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 in the market.

Question 3

What is the four-firm concentration ratio (C4) used for?

Accepted Answer

To measure the fraction of an industry's sales accounted for by its four largest firms.

Question 4

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

Accepted Answer

Low fixed costs

Question 5

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

Accepted Answer

Both firms charge $1,000

Question 6

What is a dominant strategy in game theory?

Accepted Answer

A strategy that is best for a firm regardless of what strategies the other firms use.

Question 7

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

Accepted Answer

Both firms advertise.

Question 8

What is a cartel?

Accepted Answer

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

Question 9

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 ignore quotas.

Question 10

In a sequential game, how can an incumbent firm deter entry by a potential competitor?

Accepted Answer

By setting a lower price to reduce the potential competitor's expected return below their required rate.

Question 11

Which of the following is an example of implicit collusion?

Accepted Answer

Firms advertising that they will match any competitor's price.

Question 12

According to the five competitive forces model, which force is illustrated when Wal-Mart uses its size to demand lower prices from suppliers?

Accepted Answer

The bargaining power of buyers

Question 13

If a firm owns the entire supply of a key input, what type of barrier to entry does this represent?

Accepted Answer

Ownership of a key input

Question 14

What is the main reason patents are considered beneficial in oligopolistic markets?

Accepted Answer

They protect intellectual property and incentivize research and development.

Question 15

In the bargaining game between Dell and TruImage, what is the optimal strategy for Dell if it believes TruImage's threat to reject a $20 offer is not credible?

Accepted Answer

Offer $20 per unit, expecting TruImage to accept.

Question 16

Which equation best represents economies of scale?

Accepted Answer

$$LRAC = \frac{TC}{Q}$$

Question 17

If the bottom of the long-run average cost curve ($$LRAC) is $$reached quickly and represents a small fraction of total industry output, what market structure is likely to exist?

Accepted Answer

Oligopoly

Question 18

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

Accepted Answer

Government regulation

Question 19

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

Accepted Answer

Produce at a high level of output

Question 20

What is the outcome called when pursuing dominant strategies results in non-cooperation that leaves everyone worse off?

Accepted Answer

Prisoner's dilemma

Chapter 14

Study Guide - Practice Questions

Study Guide - Flashcards