LSUS MBA 701 Final Exam Preparation Set (Week
Seven): Questions With Accurate Solutions
1) What is the most important characteristic of oligopoly?
A) firms have market power
B) product differentiation
C) low barriers to entry
D) interdependence of profits
E) None of the choices are correct Correct Answer - D) interdependence
of profits
2) In an oligopoly market:
A) a firm must lower price in order to sell more output.
B) each firm faces a demand curve that depends on how the firm's rivals
behave.
C) a few firms account for a large portion of industry sales.
D) both "firm must lower price in order to sell more output" and "each firm
faces a demand curve that depends on how the firm's rivals behave".
E) All of the choices are correct. Correct Answer - E) All of the choices
are correct.
3) Oligopolists face interdependent profits because:
A) there are few firms in the market.
B) the product is differentiated.
C) industry sales are large.
D) All of the choices are correct. Correct Answer - A) there are few firms
in the market.
4) In game theory, a dominant strategy is:
,A) a strategy used by a large firm to compete against smaller firms.
B) a strategy followed by the price leader.
C) a strategy involving a high risk but also a high return.
D) a strategy that leads to the best outcome no matter what a rival does.
E) None of the choices are correct. Correct Answer - D) a strategy that
leads to the best outcome no matter what a rival does.
5) In game theory, what is a dominant strategy?
A) A strategy that leads to the best possible outcome for both firms.
B) Any strategy that leads to a Nash equilibrium.
C) A strategy that yields a minimax outcome.
D) A strategy that leads to the best outcome for a firm no matter what strategy
the other chooses. Correct Answer - D) A strategy that leads to the best
outcome for a firm no matter what strategy the other chooses.
6) Interdependence occurs when:
A) firms consider the actions of other firms when making price and output
decisions.
B) all firms in an industry are affected by the same general economic
conditions, like consumer incomes and the unemployment rate.
C) firms cooperate to increase profit.
D) All of the choices are correct. Correct Answer - A) firms consider the
actions of other firms when making price and output decisions.
7)A form of strategic entry deterrence is:
, A) forming a cartel.
B) maintaining excess capacity.
C) limit pricing.
D) both "maintaining excess capacity" and "limit pricing". Correct Answer -
D) both "maintaining excess capacity" and "limit pricing".
8) One reason a firm or firms might charge a price lower than its profit-
maximizing price is:
A) to discourage the entry of new firms.
B) to follow a tit-for-tat strategy.
C) to erect multiproduct barriers to entry.
D) both "to discourage the entry of new firms" and "to erect multiproduct
barriers to entry". Correct Answer - A) to discourage the entry of new
firms.
9) Refer to the following figure showing the reaction functions of oligopoly
firms A and B. (See Inserted Graph)
If firm A anticipates that firm B will run 3 ads, then firm A should run _____ ads
in order to maximize its own profit.
A) 1
B) 2
C) 4
D) 5 Correct Answer - B) 2
10) Refer to the following figure. Two firms, A and B, produce similar, but not
identical, products. BRA and BRB are, respectively, the reaction functions for
firms A and B, which compete primarily by price.(See Inserted Graph)
Seven): Questions With Accurate Solutions
1) What is the most important characteristic of oligopoly?
A) firms have market power
B) product differentiation
C) low barriers to entry
D) interdependence of profits
E) None of the choices are correct Correct Answer - D) interdependence
of profits
2) In an oligopoly market:
A) a firm must lower price in order to sell more output.
B) each firm faces a demand curve that depends on how the firm's rivals
behave.
C) a few firms account for a large portion of industry sales.
D) both "firm must lower price in order to sell more output" and "each firm
faces a demand curve that depends on how the firm's rivals behave".
E) All of the choices are correct. Correct Answer - E) All of the choices
are correct.
3) Oligopolists face interdependent profits because:
A) there are few firms in the market.
B) the product is differentiated.
C) industry sales are large.
D) All of the choices are correct. Correct Answer - A) there are few firms
in the market.
4) In game theory, a dominant strategy is:
,A) a strategy used by a large firm to compete against smaller firms.
B) a strategy followed by the price leader.
C) a strategy involving a high risk but also a high return.
D) a strategy that leads to the best outcome no matter what a rival does.
E) None of the choices are correct. Correct Answer - D) a strategy that
leads to the best outcome no matter what a rival does.
5) In game theory, what is a dominant strategy?
A) A strategy that leads to the best possible outcome for both firms.
B) Any strategy that leads to a Nash equilibrium.
C) A strategy that yields a minimax outcome.
D) A strategy that leads to the best outcome for a firm no matter what strategy
the other chooses. Correct Answer - D) A strategy that leads to the best
outcome for a firm no matter what strategy the other chooses.
6) Interdependence occurs when:
A) firms consider the actions of other firms when making price and output
decisions.
B) all firms in an industry are affected by the same general economic
conditions, like consumer incomes and the unemployment rate.
C) firms cooperate to increase profit.
D) All of the choices are correct. Correct Answer - A) firms consider the
actions of other firms when making price and output decisions.
7)A form of strategic entry deterrence is:
, A) forming a cartel.
B) maintaining excess capacity.
C) limit pricing.
D) both "maintaining excess capacity" and "limit pricing". Correct Answer -
D) both "maintaining excess capacity" and "limit pricing".
8) One reason a firm or firms might charge a price lower than its profit-
maximizing price is:
A) to discourage the entry of new firms.
B) to follow a tit-for-tat strategy.
C) to erect multiproduct barriers to entry.
D) both "to discourage the entry of new firms" and "to erect multiproduct
barriers to entry". Correct Answer - A) to discourage the entry of new
firms.
9) Refer to the following figure showing the reaction functions of oligopoly
firms A and B. (See Inserted Graph)
If firm A anticipates that firm B will run 3 ads, then firm A should run _____ ads
in order to maximize its own profit.
A) 1
B) 2
C) 4
D) 5 Correct Answer - B) 2
10) Refer to the following figure. Two firms, A and B, produce similar, but not
identical, products. BRA and BRB are, respectively, the reaction functions for
firms A and B, which compete primarily by price.(See Inserted Graph)
