Chap 15 MC + LQ ans

8/16/2019 Chap 15 MC + LQ ans

1/86

Microeconomics, 10e (Parkin)

Chapter 15 Oligopoly

1 What is Oligopoly?

1) An oligopoly is a market structure in which there areA) only a few buyers but many sellers.B) only a few sellers selling either an identical or differentiated product.C) many sellers selling a differentiated product.) a few products sold by many sellers.Answer! B"opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*) Which of the following is a distinguishing characteristic of oligopoly?A) A small number of firms compete.B) +o one firm,s actions directly affect the actions of the other firms.C) -irms are free to enter and eit the industry.) +atural barriers cannot pre'ent the entry of new firms.Answer! A"opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

/) When only a small number of producers compete with each other is a defining characteristicof A) inelastic supply.B) monopolistic competition.C) efficient competition.) oligopoly.Answer! "opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

1

Copyright 0 *1* &earson 2ducation( 3nc.

8/16/2019 Chap 15 MC + LQ ans

2/86

4) 3n oligopolistic markets(A) there are many firms.B) there are no barriers to entry.C) there are only a few firms.) all firms are price takers.

Answer! C"opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

) A market structure in which a small number of firms compete is called 55555555.A) a monopolyB) a small6number marketC) an oligopoly) monopolistic competitionAnswer! C"opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

7) "he key feature of an oligopoly is that thereA) are many buyers and sellers.B) is one seller.C) eists product differentiation.) are only a few sellers.Answer! "opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

8) 3n an oligopolyA) there are only a few firms.B) there is no product differentiation.C) there is free entry and eit.) firms, decisions are unrelated to each other.Answer! A

"opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*


8/16/2019 Chap 15 MC + LQ ans

3/86

9) A market structure in which a small number of producers compete against each other isA) monopolistic competition.B) oligopoly.C) monopoly.) perfect competition.

Answer! B"opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

:) 3f firms in an industry differentiated their products and made economic profits in the short6run( what other characteristic would be important to determine if this is an oligopoly or amonopolistically competiti'e market?A) "he number of firms in the market.B) "he number of close substitutes for the good being produced.C) "he number of buyers in the market.) 3f the good being sold is a normal or inferior good.Answer! A"opic! Oligopoly#kill! $ecognition%uestion history! +ew 1th editionAAC#B! $eflecti'e "hinking

1) "he distinguishing features of oligopoly are 55555555 and a 55555555 in the industry.A) barriers to entry; large number of firmsB) no barriers to entry; few firmsC) barriers to entry; few firms) no barriers to entry; large number of firmsAnswer! C"opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

11) Oligopoly isA) like monopoly because there are barriers to entry.B) like perfect competition because oligopoly firms all sell homogeneous goods.C) like monopolistic competition because oligopoly firms all sell differentiated goods

) like perfect competition because there are many firms in the industryAnswer! A"opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

/


8/16/2019 Chap 15 MC + LQ ans

4/86

1*) Which of the following is a distinguishing characteristic of oligopoly?A) A large number of firms compete.B) +o one firm,s actions directly affect the actions of the other firms.C) -irms are free to enter and eit the industry.) +atural or legal barriers pre'ent the entry of new firms.

Answer! "opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

1/) Which of the following is a defining characteristic of oligopoly?A) barriers to entryB) selling a homogeneous goodC) selling a differentiated good) collusionAnswer! A"opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

14) +atural oligopoly is a situation whereA) the le'el of demand can support only a few firms.B) there is only one firm.C) there are only two firms.) there are legal barriers to entry.Answer! A"opic! +atural Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

1) A natural oligopoly can formA) if there are economies of scaleB) only if firms sell a differentiated goodC) only if firms sell a homogeneous good) if there is only one firm in the industryAnswer! A

"opic! +atural Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

4


8/16/2019 Chap 15 MC + LQ ans

5/86

17) 3n a small town the le'el of demand is capable of supporting only two gas stations. "hismarket isA) a natural duopoly.B) perfectly competiti'e because a homogeneous good is being sold.C) operating as if it was a monopoly.

) an eample of monopolistic competition.Answer! A"opic! +atural Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

18) One difference between oligopoly and monopolistic competition is thatA) a monopolistically competiti'e industry has fewer firms.B) in monopolistic competition( the products are identical.C) monopolistic competition has barriers to entry.) fewer firms compete in oligopoly than in monopolistic competition.Answer! "opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

19) Which of the following is a distinguishing characteristic of oligopoly?A) A large number of firms compete.B) 2ach firm,s actions influence the profits of all the other firms.C) -irms are free to enter and eit the industry.) +atural barriers cannot pre'ent the entry of new firms.Answer! B"opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

1:) Consider a market in which each firm must predict the price and

8/16/2019 Chap 15 MC + LQ ans

6/86

*) 3n 55555555 market structure( a firm,s output depends 55555555.A) an oligopoly; only on its own marginal re'enue and marginal cost cur'esB) a monopolistically competiti'e; in part on its competitors, price and

8/16/2019 Chap 15 MC + LQ ans

7/86

*4) A duopoly is a form of A) perfect competition.B) monopolistic competition.C) oligopoly.) monopoly.

Answer! C"opic! uopoly#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

3n the figure( D is the demand cur'e for tai rides in a town( and ATC is the a'erage total costcur'e of a tai company.

*) 3n the scenario abo'e( the market is!A) A natural duopolyB) A natural oligopoly with three firmsC) A natural monopoly

) =onopolistically competiti'eAnswer! A"opic! uopoly#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

8


8/16/2019 Chap 15 MC + LQ ans

8/86

*7) 3n an oligopoly market( the >erfindahl6>irschman 3nde is usually!A) reater than 1(B) Below 1(C) Between 1 and 1() Between * and *(

Answer! A"opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*8) An market in which the >erfindahl6>irschman 3nde @>>3) is 1(* is considered to beA) an oligopoly.B) monopolistically competiti'e.C) a monopoly.) perfectly competiti'e.Answer! A"opic! Oligopoly#kill! $ecognition%uestion history! +ew 1th editionAAC#B! $eflecti'e "hinking

*9) 3n the market for batteries( the four largest firms earn : of the total re'enue and there are/ firms in the industry. "his industry is best described asA) oligopolyB) monopolyC) monopolistic competition) perfect competitionAnswer! A"opic! Oligopoly#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*:) Of the following( the best eample of oligopoly isA) wheat farming.B) the restaurant industry.C) the cigarette industry.) the clothing industry.

Answer! C"opic! Oligopoly#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

9


8/16/2019 Chap 15 MC + LQ ans

9/86

/) When producers agree to restrict output( raise the price( and increase profits( the agreement iscalled 55555555.A) a pricing agreementB) an oligopoly agreementC) a collusi'e agreement

) a monopoly agreementAnswer! C"opic! Cartel#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

/1) 55555555 is a group of firms that ha'e colluded to limit their output and raise their price.A) A cartelB) An oligopolyC) A strategy) A duopolyAnswer! A"opic! Cartel#kill! $ecognition%uestion history! =odified 1th editionAAC#B! $eflecti'e "hinking

/*) Which of the following is characteristic of oligopoly( but +O" of monopolistic competition?A) "he choices made by one firm ha'e a significant effect on other firms.B) 2ach firm faces a downward6sloping demand cur'e.C) -irms are profit6maimiers.) "here is more than one firm in the industry.Answer! A"opic! #tudy uide %uestion( Oligopoly#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

//) A monopolistically competiti'e firm is like an oligopolistic firm insofar asA) both face perfectly elastic demand.B) both can earn an economic profit in the long run.C) both ha'e MR cur'es that lie beneath their demand cur'es.) neither is protected by high barriers to entry.

Answer! C"opic! #tudy uide %uestion( Oligopoly#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

:


8/16/2019 Chap 15 MC + LQ ans

10/86

* Oligopoly ames

1) ame theory is most useful for analyingA) perfect competition.B) monopolistic competition.

C) oligopoly.) monopoly.Answer! C"opic! ame "heory#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*) ame theory can be used for studying which of the following types of market structure?A) monopolyB) monopolistic competitionC) oligopoly) perfect competitionAnswer! C"opic! ame "heory#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

/) ame theory is most useful for determining the outcome when 55555555.A) the market structure is oligopolyB) monopolistic competition eistsC) prison terms are in'ol'ed) the market is dominated by a monopolyAnswer! A"opic! ame "heory#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

4) ame theory is used to eplain firms, decisions inA) a monopoly.B) an oligopoly.C) a perfectly competiti'e market.

) a monopolistically competiti'e market.Answer! B"opic! ame "heory#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

1


8/16/2019 Chap 15 MC + LQ ans

11/86

) ame theory is applicable to oligopoly beha'ior because oligopolistsA) use strategic beha'ior.B) ignore ri'al firms.C) are price takers.) can only be profitable if they collude.

