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ECON CH 16

A market structure with only a few sellers, offering similar or identical products, is known as a. oligopoly.
b. monopoly.
c. monopolistic competition.
d. perfect competition.
A
As a group, oligopolists would always earn the highest profit if they would
a. produce the perfectly competitive quantity of output.
b. produce more than the perfectly competitive quantity of output.
c. charge the same price that a monopolist would charge if the market were a monopoly.
d. operate according to their own individual self-interests.
C
3. Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together,
a. they are unable to maintain the same degree of monopoly power enjoyed by a
monopolist.
b. each firm’s profit always ends up being zero.
c. society is worse off as a result.
d. Both a and c are correct.
A
8. The equilibrium quantity in markets characterized by oligopoly is
a. higher than in monopoly markets and higher than in perfectly competitive markets.
b. higher than in monopoly markets and lower than in perfectly competitive markets.
c. lower than in monopoly markets and higher than in perfectly competitive markets.
d. lower than in monopoly markets and lower than in perfectly competitive markets.
B
9. A group of firms that are acting in unison to maximize collective profits is called a a. monopolistically competitive industry.
b. monopoly.
c. cartel.
d. Nash equilibrium market.
C
A situation in which firms choose their best strategy given the strategies chosen by the other firms in the market is called
a. a competitive equilibrium.
b. an open-market solution.
c. a socially-optimal solution.
d. a Nash equilibrium.
D
OPEC can be classified as a
(i) group whose concern is to control production levels of oil.
(ii) cartel.
(iii) resale price maintenance group.
a. (i) and (ii)
b. (ii)and (iii)
c. (i) and (iii)
d. (i), (ii), and (iii)
A
Game theory is important for the understanding of
a. competitive markets.
b. monopolies.
c. oligopolies.
d. all market structures.
C
13. In a game, a dominant strategy is, by definition,
a. the best strategy for a player to follow only if other players are cooperative.
b. the best strategy for a player to follow, regardless of the strategies followed by other
players.
c. a strategy that must appear in every game.
d. a strategy that leads to one player’s interests dominating the interests of the other players.
B
14. Which of the following statements is (are) true of the prisoners’ dilemma?
(i) Rational self-interest leads neither party to confess.
(ii) Cooperation between the prisoners is difficult to maintain.
(iii) Cooperation between the prisoners is individually rational.
a. (ii) only
b. (ii) and (iii)
c. (i) and (iii)
d. (i), (ii), and (iii)
A
19. Martha and Oleg are competitors in a local market and each is trying to decide if it is worthwhile to advertise. If both of them advertise, each will earn a profit of $5,000. If neither of them advertise, each will earn a profit of $10,000. If one advertises and the other doesn’t, then the one who advertises will earn a profit of $15,000 and the other will earn $7,000. To make the most money, Martha
a. should advertise, and she will earn $5,000.
b. should advertise, and she will earn $15,000.
c. should not advertise, and she will earn $10,000.
d. has no dominant strategy.
D
20. In game theory, a Nash equilibrium is
a. an outcome in which each player is doing their best given the strategies chosen by the
other players.
b. an outcome in which no player wishes to change their chosen strategy given the strategies
chosen by the other players.
c. the outcome that occurs when all players have a dominant strategy.
d. All of the above.
D
23. The Sherman Act made cooperative agreements
a. unenforceable outside of established judicial review processes. b. enforceable with proper judicial review.
c. a criminal conspiracy.
d. a crime, but did not give direction on possible penalties.
C
According to the Clayton Act
a. lawyers are given an incentive to reduce the number of cases involving cooperative
arrangements.
b. individuals can sue to recover damages from illegal cooperative agreements.
c. the government was able to incarcerate the CEO of a firm for illegal pricing
arrangements.
d. private lawsuits are discouraged.
B
25. Antitrust laws in general are used to
a. prevent oligopolists from acting in ways that make markets less competitive.
b. encourage oligopolists to pursue cooperative-interest at the expense of self-interest.
c. encourage frivolous lawsuits among competitive firms.
d. encourage all firms to cut production levels and cut prices.
A
26. The practice of tying is illegal on the grounds that
a. it allows firms to expand their market power.
b. it allows firms to form collusive arrangements.
c. it prevents firms from forming collusive agreements.
d. the Sherman Act explicitly prohibited such agreements.
A
28. Which of the following is necessarily a problem with antitrust laws?
a. They may target a business whose practices appear to be anti-competitive but in fact have
legitimate purposes.
b. They promote competition.
c. They limit monopoly power.
d. They prohibit firms from entering or exiting a market.
A
29. Although the practice of predatory pricing is a common claim in antitrust suits, some economists are skeptical of this argument because they believe
a. the evidence of its practice is nearly impossible to collect.
b. predatory pricing is not a profitable business strategy.
c. even though predatory pricing is a profitable business strategy, it is on balance beneficial to society.
d. predatory pricing actually attracts new firms to the industry.
B
30. Suppose that Makemoney Movies produces two new films — The Hulk and The Piano. Makemoney offers theaters the two films together at a single price but will not supply the movies separately. What do economists call this business practice?
a. Predatory pricing
b. Resale price maintenance
c. Tying
d. Leverage
C
31. A law that encourages market competition by prohibiting firms from gaining or exercising excessive market power is
a. a patent.
b. impossible to enforce.
c. antitrust law.
d. externality law.
C
32. An oligopoly is a market with only a few sellers, each offering a similar or identical product.
TRUE
Larger cartels have a greater probability of reaching the monopoly outcome than do smaller cartels.
FALSE
If all of the oligopolists in a market collude to form a cartel, total profit for the cartel is less than that of a monopolist.
FALSE
The story of the prisoners’ dilemma contains a general lesson that applies to any group trying to maintain cooperation among its members.
TRUE
In the story of the prisoners’ dilemma, one prisoner is always better off confessing, no matter what the other prisoner does
TRUE
The game that oligopolists play in trying to reach the oligopoly outcome is similar to the game that the two prisoners play in the prisoners’ dilemma.
TRUE
In the case of oligopoly markets, self-interest prevents cooperation and leads to an inferior outcome for the firms that are involved.
TRUE
One way that public policy encourages cooperation among oligopolists is through antitrust law.
FALSE
Resale price maintenance prevents retailers from competing on price.
TRUE
There are some logical economical arguments in favor of resale price maintenance.
TRUE

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