Q&A Hero

Q: Refer to the following table. Confessing is Eddies dominant strategy becausea. Sharons dominant strategy is to keep quiet.b. he spends more time in jail if he confesses, regardless of whether Sharon confesses or keeps quiet.c. he spends less time in jail if he confesses, regardless of whether Sharon confesses or keeps quiet.d. he spends the same amount of time in jail by confessing as he would by not confessing.e. his decision does not depend on Sharons decision.

Q: When a particular strategy produces a better outcome for a person regardless of the strategies others choose, we say it is a(n)a. dominated strategy. b. dominant strategy. c. equilibrated strategy.d. efficient strategy.e. surplus maximization strategy.

Q: Refer to the following table. Assume that Keisha keeps quiet. Larry will spend ________ years in jail if he confesses, and ________ years in jail if he also keeps quiet.a. 12; 1.5 b. 1.5; 12 c. 0; 12d. 12; 12e. 0; 1.5

Q: Refer to the following table. Assume that Jeff confesses. Gerry will spend ________ years in jail if he also confesses, and ________ years in jail if he keeps quiet.a. 15; 15 b. 35; 35 c. 0; 35d. 35; 0e. 15; 35

Q: Refer to the following table. Assume that Jane confesses. John will spend ________ years in jail if he also confesses, and ________ years in jail if he keeps quiet.a. 10; 10 b. 10; 25c. 10; 0d. 0; 10e. 25; 25

Q: When decision makers face incentives that make it difficult to achieve mutually beneficial outcomes, we say they are in a(n) ________ dilemma.a. oligopoly b. prisoners c. prison guardsd. monopolye. competitive

Q: A game where firms that pursue a dominant strategy that results in noncooperation where all players are worse off is aa. cartel. b. prisoners dilemma. c. sequential game.d. tit for tat.e. cooperative equilibrium.

Q: Economists are more likely to use game theory to analyze a(n) a. competitive market. b. monopoly. c. monopolistically competitive market. d. oligopoly. e. monopsony.

Q: Economists use ________ theory to better understand what might happen in situations where strategic interactions are involved.a. complexity b. strategic c. competitived. noncompetitivee. game

Q: The branch of economics that studies strategic decision making is called ________ theory.a. interdependence b. game c. competitived. noncompetitivee. strategic

Q: A ________ consists of a set of players, a set of strategies available to those players, and a specification of the payoffs to each player for each possible combination of strategies.a. tournament b. competitive market c. gamed. firme. monopolistically competitive market

Q: When modeling economic situations using game theory, the economic participants are generally referred to asa. gamers. .b. nonmovers. c. dominators.d. playerse. managers.

Q: An equilibrium in a game in which players pursue their own self-interest is calleda. collusion. b. a sequential equilibrium. c. a prisoners dilemma.d. a noncooperative equilibrium.e. a cooperative equilibrium.

Q: Use the following scenario to answer the following questions:In 2011, three firms (Firm A, Firm B, and Firm C) were selling cellular phone service for a price of $40 per month in Playa del Carmen, Mexico. Each firm serviced 100 cell phone customers; thus, all firms together serviced a total of 300 customers. Assume marginal cost is $0 (zero) for all firms and thus total revenue is equal to total profit. In 2012, Firms A and B each continued to service 100 customers, but Firm C now serviced 150 customers; thus, all firms together serviced a total of 350 customers. All firms now charge $30 per month.Assume that there is an oligopoly consisting of firms of different sizes. If a small firm increases output by 25 percent, the price effect realized by the small firm will be ________. If a large firm increases output by 25 percent, the price effect realized by the large firm will be ________.a. nonexistent; negligible b. negligible; nonexistent c. nonexistent; substantiald. substantial; nonexistente. negligible; substantial

Q: Six firms are currently producing and selling in a market. When two of the six firms exit the market, economists expect that the equilibrium price will ________ and the equilibrium quantity will ________.a. be lower; be lower b. be higher; be lower c. be lower; be higherd. be higher; be highere. not change; not change