Answer! A"opic! ame "heory#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

7) ame theory is distincti'e in that its elements areA) costs( prices( and profits.B) re'enues( elasticity( and profits.C) rules( strategies( payoffs( and outcomes.) patents( copyrights( and barriers to entry.Answer! C"opic! What 3s a ame?#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

8) Which group of features is shared by all games?A) rules( strategies( payoffs( outcomeB) rules( profit( payoffs( outcomeC) profit( strategies( payoffs( cheating) rules( cheating( payoffs( outcomeAnswer! A"opic! What 3s a ame?#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

9) ame theory is a tool for studying 55555555.A) +ash beha'ior B) payoff dilemmasC) rational dilemmas) strategic beha'ior Answer!

"opic! ame "heory#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

11


8/16/2019 Chap 15 MC + LQ ans

12/86

:) 3n game theory( strategies include 55555555.A) all possible actions of each player B) only the winning action of each player C) all possible actions and payoffs of each player ) the payoff matri

Answer! A"opic! ame "heory#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

1) "he prisoners, dilemma describes a single6play game that featuresA) an outcome in which the participants collude.B) a large number of ri'als cooperating with each other.C) a situation in which one player has better odds than the other.) two players who are unable to communicate with each other.Answer! "opic! &risoners, ilemma#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

11) "he simplest prisoners, dilemma is a game that( in part( re

8/16/2019 Chap 15 MC + LQ ans

13/86

1/) 3n a prisoner,s dilemma game( each person will pick A) their best outcome gi'en what the other person will doB) their best outcome.C) their worse outcome.) their best outcome after consulting with the other person

Answer! A"opic! +ash 2

8/16/2019 Chap 15 MC + LQ ans

14/86

18) "he prisoners, dilemma has an e

8/16/2019 Chap 15 MC + LQ ans

15/86

*1) Ann and ynn ha'e been arrested by the police( who ha'e e'idence that will con'ict them ofrobbing a bank. 3f con'icted( each will recei'e a sentence of 7 years for the robbery. uring

8/16/2019 Chap 15 MC + LQ ans

16/86

Bob

Confesson,t

Confess

ConfessB! 1 years

E! 1 years

B! * years

E! 1 year Joe

on,tConfess

B! 1 year E! * years

B! * yearsE! * years

*/) "he table abo'e displays the possible outcomes for Bob and Eoe( who ha'e been arrested forarmed robbery and car theft. Which of the following is true?A) 3f Eoe confesses( Bob should not confess.B) 3f Bob confesses( Eoe should confess.C) "he dominant e

8/16/2019 Chap 15 MC + LQ ans

17/86

*) "he table abo'e shows the payoff matri for a prisoners, dilemma. 3n the +ash e

8/16/2019 Chap 15 MC + LQ ans

18/86

*9) "wo software firms ha'e de'eloped an identical new software application. "hey are debatingwhether to gi'e the new application away free and then sell add6ons or sell the application at F/a copy. "he payoff matri is abo'e and the payoffs are profits in millions of dollars. What is the +ash e

8/16/2019 Chap 15 MC + LQ ans

19/86

Firm A

$G +o $G

$ G A! F*B! F1

A! 6F/B! F7

FirmB

+o $GA! F7B! 6F/

A! FB! F/

/) -irms A and B can conduct research and de'elopment @$G) or not conduct it. $G iscostly but can increase the

8/16/2019 Chap 15 MC + LQ ans

20/86

Disney

"hanksgi'ingrelease

Christmasrelease

"hanksgi'ingrelease

! F1-! F9

! F1-! F:

FoxChristmasrelease

! F11-! F1

! F:-! F9

/*) isney and -o must decide when to release their net films. "he re'enues recei'ed by eachstudio depends in part on when the other studio releases its film. 2ach studio can release its filmat "hanksgi'ing or at Christmas. "he re'enues recei'ed by each studio( in millions of dollars( aredepicted in the payoff matri abo'e. Which of the following statements correctly describes -o,sstrategy gi'en what isney,s release choice may be?A) 3f isney chooses a "hanksgi'ing release( -o should choose a Christmas release.B) 3f isney chooses a Christmas release( -o should choose a "hanksgi'ing release.

C) -o should release on Christmas regardless of what isney does.) Both answers A and B are correct.Answer! "opic! ame "heory#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

//) isney and -o must decide when to release their net films. "he re'enues recei'ed by eachstudio depends in part on when the other studio releases its film. 2ach studio can release its filmat "hanksgi'ing or at Christmas. "he re'enues recei'ed by each studio( in millions of dollars( are

depicted in the payoff matri abo'e. Which of the following statements correctly describesisney,s strategy gi'en what -o,s release choice may be?A) 3f -o chooses a "hanksgi'ing release( isney should choose a Christmas release.B) 3f -o chooses a Christmas release( isney should choose a "hanksgi'ing release.C) isney should release on "hanksgi'ing regardless of what -o does.) Both answers A and B are correct.Answer! "opic! ame "heory#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

*


8/16/2019 Chap 15 MC + LQ ans

21/86

Dr !mith

Ad'ertise on,t ad'ertise

Ad'ertise#! F9E! F8

#! F7E! F11

Dr Joneson,tad'ertise

#! F1*E! F7

#! F1E! F:

/4) iberty'ille has two optometrists( r. #mith and r. Eones. 2ach optometrist can choose toad'ertise his ser'ice or not. "he incomes of each optometrist( in thousands of dollars( are gi'enin the payoff matri abo'e. Which of the following statements correctly describes r. #mith,sstrategy gi'en what r. Eones may do?A) r. #mith should ad'ertise no matter what r. Eones does.B) r. #mith should not ad'ertise no matter what r. Eones does.C) r. #mith should ad'ertise only if r. Eones doesn,t ad'ertise.

) r. #mith should ad'ertise only if r. Eones ad'ertises.Answer! A"opic! ame "heory#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

/) iberty'ille has two optometrists( r. #mith and r. Eones. 2ach optometrist can choose toad'ertise his ser'ice or not. "he incomes of each optometrist( in thousands of dollars( are gi'enin the payoff matri abo'e. Which of the following statements correctly describes r. Eones,strategy gi'en what r. #mith may do?

A) r. Eones should ad'ertise no matter what r. #mith does.B) r. Eones should not ad'ertise no matter what r. #mith does.C) r. Eones should ad'ertise only if r. #mith doesn,t ad'ertise.) r. Eones should ad'ertise only if r. #mith ad'ertises.Answer! A"opic! ame "heory#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

*1


8/16/2019 Chap 15 MC + LQ ans

22/86

/7) iberty'ille has two optometrists( r. #mith and r. Eones. 2ach optometrist can choose toad'ertise his ser'ice or not. "he incomes of each optometrist( in thousands of dollars( are gi'enin the payoff matri abo'e. Which of the following statements correctly categories the +ashe

8/16/2019 Chap 15 MC + LQ ans

23/86

/:) 3n an oligopoly price6fiing game( each player tries toA) minimie the market shares of its opponents.B) maimie its own market share.C) minimie the profits of its opponents.) maimie its own profit.

Answer! "opic! &rice6-iing ame#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

4) 3n the oligopoly price6fiing game( the payoffs are theA) profits of the firms.B) market shares of the firms.C) sales of the firms.) reputations of the firms.

Answer! A"opic! &rice6-iing ame#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

41) A group of firms that has entered into a collusi'e agreement to restrict output and increase prices and profits is calledA) a compliance.B) a cartel.C) an oligopoly.) a duopoly.Answer! B"opic! Cartel#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

4*) 3n what type of market is a cartel possible?A) a market in which there are only a few firms and barriers to entry eistB) a market in which firms sell a homogeneous goodC) a market in which firms sell a differentiated good) a market in which there are many firms

Answer! A"opic! Cartel#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*/


8/16/2019 Chap 15 MC + LQ ans

24/86

4/) A cartel usually has a collusi'e agreement toA) restrict output.B) boost output.C) lower the price.) increase the number of firms in the industry.

Answer! A"opic! Cartel#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

44) A cartel is a group of firms thatA) produce differentiated products.B) produce products that are complements.C) agree to restrict output to boost their profit.) agree to boost output to boost their profit.

Answer! C"opic! Cartel#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

4) A cartel is a group of firms which agree toA) beha'e competiti'ely.B) raise the price of their product.C) lower the price of their product.) increase the amount they produce.Answer! B"opic! Cartel#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

47) A cartel is an arrangementA) to flood the market and eliminate competition.B) to steal industrial processes from ri'al firms.C) among firms to decrease output and raise price.) by the go'ernment to restrict imports.Answer! C

"opic! Cartel#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*4


8/16/2019 Chap 15 MC + LQ ans

25/86

48) 3n the Inited #tates( a collusi'e agreement to restrict output and increases prices isA) legal.B) the key tool used by oligopolists.C) illegal.) the key tool used by monopolistic competitors.

