1. When a firm responds to a rival\'s cheating by cheating and to a rival\'s coo

Question

1. When a firm responds to a rival's cheating by cheating and to a rival's cooperation by cooperating, that firm is practicing a _____ strategy.
Select one:
a. tit-for-tat
b. trigger
c. conclusive
d. dominant

2. Which factor would make it difficult for oligopolists to collude?
Select one:
a. similar costs of production
b. a homogeneous product
c. few buyers
d. few firms

3.

Reference: Ref 14-10 Figure: Payoff Matrix II for Blue Spring and Purple Rain

(Figure: Payoff Matrix II for Blue Spring and Purple Rain) Use Figure: Payoff Matrix II for Blue Spring and Purple Rain. The figure describes two producers of bottled water. Suppose Blue Spring charges a high price and Purple Rain does the same. In the next period, Blue Spring charges a low price and Purple Rain incurs a loss. If Purple Rain responds with a tit-for-tat strategy, it will:

Select one:

a. make random changes in its price so that Blue Spring is left with no systematic strategy.

b. always charge a high price.

c. charge a low price in the next period and thereafter charge the same price that Blue Spring charged in the previous period.

d. always charge a low price—the same as its dominant strategy.

4. The demand curve for a firm operating in a monopolistically competitive industry is:
Select one:
a. U-shaped.
b. vertical.
c. upward sloping.
d. downward sloping.

5. Firms in monopolistic competition can acquire some market power by:
Select one:
a. increasing their output to the perfectly competitive level.
b. producing where MR > MC.
c. product differentiation.
d. engaging in tacit collusion.

6. The downward-sloping demand curve for a monopolistically competitive firm:
Select one:
a. indicates collusion among firms in the industry.
b. reflects product differentiation.
c. ensures that the firm will produce at minimum average cost in the long run.
d. eventually will become perfectly elastic as more firms enter.

7. If the toothpaste market is monopolistically competitive, product differentiation would NOT take the form of:
Select one:
a. setting the price of the product well below the price charged by the rivals.
b. quality differences among the various brands.
c. differentiation in the locations where certain toothpastes are available.
d. production of many varieties of toothpaste, including those with whitening agents.

8. Monopolistic competition is similar to perfect competition because firms in both market structures:
Select one:
a. are price takers.
b. find it beneficial to advertise.
c. do not face any barriers to entry to the industry in the long run.
d. produce goods that are perfect substitutes.

9. The sources of product differentiation do NOT include:
Select one:
a. consumers' dislike of having options.
b. the perception by consumers that products are different, even if they are physically identical.
c. differences in quality.
d. differences in location.

10. Toby operates a small deli downtown. The deli industry is monopolistically competitive. In the long run, Toby will produce where:
Select one:
a. price equals marginal revenue.
b. price equals marginal cost.
c. price equals minimum average total cost.
d. marginal revenue equals marginal cost.

Explanation / Answer

Graph for question 3 is not visible. Answering rest 4 below-

1) a. Tit for tat

Tit for tat is a strategy where firm cooperates of the other firm cooperates and deceives if other firm deceives.

2) c few buyers.

If there are few buyers, firms will try their best to sell their product to buyers in the market. No firm will be collude as number of people willing to buy is less.

4) d. Downward sloping

Monopolistic firm faces downward sloping curve as to induce consumers to buy more the firm has to reduce prices.

5) c. Product differentiation

If the products are differentiated, they are not comparable as each product has own feature and quality. This gives firms to charge different prices.

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