Q: Five firms are currently producing and selling in a market. When two more firms enter the market, economists expect that the equilibrium price will ________ and the equilibrium quantity will ________.a. be lower; be lower b. be higher; be lowerc. be lower; be higherd. be higher; be highere. not change; not change

Q: Three firms are currently producing and selling in a market. When one of the three firms exits the market, economists expect that the equilibrium price will ________ and the equilibrium quantity will ________.a. be lower; be lower b. be higher; be lower c. be lower; be higherd. be higher; be highere. not change; not change

Q: The ________ effect occurs when the market price either decreases or increases by the respective entrance or exit of a rival firm in the market.a. competitive b. price c. outputd. markete. oligopoly

Q: When more firms enter into a market that was previously characterized as a duopoly, it will a. be easier for firms in the market to form a successful cartel. b. be more difficult for firms in the market to form a successful cartel. c. be just as difficult for firms in the market to form a successful cartel as it was before the new firms entered. d. be impossible for firms in the market to form a successful cartel, whereas before the new firms entered, it would have been possible. e. still be impossible for firms in the market to form a successful cartel.

Q: When a third firm enters a market that was previously categorized as a duopoly, the equilibrium price will ________ and the equilibrium quantity will ________.a. be lower; be lower b. be higher; be lower c. be lower; be higherd. be higher; be highere. not change; not change

Q: Airline A and Airline B are the two largest airlines in the country. The chief executive officer of Airline A calls the chief executive officer of Airline B and says, Why dont we both raise prices 25 percent across the board next week? This is an example ofa. spirited competition. b. attempted collusive behavior. c. predatory pricing.d. a corporate merger.e. a tying arrangement.

Q: An agreement between Nike and Adidas to raise prices of the track shoes that each company produces by 50 percent is an example of a collusive agreement, and economists generally agree that a. this agreement is in the best interest of society because the price of track shoes is significantly above marginal cost. b. this agreement is in the best interest of society because the quantity of track shoes bought and sold is significantly less than the quantity that would be bought and sold in a perfectly competitive market. c. this agreement is not in the best interest of society because the price of track shoes is significantly below marginal cost. d. this agreement is not in the best interest of society because the price of track shoes is significantly above marginal cost. e. the price of track shoes does not affect societal welfare.

Q: Firm A and Firm B are duopolists. They are choosing the price at which they will sell their products and the quantity they will sell. Both firms make their decisions simultaneously. The ________ equilibrium in this situation occurs when Firm B chooses a pricing strategy given the strategy that Firm A chooses, and Firm A chooses a pricing strategy given the strategy that Firm B chooses.a. antitrust b. Nash c. Von Neummand. Morgensterne. cartel

Q: Assume all markets are in long-run equilibrium. Market price in a duopoly would be ________ the market price in a monopoly, and ________ the market price in a competitive market. a. less than or equal to; less than or equal to b. less than or equal to; greater than or equal to c. less than; equal to d. greater than; equal to e. greater than or equal to; less than or equal to

Q: Assume all markets are in long-run equilibrium. The market quantity supplied in a duopoly would be ________ the market quantity supplied in a monopoly and ________ the market quantity supplied in a competitive market. a. less than or equal to; less than or equal to b. less than or equal to; greater than or equal to c. less than; equal to d. greater than; equal to e. greater than or equal to; less than or equal to

Q: The following table shows a small communityu2019s demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firmu2019s marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer the following questions:Price/Month (P)Number of Customers (Q)Total Revenue/Month (TR)$10 0 $0 9 100 900 8 2001,600 7 3002,100 6 4002,400 5 5002,500 4 6002,400 3 7002,100 2 8001,600 1 900 900 01,000 0Listed below are four different collusive agreements that Nextflix and Flixbuster are considering. Assuming both firms will abide by the terms, which collusive agreement(s) would maximize total profit in the market?I. Nextflix supplies 50 subscriptions and Flixbuster supplies 450 subscriptions.II. Nextflix supplies 450 subscriptions and Flixbuster supplies 50 subscriptions.III. Nextflix supplies 300 subscriptions and Flixbuster supplies 100 subscriptions.IV. Nextflix supplies 100 subscriptions and Flixbuster supplies 100 subscriptions.a. agreement I b. agreements I and II c. agreements II and IIId. agreement IIIe. agreements III and IV

Q: If antitrust laws did not prohibit efforts to restrict competition in markets, then a. no firms would attempt to collude on price and/or quantity. b. attempts at collusion with rival firms on price and or/quantity would succeed all the time. c. attempts at collusion with rival firms would probably often fail. d. all firms in the economy would earn negative economic profit in the long run. e. all firms in the market would earn zero economic profit in the long run.