Answer! C"opic! Cartel#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

49) Which of the following is true regarding a collusi'e agreement?3. 3t is illegal in the Inited #tates.33. "wo or more producers agree to restrict output or raise prices.333. -irms, profits are ne'er maimied under this sort of agreement.A) 3 and 33

B) 3 and 333C) 33 and 333) 3( 33 and 333Answer! A"opic! Cartel#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

4:) 3f two duopolists can collude successfully( then both willA) earn greater profits than if they did not collude.B) price at marginal cost.C) price below a'erage total cost.) lower their economic profits.Answer! A"opic! Colluding to =aimie &rofits#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

) 3f firms in a duopoly can successfully collude(A) each firm can earn an economic profit.B) the industry( that is( both firms taken together( can earn the maimum economic profit.

C) the firms achie'e a cooperati'e e

8/16/2019 Chap 15 MC + LQ ans

26/86

1) 3f there is a collusi'e agreement in a duopoly to maimie profit( then the price willA) e

8/16/2019 Chap 15 MC + LQ ans

27/86

4) "wo firms( Alpha and Beta( produce identical computer hard dri'es. "hey ha'e identicalcosts( and the hard dri'es they produce are identical. "he industry is a natural duopoly. Alphaand Beta enter into a collusi'e agreement( according to which they split the market e

8/16/2019 Chap 15 MC + LQ ans

28/86

8) "wo duopoly firms that sell an identical good form a cartel. "hey decide to collude and fithe price of their good. 3n this prisoners, dilemma type situation( the likely outcome isA) both will cheat.B) neither one will cheat.C) only one will cheat.

) 3t is impossible to say.Answer! A"opic! Colluding to =aimie &rofits#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

9) "wo duopoly firms form a cartel. "hey decide to collude and fi the price of their good.2ach indi'idual firm will earn the highest profit ifA) it cheats and the other sticks with the agreementB) both stick with the agreement

C) it sticks with the agreement and the other cheats) they both cheatAnswer! A"opic! Cartel; 3ncenti'e "o Cheat#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

:) Cartels are typically subDect to cheating by their members becauseA) if the other firms stick to the agreement( a firm can increase its profits by cutting its price.B) barriers to entry do not eist so new entrants will Doin.C) the I.#. Eustice epartment will punish any cartel agreement before the cartel has had achance to operate.) product differentiation allows the firms in the cartel to cheat.Answer! A"opic! Cartel; 3ncenti'e "o Cheat#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

7) Once a cartel determines the profit6maimiing price(A) each firm faces the temptation to cheat by raising its price.B) each firm faces the temptation to cheat by lowering its price.C) changes in the output of any member firm will not affect the market price.) entry into the industry by ri'al firms will not affect the profit of the cartel.Answer! B"opic! Cartel; 3ncenti'e "o Cheat#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*9


8/16/2019 Chap 15 MC + LQ ans

29/86

71) 3n a cartel(A) each firm has an incenti'e to decrease its own production below the le'el set by the cartel.B) the firms, marginal cost e

8/16/2019 Chap 15 MC + LQ ans

30/86

7) 3n a duopoly with a collusi'e agreement and in a one6time only game( a firm,s profit islargest if it 55555555 the agreement and if the other firm 55555555 the agreement.A) complies with; complies withB) complies with; cheats onC) cheats on; complies with

) cheats on; cheats onAnswer! C"opic! Cartel; 3ncenti'e "o Cheat#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

77) "he ABC +ail Company has entered into a collusi'e agreement with the other firm in theindustry( the C +ail Company. What occurs in the nail industry if ABC decides to cheat on theagreement?A) ABC lowers the price of its nails.

B) "he total industry output increases.C) "he total profits in the nail industry will decrease.) All of the abo'e answers are correct.Answer! "opic! Cartel; 3ncenti'e "o Cheat#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

78) 3n a duopoly game we obser'e the following payouts! if the two firms collude they will eachearn F(. 3f one firm cheats then he earns F7( and the other firm earns 6F1(. 3f both firms cheat then they each earn ero economic profit. 3n this game what is the +ashe

8/16/2019 Chap 15 MC + LQ ans

31/86

79) 3n the scenario abo'e( which of the following actions will maimie the industry,s economic profit?A) Both firms comply with the agreement.B) Both firms cheat on the agreement( producing more than the agreed amount.C) One of the firms complies with the agreement while the other firm cheats( producing more

than the agreed amount.) Because the firms are colluding( the profit does not change regardless of whether the firmscomply with agreement or cheat on the agreement.Answer! A"opic! Colluding to =aimie &rofits#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

7:) 3n the scenario abo'e( if both firms cheat on the agreement( producing more than the agreedamount( then!

A) 2ach firm makes ero economic profit.B) "he outcome is identical to a monopoly.C) "he industry,s economic profit is the maimum profit that can be made by the duopoly.) 2ach firm makes a greater economic profit than it would make if it complied with theagreement.Answer! A"opic! +ash 2

8/16/2019 Chap 15 MC + LQ ans

32/86

Ameri$an

Cheat Comply

CheatA! F +! F

A! 6F*( +! F4(

%ational

Comply A! F4( +! 6F*(

A! F/( +! F/(

81) "here are two can companies( American and +ational( which ha'e entered into a collusi'eagreement. "he payoff matri of economic profits is abo'e. 3f both firms cheat on the collusi'eagreement( what amount of economic profit is made by American?A) FB) F/(C) F4() 6F*(Answer! A

"opic! uopoly &ayoff =atri#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

8*) "here are two can companies( American and +ational( which ha'e entered into a collusi'eagreement. "he payoff matri of economic profits is abo'e. 3f +ational is able to cheat on theagreement but American complies with the agreement( what amount of economic profit is made by +ational?A) F*(B) F/(

C) F4() F7(Answer! C"opic! uopoly &ayoff =atri#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

/*


8/16/2019 Chap 15 MC + LQ ans

33/86

!ears

ower priceson,t lower

prices

ower prices

#! F million

W! F million

#! F1 million

W! F/million

&al'art

on,t lower prices

#! F/ millionW! F1 million

#! F* millionW! F*million

8/) #ears and Wal6=art must decide whether to lower their prices( based on the economic profitsshown in the table abo'e. Which of the following is true?A) "his situation is not a prisoners, dilemma.B) 3f #ears lowers its prices and Wal6=art does not( #ears will make a F* million economic

profit.C) 3f Wal6=art lowers its prices( #ears should keep its prices high.) Both #ears and Wal6=art would Dointly be better off if they could each keep their prices high.Answer! "opic! Colluding to =aimie &rofits#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

84) $efer to the payoffs in the table abo'e. #ears and Wal6=art must decide whether to lowertheir prices based on the profits shown in the table. "his game has

A) no +ash e

8/16/2019 Chap 15 MC + LQ ans

34/86

Firm A

=onopoly price

Competiti'e price

=onopoly price

A! FB! F

A! F9B! 6F1

FirmB

Competiti'e price

A! 6F1B! F9

A! FB! F

8) "he abo'e payoff matri shows the economic profits @in millions of dollars) of two firms in aduopoly that ha'e agreed to a cartel agreement to restrict their output and set their prices e

8/16/2019 Chap 15 MC + LQ ans

35/86

88) Oscar and -eli are the only firms that clean offices in a large city. "hey agree to operate as acartel. "he payoff matri abo'e shows the economic profit that each firm can make. 3f the gameis played only once( then 55555555.A) -eli and Oscar will each make F1 million economic profitB) -eli will comply and Oscar will make F1* million economic profit

C) -eli and Oscar will each make F1 million economic profit) -eli will cheat and Oscar will make 6F* million economic profitAnswer! C"opic! ame "heory( +ash 2

8/16/2019 Chap 15 MC + LQ ans

36/86

ate*ay

Cut price >old price

Cut price! F1! F1

! F! F*

Dell

>old price ! F*! F

! F1! F1

8:) ell and ateway must decide whether to lower their prices( based on the potential economic profits shown in the payoff matri abo'e. @"he profits are in millions of dollars.) 3n the +ashe

8/16/2019 Chap 15 MC + LQ ans

37/86

9*) A collusi'e agreement between two duopolists is similar to the prisoners, dilemma because in both gamesA) the best outcome is always achie'ed.B) each player,s strategy depends on what the other player does.C) the +ash e

8/16/2019 Chap 15 MC + LQ ans

38/86

"opic! $ G ame#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

/9


8/16/2019 Chap 15 MC + LQ ans

39/86

9) 3n an oligopoly with a collusi'e agreement( the total industry profits will be smallest whenA) all firms comply with the agreement.B) one firm cheats on the agreement and the other firms do not cheat.C) all firms cheat on the agreement.) the firms act as a monopoly.

