Question

1. When managers in oligopolistic firms make decisions that affect output or price, they must                                                                                                                               (1)

A) also be sure they erect barriers to entry to prevent new entrants from affecting their plans.

B) anticipate the reactions of their rivals and plan accordingly.

C) register with the Antitrust Division of the Department of Justice.

D) inform the regulators of their industry about their plans.

2. If Ford Motor Company and General Motors Corporation were to merge, this would represent                                                                                                                      (1)
   1. a vertical merger.
   2. a horizontal merger.
   3. a cartel.
   4. an up-and-down merger.
3. Suppose that an industry consists of 100 firms, and the top 4 firms have annual sales of $1 million, $1.5 million, $2 million, and $2.5 million, respectively. If the entire industry has annual sales of $8.5 million, the four-firm concentration ratio is approximately   

A) 82 percent.

B) 50 percent.

C) 94 percent.

D) 70 percent.

4. Within a game theory model, if a change in decision-making raises corporation A's profits by $50 and lowers corporation B's profits by $60, the game is a                 (1)

A) negative-sum game.

B) zero-sum game.

C) positive-sum game.

D) cooperative game.

Answer 1

1. In Oligopolistic markets, the firms take decisions keeping in mind the reaction of other firms in the market. Therefore correct option is b) they anticipate the actions of their rivals and plan accordingly.

2.Ford and General Motors operate in the same industry. Their consolidation is horizontal merger. Therefore correct option is b) horizontal merger.

3.Concentration ratio = total annual sales of the four firms/total size of the industry = (1+1.5+2+2.5)*100/8.5 = 82%

correct option is a) 82%

4. Since the total gain of the system is -10, therefore it is a negative sum game. correct option is a)