Q: When a market is characterized by mutual interdependence a. one firms pricing decision does not affect the market share of any other firm. b. one firms quantity decision does not affect the market share of any other firm. c. all firms always act in unison to produce the monopoly quantity. d. the actions of one firm have an impact on the price and output of its competitors. e. the actions of one firm have no impact on the price and output decisions of its competitors.

Q: When two or more firms form a ________ agreement and set price and quantity in unison, economists refer to them as ________. a. competitive; a cartel b. collusive; social benefactors c. collusive; a cartel d. monopolistically competitive; social benefactors e. monopolistically competitive; a cartel

Q: In the United States, ________ laws prohibit collusion between rivals.a. competitive arbitration b. immigration c. anticompetitiond. unione. antitrust

Q: Oligopolistic markets are socially ________ because price is ________ marginal cost.a. efficient; equal to b. efficient; less than c. efficient; greater thand. inefficient; less thane. inefficient; greater than

Q: A ________ agreement among rival firms will most likely specify the price each firm will charge and the quantity each firm will produce/sell.a. friendly b. competitive c. monopolisticd. collusivee. price-quantity

Q: When two or more firms set prices or quantities in unison, economists refer to them as a a. cartel. b. monopoly. c. monopolistically competitive market. d. perfectly competitive market. e. predatory pricing unit.

Q: The levels of profits in a cartel are a. initially high, but then decrease as substitute goods emerge. b. initially low, but then decrease as the level of competition increases. c. initially low, but then increase as the level of competition increases. d. near the monopoly level of profits. e. zero.

Q: The Organization of Petroleum Exporting Countries (OPEC) is considered a cartel by economists because the a. firms agree to restrict output in order to increase prices and profits. b. firms are controlled by the government. c. firms in the cartel sell a homogenous (undifferentiated product). d. firms sell a product with few substitutes. e. organization is international and thus not subject to antitrust laws.

Q: Being part of a cartel is generally good for a firm because it can reduce output while increasing prices and profits. Yet most cartels have failed. Why is this the case? a. Cartels lack a dominant strategy. b. As the cartel becomes more profitable, competition increases. c. Cartel members dislike having to equally share profits. d. Each member of the cartel faces an incentive to cheat and produce more, while all of the other members honor the agreement. e. Cartel members eventually go out of business.

Q: The following table shows the total dollar amount of sales in 2012 for the four largest firms in the adhesive manufacturing industry. Total industry sales in 2012 were $782,000. Use this table to answer the following questions:Firm NameSales in 2012Glues R Us$362,000Glue Down 105,000Sticky 85,000All Glues 76,000All other firms in industry combined 154,000Which of the following industries is most likely an oligopoly?a. wheat b. construction c. cell phoned. computer repaire. house painting

Q: The following table shows the dollar amount of sales in 2016 for the four largest firms in the above-ground pool industry. Total industry sales in 2016 were $467,000. Use this table to answer the following questions:Firm NameSales in 2016Clear Water Island$112,000Poolside Paradise 47,000Nautical Waters 19,000Sunny Plastics 14,000All other firms in industry combined 275,000If Clear Water Island acquired Poolside Paradise, the concentration ratio would ________ and the market price of pools would likely ________.a. increase; fall b. increase; rise c. decrease; not changed. decrease; falle. decrease; rise

Q: The following table shows the four-firm concentration ratios for five separate industries. Use this table to answer the following questions: IndustryFour-Firm Concentration Ratio (%)Beer brewing91Breakfast cereals78Chocolate confections69Adhesive manufacturing24.7Plastics product manufacturing 5.6In which two industries is market power the most concentrated?a. beer brewing and adhesive manufacturingb. breakfast cereals and adhesive manufacturingc. chocolate confections and adhesive manufacturingd. adhesive manufacturing and plastics product manufacturinge. beer brewing and breakfast cereals

Q: Economists measure oligopoly power present in an industry by usinga. capital ratios. b. concentration ratios. c. reserve ratios.d. inequality ratios.e. competition ratios.

