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CHAPTER 16_Chapter 16Oligopoly1.The commercial jetliner indu(2)
Updated:2011-12-12 Category:oligopoly

c.end up mistaking the other’s intentions, which results in low prices and low profit for both in the long run.

d.end up colluding with the other to form a cartel.

ANSWER: aavoid pricing high when the other prices low.

SECTION: 2OBJECTIVE: 2

9.There will be a greater tendency for cheating to take place with a cartel if

a.the number of firms in the market is relatively small.

b.the firms produce standardized products.

c.the costs of production differ among firms.

d.economic profits are being earned by the cartel.

ANSWER: cthe costs of production differ among firms.

SECTION: 2OBJECTIVE: 2

10.Which of the following would be most likely to contribute to the breakdown of a cartel in a natural resource (e.g., bauxite) market?

a.high prices

b.low price elasticity of demand

c.high compatibility of member interests

d.unequal member ownership of the natural resources

ANSWER: dunequal member ownership of the natural resources

SECTION: 2OBJECTIVE: 2

11.An equilibrium in which each firm in an oligopoly industry maximizes profit, given the actions of its rivals, is called

a.a general equilibrium.

b.a dominant equilibrium.

c.a Nash equilibrium.

d.an oligopoly equilibrium.

ANSWER: ca Nash equilibrium.

SECTION: 2OBJECTIVE: 2

12.An oligopoly would tend to restrict output and drive up price if

a.barriers to entering the industry are negligible.

b.firms engage in informative advertising.

c.firms produce a standardized product.

d.firms collude and behave like a monopoly.

ANSWER: dfirms collude and behave like a monopoly.

SECTION: 2OBJECTIVE: 2

13.The application of game theory to economics allows us to understand firm behavior in some forms of oligopoly. Game theory suggests that in a two-firm industry, each firm will

a.avoid pricing high when the other prices low.

b.select high prices and defend that selection because, in the long run, their profits are higher than if they competed by lowering prices.

c.end up mistaking the other’s intentions, which results in low prices and low profit for both in the long run.

d.end up colluding with the other to form a cartel.

ANSWER: aavoid pricing high when the other prices low.

SECTION: 3OBJECTIVE: 3

14.In the prisoner’s dilemma,

a.the prisoners easily collude in order to achieve the best possible payoff for both.

b.only one player has a dominant strategy.

c.playing the dominant strategy leads to a better payoff for one prisoner than would jointly selecting a different strategy.

d.each player has a dominant strategy.

ANSWER: deach player has a dominant strategy.

SECTION: 3OBJECTIVE: 3

15.A dominant strategy is one that

a.makes every player better off.

b.makes at least one player better off without hurting the competitiveness of any other player.

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