Question

48) 48) A merger between firms that are in the same industry is called a A) vertical merger C) horizontal merger. B) conglomerate merger D) none of the above. 49) 49) In oligopoly, any action by one firm to change price, output, or quality causes A) no reaction from the other firms. B) a reaction by other firms. C) loss of market share by the acting firm D) a profit gain for the other firms. 50) 50) The industry concentration ratio measures the A) percentage of industry sales accounted for by the top four (or eight) firms B) value of the assets owned by the largest corporations in the C) difference between price and marginal cost for the largest firms in D) degreeof product differentiation in the market. market. the industry 51) In game theory, the strategy that always yields the highest benefit for51) the player using it is the A) matrix strategy. C) prisoners' strategy. B) dominant strategy D) cooperative strategy 52) The kinked demand curve model in oligopoly assumes that rivals will 52) a price increase and__a price cut. A) follow; ignore C) ignore; ignore B) ignore; follow D) follow; follow 53) 53) Price leadership (parallel pricing) occurs when A) firms engage in marginal cost pricing. B) firms merge C) the largest oligopoly firm publishes its price list and other firms match the prices. D) none of the above. 54) To deter entry, firms in the industry must signal to potential entrants 54) that the price after entry would be A) below the competitive price B) above the kink in a kinked demand curve. C) unchanged. D) below the price the entrant would require to earn a profit. 55) Product differentiation exists in 55) A) all market structures except perfect competition. 8) monopolistic competition only. C) oligopolies only. D) monopolies only.

Answer 1

Answer

48.C)

A merger between firms that are in the same industry is called a horizontal merger.

When the firms operate in the same industry,i.e produce same type of goods or services,they may consolidate their business by merging each other.This is called horizontal merger.

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49.B)

In oligopoly, any action by one firm to change price,output, or quality causes a reaction by other firms.

Oligopoly market is characterized by few sellers and many buyers.If one seller changes its price, output or the product qualities,it will influence its market share.As a result the other firms react to the previous firm's action and influence their share in the market.

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50. A)

The industry concentration ratio measures the percentage of industry sales accounted for by the top four (or eight) firms.

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51. B)

In game theory, the strategy that always yields the highest benefit for the player using it is the dominant strategy.

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52. B)

The kinked demand curve model in oligopoly assumes that rivals will ignore a price increase and follow a price cut.

The kinked demand curve model states that if a firm in the oligopoly increases the price of its product, the rival firms will not increase the price of their products and they will try to capture the market sticking to their old price. On the other hand, if a firm decreases the price of its product, the rivals will also decrease the price of their products otherwise they may loss their market share. So the kinked demand curve model in oligopoly assumes that rivals will ignore a price increase and follow a price cut.

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53. C)

Price leadership(parallel pricing) occurs when the largest oligopoly firm publishes its price list and other firms match the prices.

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54. D)

To deter entry, firms in the industry must signal to potential entrants that the price after entry would be below the price the entrant would require to earn profit.  

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55. A)

Product differentiation exists in all market structures except perfect competition.

In perfect competition, all the firms are price taker and produce the homogeneous goods.There is no product differentiation in perfectly competitive market.

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