ECON 213 Quiz 12 Oligopoly and Strategic Behavior solutions complete answers

ECON 213 Quiz 12 Oligopoly and Strategic Behavior solutions complete answers 

 

Question 1 Jason’s JPMorgan Chase credit card has a 15% interest rate and a rewards program that gives him 1 point per $1 that he spends. The only option Jason has for point redemption is a $100 statement credit that would cost Jason 10,000 points. On January 7, 2012, Jason noticed he has 8,750 reward points accumulated on his JPMorgan Chase card. On that same day, he received an offer from Bank of America for a credit card with an identical rewards program and an 8% interest rate. If Jason cancels his JPMorgan Chase card and accepts the offer for the Bank of America card, the accumulated 8,750 reward points that he will not be able to redeem are an example of a:

Question 2 Together, Coca­Cola and Pepsi account for approximately __________% of the soft­drink market.

Question 3 The accompanying table shows the four­firm concentration ratios for five separate industries. Use this table to answer the questions that follow. In which industry do the four largest firms collectively have the least market power?

Question 4 An agreement between Nike and Adidas to raise prices of the track shoes that each company produces by 50% is an example of a collusive agreement, and economists generally agree that:

Question 5 The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of volleyball. At this point in the game, the ball has just been hit to Deidra, and she chooses whether to hit right or hit left. At the same time, Ashley chooses whether to jump right (Deidra’s right) or jump left (Deidra’s left). If a player receives a payoff of 1, the player wins the point; if the player receives a payoff of –1, the player loses the point. Use this information to answer the questions that follow

How many Nash equilibrium(ia) exist in this game?

Question 6 There are four ice cream shops on a small tourist island. The accompanying table shows the quantity of ice cream cones that each firm produces in a typical year and the price that each firm currently charges for each ice cream cone it sells. An economist might suspect __________ collusion occurring in this market where __________ is the price leader and all other firms set price to match the price leader.

Question 7 The accompanying table shows the dollar amount of sales in 2012 for the four largest firms in the above­ground pool industry. Total industry sales in 2012 were $467,000. Use this table to answer the questions that follow. What is the four­firm concentration ratio in this industry?

Question 8 Evidence of the intent to __________ is necessary to prove that a firm is engaged in predatory pricing.

Question 9 When modeling economic situations using game theory, the economic participants are generally referred to as:

Question 10 The __________ effect occurs when the market price either decreases or increases by the respective entrance or exit of a rival firm in the market.

Question 11 In general, antitrust laws are __________ to enforce.

Question 12 __________ have dominant strategies that make player decisions easy to predict.

Question 13 When two or more firms form a __________ agreement and set price and quantity in unison, economists refer to them as __________.

Question 14 When a particular strategy produces a better outcome for a person regardless of the strategies others choose, we say it is a(n):

Question 15 Refer to the accompanying table. Confessing is Eddie’s dominant strategy because:

Question 16 If two duopolists arrive at the Nash equilibrium output level, the total quantity of the good on the market will be __________ the total quantity on the market if the market were perfectly competitive and __________ the total quantity on the market if the market were controlled by a monopoly.

Question 17 __________ have a greater incentive to collude and to form cartels in an effort to achieve monopoly­like profits.

Question 18 In 2011, three firms (Firm A, Firm B, and Firm C) were selling cellular phone service for a price of $40 per month in Playa del Carmen, Mexico. Each firm serviced 100 cellphone customers; thus, all firms together serviced a total of 300 customers. Assume marginal cost is 0 (zero) for all firms and thus total revenue is equal to total profit. In 2012, Firms A and B each continued to service 100 customers, but Firm C now serviced 150 customers; thus, all firms together serviced a total of 350 customers. All firms now charge $30 per month. Firm C’s monthly profit increased by __________ due only to the output effect and decreased by __________ due only to the price effect, for a net increase of $500.

Question 19 The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Ping Pong. At this point in the game, the ball has just been hit to Dagny Taggart, and she chooses whether to hit right or hit left. At the same time, John Galt chooses whether to defend right (Dagny’s right) or defend left (Dagny’s left). If a player receives a payoff of 1, the player wins the point; if the player receives a payoff of –1, the player loses the point. Use this information to answer the questions that follow. If John Defends left, Dagny’s payoff is __________ if she hits right and __________ if she hits left.

Question 20 Tara’s cellphone carrier would charge her $250 to cancel her current contract. If Tara wants to change cellphone carriers, the $250 she would have to pay is considered a:

 

Question 1 The accompanying table shows two firms in a duopoly. Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. If both firms were able to collude and make their supply decisions collectively, Flixbuster would sell __________ subscriptions per month and Nextflix would sell __________ subscriptions per month.

 

Question 2 Player A and Player B are playing a game involving several rounds of a prisoner’s dilemma where their choices are to “cooperate” or “defect.” After each round ends, one player roles a six­sided die. If the die lands on 6, the game ends; however, if the die lands on any other number, the game continues and players play another round. Prior to the game starting, the players formulate a strategy that specifies what they will do in every possible round they might find themselves in. If Player A is playing the tit­for­tat strategy, in the:

Question 3 Suppose you live in a small college town where, every weekend, ten independent food­cart owners set up shop and sell hot dogs on the street, they are popular with students, and where they frequently locate where students hang out. Suppose one evening you overhear the conversation of three of the food­cart owners as they conspire to raise the price of their hot dogs. That same night, you report the conversation to the Department of Justice via their antitrust complaint website. Why might the Department of Justice not send an agent to investigate the collusion attempt you witnessed?

Question 4 The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of –1, the player loses; if both players receive 0 (zero), the players tie. If Madonna chooses rock and Kid Cudi chooses paper, Madonna’s payoff is __________ and Kid Cudi’s payoff is __________.

 

Question 5 When modeling economic situations using game theory, the economic participants are generally referred to as:

Question 6 Together, Coca­Cola and Pepsi account for approximately __________% of the soft­drink market.

Question 7 The accompanying table shows a small community’s demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm’s marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer the questions that follow.

 

Listed below are four different collusive agreements that Nextflix and Flixbuster are considering. Assuming both firms will abide by the terms, which collusive agreement(s) would maximize total profit in the market? I. Nextflix supplies 400 subscriptions and Flixbuster supplies 500 subscriptions. II. Nextflix supplies 500 subscriptions and Flixbuster supplies 300 subscriptions. III. Nextflix supplies 250 subscriptions and Flixbuster supplies 250 subscriptions. IV. Nextflix supplies 100 subscriptions and Flixbuster supplies 400 subscriptions.

Question 8 Wal­Mart and Target are the only stores in a remote town that currently stock and sell the PlayStation 5 video game console. Managers at both stores are simultaneously deciding whether to charge a price of $1,000 or $1,500 for each console. If both stores charge $1,000, they earn a profit of $100,000 each. If both stores charge $1,500, they earn a profit of $200,000 each. If one store charges $1,000 and the other store charges $1,500, the store that charges $1,000 earns a profit of $250,000 and the firm that charges $1,500 earns a profit of $50,000. If Wal­Mart and Target __________, they can both charge $1,500 and earn the highest combined profit available.

Question 9 Economists are more likely to use game theory to analyze a(n):

Question 10 The presence of significant positive __________ externalities can drive small firms out of business or force them to merge with larger competitors.

Question 11 According to the Clayton Act, persons are not allowed to serve as the director on more than __________ board(s) in the same industry.

Question 12 In January, Wal­Mart offered a 10% off coupon and Target did not. In February, Target offered a 10% off coupon and Wal­Mart did not. In March, Wal­ Mart offered a 10% off coupon and Target did not. It is likely that Wal­Mart and Target are both playing the __________ strategy.

Question 13 Player A and Player B are playing a game involving several rounds of a prisoner’s dilemma where their choices are to “cooperate” or “defect.” After each round ends, one player roles a sixsided die. If the die lands on 6, the game ends; however, if the die lands on any other number, the game continues and players play another round. Prior to the game starting, the players formulate a strategy that specifies what they will do in every possible round they might find themselves in. If Player A is playing the tit­for­tat strategy, in the:

Question 14 The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of –1, the player loses; if both players receive 0 (zero), the players tie. If Stan chooses paper and Eric chooses paper, Stan’s payoff is __________ and Eric’s payoff is __________.

 

Question 15 According to the kinked demand curve theory, the behavior of firms in an oligopoly creates a demand curve that is __________ at prices above the cartel price and __________ at prices below the cartel price.

Question 16 Refer to the accompanying table. Confessing is Eddie’s dominant strategy because:

 

Question 17 In January, Home Depot offered a 10% off coupon and Lowe’s did not. In February, Lowe’s offered a 10% off coupon and Home Depot did not. In March, Home Depot offered a 10% off coupon and Lowe’s did not. It is likely that Home Depot and Lowe’s are both playing the __________ strategy.

Question 18 Game theorist Robert Axelrod decided to examine the choices that participants make in a longrun setting. He ran a sophisticated computer simulation in which he invited scholars to submit strategies for securing points in a prisoner’s dilemma tournament over many rounds. All the submissions were collected and paired, and the results were scored. After each simulation, he eliminated the weakest strategy and re­ran the tournament with the remaining strategies. This evolutionary approach continued until the best strategy remained. Among all strategies submitted, which strategy dominated?

Question 19 Suppose Firm A sets a price below average variable cost for two years. After the second year, Firm A’s biggest rival goes bankrupt and exits the market. In the third year, Firm A raises prices significantly. Firm A is practicing:

Question 20 When more firms enter into a market that was previously characterized as a duopoly, it will:

 

Question 1

There are four ice cream shops on a small tourist island. The accompanying table shows the quantity of ice cream cones that each firm produces in a typical year and the price that each firm currently charges for each ice cream cone it sells. An economist might suspect __________ collusion occurring in this market where __________ is the price leader and all other firms set price to match the price leader.

Question 2

The practice of setting prices deliberately below __________ costs in an effort to drive a competitor out of the market is known as predatory pricing.

Question 3

Firm A prices its products so low that it drives competitors out of the market. After all of its competitors have been driven out of the market, Firm A raises prices significantly. Which statement best explains how regulation applies to this situation?

Question 4

Like a pure monopoly, an oligopoly is characterized by:

Question 5

A monopolistically competitive market consists of many sellers, an oligopoly consists of __________ seller(s), and a monopoly consists of __________ seller(s).

Question 6

The practice of setting prices deliberately below average variable costs in order to put a rival out of business is known as:

Question 7

KitNSit, Inc. and Kittysitters, Inc. are two catsitting services in Kent, Ohio. There are no other catsitting services so the market is considered to be a duopoly. According to the kinked demand prices, Kittysitters, Inc. will __________.

