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The following graph shows the bid value and probability of winning an auction for an oil painting under a first-price sealed bid auction with private values. The bidder is willing to pay a maximum of £2000 for the oil painting. Refer to the graph to answer the question. The following graph shows the bid value and probability of winning an auction for an oil painting under a first-price sealed bid auction with private values. The bidder is willing to pay a maximum of £2000 for the oil painting. Refer to the graph to answer the question. The line S has a positive slope which shows that the _____. A) probability of winning the auction rises as the bidder increases the bid. B) the potential gains from winning the auction increases as the bid value increases. C) the private value of the bidder is influenced by the changes in the bid values. D) the optimal bid is equal to the bidder's maximum willingness to pay. The line S has a positive slope which shows that the _____.


A) probability of winning the auction rises as the bidder increases the bid.
B) the potential gains from winning the auction increases as the bid value increases.
C) the private value of the bidder is influenced by the changes in the bid values.
D) the optimal bid is equal to the bidder's maximum willingness to pay.

E) B) and C)
F) All of the above

Correct Answer

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Oligopolists collude in order to_____.


A) minimize the social cost of production
B) earn monopoly pro?ts
C) maximize the quantity of output produced
D) increase production costs

E) A) and D)
F) A) and B)

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An industry where the minimum efficient scale is large when compared to the overall market is likely to be an oligopoly.

A) True
B) False

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Suppose that it is relatively easy for new firms to enter an industry. Some of the firms in this industry want to form a cartel. Which of the following is likely to be true?


A) It would be relatively easy for the firms to form a cartel.
B) The market power of the cartel is likely to be low.
C) The industry exhibits substantial economies of scale.
D) The marginal cost of production in this industry is likely to be low.

E) B) and D)
F) A) and D)

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Firms in a(n) _____ market are price-takers.


A) oligopolistic
B) monopolistic
C) perfectly competitive
D) monopolistically competitive

E) A) and D)
F) None of the above

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Unlike a perfectly competitive firm, _____.


A) a monopolistically competitive firm will have monopoly power in the long run
B) price is equal to marginal cost for a monopolistically competitive firm in the long run
C) a monopolistically competitive firm is a price taker
D) a monopolistically competitive firm produces homogeneous products

E) A) and B)
F) B) and C)

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Which of the following is true of a Cournot model?


A) A ?rm's pro?t-maximizing output does not vary with the decision of its rival.
B) A ?rm will always treat its rival's output as a given.
C) The ?rm will produce where MC > MR.
D) It is a price-based approach to duopoly.

E) A) and D)
F) A) and C)

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In a _____ auction, the highest bidder pays the price of the second-highest bid.


A) second-bid
B) ?rst-bid
C) ?rst-price sealed-bid
D) second-price sealed bid

E) A) and B)
F) All of the above

Correct Answer

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The following table shows the pay-off matrix for West Ltd. and East Ltd. in an oligopolistic market. Each firm has two options: co-operate or start a price war. Refer to the table to answer the question. The following table shows the pay-off matrix for West Ltd. and East Ltd. in an oligopolistic market. Each firm has two options: co-operate or start a price war. Refer to the table to answer the question. Which of the following is the Nash equilibrium outcome in this oligopoly? A) East Ltd. co-operates but West Ltd. begins a price war. B) West Ltd. co-operates but East Ltd. begins a price war. C) Both firms co-operate. D) Both firms begin a price war. Which of the following is the Nash equilibrium outcome in this oligopoly?


A) East Ltd. co-operates but West Ltd. begins a price war.
B) West Ltd. co-operates but East Ltd. begins a price war.
C) Both firms co-operate.
D) Both firms begin a price war.

E) B) and C)
F) A) and D)

Correct Answer

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In the market for local bus services in the UK, the five-firm concentration ratio was found to be 69 per cent. Only another five companies had a share of the market which exceeded 1 per cent. Given this information, which of the following statements is most likely to be true?


A) The total number of firms serving the market is likely to be very high.
B) It is likely that the firms in the market engage in head-to-head competition rather than
C) The quality of the local bus services offered is likely to be high.
D) There are likely to be high sunk costs in the market, which form a natural entry barrier.

E) None of the above
F) A) and C)

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A cartel faces a horizontal demand curve.

A) True
B) False

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The following table shows the pay-off matrix for West Ltd. and East Ltd. in an oligopolistic market. Each firm has two options: co-operate or start a price war. Refer to the table to answer the question. The following table shows the pay-off matrix for West Ltd. and East Ltd. in an oligopolistic market. Each firm has two options: co-operate or start a price war. Refer to the table to answer the question. West Ltd. earns its maximum pay-off when _____. A) it co-operates but East Ltd. begins a price war B) East Ltd. co-operates but West Ltd. begins a price war C) both the firms co-operate D) both the firms begin a price war West Ltd. earns its maximum pay-off when _____.


A) it co-operates but East Ltd. begins a price war
B) East Ltd. co-operates but West Ltd. begins a price war
C) both the firms co-operate
D) both the firms begin a price war

E) A) and B)
F) B) and D)

Correct Answer

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Which of the following is true of an English auction?


A) Bids begin low and are increased incrementally until no other bidder is willing to raise the bid.
B) Prices start high and are gradually reduced until a bidder accepts the price and wins the
C) Bidders submit a single bid in writing, without knowing how others have bid, and the highest bid wins.
D) Bidders submit a single bid in writing, without knowing how others have bid, and the

E) B) and D)
F) A) and B)

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The winner's curse is where a winning bid in an auction is lower than the true value of the sale item.

A) True
B) False

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In the long run, monopolistically competitive firms are not productively efficient.

A) True
B) False

Correct Answer

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Unlike an oligopolistic market, a monopolistically competitive market has _____.


A) a homogeneous product
B) a differentiated product
C) a large number of firms
D) a horizontal demand curve

E) A) and D)
F) All of the above

Correct Answer

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Which of the following is true in a Stackelberg model of duopoly?


A) Both firms in the market will take price and output decisions simultaneously.
B) The level of strategic interdependence between firms in the market is very low.
C) One firm has a first-mover advantage and other firms follow this firm.
D) Both firms will collude and set output in the market.

E) B) and C)
F) C) and D)

Correct Answer

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Cartels are more likely to fail when _____.


A) the firms in the cartel produce identical products
B) the marginal cost of production is high
C) the number of firms forming the cartel is high
D) the demand for the good is perfectly inelastic

E) A) and C)
F) None of the above

Correct Answer

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The following graph shows the bid value and probability of winning an auction for an oil painting under a first-price sealed bid auction with private values. The bidder is willing to pay a maximum of £2000 for the oil painting. Refer to the graph to answer the question. The following graph shows the bid value and probability of winning an auction for an oil painting under a first-price sealed bid auction with private values. The bidder is willing to pay a maximum of £2000 for the oil painting. Refer to the graph to answer the question. The expected value from winning the auction at the price of £2000 is equal to the area _____. A) A + B + C + D + E + F B) F + E C) C + D + E D) A + B + F The expected value from winning the auction at the price of £2000 is equal to the area _____.


A) A + B + C + D + E + F
B) F + E
C) C + D + E
D) A + B + F

E) B) and D)
F) All of the above

Correct Answer

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What is a Nash equilibrium?

Correct Answer

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Nash equilibrium occurs when e...

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