Economic

Q: A firm that produces a product that is characterized by ________ externalities finds it easier to keep its customers from switching to rivals.a. negative b. positive c. networkd. labor markete. public good

Q: A ________ externality exists when the number of customers who purchase a good or use it influences the quantity demanded.a. network b. production c. consumptiond. distributione. regulation

Q: Firm A and Firm B are the only two companies that sell mail-order DVD rental subscriptions. For several years, Firm A priced its subscriptions below average variable cost. Firm B tried to compete by also selling subscriptions below average variable cost, but went bankrupt and exited the market. Several months after Firm B exited the market, Firm A raised prices by 40 percent and is currently earning large, positive economic profits. Based only on this information, an argument can be made that a. Firm B must have made bad business decisions because it went bankrupt. b. Firm A and Firm B must have had a collusive agreement. c. the mail-order DVD rental subscription market is a monopolistically competitive market. d. Firm B engaged in predatory pricing. e. Firm A engaged in predatory pricing.

Q: Because Walmart has never systematically raised prices, there is no evidence that the company is engaged in a. illegal tying. b. price discrimination that lessens competition. c. excusive dealings that restrict the ability of the buyer to deal with competitors. d. predatory pricing. e. mergers and acquisitions that lessen competition.

Q: Firm A prices its products so low that it drives competitors out of the market. After all of its competitors have been driven out of the market, Firm A raises prices significantly. The fact that Firm A ________ is sufficient evidence of anticompetitive behavior. a. lowered prices b. raised prices significantly c. drove competitors out of the market d. competed with other firms on price e. lowered its price below average variable cost in an effort to drive competitors out of the market and then subsequently increased price

Q: If a firm sells only pharmaceutical grade aspirin (and no other products) and is currently pricing the aspirin below average variable costs, the firm is currently making ________ economic profits.a. negative b. 0 (zero) c. positived. abnormally highe. accounting

Q: Suppose Firm A sets a price below average variable cost for two years. After the second year, Firm As biggest rival goes bankrupt and exits the market. In the third year, Firm A raises prices significantly. Firm A is practicinga. average variable pricing. b. inversion pricing. c. competitive pricing.d. collusion pricing.e. predatory pricing.

Q: Evidence of the intent to ________ is necessary to prove that a firm is engaged in predatory pricing. a. lower prices after others are driven out of business b. raise prices after others are driven out of business c. increase quantity after others are driven out of business d. lower average fixed costs after others are driven out of business e. subsidize competitors so they are not driven out of business

Q: It might be rational for a firm to price its products below ________ costs in order to drive potential entrants from entering a market.a. fixed b. average variable c. average fixedd. implicite. explicit

Q: The practice of setting prices deliberately below ________ costs in an effort to drive a competitor out of the market is known as predatory pricing.a. marginal b. average total c. average variabled. average fixede. explicit

Q: The practice of setting prices deliberately below average variable costs in order to put a rival out of business is known as ________ pricing.a. average variable b. collusion c. inversiond. predatorye. competitive

Q: Assume that two firms (Firm A and Firm B) operate in the U.S. steel industry. The owner of Firm A writes the following letter to the owner of Firm B: Dear Owner of Firm B, I have concluded that if we both restrict output such that we each produce only 3 million tons of steel per year, we can both charge a price that will allow us to effectively monopolize the steel market and to maximize our joint profits. If you would like to enter into this agreement with me, please draft a contract that specifies this agreement and I will be more than willing to meet with you and sign it. Sincerely, Owner of Firm A If this letter were sent in the year 1944, the a. owner of Firm A would be guilty of violating antitrust laws because he or she merely attempted to monopolize the steel industry. b. owner of Firm A would be guilty of violating antitrust laws only if he or she met with the owner of Firm B and signed the contract, but the owner of Firm A would be not guilty if the attempt to monopolize the market failed because the owner of Firm B never responded to the letter. c. owners of both Firm A and Firm B would not be guilty of violating antitrust laws because antitrust laws in 1944 applied only to industries made up of three or more firms. d. owners of both Firm A and Firm B would not be guilty of violating antitrust laws because antitrust laws in 1944 contained exceptions for certain nationally important industries like the steel industry. e. owners of both Firm A and Firm B would not be guilty of anything because there were no antitrust laws in existence in 1944.