Q: A firm operating in an oligopolistic market has ________ market power compared to a ________. a. less; firm operating in a perfectly competitive market b. the same amount of; firm operating in a perfectly competitive market c. less; monopolist d. the same amount of; monopolist e. more; monopolist

Q: A monopolistically competitive market consists of ________ seller(s), an oligopoly consists of ________ seller(s), and a monopoly consists of one seller.a. one; many b. one; two c. a few; manyd. many; onee. many; a few

Q: A monopolistically competitive market consists of many sellers, an oligopoly consists of ________ seller(s), and a monopoly consists of ________ seller(s).a. one; one b. one; two c. a few; manyd. a few; onee. many; one

Q: Which of the following have greater incentives to collude and to form cartels in an effort to achieve monopoly-like profits? a. monopolists b. workers in a competitive labor market c. monopolistic competitors d. firms in a perfectly competitive market e. oligopolists

Q: Which of the following is NOT a characteristic of an oligopoly? a. small number of firms b. has some pricing power c. the firms are interdependent d. the good produced may be unique or not e. low barriers to entry

Q: CHAPTER 13: Oligopoly and Strategic BehaviorLike a pure monopoly, an oligopoly is characterized bya. free entry and exit in the long run.b. free entry and exit in the short run.c. significant barriers to entry.d. all firms in the market producing the socially efficient level of output in the long run.e. a single firm selling a product with no close substitutes.

Q: Which of the following represents monopolistic competitors? a. two farmers market stands specializing in heirloom tomatoes b. a local gas company and electric company, both servicing residential homes c. four regional plants producing raw steel for manufacturing d. rock musicians selling albums recorded with the same producer e. two national home improvement stores selling a large array of similar products

Q: Two gas stations are located near each other and compete for customers. They both offer the same brand of gasoline. Guzzlin Gas is located a couple of blocks from the interstate, down a side street. Frankies Fast Fuel is on the interstate access road, directly following an exit ramp. What can you assume about market power? a. The location of Frankies Fast Fuel gives it a certain degree of market power. b. The location of Guzzlin Gas gives it a certain degree of market power. c. Because they offer the same brand of gasoline, differentiation is irrelevant. d. Frankies Fast Fuel charges higher prices, which erodes any market power it possesses. e. The location of Frankies Fast Fuel means that it sells an inferior product.

Q: A unique feature of monopolistic competition is a. many sellers b. free entry and exit c. differentiated products d. similar products e. significant barriers to entry and exit

Q: All of the following are examples of product differentiation, EXCEPT a. exciting and attractive packaging b. touting superior quality c. nationwide availability d. perfect substitution for another brand e. catchy and memorable television advertisements

Q: If a firm engages in false advertising, it might be a. shut down by the Securities and Exchange Commission (SEC). b. investigated by the Federal Trade Commission (FTC) and have its products removed from the market. c. shut down by the Department of Justice. d. investigated by the Stock Market Investigation Bureau (SMIB). e. subject to penalty by collusion.

Q: One drawback to advertising might be that it could easily a. raise costs but not increase demand. b. raise revenue but not increase demand. c. decrease revenue and raise demand. d. decrease costs and decrease demand. e. cause a monopolistically competitive firm to become a monopoly.

Q: A franchise might be worth $1 million or more because a. it guarantees the owner a long-run economic profit. b. it guarantees the owner positive economic profit. c. product differentiation results in brand loyalty, which can be very profitable. d. it gives the owner a pure monopoly. e. it allows the franchisee to sell a homogeneous product.