Question 8

According to Section 2 of the Sherman Antitrust Act, a person who attempts to monopolize commerce among the several states is guilty of a(n):

Question 9

According to the kinked demand curve theory, the behavior of firms in an oligopoly creates a demand curve that is __________ at prices above the cartel price and __________ at prices below the cartel price.

Question 10

When a market is characterized by mutual interdependence:

Question 11

Assume all markets are in longrun equilibrium. The market quantity supplied in an oligopoly would be __________ the market quantity supplied in a monopoly and __________ the market quantity supplied in a competitive market.

Question 12

In a repeated prisoner’s dilemma, a player that is playing titfortat will:

Question 13

Player A and Player B are playing a game involving several rounds of a prisoner’s dilemma where their choices are to “cooperate” or “defect.” After each round ends, one player roles a sixsided die. If the die lands on 6, the game ends; however, if the die lands on any other number, the game continues and players play another round. Prior to the game starting, the players formulate a strategy that specifies what they will do in every possible round they might find themselves in. If Player A is playing the titfortat strategy, in the:

Question 14

In 2011, three firms (Firm A, Firm B, and Firm C) were selling cellular phone service for a price of $40 per month in Hershey, Pennsylvania. Each firm serviced 100 cellphone customers; thus, all firms together serviced a total of 300 customers. Assume marginal cost is 0 (zero) for all firms and thus total revenue is equal to total profit. In 2012, Firms A and B continued to service 100 customers, but Firm C now serviced 150 customers; thus, all firms together serviced a total of 350 customers. All firms now charge $30 per month. Due only to the price effect, profits for each firm decline by $1,000. Due only to the output effect, profits for both Firm A and Firm B did not change, and profits for Firm C increased by $1,500. It was in Firm C’s interest to increase output because:

Question 15

The presence of significant positive __________ externalities can drive small firms out of business or force them to merge with larger competitors.

Question 16

The branch of economics that studies strategic decision making is called:

Question 17

If network externalities exist in an industry, the __________ firm to enter the market is often the one that succeeds in dominating the industry.

Question 18

Legislative efforts to curtail the adverse consequences of oligopolistic cooperation began with the __________.

Question 19

The Nash equilibrium in an oligopolistic market is generally __________ for society than the outcome under collusion because the price is __________ marginal cost.

Question 20

Refer to the accompanying table. If Keisha keeps quiet, Larry will spend __________ years in jail if he confesses and __________ years in jail if he also keeps quiet.

 

Question 1 A firm operating in an oligopolistic market has __________ market power compared to a __________.

Question 2 The accompanying table shows two firms in a single stage game. Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. In the Nash equilibrium of this game, Pepsi earns a profit of __________ and Coca­Cola earns a profit of __________.

Question 3 Kit­N­Sit, Inc. and Kittysitters, Inc. are two cat­sitting services in Kent, Ohio. There are no other cat­sitting services so the market is considered to be a duopoly. According to the kinked demand curve theory, if Kit­N­Sit, Inc. cuts prices, Kittysitters will __________; if Kit­N­Sit, Inc raises prices, Kittysitters, Inc. will __________.

Question 4 Three firms are currently producing and selling in a market. When one of the three firms exits the market, economists expect that the equilibrium price:

Question 5 The __________ effect occurs when a buyer’s preference for a product increases as the number of people buying it increases.

Question 6 When customers face significant __________, the demand for the existing product becomes more inelastic.

Question 7 Legislative efforts to curtail the adverse consequences of oligopolistic cooperation began with the __________.

Question 8 One way to improve the social welfare of a society is to __________ competition and __________ monopoly practices through policy legislation.

Question 9 The __________ Act was passed in 1890, and the __________ Act was passed in 1914.

Question 10 An example of a tying arrangement is:

Question 11 The accompanying table shows two firms in a single­ stage duopoly game. Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. This game would be considered a prisoner’s dilemma if X is between __________.

Question 12 Which of the following is an example of collusion?

Question 13 The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Ping Pong. At this point in the game, the ball has just been hit to Dagny Taggart, and she chooses whether to hit right or hit left. At the same time, John Galt chooses whether to defend right (Dagny’s right) or defend left (Dagny’s left). If a player receives a payoff of 1, the player wins the point; if the player receives a payoff of–1, the player loses the point. Use this information to answer the questions that follow. If John Defends left, Dagny’s payoff is __________ if she hits right and __________ if she hits left.

Question 14 The accompanying table shows Cassie’s preference ranking for different brands of boots in both 2011 and 2012. Her preferences are ranked from 1 to 4, where 4 is her most­preferred brand and 1 is her least­preferred brand. In 2011, one of Cassie’s ten close friends owned a pair of Ugg boots. In 2012, six of Cassie’s eleven close friends owned a pair of Ugg boots. Based on this information, which effect would likely explain the change in Cassie’s preference ranking for Ugg boots from 2011 to 2012?

Question 15 Assume that two firms (Firm A and Firm B) operate in the U.S. steel industry. The owner of Firm A writes the following letter to the owner of Firm B: Dear Owner of Firm B, I have concluded that if we both restrict output such that we each produce only 3 million tons of steel per year, we can both charge a price that will allow us to effectively monopolize the steel market and to maximize our joint profits. If you would like to enter into this agreement with me, please draft a contract that specifies this agreement, and I will be more than willing to meet with you and sign it. Sincerely, Owner of Firm A If this letter were sent in the year 1850, the:

Question 16 In 2011, three firms were selling cellular phone service for a price of $40 per month in Pittsburgh, Pennsylvania. In 2012, five firms were selling cellular phone service for a price of $30 per month. Which effect best describes the likely decrease in profits experienced by each of the three original firms due only to the lower market price?

Question 17 The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of –1, the player loses; if both players receive 0 (zero), the players tie. If Sideshow Bob chooses scissors and Crusty the Clown chooses paper, Sideshow Bob’s payoff is __________ and Crusty the Clown’s payoff is __________.

Question 18 In general, antitrust laws are __________ to enforce.

Question 19 The accompanying table shows a small community’s demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm’s marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer the questions that follow. If the two firms operating in this market agreed to each supply one­half of the quantity a monopolist would supply, the contract would specify that:

Question 20 The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of volleyball. At this point in the game, the ball has just been hit to Deidra, and she chooses whether to hit right or hit left. At the same time, Ashley chooses whether to jump right (Deidra’s right) or jump left (Deidra’s left). If a player receives a payoff of 1, the player wins the point; if the player receives a payoff of –1, the player loses the point. Use this information to answer the questions that follow. Deidra ________ a dominant strategy, and this game ________ a Nash equilibrium.

 

Question 1 The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of –1, the player loses; if both players receive 0 (zero), the players tie. If Madonna chooses rock and Kid Cudi chooses paper, Madonna’s payoff is __________ and Kid Cudi’s payoff is __________.

Question 2 Oligopolistic markets are __________ because price is __________ marginal cost.

Question 3 Wal­Mart and Target are the only stores in a remote town that currently stock and sell the PlayStation 5 video game console. Managers at both stores are simultaneously deciding whether to charge a price of $1,000 or $1,500 for each console. If both stores charge $1,000, they earn a profit of $100,000 each. If both stores charge $1,500, they earn a profit of $200,000 each. If one store charges $1,000 and the other store charges $1,500, the store that charges $1,000 earns a profit of $250,000 and the firm that charges $1,500 earns a profit of $50,000. If Wal­Mart and Target __________, they can both charge $1,500 and earn the highest combined profit available.

Question 4 The accompanying table shows a small community’s demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm’s marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer the questions that follow. If the two firms operating in this market agreed to each supply one­half of the quantity a monopolist would supply, the contract would specify that:

Question 5 The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of ­1, the player loses; if both players receive 0 (zero), the players tie. Brian’s optimal strategy is to:

Question 6 Airline A and Airline B are the two largest airlines in the country. The chief executive officer of Airline A calls the chief executive officer of Airline B and says, “Why don’t we both raise prices 25% across the board next week?” This is an example of:

Question 7 In 2011, three firms (Firm A, Firm B, and Firm C) were selling cellular phone service for a price of $40 per month in Playa del Carmen, Mexico. Each firm serviced 100 cellphone customers; thus, all firms together serviced a total of 300 customers. Assume marginal cost is 0 (zero) for all firms and thus total revenue is equal to total profit. In 2012, Firms A and B each continued to service 100 customers, but Firm C now serviced 150 customers; thus, all firms together serviced a total of 350 customers. All firms now charge $30 per month. Firm C’s monthly profit increased by __________ due only to the output effect and decreased by __________ due only to the price effect, for a net increase of $500.

Question 8 The accompanying table shows a small community’s demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm’s marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer the questions that follow. Listed below are four different collusive agreements that Nextflix and Flixbuster are considering. Assuming both firms will abide by the terms, which collusive agreement(s) would maximize total profit in the market? I. Nextflix supplies 400 subscriptions and Flixbuster supplies 500 subscriptions. II. Nextflix supplies 500 subscriptions and Flixbuster supplies 300 subscriptions. III. Nextflix supplies 250 subscriptions and Flixbuster supplies 250 subscriptions. IV. Nextflix supplies 100 subscriptions and Flixbuster supplies 400 subscriptions.

Question 9 Because Wal­Mart has never systematically raised prices, there is no evidence that WalMart is engaged in:

Question 10 Why does the Department of Justice not investigate and block the many mergers of large firms that have occurred recently in oligopolistic industries such as the cellular phone industry and the airline industry that obviously lessen competition?

Question 11 The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of volleyball. At this point in the game, the ball has just been hit to Deidra, and she chooses whether to hit right or hit left. At the same time, Ashley chooses whether to jump right (Deidra’s right) or jump left (Deidra’s left). If a player receives a payoff of 1, the player wins the point; if the player receives a payoff of–1, the player loses the point. Use this information to answer the questions that follow. How many Nash equilibrium(ia) exist in this game?

Question 12 In 2011, three firms (Firm A, Firm B, and Firm C) were selling cellular phone service for a price of $40 per month in Hershey, Pennsylvania. Each firm serviced 100 cellphone customers; thus, all firms together serviced a total of 300 customers. Assume marginal cost is 0 (zero) for all firms and thus total revenue is equal to total profit. In 2012, Firms A and B continued to service 100 customers, but Firm C now serviced 150 customers; thus, all firms together serviced a total of 350 customers. All firms now charge $30 per month. Due only to the price effect, profits for each firm decline by $1,000. Due only to the output effect, profits for both Firm A and Firm B did not change, and profits for Firm C increased by $1,500. It was in Firm C’s interest to increase output because:

Question 13 In January, Wal­Mart offered a 10% off coupon and Target did not. In February, Target offered a 10% off coupon and Wal­Mart did not. In March, Wal­ Mart offered a 10% off coupon and Target did not. It is likely that Wal­Mart and Target are both playing the __________ strategy.