Answer! C"opic! #tudy uide %uestion( 2

8/16/2019 Chap 15 MC + LQ ans

40/86

/) -rom the social perspecti'e( a maDor criticism of oligopolies is thatA) successful collusion leads to a monopoly6like outcome.B) price wars usually break out.C) ad'ertising hardly e'er occurs.) cartels are unstable.

Answer! A"opic! $epeated ames#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

4) 3f a duopolists, collusi'e price6fiing game can be played repeatedly(A) one possible e

8/16/2019 Chap 15 MC + LQ ans

41/86

8) A strategy in which a player cooperates in the current period if the other player cooperated inthe pre'ious period( but the player cheats in the current period if the other player cheated in the pre'ious period is called aA) tit6for6tat strategy.B) trigger strategy.

C) duopoly strategy.) dominant firm strategy.Answer! A"opic! $epeated ames#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

9) A trigger strategy is one in which a player A) cooperates in the current period if the other player cooperated in the pre'ious period( butcheats in the current period only if the other player cheated in the pre'ious period.

B) cheats in the current period if the other player cooperated in the pre'ious period( butcooperates in the current period if the other player cheated in the pre'ious period.C) cooperates in the current period if the other player has always cooperated( but cheats fore'erif the other player e'er cheats.) cheats in the current period if the other player has always cheated( but cooperates fore'er ifthe other player has e'er cooperated.Answer! C"opic! $epeated ames#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

:) #arah,s #oothing iapers( 3nc. and Or'ille,s Odorless iapers( 3nc. are duopolists( who ha'eagreed to collude. Or'ille has decided that he will comply with the collusi'e agreement as longas #arah cooperated in the pre'ious period. But if #arah cheated in the pre'ious period( Or'illewill punish #arah by cheating in the current period. Or'ille,s strategy is referred to as aA) +ash strategy.B) tit6for6tat strategy.C) trigger strategy.) monkey6see( monkey6do strategy.Answer! B"opic! $epeated ames#kill! $ecognition

%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

41


8/16/2019 Chap 15 MC + LQ ans

42/86

1) A cooperati'e e

8/16/2019 Chap 15 MC + LQ ans

43/86

14) A contestable market is similar to a perfectly competiti'e market in that thereA) are barriers to entry.B) are no barriers to entry.C) can be only one firm in the market.) will be no entry if the eisting firm earns an economic profit.

Answer! B"opic! Contestable =arket#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

1) A market with one or a small number of firms but no barriers to entry is known asA) a natural monopoly.B) a contestable market.C) a perfectly competiti'e market.) monopolistic competition.

Answer! B"opic! Contestable =arket#kill! $ecognition%uestion history! =odified 1th editionAAC#B! $eflecti'e "hinking

17) A market in which firms can enter and lea'e so easily that firms in the market facecompetition from potential entrants is called aA) contestable market.B) cartel.C) limit pricing market.) monopolistic competition market.Answer! A"opic! Contestable =arket#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

18) Which of the following statements is "$I2 about contestable markets?A) "here are significant barriers to entry.B) -irms earn large economic profits.C) 2ach firm faces a perfectly elastic demand.) "here are few firms in the industry.

Answer! "opic! Contestable =arket#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

4/


8/16/2019 Chap 15 MC + LQ ans

44/86

19) A contestable market is one in whichA) one dominant firm sets the market price( and all other firms are price takers.B) if a firm cuts its price( all other firms will follow the price cut.C) one or a small number of firms operate( but faces competition from potential entrants.) a group of firms enter into an agreement to restrict output and raise prices.

Answer! C"opic! Contestable =arket#kill! $ecognition%uestion history! =odified 1th editionAAC#B! $eflecti'e "hinking

1:) A contestable market is one in which there areA) one or a few firms and entry into the market is costly.B) one or a few firms and entry into the market is not costly.C) many firms and entry into the market is costly.) many firms and entry into the market is not costly.

Answer! B"opic! Contestable =arket#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*) Of the following( the best eample of firm that might operate in a contestable market is aA) cable "J company.B) wheat farmer.C) ship owner operating on a maDor waterway.) pri'ate college operating in a state with many public colleges.Answer! C"opic! Contestable =arket#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*1) 3n a contestable market the >erfindahl6>irschman 3nde is 55555555 and the market beha'es as if it is 55555555.A) low; perfectly competiti'eB) low; a monopolyC) high; perfectly competiti'e) high; a monopoly

Answer! C"opic! Contestable =arket#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

44


8/16/2019 Chap 15 MC + LQ ans

45/86

**) 3n a se

8/16/2019 Chap 15 MC + LQ ans

46/86

*7) 3n a contestable marketA) two or more firms are competing.B) the >erfindahl6>irschman 3nde eceeds 1(9.C) the four6firm concentration ratio eceeds percent.) potential entry holds down prices.

Answer! "opic! Contestable =arket#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*8) One of the reasons that concentration ratios are not a perfect measure of competiti'eness isthat theyA) do not measure how high the industry,s prices are.B) cannot be measured.C) ignore potential competition.

) tell nothing about how high prices were in the past.Answer! C"opic! Contestable =arket#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*9) "he >erfindahl6>irschman 3nde will indicate that a contestable market is 55555555.A) a se>3 is usually

8/16/2019 Chap 15 MC + LQ ans

47/86

/) Adkins Air is the only seller offering ser'ice directly from =ilwaukee to reensboro. "hemarket is contestable. "hus the +ash 2

8/16/2019 Chap 15 MC + LQ ans

48/86

/4) A strategy called Klimit pricingK sets the priceA) below the competiti'e le'el.B) at the monopoly le'el.C) at the lowest le'el that inflicts a loss on the entrant.) at the highest le'el that inflicts a loss on the entrant.

Answer! "opic! imit &ricing#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

/) imit pricing is a strategy used by a firm toA) deter entry.B) enhance short run profits.C) raise its prices.) lower its costs.

Answer! A"opic! imit &ricing#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

/7) &rice wars can be the result of A) a cooperati'e e

8/16/2019 Chap 15 MC + LQ ans

49/86

4 Antitrust aw

1) Antitrust law is law thatA) does not allow indi'iduals to open trust sa'ings accounts.B) prohibits competition in certain industries.

C) prohibits certain kinds of market beha'ior by firms.) allows firms under special circumstances to be a monopoly.Answer! C"opic! Antitrust aw#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*) When the go'ernment prohibits certain kinds of market beha'ior such as monopoly andmonopolistic practices it generally does so throughA) regulatory agencies such as the 3nterstate Commerce Commission or the -ederal

Communications Commission.B) antitrust law.C) the police powers of the states.) use of the capture theory of regulation.Answer! B"opic! Antitrust aw#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

/) A law that prohibits certain kinds of market beha'ior such as monopoly and monopolistic practices is 55555555.A) a consumer surplus lawB) a trust lawC) an antitrust law) an anti6monopoly lawAnswer! C"opic! Antitrust aw#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

4:


8/16/2019 Chap 15 MC + LQ ans

50/86

4) Antitrust laws attempt toA) support prices at high le'els so firms can earn profits.B) establish minimum wages.C) pre'ent monopolies or collusion.) enforce fair trade laws.

Answer! C"opic! Antitrust aw#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

) 3n part( an antitrust lawsA) pro'ide for strict product liability.B) prohibit charging prices that customers think are too high.C) re

8/16/2019 Chap 15 MC + LQ ans

51/86

9) "he first antitrust law passed was the 55555555.A) -ederal "rade Commission ActB) #herman ActC) Clayton Act) $obinson6&atman Amendment

Answer! B"opic! #herman Act#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

:) "he #herman Act(A) which deregulated banking( was enacted in 19:.B) which deregulated banking( was enacted in 1:9.C) the first antitrust law( was enacted in 19:.) the first antitrust law( was enacted in 1:9.

Answer! C"opic! #herman Act#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

1) "he beginning of antitrust law is found in theA) 1:14 Clayton Act.B) 19: #herman Act.C) 1:48 "aft6>artley Act.) 1: Cellar6Lefau'er Act.Answer! B"opic! #herman Act#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

11) "he #herman ActA) was the first federal tariff.B) prohibited attempts to monopolie.C) outlawed natural monopolies.) abolished tariffs.Answer! B"opic! #herman Act#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

1


8/16/2019 Chap 15 MC + LQ ans

52/86

1*) "he #herman Act of 19: was passed to prohibitA) combinations( trusts( or conspiracies to restrict interstate or international trade.B) monopoliation or attempts to monopolie interstate or international trade.C) Both of the abo'e.) +either of the abo'e.

