Question 1

The Hirschman-Herfindahl index (HHI) in an industry is 50. A merger is proposed that will raise the HHI to 100. In this case, the

Accepted Answer

The HHI increase from 50 to 100 indicates a very low level of market concentration, suggesting the industry is highly competitive. The Federal Trade Commission typically challenges mergers that significantly increase concentration in already concentrated markets, which is not the case here.

Question 2

Suppose the Herfindahl-Hirschman Index (HHI) in the market for chocolate is 3,200. Two companies want to merge. The FTC definitely will challenge the merger if it increases the HHI by more than

Accepted Answer

The answer of Suppose the Herfindahl-Hirschman Index (HHI) in the...

Question 3

Two firms make most of the consumer alkaline batteries in the country: Duracell and Energizer. The market for batteries is most likely

Accepted Answer

The market is an oligopoly because it is dominated by a few large firms, Duracell and Energizer, which control most of the market share.

Question 4

Russia and Qatar made the first serious moves in October 2008 toward forming an OPEC-style cartel for natural gas. The two strategies these countries face are to comply with the cartel agreement or to cheat on the cartel agreement. If all countries comply, the economic profit for both will be $140 million. If one country cheats, that country earns $200 million in economic profit and the other country has an economic loss of $10 million. If all countries cheat, they break even. What is the the likely outcome of this game if it is repeated as a tit-for-tat game?

Accepted Answer

In a tit-for-tat game, countries are likely to collude because they will mimic each other's previous actions, leading to mutual compliance and maximizing profits over time.

Question 5

Kellogg's and General Mills are two of the dominant breakfast cereal manufactures in the U.S. Each firm can either sign or not sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box. Both Kellogg's and General Mills have signed athletes in 2008, Michael Phelps and Nastia Liukin, respectively. What does this suggest about the outcome of the oligopoly game?

Accepted Answer

The Nash equilibrium in this scenario is likely that both companies sign athletes, as neither company would benefit from unilaterally changing their strategy given the other's decision.

Question 6

Kellogg's and General Mills are two of the dominant breakfast cereal manufactures in the U.S. Each firm can either sign or not sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box. If both companies sign an athlete, they will each make $5 million in economic profit. If only firm signs, they earn $8 million in economic profit and the other firm incurs an economic loss of $1 million. If neither firm signs, they break even. Which of the following pairs of payoffs would NOT appear together in a square of the payoff matrix?

Accepted Answer

If one firm signs an athlete, they earn $8 million while the other incurs a loss of $1 million, so $8 million and $5 million cannot appear together.

Question 7

Market share in the Widget industry
 
-Using the market shares in the table above, if Widgotech buys Widgette the HHI will

Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by summing the squares of the market shares of all firms in the market. When Widgotech buys Widgette, their combined market share increases, and the HHI increases by the square of the new combined market share minus the sum of the squares of their individual market shares. This results in an increase of 18 points.

Question 8

Russia, Iran and Qatar made the first serious moves in October 2008 toward forming an OPEC-style cartel for natural gas. Each of the countries can comply with the cartel agreement or to cheat on the cartel agreement. If all countries comply, the economic profit for each will be $140 million. If one country cheats, that country earns $200 million in economic profit and the other countries will have economic losses of $10 million. If all countries cheat, they break even. What are the strategies in this game?

Accepted Answer

Comply with the cartel agreement or to cheat on the cartel agreement are the two strategies in this game.

Question 9

The local banking industry currently has a Herfindahl-Hirschman index (HHI) value of 2175 and two of the competing banks have considered merging. Because the merger would raise the HHI by 25 points, the Federal Trade Commission would likely

Accepted Answer

The HHI value of 2175 indicates a moderately concentrated market. A merger that increases the HHI by less than 100 points in such a market is typically not challenged by the Federal Trade Commission.

Question 10

Russia, Iran and Qatar made the first serious moves in October 2008 toward forming an OPEC-style cartel on natural gas. What is the goal of a cartel?

Accepted Answer

The answer of Russia, Iran and Qatar made the first...