Question 14 Assume that two firms (Firm A and Firm B) operate in the U.S. steel industry. The owner of Firm A writes the following letter to the owner of Firm B: Dear Owner of Firm B, I have concluded that if we both restrict output such that we each produce only 3 million tons of steel per year, we can both charge a price that will allow us to effectively monopolize the steel market and to maximize our joint profits. If you would like to enter into this agreement with me, please draft a contract that specifies this agreement and I will be more than willing to meet with you and sign it. Sincerely, Owner of Firm A If this letter were sent in the year 1944, the:

Question 15 The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of –1, the player loses; if both players receive 0 (zero), the players tie. Which of the following statements is true?

Question 16 The __________ Act was the first antitrust bill created in response to the increase in concentration ratios in many leading U.S. industries, including steel, railroads, mining, textiles, and oil.

Question 17 When a third firm enters a market that was previously categorized as a duopoly, the equilibrium price:

Question 18 __________ have a greater incentive to collude and to form cartels in an effort to achieve monopoly­like profits.

Question 19 Assume that there is an oligopoly consisting of firms of different sizes. If a small firm increases output by 25%, the price effect realized by the small firm will be only __________. If a large firm increases output by 25%, the price effect realized by the large firm will be __________.

Question 20 An example of a tying arrangement is:

 

Question 1 In 1974, the U.S. Attorney General filed suit against which telecom company for violating antitrust laws?

Question 2 Three firms are currently producing and selling in a market. When one of the three firms exits the market, economists expect that the equilibrium price:

Question 3 According to the kinked demand curve theory, the behavior of firms in an oligopoly creates a demand curve that is __________ at prices above the cartel price and __________ at prices below the cartel price.

Question 4 The accompanying table shows the dollar amount of sales in 2012 for the four largest firms in the above­ground pool industry. Total industry sales in 2012 were $467,000. Use this table to answer the questions that follow. If Blue Water Island, Inc. acquired Backyard Paradise, Inc., the concentration ratio would __________ and the market price of pools would likely __________.

Question 5 The accompanying table shows a small community’s demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm’s marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer the questions that follow. If this market were a monopoly instead of a duopoly, the market price would be __________ and the quantity of streaming movie subscriptions purchased each month would be __________.

Question 6 The accompanying table shows two firms in a duopoly. Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. If both firms were able to collude and make their supply decisions collectively, Flixbuster would sell __________ subscriptions per month and Nextflix would sell __________ subscriptions per month.

Question 7 It might be rational for a firm to price its products below __________ costs in order to drive potential entrants from entering a market.

Question 8 The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of –1, the player loses; if both players receive 0 (zero), the players tie. If Stan chooses paper and Eric chooses paper, Stan’s payoff is __________ and Eric’s payoff is __________.

Question 9 Five firms are currently producing and selling in a market. When two more firms enter the market, economists expect that the equilibrium price:

Question 10 The accompanying table shows the four­firm concentration ratios for five separate industries. Use this table to answer the questions that follow. In which industry do the four largest firms collectively have the least market power?

Question 11 The __________ Act was the first antitrust bill created in response to the increase in concentration ratios in many leading U.S. industries, including steel, railroads, mining, textiles, and oil.

Question 12 The __________ effect occurs when a buyer’s preference for a product increases as the number of people buying it increases.

Question 13 When two or more firms set prices or quantities in unison, economists refer to them as a:

Question 14 Together, Coca­Cola and Pepsi account for approximately __________% of the soft­drink market.

Question 15 The two major pieces of antitrust legislation in the United States are the:

Question 16 Assume that two firms (Firm A and Firm B) operate in the U.S. steel industry. The owner of Firm A writes the following letter to the owner of Firm B: Dear Owner of Firm B, I have concluded that if we both restrict output such that we each produce only 3 million tons of steel per year, we can both charge a price that will allow us to effectively monopolize the steel market and to maximize our joint profits. If you would like to enter into this agreement with me, please draft a contract that specifies this agreement and I will be more than willing to meet with you and sign it. Sincerely, Owner of Firm A If this letter were sent in the year 1944, the:

Question 17 Assume that there is an oligopoly consisting of firms of different sizes. If a small firm increases output by 25%, the price effect realized by the small firm will be only __________. If a large firm increases output by 25%, the price effect realized by the large firm will be __________.

Question 18 When more firms enter into a market that was previously characterized as a duopoly, it will:

Question 19 Airline A and Airline B are the two largest airlines in the country. The chief executive officer of Airline A calls the chief executive officer of Airline B and says, “Why don’t we both raise prices 25% across the board next week?” This is an example of:

Question 20 When decision­makers face incentives that make it difficult to achieve mutually beneficial outcomes, we say they are in a(n):

 

     1.   Like a pure monopoly, an oligopoly is characterized by:

a.
free entry and exit in the long run.
b.
free entry and exit in the short run.
c.
significant barriers to entry.
d.
all firms in the market producing the socially efficient level of output in the long run.
e.
a single firm selling a product with no close substitutes.
     2.   __________ have a greater incentive to collude and to form cartels in an effort to achieve monopoly-like profits.

a.
Monopolists
b.
Workers in a competitive labor market
c.
Monopolistic competitors
d.
Firms in a perfectly competitive market
e.
Oligopolists
 

     3.   A monopolistically competitive market consists of many sellers, an oligopoly consists of __________ seller(s), and a monopoly consists of __________ seller(s).

a.
one; one
b.
one; two
c.
a few; many
d.
a few; one
e.
many; one
 

     4.   A monopolistically competitive market consists of __________ seller(s), an oligopoly consists of __________ seller(s), and a monopoly consists of one seller.

a.
one; many
b.
one; two
c.
a few; many
d.
many; one
e.
many; a few
 

     5.   A firm operating in an oligopolistic market has __________ market power compared to a __________.

a.
less; firm operating in a perfectly competitive market
b.
the same amount of; firm operating in a perfectly competitive market
c.
less; monopolist
d.
the same amount of; monopolist
e.
more; monopolist
 

     6.   Economists measure oligopoly power present in an industry by using:

a.
capital ratios.
b.
concentration ratios.
c.
reserve ratios.
d.
inequality ratios.
e.
competition ratios.
 

The accompanying table shows the four-firm concentration ratios for five separate industries. Use this table to answer the questions that follow.

 

     7.   In which industry do the four largest firms collectively have the most market power?

a.
beer brewing
b.
breakfast cereals
c.
chocolate confections
d.
adhesive manufacturing
e.
plastics product manufacturing
 

     8.   In which industry do the four largest firms collectively have the least market power?

a.
beer brewing
b.
breakfast cereals
c.
chocolate confections
d.
adhesive manufacturing
e.
plastics product manufacturing
 

     9.   In which two industries is market power the most concentrated?

a.
beer brewing and adhesive manufacturing
b.
breakfast cereals and adhesive manufacturing
c.
chocolate confections and adhesive manufacturing
d.
adhesive manufacturing and plastics product manufacturing
e.
beer brewing and breakfast cereals
 

The accompanying table shows the dollar amount of sales in 2012 for the four largest firms in the above-ground pool industry. Total industry sales in 2012 were $467,000. Use this table to answer the questions that follow.

 

   10.   What is the four-firm concentration ratio in this industry?

a.
24%
b.
41%
c.
68%
d.
78%
e.
94%
 

   11.   If Blue Water Island, Inc. acquired Backyard Paradise, Inc., the concentration ratio would __________ and the market price of pools would likely __________.

a.
increase; fall
b.
increase; rise
c.
decrease; not change
d.
decrease; fall
e.
decrease; rise
 

The accompanying table shows the total dollar amount of sales in 2012 for the four largest firms in the adhesive manufacturing industry. Total industry sales in 2012 were $782,000. Use this table to answer the questions that follow.

 

   12.   What is the four-firm concentration ratio in this industry?

a.
20%
b.
40%
c.
60%
d.
80%
e.
100%
 

   13.   If Glues R Us, Inc. split into two separate companies, the concentration ratio would __________ and the market price of adhesive would likely __________.

a.
increase; fall
b.
increase; rise
c.
decrease; not change
d.
decrease; fall
e.
decrease; rise
   14.   Which of the following industries is most likely an oligopoly?

a.
restaurant industry
b.
airline industry
c.
gold-mining industry
d.
wheat-growing industry
e.
potato-growing industry
 

   15.   Which of the following industries is most likely an oligopoly?

a.
wheat industry
b.
construction industry
c.
cellphone industry
d.
computer repair industry
e.
house-painting industry
 

   16.   When two or more firms set prices or quantities in unison, economists refer to them as a:

a.
cartel.
b.
monopoly.
c.
monopolistically competitive market.
d.
perfectly competitive market.
e.
predatory pricing unit.
 

   17.   A __________ agreement among rival firms will most likely specify the price each firm will charge and the quantity each firm will produce/sell.

a.
friendly
b.
competitive
c.
monopolistic
d.
collusive
e.
price–quantity
 

   18.   Oligopolistic markets are __________ because price is __________ marginal cost.

a.
socially efficient; equal to
b.
socially efficient; less than
c.
socially efficient; greater than
d.
socially inefficient; less than
e.
socially inefficient; greater than
 

   19.   In the United States, __________ prohibit collusion between rivals.

a.
competitive arbitration laws
b.
immigration laws
c.
anticompetition laws
d.
union laws
e.
antitrust laws
 

   20.   When two or more firms form a __________ agreement and set price and quantity in unison, economists refer to them as __________.

a.
competitive; a cartel
b.
collusive; social benefactors
c.
collusive; a cartel
d.
monopolistically competitive; social benefactors
e.
monopolistically competitive; a cartel
 

   21.   When a market is characterized by mutual interdependence:

a.
one firm’s pricing decision does not affect the market share of any other firm.
b.
one firm’s quantity decision does not affect the market share of any other firm.
c.
all firms always act in unison to produce the monopoly quantity.
d.
the actions of one firm have an impact on the price and output of its competitors.
e.
the actions of one firm have no impact on the price and output decisions of its competitors.
 

   22.   If antitrust laws did not prohibit efforts to restrict competition in markets:

a.
no firms would attempt to collude on price and/or quantity.
b.
attempts at collusion with rival firms on price and or/quantity would succeed all the time.
c.
attempts at collusion with rival firms would probably fail more often than not.
d.
all firms in the economy would earn negative economic profit in the long run.
e.
all firms in the market would earn zero economic profit in the long run.
 

The accompanying table shows a small community’s demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm’s marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer the questions that follow.