Q: According to the discussion in the textbook, Kevin Trudeau a. is the head of the Securities and Exchange Commission (SEC). b. was sued by the Federal Trade Commission (FTC) for false advertising in 1998. c. is the former CEO of Enron. d. is the former prime minister of Canada. e. is the former head of the FTC.

Q: False advertising is generally regulated by a. the Securities and Exchange Commission (SEC). b. the Federal Trade Commission (FTC). c. the Antitrust Division of the Department of Justice. d. state and local governments. e. the Nuclear Regulatory Commission (NRC).

Q: Why would perfectly competitive industries advertise even though individual firms do not? a. Even though the output of an individual firm would be considered homogeneous to other firms, the industry output would be differentiated (for example, Florida orange juice versus imports). b. Individual perfectly competitive firms dont need to advertise because they already have market power, but the industry would need to advertise. c. Government price supports exist for most perfectly competitive producers, so they dont need to advertise, but industry price supports dont generally exist. d. Industries advertise because they pay for commercials and it allows consumers to watch TV and listen to the radio for free. e. Individual firms produce perfectly differentiated output, but the industry produces homogeneous output that needs to be differentiated.

Q: Siyed, an economics student, believes that a beer sold by one particular shack on the beach is completely different from an identical beer produced by the same factory and sold by the luxury hotel adjacent to the shack. Siyed most likely thinks that a. the luxury hotel and the shack are in a perfectly competitive industry. b. the luxury hotel is a monopoly seller of the beer. c. the luxury hotel and the shack are in a monopolistically competitive industry. d. the shack is in a perfectly competitive industry, but the luxury hotel is in an oligopoly industry. e. while beer is homogeneous, the product is differentiated among the sellers.

Q: Successful advertising would be most effective in the ________ industry. a. electric power transmission and distribution b. wheat production c. corn production d. wholesale coal e. restaurant

Q: When would advertising be least effective for an individual firm? a. in a perfectly competitive industry b. in a monopolistically competitive industry c. in an oligopolistic industry d. in a monopoly industry e. Never; advertising is equally effective in all industries.

Q: Successful advertising under monopolistic competition might a. make the demand for a firms product more elastic. b. create a high barrier to entry. c. promote lower-quality products. d. reduce the price elasticity of demand for that firms output. e. help consumers understand why products in the industry are homogeneous.

Q: Because of successful advertising a. the demand curve facing each firm shifts right, while the cost curves shift downward. b. the decisions of one seller often influence the prices of products, the output, and the profits of rival firms. c. there is only one firm that produces a product for which there are no good substitutes. d. there are many sellers in the market and each is small relative to the total market. e. the demand curve facing each firm shifts right, while the cost curves shift upward.

Q: Successful advertising a. generally causes a firms costs to fall. b. generally causes industry costs to fall. c. normally causes demand for the firm to shift right. d. normally causes industry demand to shift left. e. normally causes consumers to buy things for which they have no use.

Q: Anderson watches advertising that makes him want to consume Bugles, a corn snack, after he hears that, for Bugles, more is better. Most people consider that all corn snack foods are not the same, and that Doritos and other corn snacks are not perfect substitutes for Bugles. Based on this information, we would most accurately say that this advertising probably caused a. Andersons demand to be more elastic, and the corn snack industry is likely to be a monopolistically competitive industry. b. Andersons demand to be less elastic, and the corn snack industry is likely to be a monopoly industry. c. the corn snack industry demand to be less elastic, and Andersons demand was unaffected. d. the corn snack industry to become a monopoly, whereas prior to advertising, it was probably perfectly competitive. e. Andersons demand to be less elastic, and the corn snack industry is likely to be a monopolistically competitive industry.

Q: An industry (such as California cheese) might advertise so that its product (cheese) a. is no longer viewed as homogeneous. b. will now be viewed as homogeneous for all producers. c. may be characterized by a horizontal demand curve. d. will now have a price elasticity of demand that is more elastic. e. will be sold in perfectly competitive markets.

