Ch. 14 Quiz

To be called an oligopoly, an industry must have:

a small number of interdependent firms.

A firm that is in an oligopoly knows that its _____ affect its _____ and that the _____ of its rivals will affect it.

actions; rivals; reactions

Which of the following is most likely to be observed when firms engage mainly in nonprice competition?

advertising and product differentiation

Attempts by the federal government to prevent the exercise of monopoly power in the United States are known as _____ policy.

antitrust

In the classic prisoners' dilemma with two accomplices in crime, the Nash equilibrium is for:

both to confess.

Large barriers to entry in the gas station business explain why the two only gas stations in a small town:

can earn an economic profit in the long run.

The most important source of oligopoly in an industry is:

economies of scale.

Overt collusion exists if:

firms agree openly on price and output and they jointly make other decisions aimed at achieving monopoly profits.

A cartel is an example of:

overt collusion.

Microsoft sets prices for its new line of computers, and Dell and HP follow. This practice is known as:

price leadership.

Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by:

producing more than the quantity that maximizes joint profits.

An unwritten, unspoken agreement through which firms limit competition among themselves is called:

tacit collusion.

Nonprice competition is more prevalent in an oligopoly when there is (are):

tacit collusion.

Tacit collusion is difficult to achieve in practice:

the larger the number of firms in the industry.

When a firm responds to a rival's cheating by cheating and to a rival's cooperation by cooperating, that firm is practicing a _____ strategy.

tit-for-tat

(Figure: Payoff Matrix for Ajinomoto and ADM) Look at the figure Payoff Matrix for Ajinomoto and ADM. The optimal combination for maximum combined profit occurs when ADM produces _____ million pounds and Ajinomoto produces _____ million pounds.

30; 30

(Figure: Payoff Matrix for Ajinomoto and ADM) Look at the figure Payoff Matrix for Ajinomoto and ADM. The Nash equilibrium combination occurs when ADM produces _____ million pounds and Ajinomoto produces _____ million pounds.

40; 40

The Herfindahl-Hirschman index equals _____ when _____ have (has) _____ of the market.

5,000; two firms each; 50%

An industry that consists of two firms is:

a duopoly.

The 1890 law intended to prevent the establishment of more monopolies and to break up existing ones in the United States was the:

Sherman Antitrust Act.