ECO 101/102 Microeconomics Quiz 7

occurs when each player takes the best possible action regardless of the strategy chosen by other firms

A Nash equilibrium in the duopoly game _______.

best possible action for themself

A Nash equilibrium occurs when each player in a game takes the ________ given the action of the other player.

acting together to limit output, raise prices, and increase economic profit

A cartel is a group of firms ______.

the many Chinese restaurants in San Francisco

An example of a firm in monopolistic competition is ______.

natural oligopoly

An oligopoly created because of economies of scale is called a ________.

price and the quantity it can sell

As a firm in monopolistic competition sets the price for its product, the firm faces a tradeoff between ______.

a small share

Each firm in monopolistic competition has _____ of the market.

40

Each of the ten firms in an industry has 10 percent of the industry's total revenue. The four firm concentration ratio is ______.

the monopoly outcome

For a duopoly, the highest price is charged when the duopoly achieves _________.

the same amount of output as the monopoly outcome

For a duopoly, the maximum TOTAL profit is reached when the duopoly produces _________.

random; profit

Game theory is the tool that economists use to analyze strategic behavior, which is behavior that takes into account the ________ behavior of others and the mutual recognition of ________.

the equilibrium might not be the best solution for the parties involved

Game theory reveals that ______.

The measure would incorrectly show an uncompetitive market structure because many firms could open in Sunnyvale without any restrictions.

Girlfriend's Salon is the only hair salon in Sunnyvale, a small town. Which of the following statements correctly describes a concentration measure for salons in Sunnyvale?

The actions are sorted into types of strategies.

How can you sort all of the possible actions of each player according to game theory?

Potential payoffs can be tabulated using a payoff matrix.

How can you sort potential payoffs?

Because the product is differentiated, the firm can set its price.

How does product differentiation relate to price?

It calculates the percentage of total revenue of the industry created by the four largest firms in the industry.

How does the four-firm concentration ratio assess market structure, which can be used to inform advertising needs of new firms?

monopolistic competition

If the four-firm concentration ratio for the market for pizza is 28 percent, then this industry is best characterized as ______.

less than 40, the industry is considered monopolistic competition

If the four-firm concentration ratio of an industry is ______.

4,150

If there are four firms in an industry with market shares of 50 percent, 40 percent, 5 percent, and 5 percent, the Herfindahl-Hirschman Index is _______.

make greater economic profits than if they did not collude

If two duopolists can stick to a cartel agreement to boost their prices, then both ______.

neither player gets his or her best outcome

In a prisoners' dilemma game, in the Nash equilibrium ________________________.

better off confessing

In the prisoners' dilemma, each player is ________ regardless of the other player's actions.

monopoly and oligopoly.

Long-run economic profits are most likely to be earned in _________.

advertising

Low-quality producers use _____ to convince buyers to purchase their product despite supplying a low-quality product.

generally not efficient

Oligopoly is _______.

account for barriers to entry

One problem with measures of market concentrations is that they do NOT _______.

use the Herfindahl-Hirschman Index (HHI)

One way to identify oligopoly is to _____.

quality

Product differentiation lets firms compete in price, _____, and features.

increases; decreases

Suppose a duopoly had reached the monopoly outcome and then the first firm increased its production. If the second firm next increases its production, the second firm's profit ________ and the first firm's profit ________.

is likely to challenge a merger if the Herfindahl-Hirschman Index exceeds 1,800

The U.S. Justice Department ______.

can enter a market to compete for economic profits and leave when economic losses are being incurred

The freedom of entry and exit in monopolistic competition means that firms _______.

low output; high output

The possible alternatives for an oligopoly range from the monopoly case with ________ to the perfectly competitive case with ________.

perfect competition; monopoly

The range in which a duopoly's output falls is less than or equal to the output level in ________ and more than or equal to the output level in ________.

game theory

The tool that economists use to analyze the mutual interdependence of oligopolies is _________.

the firms are so few that they recognize their mutual interdependencies

To determine if a market is an oligopoly, we need to determine if ______.

There is a small number of competing firms and high barriers to entry.

What are the characteristics of an oligopoly?

It is a market with only two firms.

What is a duopoly?

4,358

What is the Herfindahl-Hirschman Index if the four firms in an industry account have market shares of 62 percent, 15 percent, 15 percent, and 8 percent?

monopoly

When firms in an oligopoly successfully collude and do not cheat on a cartel agreement, they can make a long-run economic profit similar to _____.

marginal cost equals the price

When oligopolies operate like firms in perfect competition, the firms produce at the point where the _________.

2 percent

Which of the following four-firm concentration ratios would be the best indication of a perfectly competitive industry?

Only a few firms compete with each other.

Which of the following is NOT a characteristic of monopolistic competition?

Product flaws

Which of the following is NOT likely to be used in advertising?

Running shoes

Which of the following is the best example of a differentiated product?

They are tempted because a small number of firms could form a cartel and behave like a monopoly.

Why are oligopolies tempted by collusion?

Advertising is important because it is how firms can persuade buyers to purchase their product.

Why is advertising important in monopolistic competition?