Question 1

Which of the following best describes an oligopoly?

Accepted Answer

A market structure in which a small number of interdependent firms compete.

Question 2

Suppose the four-firm concentration ratio in the bottled water industry is 80%. What does this indicate about the industry?

Accepted Answer

The industry is likely an oligopoly.

Question 3

Which of the following is NOT a flaw of the four-firm concentration ratio as a measure of competition?

Accepted Answer

It accounts for competition between firms in different industries.

Question 4

Economies of scale can act as a barrier to entry in an oligopoly. Which equation best represents the concept of economies of scale?

Accepted Answer

$$LRAC = \frac{TC}{Q}$$, where $$LRAC$$ decreases as $$Q$$ increases.

Question 5

Which of the following is an example of a government-imposed barrier to entry?

Accepted Answer

Patent protection for a new drug.

Question 6

In the Netflix-Max duopoly payoff matrix, what is Netflix’s dominant strategy?

Accepted Answer

Charge $15.99 regardless of Max’s price.

Question 7

What is a Nash equilibrium in the context of the Netflix-Max pricing game?

Accepted Answer

Both firms charge $$15.99, each earning 75 $$million profit.

Question 8

Why is the outcome of the Netflix-Max game considered a prisoner’s dilemma?

Accepted Answer

Both firms pursue their dominant strategies, resulting in lower profits for both.

Question 9

How can repeated games help firms escape the prisoner’s dilemma?

Accepted Answer

By increasing the incentive to cooperate through the threat of retaliation.

Question 10

In the OPEC payoff matrix, why does Saudi Arabia have a dominant strategy to produce low output?

Accepted Answer

Because Saudi Arabia’s profit is maximized when it cooperates, regardless of Nigeria’s output.

Question 11

Suppose Samsung is deciding whether to charge $$1,800 or 1$$,500 for its new foldable smartphone. If Apple will only enter the market if Samsung charges $1,800, what is Samsung’s best strategy?

Accepted Answer

Charge $1,500 to deter Apple’s entry and earn a 20% return.

Question 12

In the Dell-Trulmage bargaining game, what is the outcome if Dell offers $30 per copy and Trulmage accepts?

Accepted Answer

Dell earns $$10 million profit and Trulmage earns 5 $$million.

Question 13

According to Michael Porter’s Five Competitive Forces Model, which of the following is NOT one of the five forces?

Accepted Answer

The bargaining power of government regulators.

Question 14

Which of the following best explains why OPEC has sometimes failed to keep oil prices high?

Accepted Answer

OPEC members often exceed their output quotas and new technologies increase supply.

Question 15

If a firm’s long-run average cost curve ($$LRAC) $$reaches its minimum at a large fraction of industry output, what market structure is most likely?

Accepted Answer

Oligopoly.

Question 16

Which of the following is an example of implicit collusion?

Accepted Answer

One firm announces a price change and others match it.

Question 17

A firm faces a threat from substitute goods. According to Porter’s model, what is a likely consequence?

Accepted Answer

The firm’s profits may decrease as consumers switch to substitutes.

Question 18

Which of the following equations represents the profit ($$\pi) $$for a firm?

Accepted Answer

$$\pi = TR - TC$$

Question 19

If buyers have significant bargaining power, what is a likely effect on the market?

Accepted Answer

Firms may be forced to lower prices or improve quality.

Oligopoly: Firms in Less Competitive Markets – Study Notes

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