Question 1

Which of the following best describes an oligopoly?

Accepted Answer

A market structure characterized by a few dominant firms, which may sell homogenous or differentiated products.

Question 2

According to the Five Forces model developed by Michael Porter, which force is NOT directly included?

Accepted Answer

Government regulation

Question 3

A cartel is best defined as:

Accepted Answer

A group of firms that gets together and makes joint price and output decisions to maximize joint profits.

Question 4

In the Cournot model, if two duopolists face the same demand curve and have identical marginal costs, what happens to total industry output compared to monopoly and perfect competition?

Accepted Answer

Total output is more than monopoly but less than perfect competition.

Question 5

Which equation correctly represents the Herfindahl-Hirschman Index (HHI) for a market with four firms with market shares $$s_1$$, $$s_2$$, $$s_3$$, and $$s_4$$?

Accepted Answer

$$HHI = s_1$^2 + s_2$^2 + s_3$^2 + s_4$^2$$

Question 6

In game theory, what is a dominant strategy?

Accepted Answer

A strategy that is best no matter what the opposition does.

Question 7

Which scenario best illustrates a prisoners’ dilemma?

Accepted Answer

Two players have dominant strategies that leave them both worse off than if they could cooperate.

Question 8

If a market is contestable, what is the likely effect on prices?

Accepted Answer

Prices are held to a competitive level even if no entry actually occurs.

Question 9

A Nash equilibrium occurs when:

Accepted Answer

Each player chooses the best strategy given what the other players are doing.

Question 10

Which of the following is a real-world example of tacit collusion?

Accepted Answer

Firms in the smartphone industry implicitly agree not to lower prices below a certain level.

Question 11

Suppose the four largest firms in an industry have market shares of 40%, 30%, 20%, and 10%. What is the Herfindahl-Hirschman Index (HHI) for this industry?

Accepted Answer

$$HHI = 40^2$ + 30^2$ + 20^2$ + 10^2$ = 1600 + 900 + 400 + 100 = 3000$$

Question 12

In the price-leadership model of oligopoly, what is the typical outcome?

Accepted Answer

One dominant firm sets prices and all smaller firms follow its pricing policy.

Question 13

Which of the following is a plausible effect of high market concentration in an oligopoly, according to Schumpeter and Galbraith?

Accepted Answer

High concentration increases the rate of technological advance.

Question 14

If the Department of Justice uses the HHI to evaluate a merger, which guideline applies if the post-merger HHI is 2,000 and the merger raises the index by 60 points?

Accepted Answer

Challenge, as the market is concentrated and the index is raised by more than 50 points.

Question 15

Which strategy in repeated games is described as 'tit-for-tat'?

Accepted Answer

A player responds in kind to an opponent’s previous play.

Question 16

In the context of the pharmaceutical industry, why might firms justify high prices for cancer drugs?

Accepted Answer

Because they claim high R&D costs, even though studies show actual costs are lower.

Question 17

Which of the following best describes a contestable market?

Accepted Answer

A market where entry and exit are easy enough to hold prices to a competitive level.

Question 18

If price transparency is reduced in a market, what is the likely effect on competition?

Accepted Answer

Competition is softened because buyers find it harder to compare prices.

Question 19

Why might a merger between two large firms in Brazil’s pulp industry require antitrust approval from multiple countries?

Accepted Answer

Because the merged firm has significant market share in both Brazil and the global market.

Question 20

Which of the following is NOT a review term or concept from the study materials?

Accepted Answer

Perfect competition

Oligopoly: Structure, Models, and Game Theory in Microeconomics

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