microeconomics chapter 14

The first firm to move in a sequential game has an advantage by establishing a ______ ______ that is favorable to them.

Blank 1: Nash Blank 2: equilibrium

When members of an oligopoly react to price changes by a dominant firm, the _______ _______ model is most applicable.

Blank 1: price Blank 2: leadership

Gentleman's agreements are a type of covert collusion, occurring in social settings where a product's _______ is agreed upon and market shares are determined by _______ competition.

Blank 1: price Blank 2: nonprice

How can oligopolistic firms influence their profits and the profits of their rivals? Multiple choice question. By decreasing total suppliers By changing pricing strategies By updating manufacturing equipment By increasing recruiting expenses

By changing pricing strategies

What is it called when a group of producers creates a formal written agreement stating the level of output by each firm and the prices that must be charged? Multiple choice question. Mutual interdependence OPEC Cartel Price war

Cartel

What are oligopolists able to do by controlling price through collusion? Multiple select question. Increase profits Prohibit the entry of new rivals Cause price wars during business recessions Reduce uncertainty Reduce inputs used in production

Increase profits Prohibit the entry of new rivals Reduce uncertainty

What does a demand curve look like for an oligopolistic firm? Multiple choice question. It will always be downward sloping because it is a price maker. It will always be U-shaped. It will always be kinked because it is a price maker. It could be downward sloping or kinked. It could be downward or upward sloping.

It could be downward sloping or kinked.

What is the only stable outcome in a payoff matrix? Multiple choice question. Oligopolistic collusion Nash equilibrium Mutual interdependence Dominant strategy

Nash equilibrium

In what kind of game does one firm move first and commit to a specific strategy and then the rival responds? Multiple choice question. One-time game Reciprocal game Repeated game Sequential game

Sequential game

Which statement is true about oligopolies? Multiple choice question. a) They produce only heterogeneous products. b) They may produce homogeneous or differentiated products. c) They may produce either standardized products or homogeneous products. d) They produce only differentiated products.

They may produce homogeneous or differentiated products.

Which are reasons that that firms merge? Multiple select question. To increase economies of scale To increase market share To increase control over the product's price To decrease monopoly power To obtain lower input prices

To increase economies of scale To increase market share To increase control over the product's price To obtain lower input prices

Oligopolies are comprised of ______. Multiple choice question. thousands of large producers one large producer hundreds of large producers a few large producers

a few large producers

Which scenario describes a simultaneous game? Multiple choice question. a) Firms choose strategies at the same time. b) The outcomes for all firms are negative. c) Strategies are chosen for a single time period. d) The outcomes for all firms are positive.

a) Firms choose strategies at the same time.

What are the positive effects of large oligopolists advertising? Multiple select question. a) It lowers search costs of information for consumers. b) It enhances competition and reduces monopoly power. c) It eliminates competition among firms. d) It helps reduce demand for material products.

a) It lowers search costs of information for consumers. b) It enhances competition and reduces monopoly power.

Which of the following is true about the oligopolist if rivals match a price cut but ignore a price increase? Multiple choice question. a) Its marginal revenue curve would consist of two segments b) Its marginal cost curve is made up of two segments c) Its demand curve is downward-sloping d) Demand is highly elastic below the going price

a) Its marginal revenue curve would consist of two segments

A(n) _______ is a market dominated by a few large producers of a homogeneous or differentiated product. (Enter one word in the blank.)

oligopoly

Advertising can persuade consumers to pay higher prices for products that are well _______ instead of purchasing unadvertised products with lower prices.

advertised

Firms in oligopolistic industries are "price makers" because such firms ______. Multiple choice question. are monopolies are few in number have no rivals have interdependent pricing

are few in number

What is the Nash equilibrium? Multiple choice question. a) An outcome in the payoff matrix from which one firm wants to deviate since the current strategy is not optimal given the rival's strategic choice. b) An outcome in the payoff matrix from which neither firm wants to deviate since the current strategy is optimal given the rival's strategic choice. c) An outcome in the payoff matrix from which both firms want to deviate since the current strategy is not optimal for either firm.

b) An outcome in the payoff matrix from which neither firm wants to deviate since the current strategy is optimal given the rival's strategic choice.

What happens to oligopolistic firms when a recession occurs? Multiple choice question. a) They move downward and to the right to a lower operating point on the average-total-cost curve. b) They move leftward and upward to a higher point on the average-total-cost curve. c) They try to avoid losses by raising prices in conjunction with rival firms. d) They lose most of their excess-production capability.

b) They move leftward and upward to a higher point on the average-total-cost curve.

