Chapter 15 Questions and Answers

Taking explicit account of a rival's expected response to a decision you are making is called ___ decision making.

strategic

Select all that apply The NAICS categorizes industries by the a. type of economic activity. b. type of production process. c. quality of product sold. d. size of firm.

a. type of economic activity. b. type of production process.

True or false: Most observers believe the need for regulating business practices has declined. a. True b. False

b. False

In the absence of barriers to entry in a contestable market model, the price an oligopolist sets will a. depend of the pricing decisions of other firms. b. be equal to the competitive price. c. be equal to the monopolist's price. d. depend on the market structure.

b. be equal to the competitive price.

The lowest price that an oligopoly firm will generally charge is the a. monopoly price b. competitive price c. this value cannot be determined

b. competitive process

Prices are sticky in oligopoly because firms a. cannot collude. b. may informally collude. c. do not trust that they can successfully collude. d. take the price determined by the market.

b. may informally collude

An index of market concentration calculated by adding the squared value of the individual market shares of all the firms in the industry is called the _____. a. Crukshank index b. market ratio c. Herfindahl index d. concentration ratio

c. Herfindahl index

The higher the concentration ratio, the closer the industry is to a. monopolistic competition. b. perfect competition. c. an oligopoly.

c. an oligopoly

The ___ market model is a model of oligopoly in which barriers to entry and exit, not the structure of the market, determine a firm's price and output decisions.

contestable

There are 5 firms in an industry, and each of them has 20% of the market share. Calculate the Herfindahl index. a. 400 b. 1,000 c. 500 d. 2,000

d. 2,000

Select all that apply In the contestable market model, which of the following determines a firm's price and output decisions? a. Continuously declining marginal costs b. Perfect competitors c. The structure of the market d. Barriers to entry

d. Barriers to entry

There are 2 firms in an industry, and each of them has 50% of the market share. Calculate the Herfindahl index. a. 5,000 b. 500 c. 100 d. 2,500

a. 5,000

Select all that apply Which of the following are reasons the number of antitrust cases has fallen over the past few decades? a. Antitrust laws are known and prevent monopoly actions from occurring. b. The U.S. market is more competitive. c. More and more Americans are now shareholders. d. Globalization has changed American ideology.

a. Antitrust laws are known and prevent monopoly actions from occurring. d. Globalization has changed American ideology.

The act that declared specific business practices that result from monopoly power to be illegal is the a. Clayton Antitrust Act. b. Federal Trade Commission Act. c. Sherman Antitrust Act of 1890. d. Merger Act of 1920.

a. Clayton Antitrust Act

Select all that apply Key features of an oligopoly are: a. Firms take other firms' actions into account. b. Firms take the market price as given. c. Firms set prices independently of market conditions. d. There are a small number of firms.

a. Firms take other firms' actions into account. d. There are a small number of firms.

What was the resolution of the Standard Oil Case? a. Standard Oil was to be broken up. b. There was no ruling made on this case. c. Standard Oil was found to not be not guilty of antitrust violations.

a. Standard Oil was to be broken up.

Why hasn't traditional antitrust policy been effective? a. The process of enforcing antitrust laws are too slow. b. Courts have been unwilling to enforce the laws. c. Laws have expired and have not been renewed. d. Firms are establishing home bases in foreign countries.

a. The process of enforcing antitrust laws are too slow.

True or false: A cartel is a combination of firms that acts as if it were a single firm. a. True b. False

a. True

True or false: Established platform monopolies face less competition than do start ups. a. True b. False

a. True

True or false: Oligopolists' pricing and output strategies can take many forms and are difficult to characterize with one model. a. True b. False

a. True

True or false: Platform businesses tend to be natural monopolies. a. True b. False

a. True

True or false: The threat of outside competition can limit oligopolies from acting as a cartel. a. True b. False

a. True

Platform monopolies face more competition a. as the market becomes established. b. from consumers than producers. c. from government. d. after the market becomes established.

a. as the market becomes established.

A monopoly market has: a. barriers to entry. b. the most output restrictions of any market. c. zero profit in the long-run. d. only one firm.

a. barriers to entry. b. the most output restrictions of any market. d. only one firm.

Select all that apply A three-digit industry in the NAICS system is more broadly defined compared to a: a. five-digit industry. b. one-digit industry. c. four-digit industry. d. two-digit industry.

a. five-digit industry. c. four-digit industry.

A reason the number of antitrust cases has fallen is that a. globalization has changed American ideology. b. U.S. firms have gotten smaller and smaller in size. c. the budget deficit has kept regulators from pursuing cases. d. the U.S. courts have a large backlog of cases.

a. globalization has changed American ideology.

