Question 1

If one firm raises its price in an industry characterised by firms' facing kinked demand curves, it is likely that other firms in the industry will

Accepted Answer

A)  reduce their prices to increase their market shares.
B)  reduce their expenditure on advertising.
C)  not change their prices.
D)  increase their prices also.E) B) and C)
F) A) and C)

Question 2

Producing a differentiated product occurs in which of the following industries?

Accepted Answer

A)  Oligopoly, monopolistic competition and perfect competition
B)  Monopolistic competition only
C)  Oligopoly only
D)  Monopolistic competition and oligopolyE) B) and C)
F) None of the above

Question 3

Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?

Accepted Answer

A)  Producing more of its product
B)  Advertising that it will match its rival's price
C)  Reneging on a previous tacit agreement with rival firms to charge identical high prices
D)  Ignoring the pricing decisions of the other firmsE) B) and D)
F) B) and C)

Question 4

Figure 11.1  Assume that Lexus (L) is the first automobile company to produce a luxury class hybrid automobile and is the only such company for the past four years.BMW is now considering producing its own luxury hybrid automobile and Lexus must decide whether or not to lower the price of its luxury hybrid to counter BMW's entry into the luxury hybrid niche.
-Refer to Figure 11.1.If Lexus lowers its price, will this deter BMW from entering the market?

Accepted Answer

A)  Yes, because BMW stands to lose $100 million if it competes with Lexus.
B)  Yes, because BMW will make a smaller profit than Lexus if it chooses to compete.
C)  No, because BMW will still make a profit of $120 million if it competes with Lexus.
D)  No, because BMW will be able to break Lexus' first mover advantage.E) None of the above
F) B) and D)

Question 5

Table 11.3  Firm A(Alistair's) and Firm B (Baine's) are the only firms selling luggage in the upscale town of Adelaide.Each firm must decide on whether to increase its advertising spending to compete for customers.If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit.Table 11.3 shows the payoff matrix for this advertising game.
-Refer to Table 11.3.If Alistair assumes that Baine would increase its advertising budget, what should it do?

Accepted Answer

A)  Alistair should keep its own budget the same and allow Baine to incur the higher cost.
B)  Alistair should also increase its advertising spending.
C)  Alistair should reduce its advertising spending.
D)  Being a duopolist, Alistair is not affected by Baine's choices because it has a secure 50 per cent market share.E) A) and B)
F) A) and C)

Question 6

When does collusion between two firms occur?

Accepted Answer

A)  The firms independently pursue strategies that could hurt each other.
B)  The firms explicitly or implicitly agree to adopt a uniform business strategy.
C)  The firms announce that each will match its rival's market price.
D)  The firms act altruistically to bring about the economically efficient outcome.E) C) and D)
F) A) and B)

Question 7

Suppose two firms in a duopoly implicitly collude and charge a high price.How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

Accepted Answer

A)  The offer to match prices is a way of deterring entry by other large firms, thereby keeping the market share of the existing firms intact.
B)  The advertisement ensures that the other firm does not cheat.If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same.
C)  The offer to match prices is a way of signalling to antitrust authorities that the firms are not engaged in illegal collusion.
D)  The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available.E) B) and C)
F) A) and D)

Question 8

In a subgame perfect equilibrium,

Accepted Answer

A)  the first mover has an advantage over other players.
B)  the last mover has an advantage over other players.
C)  each player's strategy constitutes a Nash equilibrium at every subgame of the original game.
D)  each player has the same response as the others at every subgame of the tree.E) B) and C)
F) A) and D)

Question 9

Consider two oligopolistic industries selling the same product in different locations.In the first industry, firms always match price changes by any other firm in the industry.In the second industry, firms always ignore price changes by any other firm.Which of the following statements is true about these two industries, holding everything else constant?

Accepted Answer

A)  Market prices are likely to be higher in the first industry, in which firms always match price changes by rival firms, than in the second, where firms ignore their rivals' price changes.
B)  Market prices are likely to be lower in the first industry, where firms always match price changes by rival firms, than in the second, where firms ignore their rivals' price changes.
C)  Market prices are likely to be the same in both markets because they are both oligopolistic markets.
D)  No conclusions can be drawn about the pricing behaviour under these very different firm behaviours.E) A) and C)
F) A) and B)

Question 10

Explain why OPEC is caught in a prisoner's dilemma?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

If every member of OPEC cooperates and p...

Question 11

A reason why there is more competition among restaurants than among large discount department stores is that restaurants

Accepted Answer

A)  have to cater to a variety of consumer tastes while department stores do not.
B)  unlike department stores, have to abide by government sanitation rules.
C)  unlike department stores, do not have significant economies of scale.
D)  have more elastic demand for their product compared to department stores.E) A) and D)
F) A) and B)

Question 12

An equilibrium in a game in which players pursue their own self-interest is called

Accepted Answer

A)  a Nash equilibrium.
B)  a cooperative equilibrium.
C)  a non-cooperative equilibrium.
D)  a prisoner's dilemma.E) All of the above
F) A) and B)

Question 13

What is the difference between explicit collusion and implicit collusion?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

Explicit collusion involves ma...

Question 14

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

Accepted Answer

A)  the threat from potential entrants
B)  the bargaining power of buyers
C)  the firm's ability to differentiate its product
D)  the bargaining power of suppliersE) C) and D)
F) B) and D)

Question 15

Discuss how traditional models of oligopoly may be able to be explained using game theory.
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

While there are differences in the level...

Question 16

Prisoner's dilemma games imply that cooperative behaviour between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real world results?

