Question

1. Which Herfindahl–Hirschman index is MOST likely to indicate a perfectly competitive market?

Select one:

a. 100

b. 100,000

c. 1,800

d. 10,000

2. To calculate the Herfindahl–Hirschman index (HHI), one must _____ market share(s) of _____ in the industry.

Select one:

a. sum the squared; all of the firms

b. divide the; the largest firm by the sum of the four largest firms

c. sum the; all of the firms

d. sum the; the four largest firms

3. Table: Demand Schedule of Gadgets

Price of Gadget	Quantity of Gadgets Demanded
$10	0
$9	100
$8	200
$7	300
$6	400
$5	500
$4	600
$3	700
$2	800
$1	900
$0	1,000

Reference: Ref 14-1 Table: Demand Schedule of Gadgets

(Table: Demand Schedule of Gadgets) Use Table: Demand Schedule of Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. Total industry output would be _____ gadgets.

Select one:

a. 50

b. 500

c. 10

d. 5

4.

Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by:

Select one:

a. producing more than the quantity that maximizes joint profits.

b. advertising less than will maximize joint cartel profits.

c. charging more than the price that maximizes joint cartel profits.

d. producing less than the quantity that maximizes joint profits.


5.

Figure: Monopoly Profits in Duopoly

Reference: Ref 14-2 Figure: Monopoly Profits in Duopoly

(Figure: Monopoly Profits in Duopoly) Use Figure: Monopoly Profits in Duopoly. The efficient solution in the figure is found where price is _____ and quantity is _____.

Select one:

a. P₁; Q₄

b. P₂; Q₁

c. P₂; Q₂

d. P₃; Q₁

6.

An extreme case of oligopoly in which firms collude to raise joint profits is known as a:

Select one:

a. dominant producer.

b. duopoly.

c. price war.

d. cartel.

7.

In oligopoly, a firm must realize that:

Select one:

a. what it does has no effect on the other firms in the industry.

b. another major firm may dominate choices in the industry, and it will have to behave accordingly.

c. collusion was made legal in 2004.

d. its behavior will be ignored by other firms in the industry.


8.

In an oligopoly:

Select one:

a. there are many sellers.

b. firms recognize their interdependence.

c. there are no barriers to entry.

d. total surplus is maximized.

9.

Figure: Prisoners' Dilemma for Thelma and Louise

Reference: Ref 14-6 Figure: Prisoners' Dilemma for Thelma and Louise

(Figure: Prisoners' Dilemma for Thelma and Louise) Use Figure: Prisoners' Dilemma for Thelma and Louise. Thelma and Louise are arrested and jailed for murder. Given the payoff matrix in the figure, the Nash equilibrium behavior is for Thelma _____ and Louise _____.

Select one:

a. to confess; to confess

b. not to confess; not to confess

c. to confess; not to confess

d. not to confess; to confess

10.

As a New York business owner who does a lot of flying, you are keenly aware of even small changes in airfare from New York to Chicago. You have flown this route long enough to know that each airline is essentially a perfect substitute for the others. You notice that every time the largest airline changes the price, smaller airlines follow, but the smaller airlines are always priced slightly below the fare of the largest airline. This industry could BEST be described as one with:

Select one:

a. cartel behavior.

b. price leadership.

c. nonprice competition.

d. price wars.

Answer 1