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The five competitive forces model was developed by


A) Michael Porter.
B) John Nash.
C) Michael Spence.
D) Porter Smith.

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

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There are two firms in the residential paint industry,Cool Shades (C)and Warm Hues (W).They collude to share the market equally.They jointly set a monopoly price and split the quantity demanded at that price.Here are their options: i.They continue to collude (no cheating)and make $12 million each in profits. ii.One firm cheats and the other does not.The firm that cheats makes a profit of $14 million whereas the firm that doesn't makes a profit of $9 million. iii.They both cheat and each firm makes a profit of $7 million. a.Construct a payoff matrix for these two firms. b.How does this situation relate to the prisoner's dilemma? c.If each firm acted noncooperatively,how much profit would each make? d.Are the firms better off colluding (with no cheating)or competing? Explain.

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a.The payoff matrix: blured image b.With a prisoner'...

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All of the following are ways by which existing firms can deter the entry of new firms into an industry except


A) continuously producing new and improved products.
B) earning less than maximum profit.
C) advertising products aggressively.
D) threatening to raise prices.

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

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Game theory was developed in the 1940s by John von Neuman,a mathematician,and an economist named


A) John Nash.
B) John Maynard Keynes.
C) Oskar Morgenstern.
D) Milton Friedman.

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

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The approach economists use to analyze competition among oligopolists is called


A) marginal analysis.
B) game theory.
C) oligopoly theory.
D) competition among the few.

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

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Table 14-1 Table 14-1 Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito.Each firm must decide on whether to increase its advertising spending to compete for customers.If one firm increases its advertising budget but the other does not,then the firm with the higher advertising budget will increase its profit.Table 14-1 shows the payoff matrix for this advertising game. -Refer to Table 14-1.Does Baine have a dominant strategy and if so,what is it? A) Yes,Baine should increase its advertising budget. B) Yes,Baine should keep its advertising budget as is. C) There are two dominant strategies: if Alistair increases its advertising budget,then Baine's best bet is to keep its budget the same but if Alistair does not increase its spending then Baine should raise its advertising budget D) No,there is no dominant strategy. Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito.Each firm must decide on whether to increase its advertising spending to compete for customers.If one firm increases its advertising budget but the other does not,then the firm with the higher advertising budget will increase its profit.Table 14-1 shows the payoff matrix for this advertising game. -Refer to Table 14-1.Does Baine have a dominant strategy and if so,what is it?


A) Yes,Baine should increase its advertising budget.
B) Yes,Baine should keep its advertising budget as is.
C) There are two dominant strategies: if Alistair increases its advertising budget,then Baine's best bet is to keep its budget the same but if Alistair does not increase its spending then Baine should raise its advertising budget
D) No,there is no dominant strategy.

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

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Which industry has the highest four-firm concentration ratio?


A) discount department stores
B) college bookstores
C) retail gasoline stations
D) cigarettes

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

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A patent is a government-imposed entry barrier because


A) it allows a firm to achieve economies of scale.
B) it is a key input owned by the firm that is granted the patent.
C) it limits the quantity of a good that can be imported into a country.
D) it gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.

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

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Economies of scale will create a barrier to entry in an oligopoly industry when


A) a firm's minimum efficient scale occurs where long-run average total costs are constant.
B) the typical firm's long-run average total cost curve reaches a minimum at a level of output that is a large fraction of total industry sales.
C) the typical firm's long-run average total cost curve reaches a minimum at a level of output that is a small fraction of total industry sales.
D) the industry's four-firm concentration ratio is less than 40 percent.

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

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Table 14-5 Table 14-5 Two rival oligopolists in the athletic supplements industry,the Power Fuel Company and the Brawny Juice Company,have to decide on their pricing strategy.Each can choose either a high price or a low price.Table 14-5 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts. -Refer to Table 14-5.If the two firms collude,is there an incentive for either to cheat on the collusion agreement? A) No,neither firm can gain by cheating. B) Yes,but only Brawny Juice is in a position to gain by cheating. C) Yes,but only Power Fuel is in a position to gain by cheating. D) Yes,either firm can gain if it alone cheats. Two rival oligopolists in the athletic supplements industry,the Power Fuel Company and the Brawny Juice Company,have to decide on their pricing strategy.Each can choose either a high price or a low price.Table 14-5 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts. -Refer to Table 14-5.If the two firms collude,is there an incentive for either to cheat on the collusion agreement?


A) No,neither firm can gain by cheating.
B) Yes,but only Brawny Juice is in a position to gain by cheating.
C) Yes,but only Power Fuel is in a position to gain by cheating.
D) Yes,either firm can gain if it alone cheats.

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

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What is the difference between explicit collusion and implicit collusion?

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Explicit collusion involves ma...

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According to Porter's Five Competitive Forces Model,similar products produced by different firms within the industry affects a firm's ability to raise prices far more than substitutable products produced outside the industry.

A) True
B) False

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Table 14-5 Table 14-5 Two rival oligopolists in the athletic supplements industry,the Power Fuel Company and the Brawny Juice Company,have to decide on their pricing strategy.Each can choose either a high price or a low price.Table 14-5 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts. -Refer to Table 14-5.If the firms cooperate,what prices will they select? A) Both firms will select a low price. B) Brawny Juice will select a high price,Power Fuel a low price. C) Both firms will select a high price. D) Brawny Juice will select a low price,Power Fuel a high price. Two rival oligopolists in the athletic supplements industry,the Power Fuel Company and the Brawny Juice Company,have to decide on their pricing strategy.Each can choose either a high price or a low price.Table 14-5 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts. -Refer to Table 14-5.If the firms cooperate,what prices will they select?


A) Both firms will select a low price.
B) Brawny Juice will select a high price,Power Fuel a low price.
C) Both firms will select a high price.
D) Brawny Juice will select a low price,Power Fuel a high price.

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

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Two firms would sometimes be better off if they got together and agreed to charge a high price,rather than to compete and risk having to charge a lower,competitive price.What is the greatest deterrent to this strategy?


A) The firms may find that the price they charge is greater than the price that would maximize their profits.
B) An agreement by firms to charge high prices is illegal.The government can fine the firms and send their managers to jail.
C) Consumers may resent having to pay high prices and not buy from either of the firms.
D) One of the firms may decide to lower its price and take business away from the firm that charged the high price.

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

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When large firms in oligopoly markets cut their prices,


A) rival firms will also cut their prices to avoid losing sales.
B) rival firms will not change their prices because most of their customers have signed contracts that commit them to doing business with the same firms for the life of their contracts.
C) we don't know for sure how rival firms will respond.
D) rival firms will not cut their prices because they fear that the federal government will accuse them of collusion.

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

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A four-firm concentration ratio measures


A) the extent to which industry sales are concentrated among the four largest firms in the industry.
B) the price elasticity of demand among the four largest firms in an industry.
C) the number of firms in an industry.
D) the price elasticity of demand in an industry.

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

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

A) True
B) False

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A fundamental assumption in game theory is that players do not interact with each other.

A) True
B) False

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An equilibrium in a game in which players pursue their own self-interest is called


A) a Nash equilibrium.
B) a cooperative equilibrium.
C) a noncooperative equilibrium.
D) a prisoner's dilemma.

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

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Table 14-1 Table 14-1 Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito.Each firm must decide on whether to increase its advertising spending to compete for customers.If one firm increases its advertising budget but the other does not,then the firm with the higher advertising budget will increase its profit.Table 14-1 shows the payoff matrix for this advertising game. -Refer to Table 14-1.How are the firms in this advertising game caught in a prisoner's dilemma? A) They are not in a prisoner's dilemma because there is one clear strategy for each. B) They would be more profitable if they refrained from advertising but each fears that if it does not advertise,it will lose customers. C) Since each firm is uncertain about the other's behavior,each will adopt a wait-and-see attitude which results in no increase in market share and no new customers. D) Only the first mover is caught in a prisoner's dilemma because the second has a chance to observe and respond. Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito.Each firm must decide on whether to increase its advertising spending to compete for customers.If one firm increases its advertising budget but the other does not,then the firm with the higher advertising budget will increase its profit.Table 14-1 shows the payoff matrix for this advertising game. -Refer to Table 14-1.How are the firms in this advertising game caught in a prisoner's dilemma?


A) They are not in a prisoner's dilemma because there is one clear strategy for each.
B) They would be more profitable if they refrained from advertising but each fears that if it does not advertise,it will lose customers.
C) Since each firm is uncertain about the other's behavior,each will adopt a wait-and-see attitude which results in no increase in market share and no new customers.
D) Only the first mover is caught in a prisoner's dilemma because the second has a chance to observe and respond.

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

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