If an industry evolves from monopolistic competition to oligopoly, we would expect Multiple Choice a) the four-firm concentration ratio to decrease. b) the four-firm concentration ratio to increase. c) the four-firm concentration ratio to remain the same. d) barriers to entry to weaken.

b) the four-firm concentration ratio to increase.

A firm in an oligopolistic market ______. Multiple choice question. has its price set by the government has to charge a price equal to the lowest average total cost (ATC) can set its price and output to maximize profits cannot change its price

can set its price and output to maximize profits

Oligopolists can often benefit from ______, which means cooperation with rivals.

collusion

What term means "cooperation with rivals?" Multiple choice question. competition payoff cheat collusion

collusion

Oligopolistic firms do which of the following when they change their pricing strategies? Multiple choice question. a) Affect profits without influencing the profits of rival firms b) Affect costs and influence the supply of rival firms c) dAffect costs and influence the products of rival firms d) Affect profits and influence the profits of rival firms

d) Affect profits and influence the profits of rival firms

f output is set at the kink of the kinked-demand model, then there Multiple Choice a) is a strong incentive for rivals to decrease prices. b) is a strong incentive for rivals to increase prices. c) is one price at which marginal revenue equals marginal cost. d) are several prices at which marginal revenue equals marginal cost.

d) are several prices at which marginal revenue equals marginal cost.

If an oligopolist's demand curve has a "kink" in it, then over some interval, Multiple Choice a) the oligopolist's marginal cost curve will have a break in it. b) the oligopolist need not fear entry into the industry by new firms. c) the oligopolist's competitors will not react to its price changes, either up or down. d) changes in marginal cost will not cause a change in the profit-maximizing price.

d) changes in marginal cost will not cause a change in the profit-maximizing price.

Economic efficiency can suffer as a result of advertising, when it Multiple Choice a) enhances competition among oligopolistic firms. b) facilitates the introduction and success of new products to replace old one. c) increases sales of firms and enhances their monopoly power. d) increases brand loyalty, reducing buyers' elasticity of demand.

d) increases brand loyalty, reducing buyers' elasticity of demand.

An oligopolistic firm's marginal revenue curve is made up of two segments if ______. Multiple choice question. a) its rivals match a price increase but ignore a price cut b) its rivals match both a price cut and price increase c) its rivals do not respond to either a price cut or price increase d) its rivals match a price cut but ignore a price increase

d) its rivals match a price cut but ignore a price increase

The shape of the demand curve for an oligopolistic firm ______. Multiple choice question. is always downward sloping is always upward sloping is always kinked depends on the firm's cost structure depends on the actions of rivals to price changes

depends on the actions of rivals to price changes

Oligopolies have ______. Multiple choice question. fewer firms than monopolies the same number of firms as perfect competition fewer firms than monopolistic competition the same number of firms as monopolistic competition more firms than perfect competition

fewer firms than monopolistic competition

The study of how people behave in strategic situations is called _____ theory.

game

The study of how one firm reacts to the actions taken by another firm or individual when implementing a strategy is called _____. Multiple choice question. demand theory game theory pricing theory strategic theory

game theory

When the number of firms in an oligopolistic industry increases from 3 to 10, it is ______ to collude. Multiple choice question. necessary legal harder easier

harder

Companies often merge to ______ monopoly power. Multiple choice question. eliminate avoid the perception of decrease increase

increase

Collusion becomes more difficult as the number of firms _______.

increases

An oligopoly firm's demand curve will be kinked if ______. Multiple choice question. its rivals match price increases and price decreases its rivals collude its rivals ignore price increases and price decreases its rivals match price decreases but ignore price increases

its rivals match price decreases but ignore price increases

Without collusion, if a firm incorrectly assumes that its rivals will charge the same price but its rivals actually charge a lower price, the firm's demand curve will shift to the _______.

left

A market is considered to be a(n) _____ when the largest four firms in an industry control more than 40% or more of the market.

oligopoly

Suppose the rivals of an oligopolistic firm ignore both a price increase and decrease. If so, then the firm's demand curve will be ______. Multiple choice question. kinked straight L-shaped vertical upward-sloping

straight

Over a long time period, cheating ______ collusive oligopolies Multiple choice question. is needed in does not influence threatens strengthens

threatens

To reduce uncertainty or increase profits, oligopolists may change their prices ______. Multiple choice question. through collusion independently competitively often

through collusion

Oligopolistic behavior implies that oligopolists prefer competition ______. Multiple select question. through cartels through pricing through product development through advertising over collusion

through product development through advertising

As the first mover in a sequential game, the firm is able to ______ its rivals from entering the market.

block

For an industry to be considered an oligopoly, the four-firm concentration ratio must be ______. Multiple choice question. greater than or equal to 40% greater than or equal to 60% greater than or equal to 50% less than or equal to 40%

greater than or equal to 40%

True or false: Firms in an oligopoly always produce a homogeneous product.

