1. Advertising is an important aspect of monopolistic competition and oligopoly because
a. there are significant substitution possibilities in these industries.
b. price changes are not allowed.
c. brand distinction encourages consumer loyalty, increasing profits.
d. there is product homogeneity in these industries
2. Using the payoff matrix below, X and Y are
a. interdependent because their profits depend on an agreed upon price.
b. independent because their profits depend on their own price.
c. independent because their profits depend on an agreed upon price.
d. interdependent because their profits depend not just on their own price, but also on the other firm's price.
3. Assume this is a repeated game (rather than a one-time game) and that the interaction between the two firms occurs indefinitely. Collusion, with a credible threat, would not be necessary to achieve the $60/$57 outcome because the
a.future value of cooperation may exceed the one-time gains from deviating from the $35-$35 pricing strategy.
b. present value of cooperation may exceed the one-time gains from deviating from the $35-$35 pricing strategy.
c. future value of cooperation may exceed the one-time gains from deviating from the $40-$40 pricing strategy.
d. present value of cooperation may exceed the one-time gains from deviating from the $40-$40 pricing strategy.
4. Product differentiation
a. only occurs when there is brand loyalty.
b. is usually nonexistent.
c. provides an advantage in the market.
d. describes registered differences in product characteristics.
5. The kinked-demand curve for oligopolists assumes that rivals will
a. match price increases but ignore price cuts.
b. match price cuts but ignore price increases.
c. not match price cuts or price increases.
d. match price cuts and price increases.
6. Suppose you are playing a game in which you and one other person each picks a number between 1 and 100, with the person closest to some randomly selected number between 1 and 100 winning the jackpot. (Ask your instructor to fund the jackpot.) Your opponent picks first.Which of the following statements is true?
a. The first player should choose 50 because this gives them an equal chance of being above or below the randomly selected number. The second player should choose a number one more than the first player.
b. The first player should choose 75 because this gives them a better chance of being above the randomly selected number. The second player should choose 25.
c. The first player should choose 50 because this gives them an equal chance of being above or below the randomly selected number. The second player should choose a number one half that of the first player.
d. The first player should choose 25 because this gives them a better chance of being below the randomly selected number. The second player should choose 75.
7. Oligopoly differs from monopolistic competition in that oligopoly
a. the firms have relatively easy entry.
b. the firms are not mutually interdependent with regard to price.
c. has many firms, whereas monopolistic competition has few firms.
d. has few firms, whereas monopolistic competition has more firms.
8. The difference between monopolistic competition and pure monopoly is that in comparison to monopolistic competition, pure monopoly has
a. one firm, a patented product, some price control, and entry barriers.
b. one firm, a unique product, price control, and entry barriers.
c. at least one competitor, a patented product, little price control, and few entry barriers.
d. at least one firm, a patented product, some price control, and few entry barriers.
9. There might be a temptation to cheat on the collusive agreement because each firm could
a. increase its profit even more by secretly charging more than the agreed upon price.
b. increase its profit even more by secretly charging less than the agreed upon price.
c. increase market share even more by secretly charging less than the agreed upon price.
d. lower its cost by secretly charging less than the agreed upon price.
10. Suppose that the most popular car dealer in your area sells 10 percent of all vehicles. If all other car dealers sell either the same number of vehicles or fewer, what is the largest value that the Herfindahl index could possibly take for car dealers in your area?
In that same situation, what would the four-firm concentration ratio be?