Q: If attorneys can prove beyond a reasonable doubt that a merger between two major airlines lessens competition, then the merger likely violates the ________ Act.a. Mergers and Acquisitions b. Clayton c. Airlined. Oligopoly Antitruste. Economic Efficiency

Q: Motorola and Apple are two large competitors in the cellular phone market. It is a violation of the ________ Act if Sanjay Jha serves on the board of directors for both Motorola and Apple. a. Mergers and Acquisitions b. Clayton c. Telecommunications Board Restriction d. Competition e. Economic Efficiency

Q: An example of a tying arrangement is a. a restaurant offering both Pepsi and Coca-Cola products. b. a car manufacturer installing expensive onboard GPS/navigation systems in all the cars it sells. c. a landlord offering free rent for the first month when a tenant signs a one-year lease. d. two companies competing on price. e. a coffee shop offering customers the option of having cream with their coffee for an extra 25 cents.

Q: Why does the Department of Justice NOT investigate and block the many mergers of large firms that have occurred recently in oligopolistic industries such as the cellular phone industry and the airline industry that obviously lessen competition? a. The Department of Justice has no authority to enforce antitrust violations because that authority was given only to the Department of Labor under the Clayton Act. b. The Economic Recovery and Reinvestment Act that was passed in 2009 repealed the Clayton Act. c. It is difficult for the Department of Justice to determine whether a firm has violated the law as written because antitrust law is complex and cases are hard to prosecute. d. In the past, every attempt by the Department of Justice to block a merger between two large firms has failed, so the Department of Justice attempts to block only mergers between small firms. e. In 1992, antitrust laws were amended so that they would not apply to nationally important industries such as the cellular phone industry and the airline industry.

Q: Suppose Lana lives in a small college town where, every weekend, 10 independent food cart owners set up shop and sell hot dogs on the street. They are popular with students, and they frequently locate where students hang out. One evening, Lana overhears the conversation of three of the food cart owners as they conspire to raise the price of their hot dogs. That same night, she reports the conversation to the Department of Justice via their antitrust complaint website. Why might the Department of Justice NOT send an agent to investigate the collusion attempt that Lana witnessed? a. There is not a law that prohibits collusion among competitors. b. Antitrust laws are applicable only to collusion attempts that occur on federal government property and the collusion attempt occurred on private property. c. Collusion among small competitors like street vendors is actually beneficial to consumers. d. The Department of Justice lacks the resources to investigate every case of collusion reported. e. To ensure small businesses a fair shot at competing with larger businesses, President Obama issued an official executive order to the Department of Justice in 2012 to stop pursuing antitrust violations involving small businesses only.

Q: Which federal agency is responsible for enforcing antitrust laws? a. Federal Reserve Bank b. Internal Revenue Service c. Office of the Comptroller of Currency d. Department of Justice e. Congressional Budget Office

Q: According to the Clayton Act, persons are not allowed to serve as the director on more than ________ board(s) in the same industry.a. one b. two c. threed. foure. five

Q: ________ restrict(s) the ability of the buyer to deal with competitors, and ________ require(s) the buyer to purchase an additional product in order to buy the first. a. Price discrimination; exclusive dealings b. Exclusive dealings; price discrimination c. Tying arrangements; exclusive dealings d. Exclusive dealings; tying arrangements e. Tying arrangements; price discrimination

Q: According to the Clayton Act, price discrimination is considered socially detrimental if it a. increases competition in a market. b. does not allow the dominant firm in the market to remain a monopolist. c. lessens competition or creates monopoly. d. involves the largest company in a respective industry. e. involves small businesses being shut out of a market.