 

   23.   If this market were highly competitive instead of a duopoly, the market price would be __________ and the quantity of streaming movie subscriptions purchased each month would be __________.

a.
$0; 1,000
b.
$2; 800
c.
$4; 600
d.
$6; 400
e.
$8; 800
 

   24.   If this market were a monopoly instead of a duopoly, the market price would be __________ and the quantity of streaming movie subscriptions purchased each month would be __________.

a.
$0; 1,000
b.
$3; 700
c.
$5; 500
d.
$7; 300
e.
$9; 100
 

   25.   If the two firms operating in this market agreed to each supply one-half of the quantity a monopolist would supply, the contract would specify that:

a.
Nextflix supplies 400 subscriptions and Flixbuster supplies 100 subscriptions.
b.
Flixbuster supplies 400 subscriptions and Nextflix supplies 100 subscriptions.
c.
Nextflix supplies 0 (zero) subscriptions and Flixbuster supplies 500 subscriptions.
d.
Flixbuster supplies 500 subscriptions and Nextflix supplies 0 (zero) subscriptions.
e.
Nextflix supplies 250 subscriptions and Nextflix supplies 250 subscriptions.
 

   26.   An agreement between Nextflix and Flixbuster to each supply 250 subscriptions is an example of:

a.
price discrimination.
b.
Bertrand competition.
c.
price leadership.
d.
collusion.
e.
increasing marginal costs.
 

   27.   Listed below are four different collusive agreements that Nextflix and Flixbuster are considering. Assuming both firms will abide by the terms, which collusive agreement(s) would maximize total profit in the market?

I. Nextflix supplies 400 subscriptions and Flixbuster supplies 500 subscriptions.

II. Nextflix supplies 500 subscriptions and Flixbuster supplies 300 subscriptions.

III. Nextflix supplies 250 subscriptions and Flixbuster supplies 250 subscriptions.

IV. Nextflix supplies 100 subscriptions and Flixbuster supplies 400 subscriptions.

a.
agreement I
b.
agreements I and II
c.
agreements II and III
d.
agreement IV
e.
agreements III and IV
 

   28.   Listed below are four different collusive agreements that Nextflix and Flixbuster are considering. Assuming both firms will abide by the terms, which collusive agreement(s) would maximize total profit in the market?

I. Nextflix supplies 50 subscriptions and Flixbuster supplies 450 subscriptions.

II. Nextflix supplies 450 subscriptions and Flixbuster supplies 50 subscriptions.

III. Nextflix supplies 300 subscriptions and Flixbuster supplies 100 subscriptions.

IV. Nextflix supplies 100 subscriptions and Flixbuster supplies 100 subscriptions.

a.
agreement I
b.
agreements I and II
c.
agreements II and III
d.
agreement III
e.
agreements III and IV
 

   29.   Assume all markets are in long-run equilibrium. The market quantity supplied in an oligopoly would be __________ the market quantity supplied in a monopoly and __________ the market quantity supplied in a competitive market.

a.
less than; less than
b.
less than; greater than
c.
less than; equal to
d.
greater than; equal to
e.
greater than; less than
 

   30.   Assume all markets are in long-run equilibrium. Market price in an oligopoly would be __________ the market price in a monopoly, and __________ the market price in a competitive market.

a.
less than; less than
b.
less than; greater than
c.
less than; equal to
d.
greater than; equal to
e.
greater than; less than
 

   31.   Firm A and Firm B are duopolists. They are choosing the price for which they will sell their products and the quantity they will sell. Both firms make their decisions simultaneously. The __________ in this situation occurs when Firm B chooses a pricing strategy given the strategy that Firm A chooses, and Firm A chooses a pricing strategy given the strategy that Firm B chooses.

a.
antitrust equilibrium
b.
Nash equilibrium
c.
Von Neumman equilibrium
d.
Morgenstern equilibrium
e.
cartel equilibrium
 

   32.   An agreement between Nike and Adidas to raise prices of the track shoes that each company produces by 50% is an example of a collusive agreement, and economists generally agree that:

a.
this agreement is in the best interest of society because the price of track shoes is significantly above marginal cost.
b.
this agreement is in the best interest of society because the quantity of track shoes bought and sold is significantly less than the quantity that would be bought and sold in a perfectly competitive market.
c.
this agreement is not in the best interest of society because the price of track shoes is significantly below marginal cost.
d.
this agreement is not in the best interest of society because the price of track shoes is significantly above marginal cost.
e.
the price of track shoes does not affect societal welfare.
 

   33.   Airline A and Airline B are the two largest airlines in the country. The chief executive officer of Airline A calls the chief executive officer of Airline B and says, “Why don’t we both raise prices 25% across the board next week?” This is an example of:

a.
spirited competition.
b.
attempted collusive behavior.
c.
predatory pricing.
d.
a corporate merger.
e.
a tying arrangement.
 

   34.   When a third firm enters a market that was previously categorized as a duopoly, the equilibrium price:

a.
will be lower and the equilibrium quantity will be lower.
b.
will be higher and the equilibrium quantity will be lower.
c.
will be lower and the equilibrium quantity will be higher.
d.
will be higher and the equilibrium quantity will be higher.
e.
and the equilibrium quantity will not change.
   35.   When more firms enter into a market that was previously characterized as a duopoly, it will:

a.
be easier for firms in the market to form a successful cartel.
b.
be more difficult for firms in the market to form a successful cartel.
c.
be just as difficult for firms in the market to form a successful cartel as it was before the new firms entered.
d.
be impossible for firms in the market to form a successful cartel, whereas before the new firms entered, it would have been possible.
e.
still be impossible for firms in the market to form a successful cartel.
 

   36.   The __________ effect occurs when the market price either decreases or increases by the respective entrance or exit of a rival firm in the market.

a.
competitive
b.
price
c.
output
d.
market
e.
oligopoly
 

   37.   Three firms are currently producing and selling in a market. When one of the three firms exits the market, economists expect that the equilibrium price:

a.
be lower and the equilibrium quantity will be lower.
b.
will be higher and the equilibrium quantity will be lower.
c.
will be lower and the equilibrium quantity will be higher.
d.
will be higher and the equilibrium quantity will be higher.
e.
and the equilibrium quantity will not change.
 

   38.   Five firms are currently producing and selling in a market. When two more firms enter the market, economists expect that the equilibrium price:

a.
will be lower and the equilibrium quantity will be lower.
b.
will be higher and the equilibrium quantity will be lower.
c.
will be lower and the equilibrium quantity will be higher.
d.
will be higher and the equilibrium quantity will be higher.
e.
and the equilibrium quantity will not change.
 

   39.   Six firms are currently producing and selling in a market. When two of the six firms exit the market, economists expect that the equilibrium price:

a.
will be lower and the equilibrium quantity will be lower.
b.
will be higher and the equilibrium quantity will be lower.
c.
will be lower and the equilibrium quantity will be higher.
d.
will be higher and the equilibrium quantity will be higher.
e.
and the equilibrium quantity will not change.
 

   40.   In 2011, three firms were selling cellular phone service for a price of $40 per month in Pittsburgh, Pennsylvania. In 2012, five firms were selling cellular phone service for a price of $30 per month. Which effect best describes the likely decrease in profits experienced by each of the three original firms due only to the lower market price?

a.
competitive effect
b.
price effect
c.
output effect
d.
market effect
e.
oligopoly effect
 

   41.   In 2011, three firms were selling cellular phone service for a price of $40 per month in Erie, Pennsylvania. Each firm serviced 100 cellphone customers; thus, all firms together serviced a total of 300 customers. In 2012, five firms were selling cellular phone service for a price of $30 per month. Each firm serviced 70 cellphone customers; thus, all firms together serviced a total of 350 customers. Assume marginal cost is 0 (zero) for all firms and thus total revenue is equal to total profit.

Due to the entrance of two firms in 2012, total monthly profits for all firms in the market decreased by $3,000 due to the __________ effect and increased by $1,500 due to the __________ effect.

a.
price; output
b.
output; price
c.
price; price
d.
output; output
e.
competitive; noncompetitive
 

   42.   In 2011, three firms (Firm A, Firm B, and Firm C) were selling cellular phone service for a price of $40 per month in Playa del Carmen, Mexico. Each firm serviced 100 cellphone customers; thus, all firms together serviced a total of 300 customers. Assume marginal cost is 0 (zero) for all firms and thus total revenue is equal to total profit. In 2012, Firms A and B each continued to service 100 customers, but Firm C now serviced 150 customers; thus, all firms together serviced a total of 350 customers. All firms now charge $30 per month.

Firm C’s monthly profit increased by __________ due only to the output effect and decreased by __________ due only to the price effect, for a net increase of $500.

a.
$2,500; $2,000
b.
$3,000; $2,500
c.
$500; $0.00
d.
$1,500; $1,000
e.
$3,500; $3,000
 

   43.   In 2011, three firms (Firm A, Firm B, and Firm C) were selling cellular phone service for a price of $40 per month in Hershey, Pennsylvania. Each firm serviced 100 cellphone customers; thus, all firms together serviced a total of 300 customers. Assume marginal cost is 0 (zero) for all firms and thus total revenue is equal to total profit. In 2012, Firms A and B continued to service 100 customers, but Firm C now serviced 150 customers; thus, all firms together serviced a total of 350 customers. All firms now charge $30 per month.

Due only to the price effect, profits for each firm decline by $1,000. Due only to the output effect, profits for both Firm A and Firm B did not change, and profits for Firm C increased by $1,500. It was in Firm C’s interest to increase output because:

a.
Firm C realized only $1,000 of the total $3,000 price effect, but it realized the full $1,500 of the total quantity effect.
b.
Firm C realized only $2,500 of the total $3,000 price effect, but it realized the full $1,500 of the total quantity effect.
c.
Firm C realized only $2,250 of the total $3,000 price effect, but it realized the full $1,500 of the total quantity effect.
d.
Firm C realized only $1,750 of the total $3,000 price effect, but it realized the full $1,250 of the total quantity effect.
e.
Firm C realized only $2,000 of the total $3,000 price effect, but it realized the full $1,250 of the total quantity effect.
 

   44.   Assume that there is an oligopoly consisting of firms of different sizes. If a small firm increases output by 25%, the price effect realized by the small firm will be only __________. If a large firm increases output by 25%, the price effect realized by the large firm will be __________.

a.
non-existent; negligible
b.
negligible; non-existent
c.
non-existent; substantial
d.
substantial; non-existent
e.
negligible; substantial
 

   45.   When modeling economic situations using game theory, the economic participants are generally referred to as:

a.
gamers.
b.
non-movers.
c.
dominators.
d.
players.
e.
managers.
 

   46.   A __________ consists of a set of players, a set of strategies available to those players, and a specification of the payoffs to each player for each possible combination of strategies.

a.
tournament
b.
competitive market
c.
game
d.
firm
e.
monopolistically competitive market
 

   47.   The branch of economics that studies strategic decision making is called:

a.
interdependence theory.
b.
game theory.
c.
competitive theory.
d.
noncompetitive theory.
e.
strategic theory.
 

