Econ Finale

Gary's Gas and Frank's Fuel are the only two providers of gasoline in their town. Gary and Frank decide to form a cartel. Later, Gary summarizes his pricing strategy as, "I'll cheat on the cartel because regardless of what Frank does, cheating gives me the best payoff." This is an example of: A) a dominant strategy. B) a tit-for-tat strategy. C) an irrational strategy. D) product differentiation.

A) a dominant strategy.

The field of law that attempts to limit the ability of oligopolists to collude and restrict competition is called: A) antitrust policy. B) product safety policy. C) fuel efficiency standards. D) excise tax policy.

A) antitrust policy.

Market power in the United States was often gained in the latter part of the nineteenth century by: A) forming trusts. B) the growth of competition. C) international arrangements with Russian and Japanese firms. D) opening up more industries to international trade.

A) forming trusts.

The outcome of a strategic choice is called a: A) payoff. B) game. C) product. D) dilemma.

A) payoff.

Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by: A) producing more than the quantity that maximizes joint profits. B) producing less than the quantity that maximizes joint profits. C) charging more than the price that maximizes joint cartel profits. D) advertising less than will maximize joint cartel profits.

A) producing more than the quantity that maximizes joint profits.

The downward-sloping demand curve for a monopolistically competitive firm: A) reflects product differentiation. B) eventually will become perfectly elastic as more firms enter. C) indicates collusion among firms in the industry. D) ensures that the firm will produce at minimum average cost in the long run.

A) reflects product differentiation.

An example of monopolistic competition is the _____ industry. A) restaurant B) soft-drink C) automobile D) airline

A) restaurant

Oligopoly is a market structure that is characterized by a _____ number of _____ firms producing _____ products. A) small; interdependent; identical or differentiated B) small; independent; identical or differentiated C) large; relatively small independent; differentiated D) large; relatively small independent; identical

A) small; interdependent; identical or differentiated

One of the earliest actions of antitrust policy was the breakup of: A) the Standard Oil Company. B) Bell Telephone. C) Microsoft. D) IBM.

A) the Standard Oil Company.

The demand curve for a firm in monopolistic competition is _____ facing a perfectly competitive firm. A) downward-sloping, unlike the horizontal demand curve B) horizontal, unlike the downward-sloping demand curve C) horizontal, the same as that D) downward-sloping, the same as that

A) downward-sloping, unlike the horizontal demand curve

In the long run, monopolistic competitors will: A) earn zero economic profits. B) produce at the minimum of their ATC curves. C) set price where MC = MR. D) collude with other firms.

A) earn zero economic profits.

Attempts by the federal government to prevent the exercise of monopoly power in the United States are known as _____ policy. A) stabilization B) antitrust C) fiscal D) government

B) antitrust

An extreme case of oligopoly in which firms collude to raise joint profits is known as a: A) duopoly. B) cartel. C) dominant producer. D) price war.

B) cartel.

In the classic prisoners' dilemma with two accomplices in crime, the dominant strategy for each individual is to: A) not confess. B) confess. C) confess only if the other confesses. D) This game does not have a dominant strategy.

B) confess.

The wedding dress industry is monopolistically competitive. As a result: A) thousands of dress suppliers all sell identical products. B) dresses tend to be differentiated among the many sellers serving this market. C) it has freedom of entry but not exit. D) prices tend to be lower than if the dress industry approximated perfect competition

B) dresses tend to be differentiated among the many sellers serving this market.

Which of the following industries is MOST likely to be monopolistically competitive? A) automobile production B) fresh bagel shops C) corn farming D) electric utility production

B) fresh bagel shops

Which of the following is TRUE of firms in both perfect competition and monopolistic competition? A) The long-run price is equal to marginal revenue, marginal cost, and average total cost. B) Long-run economic profits are equal to zero. C) The long-run level of output is at the point where average total cost is minimized. D) Price is equal to marginal cost, ensuring that the efficient level of output is produced.

B) Long-run economic profits are equal to zero.

In long-run equilibrium in monopolistic competition: A) price is greater than average total cost. B) price is equal to average total cost at an output below where average total cost is minimized. C) price is equal to average total cost at its minimum. D) price is equal to average total cost at an output above where average total cost is minimized.

