Microeconomics Quiz 13

Most economic activity in the United States is carried out by monopolies.

Oligopolists behave independently of each other.

The kinked demand curve is an explanation of sticky prices.

The maximin criterion seeks to minimize the maximum payoffs in order to win.

All players have dominant strategies.

Suppose that a firm in monopolistically competitive market is producing 30 units of output. At this level of production, the firm charges $50 per unit. Its marginal cost is $24 and marginal revenue is $24, and average cost is $20 per unit. Given this information, in the long run you would expect
a.
firms to enter the market.
b.
price to increase.
c.
firms to exit the market.
d.
firms to maintain their current output and price.

A monopolistically competitive firm in the long run will
a.
have a demand curve above its AC.
b.
have a demand curve below its AC.
c.
operate where excessive profit can be achieved.
d.
have a demand curve tangent to its AC.

If a firm decides to ignore the reactions of its rivals to its policies, the appropriate model to analyze its behavior is
a.
monopoly.
b.
perfect competition.
c.
game theory.
d.
cartels.

In an oligopoly market, the firms would earn the highest profit if they
a.
chose to produce an output equal to the perfectly competitive output level.
b.
chose to ignore the actions of rival firms.
c.
chose to produce the output equal to the monopoly output level.
d.
chose to ignore the implications of game theory.

A successful cartel may end up charging the ____ price and obtaining ____ profits.
a.
monopolistic competition; zero economic
b.
monopoly; monopoly
c.
oligopoly; monopoly
d.
monopoly; zero economic

Which of the following is an example of tacit collusion?
a.
Copper cartel
b.
Government franchise granted to a utility
c.
Price leadership
d.
OPEC

If an oligopolistic manufacturer believes that he faces a kinked demand curve for his product, he thinks his competitors will ______ if he lowers his price and ____ if he raises his price.
a.
lower their prices; raise their prices
b.
lower their prices; not raise their prices
c.
not lower their prices; raise their prices
d.
not lower their prices; not raise their prices

Oligopolist A cuts price in an attempt to enlarge his share of the market. His competitors fail to retaliate with price cuts. In this case, in Figure 13-3, oligopolist A will move from point A to which point?
a.
C
b.
D
c.
E
d.
B

Displayed below is the payoff matrix of firm A for four different strategies, A1, A2, A3, and A4, and the potential retaliatory responses of firm B (B1, B2, B3, B4).Table 12-1
​
B1
B2
B3
B4
A1
100
50
25
10
A2
10
60
150
200
A3
50
75
200
250
A4
30
50
100
150
If firm A uses the maximin criterion, which strategy will it choose?
​
a.
A4
b.
A1
c.
A3
d.
A2

At any given airport, the airlines hold long-term leases for passenger loading gates. New gates cannot be added without approval of the airlines. Frequent flier programs are also common in the industry. It is, therefore, more difficult for a new airline to enter a given airport (market). Such factors:
(i) are called barriers to entry.

(ii) tend to decrease the contestability of the air travel market.

a.
i not ii
b.
i and ii
c.
neither i nor ii
d.
ii not i