Q: In 1974, the U.S. attorney general filed suit against which telecom company for violating antitrust laws?a. Sprint b. T-Mobile c. Verizond. Pacific Belle. AT&T

Q: In general, antitrust laws are ________ to enforce.a. complex and difficult b. not complex and difficult c. complex and easyd. irrelevant and easye. complex and impossible

Q: The two major pieces of antitrust legislation in the United States are the a. Sherman Antitrust Act and the Federal Trade Commission Act. b. Sherman Antitrust Act and the Clayton Act. c. International Trade Act and the Clayton Act. d. International Trade Act and the Sherman Antitrust Act. e. Anticompetition Act and the Sherman Antitrust Act.

Q: The ________ Act was passed in 1890, and the ________ Act was passed in 1914. a. Clayton; Federal Trade Commission b. Clayton; Sherman Antitrust c. Sherman Antitrust; Federal Trade Commission d. Sherman Antitrust; Clayton e. Anticompetition; Sherman Antitrust

Q: According to Section 2 of the Sherman Antitrust Act, a person who attempts to monopolize commerce among the several states is guilty of a(n)a. minor misdemeanor. b. misdemeanor of the first degree. c. misdemeanor of the second degree.d. international misdemeanor.e. felony.

Q: Section 2 of the ________ Act reads: Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony. a. Garn-St. Germain Depository Institutions b. Securities and Exchange c. Supply Demand d. Clayton e. Sherman Antitrust

Q: The ________ Act was the first antitrust bill created in response to the increase in concentration ratios in many leading U.S. industries, including steel, railroads, mining, textiles, and oil.a. Sherman Antitrust b. Fair Trade c. Steel Industryd. Citigroup Reliefe. Sarbanes Oxley

Q: The first federal law to place limits on cartels and monopolies was the a. Federal Reserve Act. b. Financial Institutions Reform, Recovery, and Enforcement Act. c. Federal Trade Commission Act. d. Clayton Act. e. Sherman Antitrust Act.

Q: Legislative efforts to curtail the adverse consequences of oligopolistic cooperation began with the ________. a. Clayton Act. b. Sherman Antitrust Act. c. McFadden Act. d. DoddFrank Financial Reform Bill. e. Competitive Reform Act.

Q: One way to improve the social welfare of a society is to ________ competition and ________ monopoly practices through policy legislation. a. limit; encourage d. ban; subsidize b. limit; limit e. encourage; subsidize c. encourage; limit

Q: The following payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of -1, the player loses; if both players receive 0 (zero), the players tie. Which of the following statements is true? Grace RockPaperScissorsWillRock 0, 0-1, 1 1, -1Paper 1, -1 0, 0-1, 1Scissors-1, 1 1, -1 0, 0a. Wills dominant strategy is to play rock, and Graces dominant strategy is to play rock.b. Wills dominant strategy is to play paper, and Graces dominant strategy is to play rock.c. Wills dominant strategy is to play rock, and Graces dominant strategy is to play paper.d. Wills dominant strategy is to play scissors, and Grace does not have a dominant strategy.e. Neither Will nor Grace has a dominant strategy.

Q: SHORT ANSWER1. Compare the social efficiency of oligopolistic market outcomes to perfectly competitive market outcomes and monopoly outcomes.

Q: The accompanying payoff matrix depicts the possible outcomes for two players involved in a game of Rock, Paper, Scissors. If a player receives a payoff of 1, the player wins; if the player receives a payoff of -1, the player loses; if both players receive 0 (zero), the players tie. If Timothy chooses paper and Ernesto chooses paper, Timothys payoff is ________ and Ernestos payoff is ________.TimothyErnesto RockPaperScissorsRock 0, 0-1, 1 1, -1Paper 1, -1 0, 0-1, 1Scissors-1, 1 1, -1 0, 0a. 0; 0 b. 1; 0 c. 2; 0d. 0; 1e. 1; 1

Q: ________ have dominant strategies that make player decisions easy to predict.a. All games b. Only prisoners dilemma games c. Only two types of gamesd. Only games involving firmse. Not all games

Q: A business decision best understood with a sequential game is whether or not to a. offer employees an early retirement package. b. merge with a competing firm. c. start an advertising campaign for a new product. d. stop producing an unprofitable product. e. shut down.

