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The tablet-computer market is best characterized as a(n)


A) pure competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.

E) A) and B)
F) A) and C)

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Major Internet-related firms such as Google, Apple, Amazon, Microsoft, and Facebook each have an area of the market that they dominate. Which of the following is true about their interaction in the market?


A) They tend to act independently, paying little attention to what the other firms do.
B) They collude so that each firm retains a near-monopoly in a particular sector without facing threats from the other major firms.
C) They behave according to a price leadership model, with each firm taking a leadership role in the particular sector it dominates.
D) They compete fiercely, as each looks for ways to increase profits by expanding into rivals' markets.

E) B) and C)
F) All of the above

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Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlines and Friendly Flyers are looking to enter that market. (They are the only two.) The figure shows in extensive form the possible outcomes of the two firms' decisions. The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. What does this extensive form game indicate about the decision to enter the South Podunk market? Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlines and Friendly Flyers are looking to enter that market. (They are the only two.) The figure shows in extensive form the possible outcomes of the two firms' decisions. The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. What does this extensive form game indicate about the decision to enter the South Podunk market? A) Accommodating Airlines has a first-mover advantage in this game. B) Both airlines are better off by entering this market. C) Friendly Flyers has a first-mover advantage in this game. D) The outcome of this game is a prisoner's dilemma.


A) Accommodating Airlines has a first-mover advantage in this game.
B) Both airlines are better off by entering this market.
C) Friendly Flyers has a first-mover advantage in this game.
D) The outcome of this game is a prisoner's dilemma.

E) B) and C)
F) B) and D)

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Which cannot be a characteristic of an oligopolistic industry?


A) differentiated products
B) a large number of consumers
C) significant barriers to entry
D) a perfectly elastic firm demand curve

E) B) and C)
F) C) and D)

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Game trees are most useful for


A) showing Nash equilibrium.
B) identifying dominant strategies.
C) mapping out sequential games.
D) determining whether a game is positive-sum, zero-sum, or negative-sum.

E) None of the above
F) B) and C)

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Two industries that have the same four-firm concentration ratio can have significantly different Herfindahl indexes.

A) True
B) False

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Price leadership represents a situation where oligopolistic firms


A) reduce their reliance on nonprice competition.
B) form a cartel.
C) face a kinked demand curve.
D) tacitly collude.

E) None of the above
F) A) and D)

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The diagram shows the extensive form version of a strategic game between the two nationally dominant coffee sellers, Corporate Coffee and Jumbo Java, both of whom are considering opening coffee shops in a new town. The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. What does this extensive form game indicate about the decision to open a new coffee shop? A) The outcome of the game is a prisoner's dilemma. B) Neither firm has a first-mover advantage. C) Jumbo Java has a first-mover advantage. D) Corporate Coffee has a first-mover advantage. The diagram shows the extensive form version of a strategic game between the two nationally dominant coffee sellers, Corporate Coffee and Jumbo Java, both of whom are considering opening coffee shops in a new town. The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. What does this extensive form game indicate about the decision to open a new coffee shop?


A) The outcome of the game is a prisoner's dilemma.
B) Neither firm has a first-mover advantage.
C) Jumbo Java has a first-mover advantage.
D) Corporate Coffee has a first-mover advantage.

E) A) and B)
F) A) and C)

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You are told that the four-firm concentration ratio in an industry is 20. Based on this information you can conclude that


A) each of the top four firms has, on average, 20 percent of industry sales.
B) this industry's market structure is oligopoly.
C) the four largest firms account for 20 percent of industry sales.
D) each of the four largest firms accounts for 5 percent of industry sales.

E) B) and C)
F) A) and D)

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Refer to the diagram for a non-collusive oligopolist. We assume that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. If the firm's rivals will ignore any price increase but match any price reduction, the firm's marginal revenue curve will be (moving from left to right) A) D₁ ED₂. B) MR₂abMR₁ C) MR₂aMR₂ D) MR₁ bMR₁. Refer to the diagram for a non-collusive oligopolist. We assume that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. If the firm's rivals will ignore any price increase but match any price reduction, the firm's marginal revenue curve will be (moving from left to right)


A) D₁ ED₂.
B) MR₂abMR₁
C) MR₂aMR₂
D) MR₁ bMR₁.

E) C) and D)
F) A) and D)

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The kinked-demand curve model of oligopoly is useful in explaining


A) the way that collusion works.
B) why oligopolistic prices and outputs are extremely sensitive to changes in marginal cost.
C) why oligopolistic prices might change infrequently.
D) the process by which oligopolists merge with one another.

E) C) and D)
F) A) and B)

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If enforcement of antitrust laws caused the two largest firms in this table to be divided in half, with each half having equal market share, the industry's four-firm concentration ratio would ____ and its Herfindahl index would ____. A) fall; fall B) fall; rise C) remain the same; rise D) remain the same; fall If enforcement of antitrust laws caused the two largest firms in this table to be divided in half, with each half having equal market share, the industry's four-firm concentration ratio would ____ and its Herfindahl index would ____.


A) fall; fall
B) fall; rise
C) remain the same; rise
D) remain the same; fall

E) B) and D)
F) A) and B)

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In which market model is there mutual interdependence?


A) monopolistic competition
B) pure competition
C) pure monopoly
D) oligopoly

E) B) and D)
F) A) and B)

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Firms must consider the possible reaction of rivals to their own decisions and actions in which of the following markets?


A) monopolistic competition
B) monopoly
C) oligopoly
D) pure competition

E) A) and B)
F) B) and C)

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Industry Y is dominated by five large firms that hold market shares of 27, 23, 16, 16, and 18 percent. The four-firm concentration ratio for this industry is


A) 82 percent.
B) 84 percent.
C) 88 percent.
D) 92 percent.

E) A) and B)
F) A) and C)

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Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlines and Friendly Flyers are looking to enter that market. (They are the only two.) The figure shows in extensive form the possible outcomes of the two firms' decisions. The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. Assuming the two firms have perfect information about this game, what can we conclude about the existence of a Nash equilibrium? Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlines and Friendly Flyers are looking to enter that market. (They are the only two.) The figure shows in extensive form the possible outcomes of the two firms' decisions. The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. Assuming the two firms have perfect information about this game, what can we conclude about the existence of a Nash equilibrium? A) The solution to the game is a Nash equilibrium. B) There are multiple Nash equilibria for this game. C) There is no Nash equilibrium for this game. D) There is a Nash equilibrium for this game, but it does not coincide with the solution to the game.


A) The solution to the game is a Nash equilibrium.
B) There are multiple Nash equilibria for this game.
C) There is no Nash equilibrium for this game.
D) There is a Nash equilibrium for this game, but it does not coincide with the solution to the game.

E) A) and D)
F) C) and D)

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The effects of advertising on a firm's profits and efficiency


A) are definitely positive.
B) are definitely negative.
C) may be positive or negative.
D) are only observed in oligopoly.

E) None of the above
F) C) and D)

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In an oligopolistic market, there is likely to be


A) little consideration of the actions of rival firms.
B) price-taking behavior on the part of firms.
C) product homogeneity, not differentiation.
D) neither allocative nor productive efficiency.

E) None of the above
F) C) and D)

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First-mover advantage cannot happen in a one-time simultaneous game.

A) True
B) False

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The Herfindahl index for bar soap is 2,250, while the index for gasoline pumps is 1,611. Which market is more competitive?

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The higher the Herfindahl inde...

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