   48.   Economists use __________ to better understand what might happen in situations where strategic interactions are involved.

a.
complexity theory
b.
strategic theory
c.
competitive theory
d.
noncompetitive theory
e.
game theory
 

   49.   Economists are more likely to use game theory to analyze a(n):

a.
competitive market.
b.
monopoly.
c.
monopolistically competitive market.
d.
oligopoly.
e.
monopsony.
 

   50.   When decision-makers face incentives that make it difficult to achieve mutually beneficial outcomes, we say they are in a(n):

a.
oligopoly dilemma.
b.
prisoner’s dilemma.
c.
prison-guard’s dilemma.
d.
monopoly dilemma.
e.
competitive dilemma.
 

   51.   Refer to the accompanying table. If Jane confesses, John will spend __________ years in jail if he also confesses and __________ years in jail if he keeps quiet.

 

a.
10; 10
b.
10; 25
c.
10; 0
d.
0; 10
e.
25; 25
 

   52.   Refer to the accompanying table. If Jeff confesses, Gerry will spend __________ years in jail if he also confesses and __________ years in jail if he keeps quiet.

 

a.
15; 15
b.
35; 35
c.
0; 35
d.
35; 0
e.
15; 35
 

   53.   Refer to the accompanying table. If Keisha keeps quiet, Larry will spend __________ years in jail if he confesses and __________ years in jail if he also keeps quiet.

 

a.
12; 1.5
b.
1.5; 12
c.
0; 12
d.
12; 12
e.
0; 1.5
 

   54.   When a particular strategy produces a better outcome for a person regardless of the strategies others choose, we say it is a(n):

a.
dominated strategy.
b.
dominant strategy.
c.
equilibrated strategy.
d.
efficient strategy.
e.
surplus maximization strategy.
 

   55.   Refer to the accompanying table. Confessing is Eddie’s dominant strategy because:

 

a.
Sharon’s dominant strategy is to keep quiet.
b.
he spends more time in jail if he confesses, regardless of whether Sharon confesses or keeps quiet.
c.
he spends less time in jail if he confesses, regardless of whether Sharon confesses or keeps quiet.
d.
he spends the same time in jail by confessing than he would by not confessing.
e.
his decision does not depend on Sharon’s decision.
 

   56.   Refer to the accompanying table. In the Nash equilibrium of this game, Derrick will go to jail for __________ years and Brandy will go to jail for __________ years.

 

 

a.
0.5; 0.5
b.
25; 25
c.
0.5; 18
d.
0.5; 25
e.
18; 18
   57.   The Nash equilibrium in an oligopolistic market is generally __________ for society than the outcome under collusion because the price is __________ marginal cost.

a.
better; closer to
b.
better; further above
c.
worse; closer to
d.
worse; further above
e.
worse; equal to
 

   58.   Which of the following is an example of collusion?

a.
Nike and Reebok compete on price.
b.
Dell and Gateway compete on quantity.
c.
American Airlines and United Airlines agree to raise prices.
d.
Coca-Cola and Pepsi do not attempt to fix prices.
e.
Verizon builds more cellphone towers.
 

   59.   The accompanying table shows two firms in a duopoly. Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. In this game, selling  _________ subscriptions a month is a dominant strategy for Flixbuster and selling __________ subscriptions a month is a dominant strategy for Nextflix.

 

a.
200; 200
b.
200; 400
c.
400; 200
d.
400; 400
e.
100; 100
   60.   The accompanying table shows two firms in a duopoly. Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. If both firms were able to collude and make their supply decisions collectively, Flixbuster would sell __________ subscriptions per month and Nextflix would sell __________ subscriptions per month.

 

a.
200; 200
b.
400; 400
c.
400; 200
d.
200; 400
e.
600; 600
 

   61.   The accompanying table shows two firms in a single-stage duopoly game. Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. If both firms were able to write a binding contract, this contract would specify that Bobbles.com agrees to produce __________ bobbleheads and Bobbles R Us agrees to produce __________ bobbleheads.

 

a.
5,000; 7,000
b.
7,000; 5,000
c.
7,000; 7,000
d.
5,000; 5,000
e.
12,000; 0
 

   62.   If two duopolists arrive at the Nash equilibrium output level, the total quantity of the good on the market will be __________  the total quantity on the market if the market were perfectly competitive and __________ the total quantity on the market if the market were controlled by a monopoly.

a.
less than; less than
b.
less than; greater than
c.
greater than; greater than
d.
greater than; less than
e.
greater than; equal to
 

   63.   Wal-Mart and Target are the only stores in a remote town that currently stock and sell the PlayStation 5 video game console. Managers at both stores are simultaneously deciding whether to charge a price of $1,000 or $1,500 for each console. If both stores charge $1,000, they earn a profit of $100,000 each. If both stores charge $1,500, they earn a profit of $200,000 each. If one store charges $1,000 and the other store charges $1,500, the store that charges $1,000 earns a profit of $250,000 and the firm that charges $1,500 earns a profit of $50,000. If Wal-Mart and Target __________, they can both charge $1,500 and earn the highest combined profit available.

a.
collude with each other
b.
privately undercut each other after making an agreement
c.
engage in spirited price competition
d.
compete with each other only with regard to quantity and not price
e.
compete with each other only with regard to price and not quantity
 

   64.   The accompanying table shows two firms in a single- stage duopoly game. Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. Assume firms are not able to collude. The Nash equilibrium total quantity of potatoes on the market is:

 

a.
12,000
b.
4,000
c.
10,000
d.
14,000
e.
24,000
 

   65.   The accompanying table shows two firms in a single- stage duopoly game. Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. This game would be considered a prisoner’s dilemma if X is between __________.

 

a.
$10,000 and $25,000
b.
$25,000 and $35,000
c.
$10,000 and $35,000
d.
$35,000 and $70,000
e.
$45,000 and $70,000
 

   66.   The accompanying matrix depicts two firms in a single-stage duopoly game. Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. If X is greater than $3,500, then:

 

a.
there is only one Nash equilibrium, and this game would be considered a prisoner’s dilemma.
b.
there are two Nash equilibria, and this game would be considered a prisoner’s dilemma.
c.
there are three Nash equilibria, and this game would be considered a prisoner’s dilemma.
d.
there is only one Nash equilibrium, and this game would not be considered a prisoner’s dilemma.
e.
there are two Nash equilibria, and this game would not be considered a prisoner’s dilemma.
 

   67.   Together, Coca-Cola and Pepsi account for approximately __________% of the soft-drink market.

a.
35
b.
45
c.
55
d.
65
e.
75
   68.   In January 2011, Coca-Cola and Pepsi agreed to reduce their yearly advertising budgets by $1 million each, and neither firm reneged on the agreement throughout the year. In January 2012, Coca-Cola and Pepsi each announced that their company 2011 profits had increased by $1 million. Which of the following is a likely explanation for this increase?

a.
A new entrant in the market caused Coca-Cola and Pepsi to lose substantial market share.
b.
The government imposed a punitive tax on both firms for producing a beverage that is a danger to public health.
c.
The firms had previously been in a prisoner’s dilemma situation where one firm’s advertisements were effectively canceling the other firm’s advertisements.
d.
Coca-Cola drastically reduced the price of its soda relative to the price of Pepsi’s soda.
e.
Pepsi drastically reduced the price of its soda relative to the price of Coca-Cola’s soda.
 

   69.   The accompanying table shows two firms in a single stage game. Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. In the Nash equilibrium of this game, Pepsi earns a profit of __________ and Coca-Cola earns a profit of __________.

 

a.
$67.5 million; $67.5 million
b.
$30 million; $30 million
c.
$37.5 million; $75 million
d.
$75 million; $37.5 million
e.
$50 million; $50 million
   70.   Game theorist Robert Axelrod decided to examine the choices that participants make in a long-run setting. He ran a sophisticated computer simulation in which he invited scholars to submit strategies for securing points in a prisoner’s dilemma tournament over many rounds. All the submissions were collected and paired, and the results were scored. After each simulation, he eliminated the weakest strategy and re-ran the tournament with the remaining strategies. This evolutionary approach continued until the best strategy remained. Among all strategies submitted, which strategy dominated?

a.
tit-for-tat strategy
b.
tit-for-two-tats strategy
c.
Axelrod equivalency strategy
d.
profit-maximization strategy
e.
grim trigger
 

   71.   Player A and Player B are playing a game involving several rounds of a prisoner’s dilemma where their choices are to “cooperate” or “defect.” After each round ends, one player roles a six-sided die. If the die lands on 6, the game ends; however, if the die lands on any other number, the game continues and players play another round. Prior to the game starting, the players formulate a strategy that specifies what they will do in every possible round they might find themselves in. If Player A is playing the tit-for-tat strategy, in the:

a.
first round, Player A will definitely choose defect.
b.
second round, Player A will definitely choose defect.
c.
second round, Player A will choose whatever Player B chose in the first round.
d.
second round, Player A will definitely choose cooperate.
e.
third round, Player A will definitely choose cooperate.
 

   72.   In a repeated prisoner’s dilemma, a player that is playing tit-for-tat will:

a.
defect in the first round and defect in all subsequent rounds.
b.
defect in the first round and, in any subsequent round, do what their opponent did last round.
c.
cooperate in the first round and defect in all subsequent rounds.
d.
cooperate in the first round and cooperate in all subsequent rounds.
e.
cooperate in the first round and, in any subsequent round, do what their opponent did last round.
   73.   Player A and Player B are playing a game involving several rounds of a prisoner’s dilemma where their choices are to “cooperate” or “defect.” After each round ends, one player roles a six-sided die. If the die lands on 6, the game ends; however, if the die lands on any other number, the game continues and players play another round. Prior to the game starting, the players formulate a strategy that specifies what they will do in every possible round they might find themselves in. If Player A is playing the tit-for-tat strategy, in the:

a.
first round, Player A will definitely choose defect.
b.
second round, Player A will definitely choose defect.
c.
first round, Player A will definitely choose cooperate.
d.
second round, Player A will definitely choose cooperate.
e.
third round, Player A will definitely choose cooperate.
 

