Question 1

Which of the following best describes an oligopoly?

Accepted Answer

A market structure where a small number of interdependent firms compete.

Question 2

Which of the following is an example of a barrier to entry in the online advertising industry?

Accepted Answer

All of the above.

Question 3

Suppose a firm achieves economies of scale before its competitors. What is the likely effect on its average cost and pricing?

Accepted Answer

Its average cost will be lower and it can charge a lower price.

Question 4

What does a four-firm concentration ratio greater than 40 percent indicate?

Accepted Answer

The industry is an oligopoly.

Question 5

Which of the following best defines economies of scale?

Accepted Answer

A situation in which a firm's long-run average costs fall as the firm increases output.

Question 6

In the prisoner's dilemma, what is the dominant strategy for both players?

Accepted Answer

To confess.

Question 7

What is the Nash equilibrium in the advertising game between Coca-Cola and Pepsi?

Accepted Answer

Both firms advertise.

Question 8

Which of the following is an example of implicit collusion?

Accepted Answer

Price leadership.

Question 9

Suppose HP and Dell both advertise that they will match any lower price of their competitors. If this leads to both firms charging $$400 instead of 350$$, how will their profits change?

Accepted Answer

HP's profit increases by $$50 and Dell's profit increases by 50.$$

Question 10

In the context of game theory, what is a subgame-perfect equilibrium?

Accepted Answer

A Nash equilibrium in which no player can make himself better off by changing his decision at any decision node.

Question 11

According to Michael Porter's five competitive forces, which forces best describe the competition Under Armour faces in the athletic and casual apparel industry?

Accepted Answer

Competition from existing firms and the threat from potential entrants.

Question 12

Which of the following is a likely effect if only a few firms can supply an input in an industry?

Accepted Answer

Markets will likely experience shortages because firms are unable to produce sufficient output.

Question 13

What is the cooperative equilibrium in a cartel game between Saudi Arabia and Kuwait if both produce low output?

Accepted Answer

Both produce low output.

Question 14

How might technological changes reduce the importance of barriers to entry in tech industries?

Accepted Answer

By creating opportunities for new firms to offer goods and services that better serve customers' wants.

Question 15

Which of the following best describes how games are played in game theory?

Accepted Answer

Rules determine what actions are allowable, players employ strategies to attain their objectives, and payoffs are the results of the interactions among players.

Question 16

If Best Buy is the only electronics store in a market and RadioShack is considering entry, what is the likely outcome if Best Buy chooses a large quantity?

Accepted Answer

RadioShack will stay out of the market.

Question 17

Which of the following is an example of buyers affecting an industry according to the five competitive forces model?

Accepted Answer

Wal-Mart has significant bargaining power over its suppliers, which lowers the prices suppliers can charge.

Question 18

What is the main difference between explicit and implicit collusion?

Accepted Answer

Explicit collusion involves direct agreements, while implicit collusion involves signaling without direct agreements.

Ch. 14 Study Guide

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