Answer! C"opic! #herman Act#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

1/) "he #herman Act makes it illegal toA) increase market share.B) merge firms in the same industry.C) attempt to monopolie an industry.) price below competitors.

Answer! C"opic! "he #herman Act#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

14) "he second federal antitrust law was passed in 1:14. "his antitrust law is theA) Clayton Act.B) $obinson6&atman Amendment.C) Cellar6Lefau'er Amendment.) "aft6>artley Act.Answer! A"opic! Clayton Act#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

1) "he Clayton Act of 1:14 was passed to prohibit( in part(A) price discrimination if the effect is to substantially lessen competition or create monopoly.B) unfair methods of competition and unfair or decepti'e business practices.C) combinations( trusts( or conspiracies that restrict interstate or international trade.) business practices that allow one firm to profit at the epense of another whene'er the firstfirm is a monopoly.Answer! A"opic! Clayton Act#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*


8/16/2019 Chap 15 MC + LQ ans

53/86

17) "he Clayton Act of 1:14 prohibits 55555555 if it substantially lessens competition or createsa monopoly.A) people from ser'ing on the board of directors of competing firmsB) contracts that force other goods to be bought from the same firmC) Both of the abo'e.

) +either of the abo'e.Answer! C"opic! Clayton Act#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

18) "he -ederal "rade Commission is an agency charged withA) regulating interstate commerce.B) enforcing product safety laws.C) regulating international commerce.

) enforcing antitrust laws.Answer! "opic! Antitrust aw#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

19) Which of the following business practices( if pro'en to eist( is always illegal under I.#.antitrust law?A) tying arrangementsB) price fiing among competitorsC) eclusi'e dealing) all of the abo'eAnswer! B"opic! &rice -iing#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

1:) Which of the following is always a 'iolation of the antitrust law?A) &rice fiing among competitorsB) $esale price maintenanceC) "ying arrangements) &redatory pricingAnswer! A"opic! &rice -iing#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

/


8/16/2019 Chap 15 MC + LQ ans

54/86

*) When is price fiing among competitors not a 'iolation of the antitrust laws?A) &rice fiing among competitors is always a 'iolation of the antitrust law.B) When a cartel can maimie profit without beha'ing like a monopolyC) When price fiing leads to a more efficient outcome) When price fiing does not result in predatory pricing

Answer! A"opic! &rice -iing#kill! $ecognition%uestion history! =odified 1th editionAAC#B! $eflecti'e "hinking

*1) #uppose that two soft drink manufacturers( -iy &op and #prity #oda( agree to charge thesame prices for their soft drinks. "his practice isA) always legal under the antitrust laws.B) legal as long as >erfindahl6>irschman inde is less than 1(.C) legal as long as the firms had a cost Dustification for setting prices.

) always illegal under the antitrust laws.Answer! "opic! &rice -iing#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

**) 3f =conald,s( Wendy,s( and Burger Ling agree with each other not to sell hamburgers forless than F*.: apiece( all three could be found guilty of A) an interlocking directorship under the Clayton Act.B) price fiing under the #herman Act.C) a decepti'e business practice under the Clayton Act.) +one of the abo'e answers is correct.Answer! B"opic! &rice -iing#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

4


8/16/2019 Chap 15 MC + LQ ans

55/86

*/) Which of the following is illegal under the #herman Act?3. A competitor agrees with another competitor on the price at which the product will be sold.33. A manufacturer refuses to supply a retailer who does not accept the manufacturer,s guidanceon the price.A) only 3

B) only 33C) both 3 and 33) neither 3 nor 33Answer! A"opic! $esale &rice =aintenance#kill! Conceptual%uestion history! =odified 1th editionAAC#B! $eflecti'e "hinking

*4) Inder current guidelines the -ederal "rade Commission will likely challengeA) all mergers if the >erfindahl6>irschman inde @>>3) is 19 or higher.B) a merger if the >>3 is 19 or higher and the merger increases the >>3 by points or more.C) a merger if the >>3 is 19 or higher and the merger increases the >>3 by 1 points ormore.) a merger if the >>3 is 19 or higher and the merger increases the >>3 by * points ormore.Answer! B"opic! Current =erger $ules#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*) Inder current guidelines the -ederal "rade Commission will likely challengeA) all mergers if the >erfindahl6>irschman inde @>>3) is greater than 1.B) a merger if the >>3 is between 1 and 19 and the merger increases the >>3 by pointsor more.C) a merger if the >>3 is between 1 and 19 and the merger increases the >>3 by 1 points or more.) a merger if the >>3 is between 1 and 19 and the merger increases the >>3 by * points or more.Answer! C"opic! Current =erger $ules#kill! $ecognition%uestion history! &re'ious edition( Chapter 1

AAC#B! $eflecti'e "hinking


8/16/2019 Chap 15 MC + LQ ans

56/86

*7) A merger will be challenged by the -"C in a market where the >erfindahl6>irschman 3nde@>>3) is 55555555( and the merger would increase it to 55555555.A) 1(:; 1(:9.B) 1(8; 1(87C) 9; :

) *(; *(4Answer! A"opic! Current =erger $ules#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*8) Inder -ederal "rade Commission merger guidelines( an industry with a >erfindahl6>irschman inde @>>3) of 1 points is consideredA) competiti'e.B) moderately concentrated.

C) concentrated.) a monopoly.Answer! A"opic! Current =erger $ules#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*9) As the -ederal "rade Commission currently interprets the >erfindahl6>irschman inde@>>3)( an industry is considered to be moderately concentrated if the >>3 'alue isA) between 1 and 1(.B) between 1( and 1(9.C) between 1( and /(9.) between /( and 7(.Answer! B"opic! Current =erger $ules#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*:) A market in which the >erfindahl6>irschman 3nde is : is regarded by the -ederal "radeCommission asA) moderately concentrated.

B) concentrated.C) competiti'e.) monopolistic.Answer! C"opic! Current =erger $ules#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

7


8/16/2019 Chap 15 MC + LQ ans

57/86

/) As the -ederal "rade Commission currently interprets the >erfindahl6>irschman inde@>>3)( an industry is considered to be concentrated if the >>3 'alue is abo'eA) 1.B) 1(.C) 1(9.

) (.Answer! C"opic! Current =erger $ules#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

/1) 3n 1:97( &epsiCo announced its intention to buy 86Ip for F/9 million and Coca6Cola said itwould buy r &epper for F48 million. Because the >erfindahl6>irschman inde for carbonatedsoft drinks is 55555555( the -ederal "rade Commission 55555555 the mergers.A) low; allowed

B) low; blockedC) high; allowed) high; blockedAnswer! "opic! Current =erger $ules#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

/*) 3n the market for bottled water( -resh #prings has a / percent share of the market( #wiss#prings has a *8 percent share( ,eau de -rance has a 1/ percent share( and =ountain Water hasa 1 percent share. "he rest of the market consists of * firms with a 1 percent share of themarket each. What is the 'alue of the >erfindahl6>irschman inde?A) *(419B) 9C) 1(:19) *(919Answer! C"opic! Current =erger $ules#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

8


8/16/2019 Chap 15 MC + LQ ans

58/86

//) An industry is made up of 9 firms with the following percent market shares! *:( *( 11( 1( :(9( 8( 7. What is the >erfindahl6>irschman inde in this industry?A) 8B) 1C) 147*

) 17:*Answer! "opic! Current =erger $ules#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

/4) An industry is made up of 9 firms with the following percent market shares! *:( *( 11( 1( :(9( 8( 7. "he firms with 9 and 8 percent market share are proposing to merge. What is the new>erfindahl6>irschman inde if the merger takes place?A) **

B) 147*C) 17:*) 194Answer! "opic! Current =erger $ules#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

/) #uppose that two clothing manufacturers( -rederick,s -ashions and #tephan,s #tyles(announce that they plan to merge. "he >erfindahl6>irschman inde is currently 1(. After themerger( the >>3 will rise to 1(7. "his market isA) highly concentrated and so the go'ernment will definitely challenge the merger.B) moderately concentrated and because the merger increases the >>3 by more than points(the go'ernment will definitely challenge the merger.C) moderately concentrated( but because the merger increases the >>3 by less than 1 points(the go'ernment will probably not challenge the merger.) competiti'e and so the go'ernment will not challenge the merger.Answer! C"opic! Current =erger $ules#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

9


8/16/2019 Chap 15 MC + LQ ans

59/86

/7) "here are twenty fi'e dealers in the local market for new cars. "he largest dealership has amarket share of 1* percent; the second and third largest ha'e 1 percent and : percent(respecti'ely; the fourth and fifth largest ha'e percent and 4 percent( respecti'ely; and theremaining twenty dealerships each ha'e a * percent market share. What is 'alue of the>erfindahl6>irschman inde @>>3) for this market?