   74.   In January, Home Depot offered a 10% off coupon and Lowe’s did not. In February, Lowe’s offered a 10% off coupon and Home Depot did not. In March, Home Depot offered a 10% off coupon and Lowe’s did not. It is likely that Home Depot and Lowe’s are both playing the __________ strategy.

a.
grim trigger
b.
tit-for-two-tats
c.
deterrence
d.
tit-for-tat
e.
mutually assured destruction
 

   75.   In January, Wal-Mart offered a 10% off coupon and Target did not. In February, Target offered a 10% off coupon and Wal-Mart did not. In March, Wal- Mart offered a 10% off coupon and Target did not. It is likely that Wal-Mart and Target are both playing the __________ strategy.

a.
grim trigger
b.
tit-for-two-tats
c.
retail retaliation
d.
tit-for-tat
e.
mutually assured destruction
 

   76.   Jarrod and Katie are playing a game involving repeated iterations of a simultaneous move prisoner’s dilemma. In each round, both Jarrod and Katie choose either “cooperate” or “defect.” Neither Jarrod nor Katie knows when the game will end. If Jarrod believes that Katie will be playing tit-for-tat:

a.
he will maximize his payoffs by defecting in every round.
b.
cooperation will be impossible to maintain regardless of the strategy he plays.
c.
cooperation might be possible if he also plays tit-for-tat.
d.
cooperation might be possible if he plays a strategy where he defects in every round.
e.
cooperation might be possible if he plays a strategy where he defects in the first round, cooperates in the second round, and defects in every other round.
 

   77.   __________ have dominant strategies that make player decisions easy to predict.

a.
All games
b.
Only prisoner’s dilemma games
c.
Only two types of games
d.
Only games involving firms
e.
Not all games
 

   78.   The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of –1, the player loses; if both players receive 0 (zero), the players tie. If Madonna chooses rock and Kid Cudi chooses paper, Madonna’s payoff is __________ and Kid Cudi’s payoff is __________.

 

a.
0; 0
b.
1; 0
c.
2; 0
d.
–1; 1
e.
1; 1
 

   79.   The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of –1, the player loses; if both players receive 0 (zero), the players tie. If Sideshow Bob chooses scissors and Crusty the Clown chooses paper, Sideshow Bob’s payoff is __________ and Crusty the Clown’s payoff is __________.

 

a.
0; 0
b.
1; 0
c.
2; 0
d.
–1; 1
e.
1; –1
   80.   The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of –1, the player loses; if both players receive 0 (zero), the players tie. If Stan chooses scissors and Kyle chooses rock, Stan’s payoff is __________ and Kyle’s payoff is __________.

 

a.
0; 0
b.
1; 0
c.
–1; 1
d.
0; 1
e.
1; 1
 

   81.   The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of –1, the player loses; if both players receive 0 (zero), the players tie. If Stan chooses paper and Eric chooses paper, Stan’s payoff is __________ and Eric’s payoff is __________.

 

a.
0; 0
b.
1; 0
c.
2; 0
d.
0; 1
e.
1; 1
 

   82.   The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of -1, the player loses; if both players receive 0 (zero), the players tie. Brian’s optimal strategy is to:

 

a.
always choose rock because Meg’s dominant strategy is to choose paper.
b.
choose rock with probability 0.75 and paper with probability 0.25 because Meg will choose paper with probability 0.50 and rock with probability 0.50.
c.
always choose paper because Meg’s dominant strategy is to choose rock.
d.
choose rock with probability 0.33, paper with probability 0.33, and scissors with probability 0.33 because Meg’s dominant strategy is to choose paper.
e.
choose rock with probability 0.33, paper with probability 0.33, and scissors with probability 0.33 because neither he nor Meg has a dominant strategy.
 

   83.   The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of “Left, Center, Right.” If a player receives a payoff of 1, the player wins; if the player receives a payoff of –1, the player loses; if both players receive 0 (zero), the players tie. There is/are __________ Nash equilibrium(ia) in this game.

 

a.
0 (zero)
b.
1
c.
2
d.
3
e.
4
 

The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of volleyball. At this point in the game, the ball has just been hit to Deidra, and she chooses whether to hit right or hit left. At the same time, Ashley chooses whether to jump right (Deidra’s right) or jump left (Deidra’s left). If a player receives a payoff of 1, the player wins the point; if the player receives a payoff of –1, the player loses the point. Use this information to answer the questions that follow.

 

   84.   How many Nash equilibrium(ia) exist in this game?

a.
0 (zero)
b.
1
c.
2
d.
3
e.
4
 

   85.   If Deidra hits left and Ashley jumps right, Ashley receives a payoff of __________ and Deidra receives a payoff of __________.

a.
–1; 1
b.
–1 –1
c.
1; 1
d.
1; –1
e.
0; 0
   86.   Deidra ________ a dominant strategy, and this game ________ a Nash equilibrium.

a.
has; has
b.
has; does not have
c.
does not have; has
d.
does not have; does not have
e.
might have; might have
 

The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Ping Pong. At this point in the game, the ball has just been hit to Dagny Taggart, and she chooses whether to hit right or hit left. At the same time, John Galt chooses whether to defend right (Dagny’s right) or defend left (Dagny’s left). If a player receives a payoff of 1, the player wins the point; if the player receives a payoff of –1, the player loses the point. Use this information to answer the questions that follow.

 

   87.   Which of the following statements best describes this game?

a.
Dagny’s optimal strategy is to hit right, and John’s optimal strategy is to defend right.
b.
Dagny’s optimal strategy is to hit left, and John’s optimal strategy is to defend left.
c.
Dagny’s optimal strategy is to hit left, and John’s optimal strategy is to defend left with   probability 0.50 and defend right with probability 0.50.
d.
Dagny’s optimal strategy is to hit left with probability 0.50 and hit right with probability 0.50, and John’s optimal strategy is to hit left.
e.
Dagny’s optimal strategy is to hit left with probability 0.50 and hit right with probability 0.50, and John’s optimal strategy is to hit left with probability 0.50 and hit right with probability 0.50.
 

   88.   If John Defends left, Dagny’s payoff is __________ if she hits right and __________ if she hits left.

a.
1; –1
b.
1; 1
c.
–1; 1
d.
–1; –1
e.
0.5; –0.5
 

   89.   The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of –1, the player loses; if both players receive 0 (zero), the players tie. Which of the following statements is true?

 

a.
Stewie’s dominant strategy is to play rock, and Peter’s dominant strategy is to play rock.
b.
Stewie’s dominant strategy is to play paper, and Peter’s dominant strategy is to play rock.
c.
Stewie’s dominant strategy is to play rock, and Peter’s dominant strategy is to play rock.
d.
Stewie’s dominant strategy is to play scissors, and Peter does not have a dominant strategy.
e.
Neither Stewie nor Peter has a dominant strategy.
 

   90.   One way to improve the social welfare of a society is to __________ competition and __________ monopoly practices through policy legislation.

a.
limit; encourage
b.
limit; limit
c.
encourage; limit
d.
ban; subsidize
e.
encourage; subsidize
 

   91.   Legislative efforts to curtail the adverse consequences of oligopolistic cooperation began with the __________.

a.
Clayton Act.
b.
Sherman Antitrust Act.
c.
McFadden Act.
d.
Dodd–Frank Financial Reform Bill.
e.
Competitive Reform Act.
 

   92.   The first federal law to place limits on cartels and monopolies was the:

a.
Federal Reserve Act.
b.
Financial Institutions Reform, Recovery, and Enforcement Act.
c.
Federal Trade Commission Act.
d.
Clayton Act.
e.
Sherman Antitrust Act.
 

   93.   The __________ Act was the first antitrust bill created in response to the increase in concentration ratios in many leading U.S. industries, including steel, railroads, mining, textiles, and oil.

a.
Sherman Antitrust
b.
Fair Trade
c.
Steel Industry
d.
Citigroup Relief
e.
Sarbanes–Oxley
 

   94.   Section 2 of the __________ Act reads, “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.”

a.
Garn-St. Germain Depository Institutions
b.
Securities and Exchange
c.
Supply Demand
d.
Clayton
e.
Sherman Antitrust
 

   95.   According to Section 2 of the Sherman Antitrust Act, a person who attempts to monopolize commerce among the several states is guilty of a(n):

a.
minor misdemeanor.
b.
misdemeanor of the first degree.
c.
misdemeanor of the second degree.
d.
international misdemeanor.
e.
felony.
 

   96.   The __________ Act was passed in 1890, and the __________ Act was passed in 1914.

a.
Clayton; Federal Trade Commission
b.
Clayton; Sherman Antitrust
c.
Sherman Antitrust; Federal Trade Commission
d.
Sherman Antitrust; Clayton
e.
Anticompetition; Sherman Antitrust
 

   97.   The two major pieces of antitrust legislation in the United States are the:

a.
Sherman Antitrust Act and the Federal Trade Commission Act.
b.
Sherman Antitrust Act and the Clayton Act.
c.
International Trade Act and the Clayton Act.
d.
International Trade Act and the Sherman Antitrust Act.
e.
Anticompetition Act and the Sherman Antitrust Act.
 

   98.   In general, antitrust laws are __________ to enforce.

a.
complex and difficult
b.
not complex and difficult
c.
complex and easy
d.
irrelevant and easy
e.
complex and impossible
 

   99.   In 1974, the U.S. Attorney General filed suit against which telecom company for violating antitrust laws?

a.
Sprint
b.
T-Mobile
c.
Verizon
d.
Pacific Bell
e.
AT&T
 

 100.   According to the Clayton Act, price discrimination is considered socially detrimental if it:

a.
increases competition in a market.
b.
does not allow the dominant firm in the market to remain a monopolist.
c.
lessens competition or creates monopoly.
d.
involves the largest company in a respective industry.
e.
involves small businesses being shut out of a market.
 

 101.   __________ restrict(s) the ability of the buyer to deal with competitors, and __________ require(s) the buyer to purchase an additional product in order to buy the first.

a.
Price discrimination; exclusive dealings
b.
Exclusive dealings; price discrimination
c.
Tying arrangements; exclusive dealings
d.
Exclusive dealings; tying arrangements
e.
Tying arrangements; price discrimination
 

 102.   According to the Clayton Act, persons are not allowed to serve as the director on more than __________ board(s) in the same industry.

a.
one
b.
two
c.
three
d.
four
e.
five
 103.   Which federal agency is responsible for enforcing antitrust laws?

a.
Federal Reserve Bank
b.
Internal Revenue Service
c.
Office of the Comptroller of Currency
d.
Department of Justice
e.
Congressional Budget Office
 

 104.   Suppose you live in a small college town where, every weekend, ten independent food-cart owners set up shop and sell hot dogs on the street, they are popular with students, and where they frequently locate where students hang out. Suppose one evening you overhear the conversation of three of the food-cart owners as they conspire to raise the price of their hot dogs. That same night, you report the conversation to the Department of Justice via their antitrust complaint website. Why might the Department of Justice not send an agent to investigate the collusion attempt you witnessed?

a.
There is not a law that prohibits collusion among competitors.
b.
Antitrust laws are applicable only to collusion attempts that occur on federal government property and the collusion attempt occurred on private property.
c.
Collusion among small competitors like street vendors is actually beneficial to consumers.
d.
The Department of Justice lacks the resources to investigate every case of collusion reported.
e.
To ensure small businesses a fair shot at competing with larger businesses, President

Obama issued an official executive order to the Department of Justice in 2012 to stop pursing antitrust violations involving small businesses only.
 