Q: Sequential games best understand a situation where a. one firm acts and the other firm responds later. b. one firm acts and the other firm responds at the same time. c. the firms are in a cartel. d. the firm is a monopoly. e. there is a prisoners dilemma.

Q: In the airline industry, it is common to see one airline changing the airfare (price) between two cities and other airlines either matching the price or actively deciding not to change their prices. What type of game can describe this situation?a. non bargaining b. non sequential c. bargainingd. sequentiale. tit for tat

Q: Jaheim and Suzanna are playing a game involving repeated iterations of a simultaneous-move prisoners dilemma. In each round, both players choose either cooperate or defect. Neither Jaheim nor Suzanna knows when the game will end. If Jaheim believes that Suzanna will be playing tit for tat, then a. he will maximize his payoffs by defecting in every round. b. cooperation will be impossible to maintain regardless of the strategy he plays. c. cooperation might be possible if he also plays tit for tat. d. cooperation might be possible if he plays a strategy where he defects in every round. e. cooperation might be possible if he plays a strategy where he defects in the first round, cooperates in the second round, and defects in every other round.

Q: In January, Walmart offered a 10 percentoff coupon and Target did not. In February, Target offered a 10 percentoff coupon and Walmart did not. In March, Walmart offered a 10 percentoff coupon and Target did not. It is likely that Walmart and Target are both playing the ________ strategy.a. grim trigger b. tit-for-two-tatsc. retail retaliationd. tit-for-tate. mutually assured destruction

Q: In January, Home Depot offered a 10 percentoff coupon and Lowes did not. In February, Lowes offered a 10 percentoff coupon and Home Depot did not. In March, Home Depot offered a 10 percentoff coupon and Lowes did not. It is likely that Home Depot and Lowes are both playing the ________ strategy.a. grim trigger b. tit-for-two-tats c. deterrenced. tit-for-tate. mutually assured destruction

Q: Player A and Player B are playing a game involving several rounds of a prisoners dilemma where their choices are to cooperate or defect. After each round ends, one player rolls a six-sided die. If the die lands on 6, the game ends; however, if the die lands on any other number, the game continues and players play another round. Prior to the game starting, the players formulate a strategy that specifies what they will do in every possible round they might find themselves in. If Player A is playing the tit-for-tat strategy, in the ________ round, Player A will definitely choose ________.a. first; defect b. second; defect c. first; cooperated. second; cooperatee. third; cooperate

Q: In a repeated prisoners dilemma, a player who is playing tit for tat will a. defect in the first round and defect in all subsequent rounds. b. defect in the first round and, in any subsequent round, do what his or her opponent did in the last round. c. cooperate in the first round and defect in all subsequent rounds. d. cooperate in the first round and cooperate in all subsequent rounds. e. cooperate in the first round and, in any subsequent round, do what his or her opponent did in the last round.

Q: Game theorist Robert Axelrod decided to examine the choices that participants make in a long-run setting. He ran a sophisticated computer simulation in which he invited scholars to submit strategies for securing points in a prisoners dilemma tournament over many rounds. All the submissions were collected and paired, and the results were scored. After each simulation, he eliminated the weakest strategy and reran the tournament with the remaining strategies. This evolutionary approach continued until the best strategy remained. Among all strategies submitted, which strategy dominated?a. tit-for-tat strategy b. tit-for-two-tats strategy c. Axelrod equivalency strategyd. profit-maximization strategye. grim trigger

Q: The following table shows two firms in a single-stage game. Each firm makes its decision without knowledge of the other firms decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. In the Nash equilibrium of this game, Pepsi earns a profit of ________ and Coca-Cola earns a profit of ________.a. $67.5 million; $67.5 million b. $30 million; $30 million c. $37.5 million; $75 milliond. $75 million; $37.5 millione. $50 million; $50 million