Q: Advertising is designed to a. increase the price elasticity of demand for the firm and shift the firms demand curve rightward. b. decrease the price elasticity of demand for the firm and shift the firms demand curve rightward. c. increase the price elasticity of demand for the industry and shift the firms demand curve rightward. d. decrease the price elasticity of demand for the industry, but have no effect on the firms demand. e. cause the income elasticity of consumers to become zero.

Q: Product differentiation makes the demand for a monopolistically competitive firms product a. perfectly elastic. b. less elastic than in a competitive market. c. more elastic than in a competitive market. d. perfectly inelastic. e. less elastic than that of a monopoly.

Q: If a monopolistically competitive firm wants to maximize profits, it will increase production until marginal a. revenue is greater than average variable cost. b. revenue equals average total cost. c. cost is greater than marginal revenue. d. revenue equals average revenue. e. revenue equals marginal cost.

Q: When a perfectly competitive firm or a monopolistically competitive firm is making zero economic profit a. the industry is in equilibrium; no firms will want to enter or exit. b. those firms who dont differentiate their product sufficiently will want to leave the market. c. those firms who wish to differentiate their product more will want to enter the market. d. market demand shifts to the right. e. the price of the output will rise in the long run.

Q: Which of the following is evidence of market power? a. markup b. Output is fixed despite cost changes. c. The demand curve for the firm is horizontal. d. The firm has perfect control over price. e. Optimal output is less than industry output.

Q: Markup would generally be highest undera. a monopoly. b. a cartel. c. an oligopoly.d. monopolistic competition.e. a competitive market.

Q: Markup would generally be lowest undera. a monopoly. b. a cartel.c. an oligopoly.d. monopolistic competition. e. a collusive industry.

Q: Markup would not exist ina. a monopoly. b. a cartel. e. c. an oligopoly.d. monopolistic competition.a competitive market.

Q: The concept of markup under monopolistic competition would best be described as the a. attempt of firms to make their products look like those of other firms in the industry, thus marking them up in a similar style. b. attempt of firms to mark up their prices above those of their rivals. c. difference between total revenue and total cost of the monopolistic competitor. d. difference between the average total cost and the price of the monopolistic competitor. e. difference between the marginal cost and the price of the monopolistic competitor.

Q: One source of economic inefficiency from monopolistic competition is a. markup. b. less variety for consumers. c. more variety for consumers. d. higher costs because firms can enter the industry. e. lower marginal costs, but higher average costs than with perfect competition.

Q: A monopolistically competitive firm is inefficient because the firm a. earns positive economic profit in the long run. b. is producing at an output amount that corresponds to marginal cost equal to price. c. is not maximizing its profit. d. produces an output where average total cost is not minimum. e. produces where price is equal to minimum average total cost.

Q: Monopolistic competition is inefficient because a. firms earn positive economic profits. b. the firms marginal costs and marginal revenues are not equal. c. price is not equal to the minimum average total cost. d. entry is difficult. e. the price is equal to the minimum average total cost.

Q: Excess capacity best describes the fact that a. monopolistically competitive firms produce less than the cost-minimizing level of output. b. monopolistically competitive firms produce more than the cost-minimizing level of output. c. monopolistically competitive firms produce exactly the cost-minimizing level of output, but the monopolistically competitive industry produces more than that amount. d. monopolistically competitive firms could produce less if they wanted to, so they produce more than the optimal capacity. e. perfectly competitive firms produce less than the cost-minimizing level of output so they have excess capacity, but monopolistically competitive firms do not.

Q: In the long run, monopolistically competitive firms like Hardees and Carls Jr. operate at a price that a. allows them to make a small economic profit. b. drives economic profit to zero. c. equals marginal cost. d. equals average variable cost. e. equals minimum average total cost.

Q: Which of the following is evidence of market power? a. Profit-maximizing output changes is less than the efficient scale. b. Output is fixed despite cost changes. c. The demand curve for the firm is horizontal. d. The firm has no control over price. e. Optimal output minimizes average total cost.

Q: A competitive firm would have a. more elastic demand than a monopolistically competitive firm. b. more inelastic demand than a monopolistically competitive firm. c. an upward-sloping demand curve. d. a demand curve that becomes horizontal at a certain point. e. bowed-in or bowed-out demand.