Question 11

In 2008, a former Intel engineer has been charged with stealing trade secrets worth $1 billion. Intel owns 90 percent of the worldwide market for microprocessors, AMD has the rest. The microprocessor market is most like an example of

Accepted Answer

The microprocessor market is an oligopoly because it is dominated by a few large firms, Intel and AMD, which control the majority of the market share.

Question 12

Kellogg's and General Mills are two of the dominant breakfast cereal manufactures in the U.S. Each firm can either sign or not sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box. If both companies sign an athlete, they will each make $5 million in economic profit. If only firm signs, they earn $8 million in economic profit and the other firm incurs an economic loss of $1 million. If neither firm signs, they break even. What are the strategies in this game?

Accepted Answer

The strategies in this game are the actions each firm can take: either sign or not sign an exclusive contract with an Olympian gold-medal athlete.

Question 13

Which of the following statements about the Sherman Act is CORRECT?

Accepted Answer

The Sherman Act, enacted in 1890, was the first federal antitrust law and made it illegal to restrain interstate trade or commerce. It did not legalize monopolization or outlaw natural monopolies.

Question 14

In 2008, a former Intel engineer has been charged with stealing trade secrets worth $1 billion. Intel owns 90 percent of the worldwide market for microprocessors, AMD has the rest. Conducting R&D is very expensive so suppose that each of these firms can either steal R&D or develop their own R&D. If both firms develop their own R&D, economic profit will be $50 million each. If one company steals R&D, that firm earns $100 million in economic profit while the other firm earns $10 million. If both firms steal R&D, each firm breaks even. What is the outcome of this game?

Accepted Answer

The answer of In 2008, a former Intel engineer has...

Question 15

The local banking industry currently has a Herfindahl-Hirschman index (HHI) value of 1945 and two of the competing banks have considered merging. Because the merger would raise the HHI by 155 points, the Federal Trade Commission would likely

Accepted Answer

The HHI value of 1945 indicates a moderately concentrated market. An increase of 155 points due to the merger would likely lead to a highly concentrated market, prompting the FTC to challenge the merger.

Question 16

Kellogg's and General Mills are two of the dominant breakfast cereal manufactures in the U.S. Each firm can either sign or not sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box. If both companies sign an athlete, they will each make $5 million in economic profit. If only firm signs, they earn $8 million in economic profit and the other firm incurs an economic loss of $1 million. If neither firm signs, they break even. What is the outcome of this game if it is only played once?

Accepted Answer

In a one-time game, both firms will choose to sign the athlete to avoid the risk of incurring a loss. This results in both making $5 million, which is better than the potential loss of $1 million if they don't sign and the other does.

Question 17

Market share in the Widget industry
 
-Using the market shares in the table above, if Big W wants to buy Widgette, the Federal Trade Commission will probably

Accepted Answer

The answer of Market share in the Widget industry
 
-Using...

Question 18

Russia and Qatar made the first serious moves in October 2008 toward forming an OPEC-style cartel for natural gas. The two strategies these countries face are to comply with the cartel agreement or to cheat on the cartel agreement. If both countries comply, the economic profit for each will be $140 million. If one country cheats, that country earns $200 million in economic profit and the other country will have an economic loss of $10 million. If all countries cheat, they break even. What is the outcome of this game if it is only played once?

Accepted Answer

In a one-time game, the dominant strategy for each country is to cheat, as cheating provides a higher payoff regardless of the other country's decision.

Question 19

Market share in the Widget industry
 
-In the table above, the Herfindahl-Hirschman Index in the widget industry is

Accepted Answer

The answer of Market share in the Widget industry
 
-In...

Question 20

In 2008, a former Intel engineer has been charged with stealing trade secrets worth $1 billion. Intel owns 90 percent of the worldwide market for microprocessors, AMD has the rest. Conducting R&D is very expensive so suppose that each of these firms can either steal R&D or develop their own R&D. If both firms develop their own R&D, economic profit will be $50 million each. If one company steals R&D, that firm earns $100 million in economic profit while the other firm earns $10 million. If both firms steal R&D, each firm breaks even. What is NOT true about this game?

Accepted Answer

The answer of In 2008, a former Intel engineer has...

Quiz 15: Oligopoly