Industrial Organization Study Guide
Questions
Course Introduction
Industrial Organization examines the structure, behavior, and performance of firms and markets, focusing on how they interact within various industry settings. The course explores topics such as market power, pricing strategies, product differentiation, barriers to entry, and the role of government regulation in promoting competition and efficiency. Students analyze real-world market structures such as perfect competition, monopolies, oligopolies, and monopolistic competition using both theoretical models and empirical case studies. The course also emphasizes the strategic interactions among firms, including collusion, mergers, and antitrust policies, to help students understand the complexities of modern industrial markets.
Recommended Textbook
Managerial Economics and Strategy 2nd Edition by Jeffrey M. Perloff
Available Study Resources on Quizplus
17 Chapters
1609 Verified Questions
1609 Flashcards
Source URL: https://quizplus.com/study-set/1522 Page 2
Chapter 1: Introduction
Available Study Resources on Quizplus for this Chatper
40 Verified Questions
40 Flashcards
Source URL: https://quizplus.com/quiz/30126
Sample Questions
Q1) Why might raising the price of a good by a dollar lead to higher profits?
Answer: If the extra profit margin made on the units sold covers the profit lost from selling fewer units, then profits will increase if the price is raised.
Q2) If a model's predictions are correct, then
A)its assumptions must have been correct.
B)it is proven to be correct.
C)Both A and B above.
D)None of the above.
Answer: D
Q3) Einstein was quoted saying "Everything should be made as simple as possible, but not simpler." When it comes to economic models this means that
A)models shouldn't be too complex.
B)models shouldn't be too simple.
C)models should have a level of abstraction appropriate to the topic investigated.
D)All of the above.
Answer: D
Q4) Give an example of a tradeoff a pizza restaurant might face.
Answer: Whether to make pepperoni or combination pizzas.
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Supply and Demand
Available Study Resources on Quizplus for this Chatper
131 Verified Questions
131 Flashcards
Source URL: https://quizplus.com/quiz/30135
Sample Questions
Q1) Costs that pertain to finding a trading partner and making a trade are called
A)transaction costs.
B)transgression costs.
C)consumption costs.
D)transaction taxes.
Answer: A
Q2) The quantity of a good that consumers demand depends only on the price of the good.
A)True
B)False
Answer: False
Q3) Consumers and firms are known as price takers only if
A)no market exists to determine the equilibrium price.
B)they can set the market price.
C)they cannot unilaterally affect the market price.
D)excess demand exists.
Answer: C
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Empirical Methods for Demand Analysis
Available Study Resources on Quizplus for this Chatper
84 Verified Questions
84 Flashcards
Source URL: https://quizplus.com/quiz/30136
Sample Questions
Q1) If the elasticity of demand is -2.3 when calculated using the point elasticity method and -3.4 using the arc elasticity method, then
A)you should use the point elasticity.
B)it is OK to use either one.
C)there must be a mistake in the calculations.
D)you should use the arc elasticity.
Answer: B
Q2) In regression analysis, the dependent variable
A)is always quantity demanded.
B)is the variable whose variation is to be explained.
C)is one of the factors that explains what is happening with demand.
D)is represented by the inverse demand function.
Answer: B
Q3) If the demand curve is given by Q = a + bp, then b is A)positive.
B)the quantity demanded when price is zero.
C)the change in quantity demanded if price changes by 1.
D)different at different points on the demand curve.
Answer: C
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Consumer Choice
Available Study Resources on Quizplus for this Chatper
67 Verified Questions
67 Flashcards
Source URL: https://quizplus.com/quiz/30137
Sample Questions
Q1) Indifference curves close to the origin are ________ those farther from the origin because of ________.
A)better than; transitivity
B)worse than; nonsatiation
C)better than; completeness
D)worse than; transitivity
Q2) The consumer is in equilibrium when
A)MRT = MRS.
B)Px/Py = MUx/MUy
C)the budget line is tangent to the indifference curve at the bundle chosen.
D)All of the above.
Q3) Bounded rationality suggests that
A)individuals might make "incorrect" decisions because they are unable to consider all possible options.