 105.   Why does the Department of Justice not investigate and block the many mergers of large firms that have occurred recently in oligopolistic industries such as the cellular phone industry and the airline industry that obviously lessen competition?

a.
The Department of Justice has no authority to enforce antitrust violations because that authority was given only to the Department of Labor under the Clayton Act.
b.
The Economic Recovery and Reinvestment Act that was passed in 2009 repealed the Clayton Act.
c.
It is difficult for the Department of Justice to determine whether a firm has violated the law as written because antitrust law is complex and cases are hard to prosecute.
d.
In the past, every attempt by the Department of Justice to block a merger between two large firms has failed, so the Department of Justice attempts to block only mergers between small firms.
e.
In 1992, antitrust laws were amended so that they would not apply to nationally important industries such as the cellular phone industry and the airline industry.
 

 106.   An example of a tying arrangement is:

a.
a restaurant offering both Pepsi and Coca-Cola products.
b.
a car manufacturer installing expensive onboard GPS/navigation systems in all the cars it sells.
c.
a landlord offering free rent for the first month when a tenant signs a one-year lease.
d.
two companies competing on price.
e.
a coffee shop offering customers the option of having cream with their coffee for an extra 25 cents.
 

 107.   Assume that two firms (Firm A and Firm B) operate in the U.S. steel industry. The owner of Firm A writes the following letter to the owner of Firm B:

 

Dear Owner of Firm B,

 

I have concluded that if we both restrict output such that we each produce only 3 million tons of steel per year, we can both charge a price that will allow us to effectively monopolize the steel market and to maximize our joint profits. If you would like to enter into this agreement with me, please draft a contract that specifies this agreement, and I will be more than willing to meet with you and sign it.

 

Sincerely,

Owner of Firm A

 

If this letter were sent in the year 1850, the:

a.
owner of Firm A would be guilty of violating antitrust laws.
b.
owner of Firm B would be guilty of violating antitrust laws.
c.
owners of both Firm A and Firm B would be guilty of violating antitrust laws.
d.
owner of Firm B would be guilty of violating antitrust laws only if he drafted and signed the agreement.
e.
owners of both Firm A and Firm B would not be guilty of anything because there were no antitrust laws in existence in 1850.
 

 108.   Motorola and Apple are two large competitors in the cellular phone market. It is a violation of the __________ if Sanjay Jha serves on the board of directors for both Motorola and Apple.

a.
Mergers and Acquisitions Act
b.
Clayton Act
c.
Telecommunications Board Restriction Act
d.
Competition Act
e.
Economic Efficiency Act
 

 109.   If attorneys can prove beyond a reasonable doubt that a merger between two major airlines lessens competition, then the merger likely violates the:

a.
Mergers and Acquisitions Act.
b.
Clayton Act.
c.
Airline Act.
d.
Oligopoly Antitrust Act.
e.
Economic Efficiency Act.
 110.   Assume that two firms (Firm A and Firm B) operate in the U.S. steel industry. The owner of Firm A writes the following letter to the owner of Firm B:

 

Dear Owner of Firm B,

 

I have concluded that if we both restrict output such that we each produce only 3 million tons of steel per year, we can both charge a price that will allow us to effectively monopolize the steel market and to maximize our joint profits. If you would like to enter into this agreement with me, please draft a contract that specifies this agreement and I will be more than willing to meet with you and sign it.

 

Sincerely,

Owner of Firm A

 

If this letter were sent in the year 1944, the:

a.
owner of Firm A would be guilty of violating antitrust laws because she merely attempted to monopolize the steel industry.
b.
owner of Firm A would be guilty of violating antitrust laws only if she met with the owner of Firm B and signed the contract, but she would be not guilty if the attempt to monopolize the market failed because the owner of Firm B never responded to the letter.
c.
owners of both Firm A and Firm B would not be guilty of violating antitrust laws because antitrust laws in 1944 applied only to industries made up of three or more firms.
d.
owners of both Firm A and Firm B would not be guilty of violating antitrust laws because antitrust laws in 1944 contained exceptions for certain nationally important industries like the steel industry.
e.
owners of both Firm A and Firm B would not be guilty of anything because there were no antitrust laws in existence in 1944.
 

 111.   The practice of setting prices deliberately below average variable costs in order to put a rival out of business is known as:

a.
average variable pricing.
b.
collusion pricing.
c.
inversion pricing.
d.
predatory pricing.
e.
competitive pricing.
 

 112.   The practice of setting prices deliberately below __________ costs in an effort to drive a competitor out of the market is known as predatory pricing.

a.
marginal
b.
average total
c.
average variable
d.
average fixed
e.
explicit
 

 113.   It might be rational for a firm to price its products below __________ costs in order to drive potential entrants from entering a market.

a.
fixed
b.
average variable
c.
average fixed
d.
implicit
e.
explicit
 

 114.   Evidence of the intent to __________ is necessary to prove that a firm is engaged in predatory pricing. 

a.
lower prices after others are driven out of business
b.
raise prices after others are driven out of business
c.
increase quantity after others are driven out of business
d.
lower average fixed costs after others are driven out of business
e.
subsidize competitors so that they are not driven out of business
 

 115.   Suppose Firm A sets a price below average variable cost for two years. After the second year, Firm A’s biggest rival goes bankrupt and exits the market. In the third year, Firm A raises prices significantly. Firm A is practicing:

a.
average variable pricing.
b.
inversion pricing.
c.
competitive pricing.
d.
collusion pricing.
e.
predatory pricing.
 

 116.   If a firm sells only pharmaceutical grade aspirin (and no other products) and is currently pricing the aspirin below average variable costs, the firm is currently making __________ economic profits.

a.
negative
b.
0 (zero)
c.
positive
d.
abnormally high
e.
accounting
 

 117.   Firm A prices its products so low that it drives competitors out of the market. After all of its competitors have been driven out of the market, Firm A raises prices significantly. Which statement best explains how regulation applies to this situation?

a.
The fact that Firm A lowered prices is sufficient evidence of anticompetitive behavior.
b.
The fact that Firm A raised prices significantly is sufficient evidence of anticompetitive behavior.
c.
The fact that Firm A drove competitors out of the market is sufficient evidence of anticompetitive behavior.
d.
The fact that Firm A competed with other firms on price is sufficient evidence of anticompetitive behavior.
e.
The fact that Firm A lowered its price below average variable cost in an effort to drive competitors out of the market and then subsequently increased price is sufficient evidence of anticompetitive behavior.
 

 118.   Because Wal-Mart has never systematically raised prices, there is no evidence that Wal-Mart is engaged in:

a.
illegal tying.
b.
price discrimination that lessens competition.
c.
excusive dealings that restrict the ability of the buyer to deal with competitors.
d.
predatory pricing.
e.
mergers and acquisitions that lessen competition.
 

 119.   Firm A and Firm B are the only two companies that sell mail-order DVD rental subscriptions. For several years, Firm A priced its subscriptions below average variable cost. Firm B tried to compete by also selling subscriptions below average variable cost but went bankrupt and exited the market. Several months after Firm B exited the market, Firm A raised prices by 40% and is currently earning large, positive economic profits. Based only on this information, an argument can be made that:

a.
Firm B must have made bad business decisions because it went bankrupt.
b.
Firm A and Firm B must have had a collusive agreement.
c.
the mail-order DVD rental subscription market is a monopolistically competitive market.
d.
Firm B engaged in predatory pricing.
e.
Firm A engaged in predatory pricing.
 

 120.   A __________ externality exists when the number of customers who purchase a good or use it influences the quantity demanded.

a.
network
b.
production
c.
consumption
d.
distribution
e.
regulation
 

 121.   A firm that produces a product that is characterized by __________ externalities finds it easier to keep its customers from switching to rivals.

a.
negative
b.
positive
c.
network
d.
labor market
e.
public good
 

 122.   If network externalities exist in an industry, the __________ firm to enter the market is often the one that succeeds in dominating the industry.

a.
first
b.
second
c.
third
d.
fourth
e.
fifth
 

 123.   The __________ effect occurs when a buyer’s preference for a product increases as the number of people buying it increases.

a.
oligopoly
b.
switching
c.
bandwagon
d.
duopoly
e.
competitive
 

 124.   When customers face significant __________, the demand for the existing product becomes more inelastic.

a.
network costs
b.
bandwagon costs
c.
switching costs
d.
staying costs
e.
marginal costs
 

 125.   The presence of significant positive __________ externalities can drive small firms out of business or force them to merge with larger competitors.

a.
network
b.
negative
c.
production
d.
public
e.
size
 

 126.   When customers face significant switching costs, the:

a.
demand for the existing product becomes more inelastic.
b.
supply for the existing product becomes more inelastic.
c.
demand for the existing product is perfectly inelastic.
d.
supply for the existing product is perfectly inelastic.
e.
demand for the existing product becomes neither perfectly elastic nor perfectly inelastic.
 

 127.   The market for social-networking website services is characterized by network externalities because:

a.
the less other people are using the website, the more any one person enjoys it.
b.
the number of other people using the website has no effect on any one person’s enjoyment of it.
c.
the more other people are using the website, the more any one person enjoys it.
d.
a person needs a computer network to access a social-networking website.
e.
people are less likely to be hired by an employer if they use social-networking websites.
 

 128.   Firms with many customers that find it easier to attract new customers are most likely selling a good that has a __________ externality.

a.
consumption
b.
negative
c.
positive
d.
production
e.
network
 

 129.   In 2011, none of Jarrod’s friends owned a North Face jacket and Jarrod did not have a strong preference for North Face jackets. In 2012, many of Jarrod’s friends owned a North Face jacket, and Jarrod did have a strong preference for North Face jackets. The change in Jarrod’s preferences from 2011 to 2012 can be best explained by the __________ effect.

a.
winter
b.
bandwagon
c.
switching
d.
duopolist
e.
social
 

 130.   The accompanying table shows Cassie’s preference ranking for different brands of boots in both 2011 and 2012. Her preferences are ranked from 1 to 4, where 4 is her most-preferred brand and 1 is her least-preferred brand. In 2011, one of Cassie’s ten close friends owned a pair of Ugg boots. In 2012, six of Cassie’s eleven close friends owned a pair of Ugg boots. Based on this information, which effect would likely explain the change in Cassie’s preference ranking for Ugg boots from 2011 to 2012?