A) 4*B) 9*C) *77) 447Answer! "opic! Current =erger $ules#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

/8) "here are twenty fi'e dealers in the local market for new cars. "he largest dealership has a

market share of 1* percent; the second and third largest ha'e 1 percent and : percent(respecti'ely; the fourth and fifth largest ha'e percent and 4 percent( respecti'ely; and theremaining twenty dealerships each ha'e a * percent market share. 3f the second largest dealershipmerged with the fifth largest( that would increase the >erfindahl6>irschman inde @>>3) byA) 14 points.B) 7 points.C) 9 points.) 1:7 points.Answer! C"opic! Current =erger $ules#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

/9) 3f the >erfindahl6>irschman inde @>>3) among the firms in the long distancetelecommunications market were e

8/16/2019 Chap 15 MC + LQ ans

60/86

/:) 3f the >erfindahl6>irschman inde @>>3) among the firms in the long distancetelecommunications market is e>3 would increase by more than points.B) 3t would challenge if the >>3 would increase by more than 1 points.C) 3t would challenge no matter what happened to the >>3 because the market has so few firms.) 3t would not challenge because the >>3 is less than 1.Answer! "opic! Current =erger $ules#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

41) "he local pia deli'ery industry currently has a >erfindahl6>irschman inde @>>3) 'alue of ::: and two of the competing pia shops ha'e considered merging. Because the merger wouldraise the >>3 by points( the -ederal "rade Commission would likelyA) not challenge the merger.B) challenge the merger.C) allow the merger under the condition that >>3 does not rise by more than points as promised.) allow the merger under the condition that the >>3 remain at the premerger le'el of :::.Answer! A"opic! Current =erger $ules#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

7


8/16/2019 Chap 15 MC + LQ ans

61/86

4*) "he -"C looks at the >>3 to assess mergers. A proposed merger will increase the >>3 by. "he -"C will block this merger if the current >>3 isA) greater than 19B) less than 19C) greater than 1

) less than 1Answer! A"opic! Current =erger $ules#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

4/) "he local banking industry currently has a >erfindahl6>irschman inde @>>3) 'alue of 18and two of the competing banks ha'e considered merging. Because the merger would raise the>>3 by points( the -ederal "rade Commission would likelyA) challenge the merger.B) not challenge the merger.C) allow the merger under the condition that >>3 does not rise by more than points as promised.) allow the merger under the condition that the >>3 remain at the premerger le'el of 18.Answer! B"opic! Current =erger $ules#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

44) "he local banking industry currently has a >erfindahl6>irschman inde @>>3) 'alue of 18and two of the competing banks ha'e considered merging. Because the merger would raise the>>3 by *1 points( the -ederal "rade Commission would likelyA) challenge the merger.B) not challenge the merger.C) allow the merger under the condition that >>3 does not rise by more than *1 points as promised.) allow the merger under the condition that the >>3 remain at the premerger le'el of 18.Answer! A"opic! Current =erger $ules#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

71


8/16/2019 Chap 15 MC + LQ ans

62/86

4) "he local banking industry currently has a >erfindahl6>irschman inde @>>3) 'alue of 198and two of the competing banks ha'e considered merging. Because the merger would raise the>>3 by * points( the -ederal "rade Commission would likelyA) challenge the merger.B) not challenge the merger.

C) allow the merger under the condition that >>3 does not rise by more than * points as promised.) allow the merger under the condition that the >>3 remain at the premerger le'el of 198.Answer! B"opic! Current =erger $ules#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

47) "he local banking industry currently has a >erfindahl6>irschman inde @>>3) 'alue of 1:4and two of the competing banks ha'e considered merging. Because the merger would raise the>>3 by points( the -ederal "rade Commission would likelyA) challenge the merger.B) not challenge the merger.C) allow the merger as long as the >>3 did not increase by more than points as promised.) allow the merger under the condition that the >>3 remain at the premerger le'el of 198.Answer! A"opic! Current =erger $ules#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

48) #uppose the >erfindahl6>irschman 3nde @>>3) in the market for chocolate is *(*. "wocompanies want to merge. "he -"C will challenge the merger if it increases the >>3 by at leastA) 1 points.B) 1 points.C) 4 points.) points.Answer! "opic! Current =erger $ules#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

7*


8/16/2019 Chap 15 MC + LQ ans

63/86

=arket share in the Widget industry

-irm name=arketshare

Big W

Widico 4

Widgotech :Widgette 1

49) 3n the table abo'e( the >erfindahl6>irschman 3nde in the widget industry isA) 1 points.B) 84* points.C) *94* points.) 419* points.Answer! "opic! Current =erger $ules#kill! Analytical

%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

4:) Ising the market shares in the table abo'e( if Widgotech buys Widgette the >>3 willA) stay the same.B) rise by 1 point.C) rise by 1 points.) rise by 19 points.Answer! "opic! Current =erger $ules#kill! Analytical

%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

) Ising the market shares in the table abo'e( if Big W wants to buy Widgette( the -ederal"rade Commission will probablyA) appro'e the merger because the industry is moderately concentrated and the increase in the>erfindahl6>irschman inde @>>3) is small enough.B) block the merger because the industry is moderately concentrated @>>3 between 1( and1(9) and the increase in the >>3 is too much.C) appro'e the merger because the industry is concentrated @>>3 eceeds 1(9) but the increasein the >>3 is small enough.

) block the merger because the industry is concentrated @>>3 eceeds 1(9) and the increasein the >>3 is too much.Answer! "opic! Current =erger $ules#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

7/


8/16/2019 Chap 15 MC + LQ ans

64/86

1) Which of the following statements about the #herman Act is correct?A) "he #herman Act was the second federal antitrust law.B) "he #herman act legalied monopoliation if the company beha'ed KreasonablyK once it became a monopoly.C) "he #herman Act outlawed natural monopolies.

) "he #herman Act made restriction of interstate trade illegal.Answer! "opic! #tudy uide %uestion( #herman Act#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*) "he >irschman6>erfindahl inde @>>3) in an industry is . A merger is proposed that willraise the >>3 to 1. 3n this case( theA) #herman Act will prohibit the merger.B) -ederal "rade Commission will challenge the merger.

C) -ederal "rade Commission will not challenge the merger.) rule of reason will pre'ent the merger if it represents a horiontal merger.Answer! C"opic! #tudy uide %uestion( Current =erger $ules#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

74


8/16/2019 Chap 15 MC + LQ ans

65/86

+ews Based %uestions

1) "wo firms make most of the consumer alkaline batteries in the country! uracell and2nergier. "he market for batteries is most likelyA) a monopoly.

B) an oligopoly.C) perfectly competiti'e.) monopolistically competiti'e.Answer! B"opic! Oligopoly#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! Communication

*) Lellogg,s and eneral =ills are two of the dominant breakfast cereal manufactures in the I.#.2ach firm can either sign or not sign an eclusi'e contract with an Olympian gold6medal athlete

to appear on the co'er of a cereal bo. Both Lellogg,s and eneral =ills ha'e signed athletes in*9( =ichael &helps and +astia iukin( respecti'ely. What does this suggest about the outcomeof the oligopoly game?A) "he highest profits are when both companies signB) "he best outcome( in terms of profit( is where both companies signC) "he +ash e

8/16/2019 Chap 15 MC + LQ ans

66/86

/) Lellogg,s and eneral =ills are two of the dominant breakfast cereal manufactures in the I.#.2ach firm can either sign or not sign an eclusi'e contract with an Olympian gold6medal athleteto appear on the co'er of a cereal bo. 3f both companies sign an athlete( they will each make Fmillion in economic profit. 3f only firm signs( they earn F9 million in economic profit and theother firm incurs an economic loss of F1 million. 3f neither firm signs( they break e'en. What

are the strategies in this game?A) o not sign eclusi'e contract with an Olympian gold6medal athlete to appear on the co'er of a cereal bo and make F9 million in profitB) #ign an eclusi'e contract with an Olympian gold6medal athlete to appear on the co'er of acereal bo and do not sign eclusi'e contract with an Olympian gold6medal athlete to appear onthe co'er of a cereal boC) #ign an eclusi'e contract with an Olympian gold6medal athlete to appear on the co'er of acereal bo and make F9 million in profit) =ake F million or F9 million in profitAnswer! B"opic! ame "heory

#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

4) Lellogg,s and eneral =ills are two of the dominant breakfast cereal manufactures in the I.#.2ach firm can either sign or not sign an eclusi'e contract with an Olympian gold6medal athleteto appear on the co'er of a cereal bo. 3f both companies sign an athlete( they will each make Fmillion in economic profit. 3f only firm signs( they earn F9 million in economic profit and theother firm incurs an economic loss of F1 million. 3f neither firm signs( they break e'en. Whichof the following pairs of payoffs would +O" appear together in a s

8/16/2019 Chap 15 MC + LQ ans

67/86

) Lellogg,s and eneral =ills are two of the dominant breakfast cereal manufactures in the I.#.2ach firm can either sign or not sign an eclusi'e contract with an Olympian gold6medal athleteto appear on the co'er of a cereal bo. 3f both companies sign an athlete( they will each make Fmillion in economic profit. 3f only firm signs( they earn F9 million in economic profit and theother firm incurs an economic loss of F1 million. 3f neither firm signs( they break e'en. What is

the outcome of this game if it is only played once?A) +either Lellogg,s nor eneral =ills will sign an athleteB) Lellogg,s will sign an athlete and eneral =ills will not sign an athleteC) Both Lellogg,s and eneral =ills will sign an athlete) eneral =ills will sign an athlete and Lellogg,s will not sign an athleteAnswer! C"opic! ame "heory( +ash 2

8/16/2019 Chap 15 MC + LQ ans

68/86

9) 3n *9( a former 3ntel engineer has been charged with stealing trade secrets worth F1 billion.3ntel owns 9 percent of the worldwide market for microprocessors( A= has the rest.Conducting $G is 'ery epensi'e so suppose that each of these firms can either steal $G orde'elop their own $G. 3f both firms de'elop their own $G( economic profit will be Fmillion each. 3f one company steals $G( that firm earns F1 million in economic profit while

the other firm earns F1 million. 3f both firms steal $G( each firm breaks e'en. What is +O"true about this game?A) "he outcome will not be a dominant strategy e

8/16/2019 Chap 15 MC + LQ ans

69/86

11) $ussia and %atar made the first serious mo'es in October *9 toward forming an O&2C6style cartel on natural gas. "he two strategies these countries face are to comply with the cartelagreement or to cheat on the cartel agreement. 3f both countries comply( the economic profit foreach will be F14 million. 3f one country cheats( that country earns F* million in economic profit and the other country will ha'e an economic loss of F1 million. 3f all countries cheat(

they break e'en. What is the outcome of this game if it is only played once?A) 2ach country will comply with the cartel agreementB) "wo countries will comply and one will cheat( but we cannot predict which one will cheatC) One country will comply and two will cheat( but we cannot predict which ones will cheat) +one of the countries will comply with the cartel agreementAnswer! "opic! ame "heory( +ash 2

8/16/2019 Chap 15 MC + LQ ans

70/86

14) "he 2I,s antitrust chief in +o'ember *9 fined car glass producers Asahi( &ilkington(#aint6obain and #oli'er more than 1./ billion euros @F1.77 billion) for price6fiing( the largestsum e'er le'ied by the 2I for a cartel. What are the economic Dustifications of making pricefiing illegal?A) Consumers suffer because of decreased consumer surplus and the outcome is inefficient

because of deadweight lossB) An oligopoly cartel can maimie profit and beha'e like a natural monopolyC) "he cartel increases

8/16/2019 Chap 15 MC + LQ ans

71/86

18) 3ran called on O&2C in +o'ember *9 to cut production by a further 1 million to 1.million barrels per day when it meets in Cairo later this month. Why would O&2C( a cartel(restrict production?A) "o decrease demandB) "o increase supply

C) "o decrease

8/16/2019 Chap 15 MC + LQ ans

72/86

/) KBecause firms in an oligopoly are so large( they do not need to consider each other,s actions.K3s the pre'ious statement correct or incorrect? 2plain your answer.Answer! "he statement is incorrect. Oligopoly is an industry in which only a few firms compete.Because there are only a few firms( the hallmark of oligopoly is mutual interdependence( that is(one firm,s action will affect the other firms. "he fact that in oligopoly each firm,s actions affect

its ri'als is unlike the case in perfect competition or monopolistic competition( in which there areso many firms that one firm,s actions ha'e no effect on its ri'als( or monopoly( in which there isonly one firm and hence no ri'als."opic! Oligopoly#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! Communication

4) What market structures other than oligopoly ha'e the characteristic of one firm,s actionsaffecting the actions of its competitors? 2plain your answer.Answer! +o other market structure has the characteristic that one firm,s actions can affect the

actions of its competitors. 3n monopoly( there are no competitors to affect. And in perfectcompetition and monopolistic competition( there are so many competitors that any one firm,sactions ha'e no measurable impact on its competitors. Oligopoly is uni

8/16/2019 Chap 15 MC + LQ ans

73/86

8) 2plain what a cartel is and the difficulties faced in maintaining a cartel.Answer! A cartel is a group of firms acting together to decrease output( raise price( and increaseeconomic profit. "he difficulty faced by a cartel is the fact that each member has the incenti'e tocheat on the cartel and increase its output. 3f a member increases its output and the rest of thecartel members do not( the cheating member,s profits will increase substantially. 2ach member

reasons that if it is the only cheater( it can significantly increase its profit and so each firm has anincenti'e to cheat."opic! Cartel#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! Communication

9) 3n the Inited #tates( why are cartels among firms usually kept secret?Answer! Cartels are typically kept secret because they are illegal. 3n the Inited #tates and manyother countries( it is illegal for firms to collude to form a cartel. 3t is illegal because firms colludein order to restrict output( raise prices( and capture consumer surplus so that they increase their

economic profit."opic! Cartel#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! Communication

:) K3f firms in an oligopoly enter into a collusi'e agreement to operate as a monopoly( theindustry produces the most output and if they operate as perfect competitors( the industry produces the least output.K 3s the pre'ious statement correct or incorrect? Why?Answer! "he statement is incorrect; it re'erses the outcomes. 3f the firms in an oligopoly operateas a monopoly( the industry produces the least output and if they operate as perfect competitors(the industry produces the most output."opic! Colluding to =aimie &rofits#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! Communication

1) K3f firms in duopoly collude and operate as a monopoly( the industry produces more outputcompared to the +ash e

8/16/2019 Chap 15 MC + LQ ans

74/86

11) What is the best outcome for society! When firms in an oligopoly enter into a collusi'eagreement to operate as a monopoly or when they act as perfect competitors? Briefly eplainyour answer.Answer! "he best outcome for society is when the firms act as perfect competitors. &erfectcompetition produces the efficient

8/16/2019 Chap 15 MC + LQ ans

75/86

1) What is the real dilemma facing the prisoners in the prisoners, dilemma game?Answer! "he real dilemma facing the prisoners in the prisoners, dilemma game is that when each prisoner plays his or her best strategy( the best outcome is not achie'ed."opic! 2

8/16/2019 Chap 15 MC + LQ ans

76/86

19) Why do firms in an oligopoly find it difficult to cooperate and not cheat on a cartelagreement?Answer! -irms in an oligopoly ha'e large market shares. When they change their output or price( the firm affects not only its own re'enue and profit but also the re'enue and profit of otherfirms. -or eample( if a firm cheats on a cartel agreement by lowering its price( it will capture a

larger market share. "he competitors, total re'enue and profit decrease( but the cheating firm,s profit increases. 3f the firms cooperate( they could act like a monopoly and ha'e the maimum Doint profit but each firm has the temptation to cheat and produce more than its share. "histemptation is strong because cheating will increase the cheater,s re'enue and profit substantially."opic! Cartel; 3ncenti'e "o Cheat#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! Communication

1:) What is the dilemma faced by firms in collusi'e agreement to restrict output and boost price?Answer! Because there are Dust a few large firms in an oligopoly( output and pricing decisionsmade by one firm affect the demand for other firms, goods. "o maimie the total Doint profit( thefirms must cooperate( act like a monopoly so as to restrict output and earn monopoly profits.2ach firm( though( has an incenti'e to cheat on an agreement to restrict output because if itincreases production it can @temporarily( at least) earn higher profits. But if all firms increase production( total profits will fall and the market will mo'e toward the competiti'e e

8/16/2019 Chap 15 MC + LQ ans

77/86

*1) Why would a profit maimiing monopolist in a contestable market set its price at a le'el below that which maimies short run profits?Answer! A firm in a contestable market is not protected by barriers to entry. "hus while it iscurrently the only firm in the market( it might worry that other firms will enter the market. 3n thiscase( setting a relati'ely lower price is known as limit pricing. 3t is a pricing strategy that deters

entry by sending a signal to potential entrants that entering the industry would result in economiclosses."opic! Contestable =arket#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! Communication

**) >ow is a contestable market similar to a perfectly competiti'e one?Answer! A contestable market is similar to a perfectly competiti'e market in that there is freeentry and eit. As a result( the acti'e firm@s) cannot earn an economic profit in the long6run because potential entrants will enter any time economic profits eceed ero."opic! Contestable =arket#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! Communication

*/) What is the #herman Act and what is its purpose?Answer! "he #herman Act of 19: was the first maDor piece of federal antitrust legislation. 3t prohibits two things. -irst( it prohibits any combination( trust( or conspiracy to restrict interstateor international trade. #econd( it prohibits monopoliation or any attempt to monopolieinterstate or international trade."opic! #herman Act#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! Communication

*4) oes section * of the #herman Act make it a felony to KattemptK to monopolie an industryor must the attempt succeed before it is a felony?Answer! #ection * of the #herman Act makes attempting to monopolie an industry a felony. 3tis not necessary for the attempt to succeed."opic! #herman Act#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! Communication

*) K"he Clayton Act repealed the #herman Act so that only the Clayton Act remains in force.K 3sthe pre'ious statement correct or incorrect?Answer! "he statement is incorrect. "he #herman Act remains part of the law of the land."opic! Clayton Act#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! Communication

88


8/16/2019 Chap 15 MC + LQ ans

78/86

*7) What are the actions that are prohibited according to the Clayton Act and its amendments?What conditions must be met for these actions to be prohibited?Answer! "he Clayton Act prohibits certain practices only if they substantially lessen competitionor create monopoly. "hese practices are!1) &rice discrimination.