B)individuals would rather have less choice to more choice.
C)rational decisions can only be made when choices are restricted.
D)individuals are happier when their choices are restricted or "bounded."
Q4) What is the difference between ordinal and cardinal measurement?
Q5) If more is better, how can you explain that more pollution doesn't violate this principle?
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Production
Available Study Resources on Quizplus for this Chatper
128 Verified Questions
128 Flashcards
Source URL: https://quizplus.com/quiz/30138
Sample Questions
Q1) Diminishing marginal returns lead to diminishing returns
A)when marginal returns fall but remain positive.
B)only in theory.
C)when marginal returns become negative.
D)when labor exceeds capital.
Q2) The above table shows a short-run production function for Albert's Pretzels. The marginal product of labor
A)rises then falls as the amount of capital increases.
B)falls then rises as the amount of labor increases.
C)is greater than or equal to the average product of labor for all amounts of labor.
D)is less than or equal to the average product of labor for all amounts of labor.
Q3) Let the production function be q=ALaKb. The function exhibits constant returns to scale if
A)a + b = 1.
B)a + b > 1.
C)a + b < 1.
D)Cannot be determined with the information given.
Q4) Explain why labor might not always be a variable input.
To view all questions and flashcards with answers, click on the resource link above.
Page 7
Chapter 6: Costs
Available Study Resources on Quizplus for this Chatper
117 Verified Questions
117 Flashcards
Source URL: https://quizplus.com/quiz/30139
Sample Questions
Q1) Suppose the short-run production function is q = L0.5. If the marginal cost of producing the tenth unit is $5, what is the wage per unit of labor?
A)$1
B)$0.5
C)$0.25
D)It cannot be determined without more information.
Q2) If producing more output increases average cost then
A)there are diseconomies of scale.
B)there are economies of scope.
C)there are diseconomies of scope.
D)there are no economies of scale.
Q3) Suppose the short-run production function is q = 10 L. If the wage rate is $10 per unit of labor, then AVC equals
A)q.
B)q/10.
C)10/q.
D)1.
Q4) Explain how a firm can have constant returns to scale in production and economies of scale in cost.
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Firm Organization and Market Structure
Available Study Resources on Quizplus for this Chatper
78 Verified Questions
78 Flashcards
Source URL: https://quizplus.com/quiz/30140
Sample Questions
Q1) In deciding whether to operate in the short run, the firm must consider the relationship between price and A)total cost.
B)average variable cost.
C)total fixed cost.
D)the number of buyers.
Q2) Under perfect competition
A)information about prices is hard to obtain.
B)there is a maximum number of firms that can enter the market.
C)if a firm exits the market, price will rise.
D)transaction costs are low.
Q3) An organization that converts inputs (like Labor, Capital etc.)into output can be a A)firm.
B)sole proprietorship.
C)corporation.
D)All of the above.
Q4) If a firm doesn't make an economic profit it will shut down.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Competitive Firms and Markets
Available Study Resources on Quizplus for this Chatper
97 Verified Questions
97 Flashcards
Source URL: https://quizplus.com/quiz/30141
Sample Questions
Q1) Total surplus
A)is maximized under perfect competition.
B)represents the gains from trade to market participants.
C)treats consumer and producer surplus equally.
D)All of the above.
Q2) The perfectly competitive model makes a lot of fairly unrealistic assumptions. Why do economics text books still talk a lot about this model?
A)Many markets are close to being perfectly competitive.
B)It is an important model to use as a benchmark to compare other markets structures to.
C)Perfectly competitive markets maximize societal welfare.
D)All of the above.
Q3) A competitive firm's supply curve is identical to its marginal cost curve.
A)True
B)False
Q4) A firm will exit a competitive market when
A)costs force the marginal cost curve to shift to the left.
B)the long-run profit would be negative.
C)it can earn only earn a zero long-run profit.
D)Both B and C.
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Monopoly
Available Study Resources on Quizplus for this Chatper
82 Verified Questions
82 Flashcards
Source URL: https://quizplus.com/quiz/30142
Sample Questions
Q1) If the demand for a firm's output is perfectly elastic, then the firm's Lerner Index equals
A)zero.
