Microeconomics Chapters 14 and 15

question

In a prisoners' dilemma, dominant strategies result in optimal outcomes.

answer

False

question

In monopolistic competition, firms gain some degree of market power

answer

by differentiating their products from those of other firms in the industry.

question

All of the following are key characteristics of a monopolistically competitive industry except

answer

a homogeneous product.

question

The Nash equilibrium in the game is ________.

answer

Both (A) and (B) are correct.

question

An oligopolistic industry is characterized by

answer

strategic behavior.

question

An oligopoly is defined to be an industry that

answer

includes a few dominant firms, each of whose behavior depends on the behavior of the others.

question

One of the models of oligopoly behavior is called game theory. The key difference between it and other models is that in game theory, in planning its own actions, each firm

answer

takes into account its rivals' reactions to its own price.

question

Assume there are 22 firms in the industry for plasma TV manufacturers. Their market shares are as follows: 55%, 16%, 10%, 19 each with 1%. What is the value of the Herfindahl-Hirschman Index?

answer

3,400

question

One thing oligopolists must do in order to determine their optimal strategy is

answer

anticipate the reaction of their rivals to their strategy.

question

Firm A does not have a dominant strategy.

answer

True

question

The demand curve for the product or service produced by a monopolistic competitor

answer

is more elastic than the demand curve faced by a monopolist and less elastic than the demand curve faced by a perfectly competitive firm.

question

If P > ATC, then a profit maximizing, monopolistically competitive firm earns ________ economic profits.

answer

positive

question

Monopolistically competitive firms produce their economic profits protected by barriers to entry.
This statement is

answer

not correct because monopolistically competitive industries have easy entry and exit and therefore have no profits in the long run.

question

Monopolistically competitive firms are efficient because in the long run, price falls to equal marginal cost.
This statement is

answer

not correct because monopolistically competitive firms produce where price is greater than marginal cost and therefore are inefficient.

question

A group of firms that gets together and jointly makes price and output decisions is called a cartel.

answer

True

question

Tacit collusion occurs when price- and quantity-fixing agreements are explicit.

answer

False

question

Would the Justice Department consider this industry as unconcentrated, moderately concentrated, or concentrated?

answer

Moderately concentrated because the HHI is below 1,800.

question

Would the Justice Department most likely challenge this merger? Why or why not?

answer

Yes, because the merger would increase the HHI by more than 100 points.

question

In the long run, firms will

answer

exit, shifting the demand facing the remaining firms to the right until the firms earn a normal profit.

question

In some oligopolies, two firms find themselves in what is known as "the prisoners' dilemma," that is,

answer

each has a dominant strategy that results in both of them being worse off than they would be if they could collude.

question

Shown at right is a payoff matrix for a price-cutting decision by Audi and Mazda.

answer

Audi does not have a dominant strategy.

question

In game theory, when all players are playing their best strategy given what their competitors are doing, the result is a Nash equilibrium.

answer

True

question

For a monopolistically competitive firm,

answer

marginal revenue is less than the price marginal revenue is less than the price because the firm must lower the price for each additional unit it wants to sell.must lower the price for each additional unit it wants to sell.

question

In a prisoners' dilemma, no player has a dominant strategy.

answer

False

question

A profit-maximizing monopolistically competitive firm will produce output where

answer

MR = MC.

question

Firm A's dominant strategy is

answer

to advertise

question

Which of the following features distinguishes monopolistically competitive firms from monopolies and oligopolies?

answer

monopolistically competitive firms cannot influence market price by virtue of their size alone while monopolies and oligopolies can.

question

The restaurant industry is an example of a(n) ________ industry.

answer

monopolistically competitive

question

"The Beatles were once a monopolistically competitive firm that became a monopolist."
Which of the following best explains the statement above?

answer

All of the above

question

If all firms in an industry successfully engage in collusion, the resulting profit-maximizing price and output would be

answer

the same as if the industry was a monopoly

question

The airline industry is an example of a(n) ________ industry.

answer

oligopolistic

question

There is easy entry into the ________ and ________ industries.

answer

perfectly competitive; monopolistically competitive

question

What is the Nash equilibrium in the game?

answer

(Advertise, Advertise)

question

In a monopolistically competitive industry, at long-run equilibrium

answer

the average total cost curve is tangent to the demand curve.

question

For a monopolistically competitive industry in long-run equilibrium,

answer

All of the above are true.

question

Retail clothing stores are an example of what market structure?

answer

monopolistic competition

question

A monopolistically competitive firm can minimize its losses by producing where ________ as long as ________.

answer

MR = MC; P > AVC

question

Monopolistic competition differs from perfect competition primarily because in

answer

monopolistic competition, firms can differentiate their products.

question

Firm A does not have a dominant strategy.

answer

True

question

According to the Five Forces Model, ________ are the five competitive forces that determine the level of competition and profitability in an industry.

answer

rivals, buyers, suppliers, substitutes, and potential entrants

question

A cartel is

answer

a group of oligopolists who make price and output decisions jointly.