False

Which of the following is not a characteristic of oligopoly? Multiple choice question. Firms have no control over their price. Firms may sell a homogeneous product. Firms' advertising decisions are interdependent. The market contains a few large producers. Firms may sell a differentiated product.

Firms have no control over their price.

What is it called when firms reach a verbal or tacit agreement with rivals about price in a social setting like the golf course? Multiple choice question. Gentleman's agreements Price war Cartel Overt collusion

Gentleman's agreements

What kind of game is it when firms choose their optimal pricing strategy today without worrying about possible interactions in the future? Multiple choice question. Repeated game One-time game First move advantages Reciprocity

One-time game

Which are barriers to entry in both monopolies and oligopolies? Multiple select question. Ownership and control of raw materials Large capital investment Patents Diseconomies of scale Preemptive pricing

Ownership and control of raw materials Large capital investment Patents Preemptive pricing

What are three models used to study pricing and output by oligopolies? Multiple select question. Price leadership model Cost leadership model Kinked-supply curve model Kinked-demand curve model Collusive pricing model

Price leadership model Kinked-demand curve model Collusive pricing model

Which of the following are obstacles to collusion in an oligopolistic industry? Multiple select question. Recession Mutual interdependence Cheating Demand and cost differences Threat of a price war Antitrust laws

Recession Cheating Demand and cost differences Antitrust laws

What kind of game is it if the firms must choose their pricing strategies at the same time? Multiple choice question. Repeated game Positive-sum game One-time game Simultaneous game

Simultaneous game

Which of the following is a model used to examine oligopolistic pricing? Multiple choice question. The Herfindahl model The kinked-demand curve model The advertising model The supply curve model

The kinked-demand curve model

What is the four-firm concentration ratio? Multiple choice question. a) The percentage of industries that are dominated by a group of four or fewer firms b) The percentage of total industry sales accounted for by the four largest firms c) The number of average-sized firms in an industry needed to produce sales equivalent to the four largest firms d) The number of employees in an industry who ever have or are currently working for one of the four largest firms

The percentage of total industry sales accounted for by the four largest firms

From society's standpoint, what are the effects of collusion in an oligopolistic industry? Multiple choice question. The same as monopolistic competition The same as a monopoly Lower prices, but greater output A more efficient industry

The same as a monopoly

True or false: A cartel abides by a formally written agreement that specifies the output and price of each member firm and is a form of overt collusion.

True

True or false: A one-time game occurs when firms will choose their pricing strategy for today without concern about future interactions with their rivals.

True

Why is collusion desirable to oligopolistic firms? Multiple choice question. a) The possibility of price wars diminishes and profits are maximized. b) The possibility of price wars diminishes, but profits might be lower. Tc) he possibility of price wars increases, but profits are maximized.

a) The possibility of price wars diminishes and profits are maximized.

Which statement is true about oligopolies? Multiple choice question. a) They do not achieve allocative efficiency because their price exceeds marginal cost. b) They achieve allocative efficiency because they produce at minimum average total cost. c) They do not achieve allocative efficiency because their average total cost exceeds price. d) They achieve productive efficiency because their marginal revenue equals marginal cost.

a) They do not achieve allocative efficiency because their price exceeds marginal cost.

Oligopolists often compete through product development and advertising instead of price because ______. Multiple choice question. a) product development and advertising are relatively difficult to copy b) rice changes are typically expensive c) price changes are often difficult to match d) price changes occur slowly e) product development and advertising are relatively inexpensive

a) product development and advertising are relatively difficult to copy

Select all that apply If a firm assumes that its rivals will match all price changes, but the firm's rivals actually charge a lower price what are the potential consequences? Multiple select question. a) The firm's demand curve will shift further to the right. b) The firm's profits will be higher. c) The firm's demand curve will shift further to the left. d) The firm is failing to produce at the profit-maximizing output. e) The firm's profits will be lower.

c) The firm's demand curve will shift further to the left. d) The firm is failing to produce at the profit-maximizing output. e) The firm's profits will be lower.