The marginal revenue in the kinked demand model is discontinuous because if a firm increases a. its prices, it does not expect other firms to go along; if a firm decreases its prices, it expects firms to match that action. b. or decreases its prices, it expects firms to match that action. c. its prices, it expects other firms to match that action; if a firm decreases its prices, it does not expect firms to go along. d. or decreases its prices, it does not expect other firms to go along.

a. its prices, it does not expect other firms to go along; if a firm decreases its prices, it expects firms to match that action.

If a cartel splits up, the individual firms are likely to charge a. a lower price than before. b. the same price as before. c. a higher price than before.

a. lower price than before

Select all that apply In a monopolistically competitive market there are: a. many firms. b. many barriers to entry. c. possibilities of economic profit in the long-run. d. some restrictions on output due to product differentiation.

a. many firms. d. some restrictions on output due to product differentiation.

All firms follow a uniform pricing policy that serves their collective interest in a _____. a. market with a cartel b. monopolistically competitive market c. contestable market d. perfectly competitive market

a. market with a cartel

According to the kinked demand model, one explanation why prices of goods tend to be "sticky" is that firms tend to believe that competitors will a. match price decreases, but do not match price increases. b. not match price decreases, but do match price increases. c. not match and changes of its competitors. d. match all price changes of its competitors.

a. match price decreases, but do not match price increases.

In the cartel model of oligopoly, a cartel acts as a _____. a. monopolist b. perfect competitor

a. monopolist

Oligopolies are limited in their ability to form a cartel by _____. a. outside competition b. barriers to exit c. barriers to entry d. sticky prices

a. outside competition

The Herfindahl index is an index of market concentration calculated by adding the a. squared values of all the individual market shares of firms in the industry. b. square-root of the values of all the individual market shares of firms in the industry. c. volume of sales of all the individual firms in the industry. d. values of all the individual market shares of all firms in the industry.

a. squared values of all the individual market shares of firms in the industry.

A reason the number of antitrust cases has fallen is that a. the rate of technological change has risen. b. the economy is in a recession. c. U.S. firms face less foreign competition. d. the rate of business starts has risen.

a. the rate of technological change has risen.

ALCOA was found guilty of violating the antitrust statutes in 1945 because it a. was so successful that it dominated the market. b. exploited its monopoly power to charge high prices. c. forced competing firms out of business. d. had engaged in unfair practices.

a. was so successful that it dominated the market.

The higher the concentration ratio, the closer the industry is to a. perfect competition. b. an oligopoly. c. monopolistic competition.

b. an oligopoly

The judgment by structure criterion is difficult to implement in practice because a. whether or not the actions of a firm can be considered appropriate competitive behavior depends on the circumstances. b. it is difficult to determine the relevant market and the industry necessary to identify the structural competitiveness of any industry. c. strategic pricing is difficult to determine given changing input costs in any market. d. each action of a firm be analyzed on a case-by-case basis, which is very time-consuming and expensive.

b. it is difficult to determine the relevant market and the industry necessary to identify the structural competitiveness of any industry.

According to the kinked demand model, one explanation why prices of goods tend to be "sticky" is that firms tend to believe that they will a. go out of business if they raise prices. b. lose a lot of customers if they raise prices and gain few if they lower prices. c. go out of business if they lower prices. d. lose a few customers if they raise prices and gain many if they lower prices.

b. lose a lot of customers if they raise prices and gain few if they lower prices.

The highest price that an oligopoly firm will charge is the _____. a. competitive price b. monopoly price c. this value cannot be determined

b. monopoly price

Select all that apply In a perfectly competitive market, there are: a. interdependent firms. b. no long-run economic profits possible. c. few firms. d. no output restrictions.

b. no long-run economic profits possible. d. no output restrictions.

The basis of judgment for the Standard Oil case was _____. a. market concentration b. performance c. cost d. structure

b. performance

If the courts found a company in violation of antitrust laws based on a high market share, it is using judgment by _____. a. performance b. structure c. government d. design

b. structure

Compared to the concentration rate, the Herfindahl index gives more weight to a. the two values give equal weightage to all the firms in the industry. b. the largest firms in the industry. c. the smallest firms in the industry.

b. the largest firms in the industry.

Most observers agree that if we want effective antitrust action, we need a. to subsidize technological innovation. b. to write new laws. c. greater enforcement of existing laws. d. government takeover of platform businesses.

b. to write new laws.

Select all that apply A four-digit industry in the NAICS system is more narrowly defined compared to a: a. five-digit industry. b. two-digit industry. c. six-digit industry. d. three-digit industry.

b. two-digit industry d. three-digit industry

Which of the following is a model of oligopoly behavior? a. Non-collusive model b. Competitive model c. Contestable market model d. Perfect model

c. Contestable market model

Which of the following indices gives the most weight to the largest firms in the industry? a. Concentration index b. Collusion index c. Herfindahl index d. Sales index

c. Herfindahl index

If oligopolistic firms decide to collude, they are likely to charge a. a lower price than before. b. the same price as before. c. a higher price than before.

c. a higher price than before.

