Chapter 11

Question 1

An industry’s market structure refers to

Answer 1

the number and size of the firms in the industry.

Question 2

When firms are interdependent,

Answer 2

the profit of one firm depends on how its rivals respond to its strategic decisions.

Question 3

The only market structure in which there is significant interdependence among firms with regard to their pricing and output decisions is

Answer 3

oligopoly

Question 4

Which of the following may not characterize an oligopoly?

Answer 4

no market power

Question 5

The soft drink market is dominated by Coke, Pepsi, and very few other firms. The firms often start price wars. The market can best be classified as

Answer 5

an oligopoly

Question 6

The correct ranking of degree of market power (from highest to lowest) is

Answer 6

monopoly, oligopoly, monopolistic competition, perfect competition

Question 7

Each of the following is a determinant of market power, but which is the critical determinant of market power?

Answer 7

the extent of barriers to entry

Question 8

The concentration ratio measures the

Answer 8

proportion of total output produced by the largest firms in a specific market.

Question 9

The goal of a company in an oligopoly industry is to

Answer 9

increase market share and profits.

Question 10

The concentration ratio for an oligopoly is considered

Answer 10

over 60 percent.

Question 11

Market share is the percentage of total

Answer 11

market output produced by a single firm.

Question 12

Suppose the larger firm of a duopoly has sales of $900 million and the smaller firm has sales of $100 million. The market share of the larger firm is

Answer 12

90 percent.

Question 13

When a business advertises that its product has unique features that make it superior to other similar products, it is engaging in

Answer 13

production differentiation

Question 14

A kinked demand curve indicates that rival oligopolists match all

Answer 14

price reductions.

Question 15

Which of the following is true about the kink in the demand curve?

Answer 15

It is the result of different rival responses to price increases and reductions.

Question 16

Game theory is

Answer 16

the study of decision making in situations where strategic interaction occurs between rivals.

Question 17

Oligopolists have a mutual interest in coordinating production decisions in order to maximize joint

Answer 17

profits

Question 18

Oligopolists will maximize total profits for all of the firms in the market at the rate of output where

Answer 18

a monopoly firm would be producing if it was maximizing profits

Question 19

Open and explicit agreements concerning pricing and output shares transform an oligopoly into a

Answer 19

cartel

Question 20

Sky-High Skywriters raises its price, and the other four firms in the industry raise their prices in response. Coordination in this industry is accomplished by

Answer 20

price leadership

Question 21

Temporary price reductions intended to alter market shares or drive out competition are referred to as

Answer 21

predatory pricing.

Question 22

The most common form of nonprice competition is

Answer 22

advertising.

Question 23

If all of your friends use the same instant messaging service provider, you are likely to use it too. This behavior may create

Answer 23

a network economy

Question 24

(Table 25.2) Assume there are only four firms in the pool sweeper industry. What is the Herfindahl-Hirschman Index (HHI) for this industry?

Answer 24

4,150

Question 25

Suppose there are 51 firms in a market. The largest firm has sales of $50 million, and each of the other firms has sales of $1 million. The Herfindahl-Hirshman Index (HHI) of this industry is

Answer 25

2,550

Question 26

Suppose there are three firms in a market. The largest firm has sales of $50 million, and each of the other two firms has sales of $25 million. The Herfindahl-Hirschman Index (HHI) of this industry is

Answer 26

3,750