Which statement is true about oligopolies? Multiple choice question. a) They achieve productive efficiency because their marginal revenue equals marginal cost. b) They achieve allocative efficiency because they produce at minimum average total cost. c) They do not achieve allocative efficiency because their price exceeds marginal cost. d) They do not achieve allocative efficiency because their average total cost exceeds price.

c) They do not achieve allocative efficiency because their price exceeds marginal cost.

Oligopolies are not a desirable market structure because they achieve ______. Multiple choice question. a) both productive efficiency and allocative efficiency b) productive efficiency but not allocative efficiency c) neither productive efficiency nor allocative efficiency d) allocative efficiency but not productive efficiency

c) neither productive efficiency nor allocative efficiency

According to the kinked-demand model of oligopoly, if two of three firms ignore a price decrease by the third firm ______. Multiple choice question. a) the third firm will lose sales because the other two firms' demand curves become more elastic b) the third firm will gain sales because the other two firms' demand curves become more elastic c) the third firm will gain sales because the other two firms' demand curves become more inelastic, relative to the third firm's demand curve d) the third firm will lose sales because the other two firms' demand curves become more inelastic

c) the third firm will gain sales because the other two firms' demand curves become more inelastic, relative to the third firm's demand curve Reason: The third firm will gains sales significantly at the expense of its two rivals because it will be underselling them.

When members of an oligopoly meet to set prices to maximize profits it demonstrates the ______ and/or the ______ model. Multiple choice question. price leadership; collusion price leadership; kinked-demand collusion; cartel price leadership; cartel

collusion; cartel

Advertising benefits society by ______. Multiple choice question. increasing monopoly power conveying information to consumers increasing firm profits lowering the cost of production increasing search time

conveying information to consumers

We would expect a cartel to achieve Multiple Choice a) both allocative efficiency and productive efficiency. b) allocative efficiency but not productive efficiency. c) productive efficiency but not allocative efficiency. d) neither allocative efficiency nor productive efficiency.

d) neither allocative efficiency nor productive efficiency.

Advertising can reduce efficiency by ______. Multiple select question. manipulating consumer preferences increasing economies of scale providing misleading information speeding up technological progress increasing sales and output

manipulating consumer preferences providing misleading information

The greater the difference in demand and costs between firms, the more difficult it is for firms to agree on ______.

price

A type of implicit understanding used by oligopolists to coordinate prices without engaging in outright collusion is known as ______. Multiple choice question. game theory price leadership gentleman's agreement kinked demand

price leadership

By controlling ______ through collusion, oligopolists may be able to reduce ______, ______ profits and block the entry of new rivals. Multiple choice question. costs; uncertainty; increase losses; prices; increase demand; losses; increase prices; uncertainty; increase

prices; uncertainty; increase

Barriers to entry into an oligopoly most resemble those of a ______. Multiple choice question. purely competitive market regulated monopoly monopolistically competitive market pure monopoly

pure monopoly

Firms are more likely to cheat on a collusive agreement when the economy is experiencing a ______.

recession

A game that is played more than once between rivals is a ______ game.

repeated

When a game between rivals occurs more than once, it is called a ______ game. Multiple choice question. double multiple repeated new

repeated

The four-firm concentration ratio is based on the ___. Multiple choice question. percentage of industries that are oligopolies potential for mergers and acquisitions sales of the largest firms in an industry major firms in an industry ranked by employment

sales of the largest firms in an industry

In a(n) ______ game one firm moves first, committing to a strategy and then the rival firm responds.

sequential

Suppose the rivals of an oligopolistic firm match either a price increase or decrease. If this occurs, then the firm's demand curve will look ______. Multiple choice question. straight and steep kinked and steep u-shaped horizontal or perfectly elastic undefined

straight and steep

Which of the following is an illustration of differentiated oligopoly? Multiple Choice the aluminum industry the steel industry the soft drink industry retail stores in large cities

the soft drink industry

Firms have a desire to cheat on a collusive agreement because ______. Multiple choice question. their profits and sales will rise their prices will be unchanged it will lower the firm's costs it will prevent a price war

their profits and sales will rise

To reduce uncertainty or increase profits, oligopolists may change their prices ______. Multiple choice question. competitively through collusion often independently

through collusion