms in Less Competitive Markets – Study Notes

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