B)one.
C)infinity.
D)one-half.
Q2) For network externalities to occur
A)the government has to create new laws.
B)deadweight loss must be minimized.
C)there must be a critical mass of users.
D)there must be a positive benefit to society.
Q3) A monopoly advertises
A)to raise its profit.
B)to decrease costs.
C)dissuade entry by other firms.
D)reduce deadweight loss.
Q4) Suppose a monopolist has TC = 100 + 10Q + 2Q2, and the demand curve it faces is p = 90 - 2Q. What will be the price, quantity, and profit for this firm?
To view all questions and flashcards with answers, click on the resource link above.
Chapter 10: Pricing With Market Power
Available Study Resources on Quizplus for this Chatper
138 Verified Questions
138 Flashcards
Source URL: https://quizplus.com/quiz/30127
Sample Questions
Q1) If a market is controlled by a perfect-price-discriminating monopoly, then A)a deadweight loss is generated. B)there is no consumer surplus.
C)consumer surplus is the same as under perfect competition. D)output is less than that of a single-price monopoly.
Q2) Two-part pricing allows the monopoly firm to capture all of the potential consumer surplus generated by the sale of its product.
A)True
B)False
Q3) The above figure shows the market for a particular good. If the market is controlled by a perfect-price-discriminating monopoly, social welfare equals A)A.
B)A + B + C.
C)A + B + C + D + E. D)zero.
Q4) If a firm sells to two distinct identifiable markets and resale is impossible, why is price discrimination more profitable than setting a single price?
To view all questions and flashcards with answers, click on the resource link above.
Chapter 11: Oligopoly and Monopolistic Competition
Available Study Resources on Quizplus for this Chatper
84 Verified Questions
84 Flashcards
Source URL: https://quizplus.com/quiz/30128
Sample Questions
Q1) In the long run, a monopolistically competitive firm
A)earns zero economic profit.
B)produces at minimum average cost.
C)operates at full capacity.
D)All of the above.
Q2) In a Bertrand model, market power is a function of A)marginal cost.
B)the number of firms.
C)price elasticity of supply.
D)product differentiation.
Q3) The number of firms in a monopolistically competitive market will be smaller if A)the market demand curve shifts rightward.
B)minimum efficient scale is lower.
C)fixed costs are smaller.
D)fixed costs are larger.
Q4) A product can be differentiated through A)physical changes to the product.
B)marketing.
C)creating barriers to entry.
D)Both A and B.
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Game Theory and Business Strategy
Available Study Resources on Quizplus for this Chatper
90 Verified Questions
90 Flashcards
Source URL: https://quizplus.com/quiz/30129
Sample Questions
Q1) Bargaining does NOT normally occur in
A)vertical business relationships.
B)wages and working conditions under a union contract.
C)posted price markets.
D)the legal system.
Q2) In a sealed-bid, second-price auction, you should bid
A)your estimate of what others value the good at.
B)one dollar more than your estimate of what the second-highest bid will be.
C)your highest value.
D)the common value of the good.
Q3) Cheap talk
A)is never credible.
B)is illegal.
C)generally affects the game's payoffs.
D)can be credible when both firms have an incentive to be truthful.
Q4) A mixed strategy may
A)be part of a Nash equilibrium.
B)be a set of probabilities of selecting each possible action.
C)lead identical firms to choose different actions.
D)All of the above.
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Strategies Over Time
Available Study Resources on Quizplus for this Chatper
67 Verified Questions
67 Flashcards
Source URL: https://quizplus.com/quiz/30130
Sample Questions
Q1) A disadvantage of moving too quickly is that
A)costs of entry are higher.
B)consumers aren't loyal.
C)firms are subject to holdup problems.
D)All of the above.
Q2) The above figure shows the payoff matrix facing an incumbent firm and a potential entrant. The potential entrant cannot earn a profit if the incumbent
A)chooses the Cournot level of output.
B)chooses the Stackelberg leader level of output.
C)shuts down.
D)deters entry.
Q3) In a dynamic game, rational players
A)will reject outcomes that are not subgame perfect.
B)use backward induction to determine best responses.
C)have strategies that select a Nash equilibrium in the game as a whole.
D)All of the above.
To view all questions and flashcards with answers, click on the resource link above.
15
Chapter 14: Managerial Decision-Making Under Uncertainty
Available Study Resources on Quizplus for this Chatper
116 Verified Questions
116 Flashcards
Source URL: https://quizplus.com/quiz/30131
Sample Questions
Q1) The gambler's fallacy is
A)true in many games, such as flipping coins.
B)a result of overconfidence.
C)the false belief that past events affect current dependent outcomes.
D)the false belief that past events affect current independent outcomes.
Q2) The above figure shows Bob's utility function. He currently has $100 of wealth, but there is a 50% chance that it could all be stolen. Bob's expected wealth is
A)$0.
B)$50.
C)$75.
D)$100.
Q3) If two events are positively correlated but NOT perfectly correlated, then
A)diversification is not necessary since there is no risk.
B)diversification eliminates all risk.
C)diversification does not reduce risk at all.
D)diversification can reduce risk.
Q4) If a person is risk averse, then she has negative marginal utility of wealth.
A)True
B)False
Q5) Explain why insurance companies usually do NOT offer earthquake insurance.
Page 16
To view all questions and flashcards with answers, click on the resource link above.
Chapter 15: Asymmetric Information
Available Study Resources on Quizplus for this Chatper
112 Verified Questions
112 Flashcards
Source URL: https://quizplus.com/quiz/30132
Sample Questions
Q1) Life insurance companies often give applicants a physical examination to prevent A)the person from dying before obtaining the policy.
B)signaling.
C)adverse selection.
D)profit maximization.
Q2) Assume health insurance is provided universally by the government. This would
A)force every taxpayer to bear the costs of adverse selection.
B)force every taxpayer to bear the costs of moral hazard.
C)force the government to deal with adverse selection problems.
D)force foreign governments to deal with moral hazard problems.
Q3) If a life insurance company does NOT require a medical exam of its policyholders, it is most likely that the company
A)charges above-average premiums.
B)charges below-average premiums.
C)charges no premiums.
D)has only very healthy policyholders.
Q4) Signals can help prevent adverse selection as long as a false signal is costly to the person sending it.
A)True
B)False
Page 17
To view all questions and flashcards with answers, click on the resource link above.
Chapter 16: Government and Business
Available Study Resources on Quizplus for this Chatper
106 Verified Questions
106 Flashcards
Source URL: https://quizplus.com/quiz/30133
Sample Questions
Q1) The government forcing a monopoly telecommunications company to allow other firms to use its cables is an attempt to
A)regulate prices.
B)decrease the monopoly market power by eliminating a natural monopoly.
C)decrease the monopoly market power by increasing competition.
D)None of the above.
Q2) If the government regulates the price a monopoly can charge, and the price ceiling is set below what the competitive market price would be, then A)a shortage will exist.
B)a surplus will exist.
C)producer surplus is maximized.
D)consumer surplus is maximized.
Q3) Laws that are used to prevent firms from colluding and setting high prices are called A)anti-trust laws.
B)price ceiling laws.
C)anti-cartel laws.
D)anti-competition policies.
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Global Business
Available Study Resources on Quizplus for this Chatper
72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/30134
Sample Questions
Q1) The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. If imported rice is banned, the loss in social welfare is
A)a + b + c + d + e.
B)a.
C)c + e.
D)i.
Q2) The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. Currently 10 units are imported. The loss from shifting production from foreign to domestic producers equals A)c + e.
B)i.
C)e.
D)a + c + d + e.
Q3) The cost of lobbying for an import quota in a perfectly competitive market
A)increases the welfare loss of the quota.
B)decreases the deadweight loss of the quota.
C)shifts the supply curve of the good to the left.
D)increases the consumer surplus.
To view all questions and flashcards with answers, click on the resource link above.
Page 19