1 of 41

question

In a prisoners' dilemma, dominant strategies result in optimal outcomes.

answer

False

question

In monopolistic competition, firms gain some degree of market power

answer

by differentiating their products from those of other firms in the industry.

question

All of the following are key characteristics of a monopolistically competitive industry except

answer

a homogeneous product.

question

The Nash equilibrium in the game is ________.

answer

Both (A) and (B) are correct.

question

An oligopolistic industry is characterized by

answer

strategic behavior.

question

An oligopoly is defined to be an industry that

answer

includes a few dominant firms, each of whose behavior depends on the behavior of the others.

question

One of the models of oligopoly behavior is called game theory. The key difference between it and other models is that in game theory, in planning its own actions, each firm

answer

takes into account its rivals' reactions to its own price.

question

Assume there are 22 firms in the industry for plasma TV manufacturers. Their market shares are as follows: 55%, 16%, 10%, 19 each with 1%. What is the value of the Herfindahl-Hirschman Index?

answer

3,400

question

One thing oligopolists must do in order to determine their optimal strategy is

answer

anticipate the reaction of their rivals to their strategy.

question

Firm A does not have a dominant strategy.

answer

True

question

The demand curve for the product or service produced by a monopolistic competitor

answer

is more elastic than the demand curve faced by a monopolist and less elastic than the demand curve faced by a perfectly competitive firm.

question

If P > ATC, then a profit maximizing, monopolistically competitive firm earns ________ economic profits.

answer

positive

question

Monopolistically competitive firms produce their economic profits protected by barriers to entry.
This statement is

answer

not correct because monopolistically competitive industries have easy entry and exit and therefore have no profits in the long run.

question

Monopolistically competitive firms are efficient because in the long run, price falls to equal marginal cost.
This statement is

answer

not correct because monopolistically competitive firms produce where price is greater than marginal cost and therefore are inefficient.

question

A group of firms that gets together and jointly makes price and output decisions is called a cartel.

answer

True

question

Tacit collusion occurs when price- and quantity-fixing agreements are explicit.

answer

False

question

Would the Justice Department consider this industry as unconcentrated, moderately concentrated, or concentrated?

answer

Moderately concentrated because the HHI is below 1,800.

question

Would the Justice Department most likely challenge this merger? Why or why not?

answer

Yes, because the merger would increase the HHI by more than 100 points.

question

In the long run, firms will

answer

exit, shifting the demand facing the remaining firms to the right until the firms earn a normal profit.

question

In some oligopolies, two firms find themselves in what is known as "the prisoners' dilemma," that is,

answer

each has a dominant strategy that results in both of them being worse off than they would be if they could collude.

question

Shown at right is a payoff matrix for a price-cutting decision by Audi and Mazda.

answer

Audi does not have a dominant strategy.

question

In game theory, when all players are playing their best strategy given what their competitors are doing, the result is a Nash equilibrium.

answer

True

question

For a monopolistically competitive firm,

answer

question

In a prisoners' dilemma, no player has a dominant strategy.

answer

False

question

A profit-maximizing monopolistically competitive firm will produce output where

answer

MR = MC.

question

Firm A's dominant strategy is

answer

to advertise

question

Which of the following features distinguishes monopolistically competitive firms from monopolies and oligopolies?

answer

monopolistically competitive firms cannot influence market price by virtue of their size alone while monopolies and oligopolies can.

question

The restaurant industry is an example of a(n) ________ industry.

answer

monopolistically competitive

question

"The Beatles were once a monopolistically competitive firm that became a monopolist."
Which of the following best explains the statement above?

answer

All of the above

question

If all firms in an industry successfully engage in collusion, the resulting profit-maximizing price and output would be

answer

the same as if the industry was a monopoly

question

The airline industry is an example of a(n) ________ industry.

answer

oligopolistic

question

There is easy entry into the ________ and ________ industries.

answer

perfectly competitive; monopolistically competitive

question

What is the Nash equilibrium in the game?

answer

(Advertise, Advertise)

question

In a monopolistically competitive industry, at long-run equilibrium

answer

the average total cost curve is tangent to the demand curve.

question

For a monopolistically competitive industry in long-run equilibrium,

answer

All of the above are true.

question

Retail clothing stores are an example of what market structure?

answer

monopolistic competition

question

A monopolistically competitive firm can minimize its losses by producing where ________ as long as ________.

answer

MR = MC; P > AVC

question

Monopolistic competition differs from perfect competition primarily because in

answer

monopolistic competition, firms can differentiate their products.

question

Firm A does not have a dominant strategy.

answer

True

question

According to the Five Forces Model, ________ are the five competitive forces that determine the level of competition and profitability in an industry.

answer

rivals, buyers, suppliers, substitutes, and potential entrants

question

A cartel is

answer

a group of oligopolists who make price and output decisions jointly.

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