When a firm takes explicit account of a rival's expected response to a decision it is making a. a perfect competitor's decision. b. a monopolist's decision. c. a strategic decision. d. an intuitive decision.

c. a strategic decision

The higher the concentration ratio, the closer the industry is to a. an oligopolistic or monopolistically competitive market structure. b. a perfectly competitive or monopolistically competitive market structure. c. an oligopolistic or monopolistic market structure. d. a monopolistic or monopolistically competitive market structure.

c. an oligopolistic or monopolistic market structure.

The government's policy toward the competitive process is called _____. a. trust policy b. NAICS policy c. antitrust policy d. justice policy

c. antitrust policy

The price in the contestable market model of oligopoly will be equal to the competitive price if a. firms start to collude. b. barriers to entry are created. c. barriers to entry are removed. d. firms make decisions based on marginal revenue.

c. barriers to entry are removed.

The market structure that most fits the empirical measures of industry structure is the _____. a. contestable market model b. perfect competition model c. cartel model d. monopolistic competition model

c. cartel model

The lowest price that an oligopoly firm will generally charge is the _____. a. monopoly price b. this value cannot be determined c. competitive price

c. competitive price

The value of sales by the top firms of an industry stated as a percentage of total industry sales is called the _____. a. Herfindahl index b. sales ratio c. concentration ratio d. oligopoly index

c. concentration ratio

The Sherman Antitrust Act is consistent with judgment by _____. a. market structure b. firm structure c. firm performance d. labor practices

c. firm performance

No single model of oligopoly behavior exists because a. pricing and output decisions are made independent of market decisions. b. there are too few firms to be analyzed effectively. c. the interactions among oligopolists and market dynamics are too complicated and indeterminant. d. oligopolists have unique cost structures that complicate pricing decisions.

c. the interactions among oligopolists and market dynamics are too complicated and indeterminant.

The lawsuit against the Aluminum Company of America focused on a. the behavior of competitors. b. unfair business practices. c. the number of firms in the market.

c. the number of firms in the market.

A concentration ratio is the a. number of firms that control over 50% of the market. b. units sold of the top number of firms in an industry. c. value of sales by the top firms of an industry stated as a percentage of total industry sales.

c. value of sales by the top firms of an industry stated as a percentage of total industry sales.

Between the cartel model and the contestable market models of market structure, the ___ model best fits the empirical measures of industry structure.

cartel

Why hasn't traditional antitrust policy been effective? a. Businesses are no longer pressing for monopoly positions. b. Competition is no longer preferred by consumers. c. Consumers are no longer being hurt by businesses. d. Industries are experiencing significant technological change.

d. Industries are experiencing significant technological change.

The industry classification that categorizes industries by type of economic activity and groups firms with like production processes is called the _____. a. North American Industry Classification Schedule b. International Industry Classification System c. International Industry Classification Schedule d. North American Industry Classification System

d. North American Industry Classification System

Which of the following is one of economist's models of oligopoly behavior? a. Perfect model b. Conspiracy model c. Monopoly model d. Cartel model

d. cartel model

The most important reason the judgment by performance criterion is difficult to implement in practice is that a. it is difficult to determine the relevant competitors. b. the court must decide whether to use concentration ratios or the Herfindahl index. c. it is difficult to determine the relevant industry. d. each action of a firm must be analyzed separately and within a particular context.

d. each action of a firm must be analyzed separately and within a particular context.

The marginal revenue in the kinked demand model is discontinuous because at higher than existing prices, perceived demand is a. perfectly inelastic; at lower than existing price, the perceived demand is perfectly elastic. b. inelastic; at lower than existing price, the perceived demand is elastic. c. perfectly elastic; at lower than existing price, the perceived demand is perfectly inelastic. d. elastic; at lower than existing price, the perceived demand is inelastic.

d. elastic; at lower than existing price, the perceived demand is inelastic.

Platform businesses tend to be _____. a. natural competitors b. artificial competitors c. artificial monopolies d. natural monopolies

d. natural monopolies

Judgment by structure means that the competitiveness of a market is determined by the a. actual behavior of firms in the market. b. structure of the firms in the market. c. dynamic nature of the market. d. number of firms in the industry.

d. number of firms in the industry

An antitrust policy is the government's policy toward a. price controls. b. import restrictions. c. consumers' belief in the market. d. the competitive process.

d. the competitive process.

A market structure that has a small number of firms that make strategic decisions is called ___

oligopoly

A market structure that has a small number of firms that make strategic decisions is called ___ .

oligopoly