*) "ying arrangements.4) $e

8/16/2019 Chap 15 MC + LQ ans

79/86

/) 3f price fiing by competitors is necessary because without it a firm will go bankrupt( is the price fiing legal?Answer! +o( price fiing by competitors is always illegal. $egardless of whether a firm will go bankrupt or not( this sort of price fiing is illegal."opic! &rice -iing

#kill! Conceptual%uestion history! =odified 1th editionAAC#B! Communication

/1) What is resale price maintenance? 3s resale price maintenance legal in the Inited #tates?Answer! $esale price maintenance occurs when a manufacturer agrees with a distributor on the price at which the product will be resold. -or instance( #ony could arrange with Best Buy the price for which #ony tele'isions are sold. $esale price maintenance @also called 'ertical pricefiing) agreements are illegal under the #herman Act. But it isn,t illegal for a manufacturer torefuse to supply a retailer who doesn,t accept guidance on what the price should be."opic! $esale &rice =aintenance#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! Communication

/*) What are the current merger guidelines as de'eloped and administered by the -ederal "radeCommission?Answer! "he current merger guidelines are based on the >erfindahl6>irschman inde( which isthe sum of the s>3 isless than 1( the market is considered unconcentrated and mergers will usually gounchallenged. 3f the >>3 is greater than 1 but less than 19( the market is consideredmoderately concentrated and mergers may be challenged if the >>3 would rise by more than 1 points. 3f the >>3 eceeds 19( the market is considered concentrated and mergers may bechallenged if the >>3 rises by more than points."opic! Current =erger $ules#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! Communication

//) 3n a market with a >erfindahl6>irschman 3nde of *(( according to their guidelines willthe epartment of Eustice challenge a merger that would increase the inde by ?Answer! Mes( according to their guidelines the epartment of Eustice will challenge a mergerthat increases the >erfindahl6>irschman 3nde by more than points if the initial inde isgreater than 1(9.

"opic! Current =erger $ules#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! Communication

8:


8/16/2019 Chap 15 MC + LQ ans

80/86

/4) K3f an industry,s >erfindahl6>irschman 3nde is below 1(( a merger between any twofirms in that industry will be disallowed.K Comment on the accuracy of the pre'ious statement.Answer! "he statement is incorrect in at least three dimensions. -irst( the lower the >erfindahl6>irschman 3nde( the more competiti'e the industry and hence the more likely the go'ernmentwill allow a merger to occur. #econd( e'en if the >erfindahl6>irschman 3nde is high( a merger

that increases it only a small bit will not be challenged. And third( the >erfindahl6>irschman3nde is only part of the information considered when the go'ernment is determining whether tochallenge a merger."opic! Current =erger $ules#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! Communication

8 +umeric and raphing %uestions

&rice@dollars

per unit)

%uantitydemanded

@units)

/

* 1

* *

1 /

1 4

7

1) "he table abo'e has the market demand schedule in an industry that has two firms in it. "hemarginal cost of this product is ero because these two firms ha'e eclusi'e ownership of theresource and it does not cost any additional amount to produce additional units.a) 3f the firms cooperate with each other so that they operate as a monopoly( what price will theycharge and what @total) output will they produce? b) 3f the firms cannot cooperate but instead beha'e as perfect competitors( what will be the priceand the @total) output they produce?Answer!a) As a monopoly( the price will be F1 and the total output will be / units. "his price andoutput combination is where they maimie their total profit because it is here that the marginalre'enue e

8/16/2019 Chap 15 MC + LQ ans

81/86

*) #uppose the industry for washing machines has only four firms. "he market shares are! -irmA( 4 percent; -irm B( * percent; -irm C *( percent; and -irm ( * percent.a) What is the >erfindahl6>irschman 3nde @>>3)? b) 3f -irms C and were to announce a merger( would the epartment of Eustice oppose themerger?

Answer!a) "he >>3 is *(9. b) Mes( the epartment of Eustice would oppose the merger. 3f the merger occurred( the new >>3would be /(7. "he merger would increase the >>3 by 9 points. "he epartment of Eustice,sguidelines are to challenge a merger if the initial >>3 eceeds 1(9 and the merger raises the>>3 by more than points. "he merger considered in the problem easily falls under theseguidelines."opic! Current =erger $ules#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

91


8/16/2019 Chap 15 MC + LQ ans

82/86

-irm=arginal share

@percent)

A 1

B 1

C 1 1

2 1

- 1

1

>

3

E

/) A market has ten firms( whose market shares are gi'en in the table abo'e.a) 3f firms 3 and E wanted to merge( according to the epartment of Eustice guidelines( would the

epartment of Eustice challenge the merger? b) 3f firms A and B wanted to merge( according to the epartment of Eustice guidelines( wouldthe epartment of Eustice challenge the merger?Answer!a) "he decision whether to challenge the merger depends( in part( on the market,s >erfindahl6>irschman 3nde @>>3). "he >>3 for the market initially is 1(1. "hus the epartment ofEustice guidelines say it will challenge a merger if the merger raises the >>3 by 1 or more points. 3f firms 3 and E merge( the >>3 becomes 1(*. "he epartment of Eustice will notchallenge this merger. b) 3f firms A and B merge( the >>3 becomes 1(7. "he epartment of Eustice will challenge thismerger.

"opic! Current =erger $ules#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

9*


8/16/2019 Chap 15 MC + LQ ans

83/86

4) "he >erfindahl6>irschman 3nde is used as a guideline to determine if a market is competiti'eor concentrated. Calculate the inde 'alue for each market described below.a) 1 firms( each of which produces 1 per cent of market output b) firms( each of which produces * per cent of market outputc) * firms( each of which produces 4 per cent of market output

d) * firms( each of which produces per cent of market outpute) 1 firms( each of which produces 1 per cent of market outputf) firms( each of which produces * per cent of market outputg) * firms( each of which produces per cent of market outputAnswer!a) 1 N 1 1 b) N 4 *c) * N 17 4d) * N * e) 1 N 1 1(f) N 4 *(

g) * N *( ("opic! Current =erger $ules#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! Analytical #kills

9 "rue or -alse

1) Oligopoly differs from perfect competition because a single competiti'e firm,s beha'ior doesnot affect the beha'ior of its competitors while the beha'ior of a single oligopolistic firm doesaffect the beha'ior of its ri'als.Answer! "$I2"opic! Oligopoly#kill! Conceptual%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

*) 2conomies of scale and limited demand can form a natural barrier to entry that can create anatural oligopoly.Answer! "$I2"opic! Oligopoly#kill! Conceptual%uestion history! &re'ious edition( Chapter 1


9/


8/16/2019 Chap 15 MC + LQ ans

84/86

/) ame theory is a tool for studying competiti'e beha'ior between firms in monopolisticcompetition because of the mutual interdependence among the firms.Answer! -A#2"opic! ame "heory#kill! $ecognition

%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

4) 3n the prisoners, dilemma game( each player has only one possible strategy.Answer! -A#2"opic! &risoners, ilemma#kill! Analytical%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

) 3n a +ash e

8/16/2019 Chap 15 MC + LQ ans

85/86

:) imit pricing is a strategy which is intended to deter entry into an industry.Answer! "$I2"opic! imit &ricing#kill! $ecognition%uestion history! &re'ious edition( Chapter 1


1) "he first federal antitrust law e'er passed was the #herman Act.Answer! "$I2"opic! #herman Act#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

11) "he Clayton Act of 1:14 was passed to prohibit( in part( price discrimination if the effect isto substantially lessen competition or create monopoly.

Answer! "$I2"opic! Clayton Act#kill! $ecognition%uestion history! &re'ious edition( Chapter 1AAC#B! $eflecti'e "hinking

1*) "ying arrangements are

Documents

Chap 15 MC + LQ ans