 

a.
social norming effect
b.
superiority effect
c.
bandwagon effect
d.
friendship effect
e.
consumer preference effect
 

 131.   The accompanying table shows Laura’s preference ranking for different brands of jeans for 2011 and 2012. Her preferences are ranked from 1 to 4, where 4 is her most-preferred brand and 1 is her least-preferred brand. In 2011, 1,439 of the 28,000 females attending Laura’s college owned a pair of Joe’s Jeans. In 2012, a survey showed that 9,421 of the 28,560 females attending Laura’s college owned a pair of Joe’s Jeans. Based on this information, the change in Laura’s preference ranking for Joe’s Jeans from 2011 to 2012 can be best explained by the:

 

a.
jean stitching effect.
b.
fashion inferiority complex effect.
c.
oligopolistic pricing effect.
d.
bandwagon effect.
e.
sociological advocacy effect.
 

 132.   Tara’s cellphone carrier would charge her $250 to cancel her current contract. If Tara wants to change cellphone carriers, the $250 she would have to pay is considered a:

a.
switching cost.
b.
network cost.
c.
bandwagon cost.
d.
contract cost.
e.
staying cost.
 

 133.   Jason’s JPMorgan Chase credit card has a 15% interest rate and a rewards program that gives him 1 point per $1 that he spends. The only option Jason has for point redemption is a $100 statement credit that would cost Jason 10,000 points. On January 7, 2012, Jason noticed he has 8,750 reward points accumulated on his JPMorgan Chase card. On that same day, he received an offer from Bank of America for a credit card with an identical rewards program and an 8% interest rate. If Jason cancels his JPMorgan Chase card and accepts the offer for the Bank of America card, the accumulated 8,750 reward points that he will not be able to redeem are an example of a:

a.
network cost.
b.
bandwagon cost.
c.
card cost.
d.
credit cost.
e.
switching cost.
 

 134.   The __________ demand curve theory states that oligopolists tend to respond aggressively to the price cuts of rivals but largely ignore price increases.

a.
downward-sloping
b.
perfectly elastic
c.
kinked
d.
upward-sloping
e.
jagged
 

 135.   According to the kinked demand curve theory, the behavior of firms in an oligopoly creates a demand curve that is __________ at prices above the cartel price and __________ at prices below the cartel price.

a.
downward-sloping; upward-sloping
b.
more inelastic; upward-sloping
c.
perfectly inelastic; downward-sloping
d.
more inelastic; more elastic
e.
more elastic; more inelastic
 

 136.   Kit-N-Sit, Inc. and Kittysitters, Inc. are two cat-sitting services in Kent, Ohio. There are no other cat-sitting services, so the market is considered to be a duopoly. According to the kinked demand curve theory, if Kit-N-Sit, Inc. cuts prices, Kittysitters, Inc. will:

a.
do nothing and leave prices unchanged.
b.
sue Kit-N-Sit, Inc. for monetary damages in court.
c.
respond aggressively by increasing prices drastically.
d.
respond aggressively by increasing prices moderately.
e.
respond aggressively by cutting prices.
 

 137.   Kit-N-Sit, Inc. and Kittysitters, Inc. are two cat-sitting services in Kent, Ohio. There are no other cat-sitting services so the market is considered to be a duopoly. According to the kinked demand curve theory, if Kit-N-Sit, Inc. increases prices, Kittysitters, Inc. will:

a.
do nothing and leave prices unchanged.
b.
sue Kit-N-Sit, Inc. for monetary damages in court.
c.
respond aggressively by increasing prices.
d.
split the company into two different companies: Kit, Inc. and Sit, Inc.
e.
respond aggressively by cutting prices.
 

 138.   Kit-N-Sit, Inc. and Kittysitters, Inc. are two cat-sitting services in Kent, Ohio. There are no other cat-sitting services so the market is considered to be a duopoly. According to the kinked demand curve theory, if Kit-N-Sit, Inc. cuts prices, Kittysitters will __________; if Kit-N-Sit, Inc raises prices, Kittysitters, Inc. will __________.

a.
do nothing and leave prices unchanged; do nothing and leave prices unchanged
b.
do nothing and leave prices unchanged; cut prices
c.
do nothing and leave prices unchanged; raise prices
d.
cut prices; do nothing and leave prices unchanged
e.
raise prices; do nothing and leave prices unchanged
 

 139.   When firms in an oligopoly collude without an explicit agreement, economists say they are involved in:

a.
illegal collusion.
b.
tacit collusion.
c.
game theoretic collusion.
d.
predatory collusion.
e.
marginal collusion.
 140.   There are four ice cream shops on a small tourist island. The accompanying table shows the quantity of ice cream cones that each firm produces in a typical year and the price that each firm currently charges for each ice cream cone it sells. An economist might suspect __________ collusion occurring in this market where __________ is the price leader and all other firms set price to match the price leader.

 

a.
explicit; Scoop Shack
b.
explicit; Vanilla Emporium
c.
illegal; Vanilla Emporium
d.
tacit; Scoop Shack
e.
tacit; Vanilla Emporium
 

 141.   There are four jet ski rental companies on a small tourist island. The accompanying table shows the quantity of jet skis that each firm rents in a typical year and the per-hour price that each firm currently charges for each jet ski it rents. If Tropical Jet Skis raised its price to $60.25 and all other firms subsequently increased their prices by $10.00, all firms have:

 

a.
likely participated in explicit price collusion and they all have broken antitrust laws.
b.
still broken antitrust laws even if they might not have participated in explicit price collusion.
c.
likely participated in tacit collusion and they all have broken antitrust laws.
d.
likely participated in tacit collusion and they have not broken antitrust laws because tacit collusion is not illegal.
e.
likely participated in tacit collusion and the government can improve social welfare by banning jet ski rentals on the island.
 

 

1.      The accompanying table shows two firms in a single stage game.  Each firm makes its decision without the knowledge of the other firm’s decision.  The payoffs for each firm represents economic profits, and each firm strictly prefers more economic profit than less.  In the Nash Equilibrium of this game.  Pepsi earns a profit of ___________and Coca-Cola earns a profit of ______________.

2.      The _______________ effect occurs when a buyer’s preference for a product increases as the number of people buying it increases.

3.      Evidence of the intent to _________ is necessary to prove that a firm is engaged in predatory pricing.  

4.      When customers face significant _______ the demand for the existing product becomes more inelastic.

5.      An agreement between Netflix and Flixbuster to each supply 250 subscription is an example of:

6.      ____________ have a greater incentive to collude and to form cartels in an effort to achieve monopoly-like profits.

7.      Player A and Player B are playing a game involving several rounds of a prisoner’s dilemma where their choices are to “cooperate” or “defect.”  After each round ends, one player roles a six-sided die.  If the die lands on 6, the game ends; however, if the die lands on any other number, the game continues and players play another round.  Prior to the game starting, the players formulate a strategy that specifies what they will do in every possible round they might find themselves in.  If Player A is playing the tit-for-tat strategy, in the:

8.      Jarrod and Katie are playing a game involving repeated iterations of a simultaneous move prisoner’s dilemma.  In each round, both Jarrod and Katie choose either “cooperate” or “defect.”  Neither Jarrod nor Katie knows when the game will end.  If Jarrod believes that Katie will be playing tit-for-tat:

9.      It might be rationale for a firm to price its products below __________ costs in order to drive potential entrants from entering a market.

10.  A ___________ agreement among rival firms will most likely specify the price each firm will charge and the quantity each firm will produce/sell.

11.  Tara’s cellphone carrier would charge her $250 to cancel her current contract.  If Tara wants to change cellphone carriers, the $250 she would have to pay is considered a:

12.  In 2011, three firms were selling cellular phone service for a price of $40 per month in Pittsburgh, Pennsylvania.  In 2012, five firms were selling cellular phone service for a price of $30 per month.  Which effect best describes the likely decrease in profits experienced by each of the three original firms due to the lower market price?

13.  Refer to the accompanying table.  If Keisha keeps quiet, Larry will spend ________ years in jail if he confesses and _________ years in jail if he also keeps quiet.

14.  The accompanying table shows two firms in a single-stage duopoly game.  Each firm makes its decision without knowledge of the other firm’s decision.  The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less.  This game would be considered a prisoner’s dilemma if X is between _________.

15.  Firms with many customers that find is easier to attract new customers are most likely selling a good that has a ________ externality.

16.  If this market were a monopoly instead of a duopoly, the market price would be ________ and the quantity of streaming movie subscriptions purchased each month would be __________.

Which of the following conditions will result in the firm making zero economic profits

Marginal revenue is the change in total

Which of the following lists the three main characteristics of a competitive market

At current production levels, the marginal revenue of a competitive firm is $15 and the marginal cost of the firm is $15. The firm should

If firms in a competitive market are making positive economic profits, you would expect firms to

If firms in a competitive market are incurring economic losses, you would expect firms to

When marginal revenue equals marginal cost

A firm’s short-run supply curve is equal to the firm’s

Firms will always make a positive economic profit if the price they charge is

A price-maker

When a particular strategy produces a better outcome for a person regardless of the strategies others choose, we say it is a(n):

If barriers to entry are high and products are somewhat differentiated

In a repeated prisoner’s dilemma, a player that is playing tit-for-tat will

The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of –1, the player loses; if both players receive 0 (zero), the players tie. If Stan chooses scissors and Kyle chooses rock, Stan’s payoff is __________ and Kyle’s payoff is __________.

Two government-created barriers to entry are

Entry of new firms will continue in a monopolistically competitive industry until

If monopolistically competitive firms are incurring losses, existing firms would

The accompanying table shows two firms in a single-stage duopoly game. Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. If both firms were able to write a binding contract, this contract would specify that Bobbles.com agrees to produce __________ bobbleheads and Bobbles R Us agrees to produce __________ bobbleheads

 

 

Firms will always make a positive economic profit if the price they charge is

Firms in every market structure

Costs that have been incurred as a result of past decisions are known as

Which of the following conditions will result in the firm making zero economic profits

Marginal revenue is the change in total

If a competitive firm can make enough revenue to cover its variable costs, the firm will

The marginal cost curve is the short-run supply curve

If firms in a competitive market are making positive economic profits, you would expect firms to

At current production levels, the marginal revenue of a competitive firm is $15 and the marginal cost of the firm is $15. The firm should

A firm operating in an oligopolistic market has __________ market power compared to a __________.

The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of –1, the player loses; if both players receive 0 (zero), the players tie. If Stan chooses scissors and Kyle chooses rock, Stan’s payoff is __________ and Kyle’s payoff is __________.

 

Monopolistically competitive firms that are earning zero economic profit would most likely

The accompanying table shows two firms in a single- stage duopoly game. Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. Assume firms are not able to collude. The Nash equilibrium total quantity of potatoes on the market is

 

If barriers to entry are high and products are somewhat differentiated

Barriers to entry

Monopolistic competition means

Both monopolies and competitive firms

Two government-created barriers to entry are: