Question 1

Which of the following best describes an oligopoly?

Accepted Answer

A market structure where a few interdependent firms compete, selling similar products and facing high barriers to entry.

Question 2

Why is it difficult to construct the demand curve for an oligopolistic firm?

Accepted Answer

Because the actions of one firm can significantly affect the demand curves of other firms, making the demand curve unpredictable.

Question 3

Suppose Apple and Dell are the only firms in the computer market. According to the payoff matrix, what is the Nash equilibrium for their pricing strategies?

Accepted Answer

Both firms charge $1,000.

Question 4

What is a dominant strategy in game theory?

Accepted Answer

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

Question 5

In the Pepsi and Coca-Cola advertising game, what is the Nash equilibrium?

Accepted Answer

Both firms advertise.

Question 6

What is a cartel?

Accepted Answer

A group of firms that collude by agreeing to restrict output to increase prices and profits.

Question 7

Why do cartels like OPEC often fail to maintain cooperation among members?

Accepted Answer

Because smaller producers have less incentive to cooperate once prices are high and may cheat on quotas.

Question 8

Which of the following is NOT a barrier to entry in oligopolistic markets?

Accepted Answer

Low fixed costs and easy access to resources.

Question 9

If Apple sets a price of $800 for its new laptop, what is the likely effect on Dell's entry decision according to the sequential game decision tree?

Accepted Answer

Dell will not enter the market because the return is below their required rate, and Apple will earn a 20% return.

Question 10

In the bargaining game between Dell and TruImage, what is the most likely outcome if TruImage threatens to reject a $20 offer but Dell believes the threat is not credible?

Accepted Answer

Dell offers $20 and TruImage accepts.

Question 11

Which equation best represents economies of scale?

Accepted Answer

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

Question 12

Which of the following is an example of implicit collusion?

Accepted Answer

Firms advertise that they will match any competitor's price, signaling to each other to keep prices high.

Question 13

What is the main reason patents are considered a beneficial government-imposed barrier to entry?

Accepted Answer

They protect intellectual property and incentivize research and development.

Question 14

According to the five competitive forces model, which force is most likely to limit the profitability of tire manufacturers?

Accepted Answer

The bargaining power of buyers.

Question 15

If a firm faces competition from substitute goods, what is a likely outcome?

Accepted Answer

The firm is vulnerable to losing market share if a substitute meets consumer needs better.

Question 16

Which of the following best describes a Nash equilibrium?

Accepted Answer

A situation where each firm chooses the best strategy, given the strategies chosen by other firms, and no firm can unilaterally improve its outcome.

Question 17

In the OPEC cartel payoff matrix, what is Nigeria's dominant strategy?

Accepted Answer

To produce at a high level of output.

Question 18

What is the effect of advertising in oligopolistic markets, according to the Pepsi and Coca-Cola example?

Accepted Answer

Advertising is a dominant strategy for both firms, leading to a non-cooperative equilibrium.

Question 19

Which of the following is NOT one of the five competitive forces?

Accepted Answer

Government regulation of prices.

Chapter 14

Study Guide - Practice Questions

Study Guide - Flashcards