Accepted Answer

A)  Prisoner's dilemma games do not permit people or firms to renege on agreements, which often occurs in real word situations.
B)  The prisoner's dilemma does not apply to most business situations that are repeated over and over.
C)  Prisoner's dilemma games predict the behaviour of people and firms that engage in illegal activity; most people and firms do not resort to illegal activity.
D)  Most real world situations involve more than two people or firms; the prisoner's dilemma is only applicable to situations that involve two parties.E) A) and B)
F) B) and C)

Question 17

Prices of PlayStation 4 game systems are similar at almost every large retailer and little price competition occurs among these retailers.An explanation for this is

Accepted Answer

A)  retailers are all price takers.
B)  retailers have lobbied state governments to allow them to collude legally to set the prices of certain products.
C)  pricing PlayStation 4 game systems is a repeated game.Over a long period of time, a cooperative equilibrium has been reached where retailers charge high prices for these systems.
D)  retailers are in a prisoner's dilemma which causes them to all charge the same price for PlayStation 4 game systems.E) B) and C)
F) A) and D)

Question 18

When does collusion occur?

Accepted Answer

A)  When a firm chooses a level of output to maximise its own profit.
B)  When two firms' price and output decisions come into conflict.
C)  When there is an agreement among firms to charge the same price or otherwise not to compete.
D)  When firms refuse to follow their price leaders.E) B) and C)
F) All of the above

Question 19

Which of the following is not an example of an oligopolistic market?

Accepted Answer

A)  The broadcasting industry
B)  Aircraft manufacture
C)  University bookstores
D)  Seafood restaurant chainsE) A) and C)
F) All of the above

Question 20

What is the dominant strategy in a second-price auction?

Accepted Answer

A)  bidding below one's true value
B)  bidding above one's true value
C)  bidding one's true value
D)  There is no dominant strategy.E) B) and C)
F) All of the above

Exam 11: Oligopoly: Markets With Few Competitors

What is the dominant strategy in a second-price auction?

Correct Answer
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When does collusion between two firms occur?

Correct Answer
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When does collusion occur?

Correct Answer
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Correct Answer
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In a subgame perfect equilibrium,

Correct Answer
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Discuss how traditional models of oligopoly may be able to be explained using game theory. __________________________________________________________________________________________________________________________________________________________________________________________

Correct Answer
verified
While there are differences in the level...
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Which of the following is not one of the five competitive forces?

Correct Answer
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Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?

Correct Answer
verified

An equilibrium in a game in which players pursue their own self-interest is called

Correct Answer
verified

Suppose two firms in a duopoly implicitly collude and charge a high price.How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

Correct Answer
verified

Prisoner's dilemma games imply that cooperative behaviour between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real world results?

Correct Answer
verified

A reason why there is more competition among restaurants than among large discount department stores is that restaurants

Correct Answer
verified

Producing a differentiated product occurs in which of the following industries?

Correct Answer
verified

Correct Answer
verified

What is the difference between explicit collusion and implicit collusion? __________________________________________________________________________________________________________________________________________________________________________________________

Correct Answer
verified
Explicit collusion involves ma...
View Answer

Which of the following is not an example of an oligopolistic market?

Correct Answer
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Correct Answer
verified

Explain why OPEC is caught in a prisoner's dilemma? __________________________________________________________________________________________________________________________________________________________________________________________

Correct Answer
verified
If every member of OPEC cooperates and p...
View Answer

Prices of PlayStation 4 game systems are similar at almost every large retailer and little price competition occurs among these retailers.An explanation for this is

Correct Answer
verified

If one firm raises its price in an industry characterised by firms' facing kinked demand curves, it is likely that other firms in the industry will

Correct Answer
verified

Exam 11: Oligopoly: Markets With Few Competitors

What is the dominant strategy in a second-price auction?

Correct AnswerverifiedShow Answer

When does collusion between two firms occur?

Correct AnswerverifiedShow Answer

When does collusion occur?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a subgame perfect equilibrium,

Correct AnswerverifiedShow Answer

Discuss how traditional models of oligopoly may be able to be explained using game theory. __________________________________________________________________________________________________________________________________________________________________________________________

Correct AnswerverifiedWhile there are differences in the level...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?

Correct AnswerverifiedShow Answer

An equilibrium in a game in which players pursue their own self-interest is called

Correct AnswerverifiedShow Answer

Suppose two firms in a duopoly implicitly collude and charge a high price.How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

Correct AnswerverifiedShow Answer

Prisoner's dilemma games imply that cooperative behaviour between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real world results?

Correct AnswerverifiedShow Answer

A reason why there is more competition among restaurants than among large discount department stores is that restaurants

Correct AnswerverifiedShow Answer

Producing a differentiated product occurs in which of the following industries?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the difference between explicit collusion and implicit collusion? __________________________________________________________________________________________________________________________________________________________________________________________

Correct AnswerverifiedExplicit collusion involves ma...View AnswerShow Answer

Which of the following is not an example of an oligopolistic market?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Explain why OPEC is caught in a prisoner's dilemma? __________________________________________________________________________________________________________________________________________________________________________________________

Correct AnswerverifiedIf every member of OPEC cooperates and p...View AnswerShow Answer

Prices of PlayStation 4 game systems are similar at almost every large retailer and little price competition occurs among these retailers.An explanation for this is

Correct AnswerverifiedShow Answer

If one firm raises its price in an industry characterised by firms' facing kinked demand curves, it is likely that other firms in the industry will

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified
While there are differences in the level...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Explicit collusion involves ma...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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If every member of OPEC cooperates and p...
View Answer

Correct Answer
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Correct Answer
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