Q: In January 2011, Coca-Cola and Pepsi agreed to reduce their yearly advertising budgets by $1 million each, and neither firm reneged on the agreement throughout the year. In January 2012, Coca-Cola and Pepsi each announced that its company 2011 profits had increased by $1 million. Which of the following is a likely explanation for this increase? a. A new entrant in the market caused Coca-Cola and Pepsi to lose substantial market share. b. The government imposed a punitive tax on both firms for producing a beverage that is a danger to public health. c. The firms had previously been in a prisoners dilemma situation where one firms advertisements were effectively canceling the other firms advertisements. d. Coca-Cola drastically reduced the price of its soda relative to the price of Pepsis soda. e. Pepsi drastically reduced the price of its soda relative to the price of Coca-Colas soda.

Q: Together, Coca-Cola and Pepsi account for approximately ________ percent of the soft drink market.a. 35 b. 45 c. 55d. 65e. 75

Q: The following table depicts two firms in a single-stage duopoly game. Each firm makes its decision without knowledge of the other firms decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. If X is greater than $3,500, then there is/area. only one Nash equilibrium, and this game would be considered a prisoners dilemma.b. two Nash equilibriums, and this game would be considered a prisoners dilemma.c. three Nash equilibriums, and this game would be considered a prisoners dilemma.d. only one Nash equilibrium, and this game would not be considered a prisoners dilemma.e. two Nash equilibriums, and this game would not be considered a prisoners dilemma.

Q: The following table shows two firms in a single-stage duopoly game. Each firm makes its decision without knowledge of the other firms decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. This game would be considered a prisoners dilemma if X is betweena. $10,000 and $25,000. b. $25,000 and $35,000. c. $10,000 and $35,000.d. $35,000 and $70,000.e. $45,000 and $70,000.

Q: Walmart and Target are the only stores in a remote town that currently stock and sell the PlayStation 5 video game console. Managers at both stores are simultaneously deciding whether to charge a price of $1,000 or $1,500 for each console. If both stores charge $1,000, they earn a profit of $100,000 each. If both stores charge $1,500, they earn a profit of $200,000 each. If one store charges $1,000 and the other store charges $1,500, the store that charges $1,000 earns a profit of $250,000 and the firm that charges $1,500 earns a profit of $50,000. If Walmart and Target ________, they can both charge $1,500 and earn the highest combined profit available. a. collude with each other b. privately undercut each other after making an agreement c. engage in spirited price competition d. compete with each other only with regard to quantity and not price e. compete with each other only with regard to price and not quantity

Q: If two duopolists arrive at the Nash equilibrium output level, the total quantity of the good on the market will be ________ the total quantity on the market if the market were perfectly competitive and ________ the total quantity on the market if the market were controlled by a monopoly.a. less than; less than b. less than; greater than c. greater than; greater thand. greater than; less thane. greater than; equal to

Q: The following table shows two firms in a duopoly. Each firm makes its decision without knowledge of the other firms decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. If both firms were able to collude and make their supply decisions collectively, Flixbuster would sell ________ subscriptions per month and Nextflix would sell ________ subscriptions per month.a. 200; 200 b. 400; 400 c. 400; 200d. 200; 400e. 600; 600

Q: Which of the following is an example of collusion? a. Nike and Reebok compete on price. b. Dell and Gateway compete on quantity. c. American Airlines and United Airlines agree to raise prices. d. Coca-Cola and Pepsi do not attempt to fix prices. e. Verizon builds more cell phone towers.

Q: The Nash equilibrium in an oligopolistic market is generally ________ for society than the outcome under collusion because the price is ________ marginal cost.a. better; closer to b. better; further above c. worse; closer tod. worse; further abovee. worse; equal to

Q: Refer to the following table. In the Nash equilibrium of this game, Derrick will go to jail for ________ years and Brandy will go to jail for ________ years.a. 0.5; 0.5 b. 25; 25 c. 0.5; 18d. 0.5; 25e. 18; 18

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