Chapter 16 Oligopoly
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. _ __. 11. 12. 13. 14. 15. _ _.
1. Imperfectly competitive firms are characterized by ( d )
a. horizontal demand curves. b. standardized products.
c. a large number of small firms.
d. price making ability.
2. The U.S. market for locomotives is divided between two producers: General Electric has 70 percent of the market and General Motors has 30 percent. This market is an example of ( c )
a. monopolistic competition. b. a collusive monopoly. c. a duopoly. d. a cartel.
3. The term “strategic interaction” refers to ( c )
a. the link between consumer welfare and industry cost curve.
b. tacit agreements between the producers and the consumers of inputs.
c. the fact that each firm’s business strategy depends upon its rival’s business
behavior.
d. the realization by oligopolists that higher selling prices imply lower sales.
4. Collusive oligopoly produces prices and quantities very similar to those produced by ( a )
a. b. c. d.
monopoly.
monopolistic competition perfect competition non-collusive oligopoly.
Chapter 16 (4-1)
5. Which of the following best explains why collusive oligopolies are not stable? ( c )
a. Companies are inherently hostile to each other.
b. Companies feel they have a moral responsibility not to collude.
c. Each company in the oligopoly can increase its profits by deviating from the
agreed upon price and quantity.
d. Oligopolies are not unstable, rather they are quite stable.
6. Which of the following is not true about a collusive oligopoly? ( c )
a. It is illegal.
b. It tends to be unstable. c. It is economically efficient.
d. It faces a downward sloping demand curve.
7. The application of game theory to economics allows us to understand firm behavior in some forms of oligopoly. Game theory suggests that in a two-firm industry, each firm will ( a )
a. avoid pricing high when the other prices low.
b. select high prices and defend that selection because, in the long run, their
profits are higher than if they competed by lowering prices.
c. end up mistaking the other’s intentions, which results in low prices and low
profit for both in the long run.
d. end up colluding with the other to form a cartel.
8. An oligopoly would tend to restrict output and drive up price if ( d )
a. barriers to entering the industry are negligible. b. firms engage in informative advertising. c. firms produce a standardized product. d. firms collude and behave like a monopoly.
9. An equilibrium occurs in a game when ( d )
a. price equals marginal cost.
b. quantity supplied equals quantity demanded.
c. all independent strategies counterbalance all dominant strategies. d. all players follow a strategy that they have no incentive to change.
Chapter 16 (4-2)
10. An equilibrium in which each firm in an oligopoly industry maximizes profit, given the actions of its rivals, is called ( c )
a. a general equilibrium. b. a dominant equilibrium. c. a Nash equilibrium. d. an oligopoly equilibrium.
11. A dominant strategy is one that ( d )
a. makes every player better off.
b. makes at least one player better off without hurting the competitiveness of any
other player.
c. increases the total payoff for the player.
d. is best for the player, regardless of what strategy other players follow.
12. In the prisoner’s dilemma, ( d )
a. the prisoners easily collude in order to achieve the best possible payoff for
both.
b. only one player has a dominant strategy.
c. playing the dominant strategy leads to a better payoff for one prisoner than
would jointly selecting a different strategy. d. each player has a dominant strategy.
13. The players in a two-person game are choosing between Strategy X and Strategy Y. If the second player chooses Strategy X, the first player’s best outcome is also to select X. If the second player chooses Strategy Y, the first player’s best outcome is to select X. For the first player, Strategy X is called a ( a )
a. dominant strategy. b. collusive strategy. c. repeated-trial strategy. d. cartel strategy.
Chapter 16 (4-3)