B) price is equal to average total cost at an output below where average total cost is minimized.

Which of the following scenarios best describes an oligopolistic industry? A) A single cable company serves customers in a small town. B) Thousands of soybean farmers sell their output in a global commodities market. C) Coca-Cola and Pepsi sell most of the soft drinks consumed around the world. D) A college has one bookstore selling textbooks to students.

C) Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.

In an oligopoly market, collusion between firms usually leads to higher profits than noncooperative behavior. However, formal, overt collusion doesn't usually occur in the United States because: I. it is illegal. II. there is an incentive for each firm to cheat on a collusive agreement. III. an oligopolistic firm will typically prefer lower profits if the only way to make higher profits is to improve the profit position of its rivals. A) I only. B) II only. C) I and II. D) II and III.

C) I and II.

To be called an oligopoly, an industry must have: A) independence in decision making. B) a horizontal demand curve. C) a small number of interdependent firms. D) relatively easy entry and exit.

C) a small number of interdependent firms.

In oligopoly, a firm must realize that: A) what it does has no effect on the other firms in the industry. B) its behavior will be ignored by other firms in the industry. C) another major firm may dominate choices in the industry, and it will have to behave accordingly. D) collusion was made legal in 2004.

C) another major firm may dominate choices in the industry, and it will have to behave accordingly.

21. Suppose that each of the two firms in a duopoly has the independent choice of advertising or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million and the other gets profit of $2 million. According to game theory, the Nash equilibrium is: A) both may or may not advertise. B) one will advertise and the other will not. C) both will advertise. D) neither will advertise.

C) both will advertise.

1. In an oligopoly: A) there are many sellers. B) there are no barriers to entry. C) firms recognize their interdependence. D) total surplus is maximized.

C) firms recognize their interdependence.

An analytical approach through which strategic choices can be assessed is called: A) cost-benefit analysis. B) econometric theory. C) game theory. D) monopolistic competition.

C) game theory.

Game theory is commonly used to explain behavior in oligopolies, because oligopolies are characterized by: A) large profits in the long run. B) either homogeneous or heterogeneous products. C) interdependence. D) imperfect competition.

C) interdependence.

18. In long-run equilibrium, a firm in monopolistic competition is similar to a monopoly because it: A) earns no economic profit. B) charges a price equal to marginal cost. C) charges a price greater than marginal cost. D) charges a price equal to average total cost.

C) charges a price greater than marginal cost.

Because most communities have a large number of similar but not identical substitutes, the market for chiropractors is best considered to be: A) an oligopoly. B) perfect competition. C) monopolistically competitive. D) a monopoly.

C) monopolistically competitive.

Monopolistic competition is similar to perfect competition because firms in both market structures: A) are price takers. B) produce goods that are perfect substitutes. C) find it beneficial to advertise. D) do not face any barriers to entry to the industry in the long run.

D) do not face any barriers to entry to the industry in the long run.

For the monopolistically competitive wild-caught seafood market, the demand curve for any individual firm is _____, and there are _____ producers of seafood. A) downward-sloping; few B) upward-sloping; many C) vertical; few D) downward-sloping; many

D) downward-sloping; many

22. Suppose that each of the two firms in a duopoly has the independent choice of advertising or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million and the other gets profit of $2 million. According to game theory, if the firms collude to maximize joint profits: A) both may or may not advertise. B) one will advertise and the other will not. C) both will advertise. D) neither will advertise.

D) neither will advertise.

he sources of product differentiation do NOT include: A) differences in location. B) differences in quality. C) the perception by consumers that products are different, even if they are physically identical. D) consumers' value in uniformity.

D) consumers' value in uniformity.

common example of monopolistic competition is the market for: A) oranges. B) 1-inch nails. C) automobiles. D) gas stations.

D) gas stations.

If a monopolistically competitive firm is producing the profit-maximizing level of output and is earning an economic profit in the short run: A) price is less than average total costs. B) price is less than marginal cost. C) marginal revenue is less than marginal cost. D) marginal revenue equals marginal cost.

D) marginal revenue equals marginal cost.

Which of the following is NOT a characteristic of monopolistic competition? A) product differentiation B) lack of barriers to entry and exit in the long run C) many competing producers D) tacit collusion

D) tacit collusion