Question 1

A trigger strategy can be used

Accepted Answer

A) in a single-play game or a repeated game. 
B) in a single-play game but not a repeated game. 
C) in a repeated game but not a single-play game. 
D) in neither a single-play game nor a repeated game. 
E) only when there is no Nash equilibrium. 
A) in a single-play game or a repeated game. 
B) in a single-play game but not a repeated game. 
C) in a repeated game but not a single-play game. 
D) in neither a single-play game nor a repeated game. 
E) only when there is no Nash equilibrium. C

Question 2

Use the table below to answer the following questions.
Table 15.2.1
  
-Refer to Table 15.2.1.This table includes the sentences that Bob and Joe will receive if convicted.They have been apprehended by the police under the suspicion of committing armed robbery.The two are immediately separated and questioned about the case.Which one of the following observations is correct?

Accepted Answer

A) If Joe confesses, Bob would be better off not confessing. 
B) If Bob confesses, Joe would be better off confessing. 
C) The outcome of the game, assuming Joe and Bob cannot collude, is they will both go free. 
D) If Joe does not confess, Bob would be better off confessing. 
E) The outcome of the game, assuming Joe and Bob cannot collude, is they will both confess. 
A) If Joe confesses, Bob would be better off not confessing. 
B) If Bob confesses, Joe would be better off confessing. 
C) The outcome of the game, assuming Joe and Bob cannot collude, is they will both go free. 
D) If Joe does not confess, Bob would be better off confessing. 
E) The outcome of the game, assuming Joe and Bob cannot collude, is they will both confess. B

Question 3

Refer to Table 15.2.5.Two software firms have developed an identical new software application.They are debating whether to give the new application away free and then sell add-ons or sell the application at $30 a copy.The payoff matrix is above and the payoffs are profits in millions of dollars.What is the Nash equilibrium of the game?

Accepted Answer

A) Both Firm 1 and 2 will sell the software application at $30 a copy. 
B) Both Firm 1 and 2 will give the software application away free. 
C) Firm 1 will give the application away free and Firm 2 will sell it at $30. 
D) There is no Nash equilibrium to this game. 
E) Firm 1 will sell the application for $30 and Firm 2 will give it away. 
A) Both Firm 1 and 2 will sell the software application at $30 a copy. 
B) Both Firm 1 and 2 will give the software application away free. 
C) Firm 1 will give the application away free and Firm 2 will sell it at $30. 
D) There is no Nash equilibrium to this game. 
E) Firm 1 will sell the application for $30 and Firm 2 will give it away. B

Question 4

A monopolistically competitive firm is like an oligopolistic firm insofar as

Accepted Answer

A) both face perfectly elastic demand. 
B) both can earn an economic profit in the long run. 
C) both have MR curves that lie beneath their demand curves. 
D) neither is protected by high barriers to entry. 
E) both are price takers. 
A) both face perfectly elastic demand. 
B) both can earn an economic profit in the long run. 
C) both have MR curves that lie beneath their demand curves. 
D) neither is protected by high barriers to entry. 
E) both are price takers.

Question 5

A contestable market exists whenever

Accepted Answer

A) two or more firms are competing. 
B) the Herfindahl-Hirschman Index exceeds 1,800. 
C) the four-firm concentration ratio exceeds 50 percent. 
D) a monopoly contests entry into its markets. 
E) potential entry holds down prices. 
A) two or more firms are competing. 
B) the Herfindahl-Hirschman Index exceeds 1,800. 
C) the four-firm concentration ratio exceeds 50 percent. 
D) a monopoly contests entry into its markets. 
E) potential entry holds down prices.

Question 6

In a cartel,the incentive to cheat is significant because

Accepted Answer

A) each individual member has the incentive to restrict its own output to maximize profit. 
B) the marginal cost is equal to the cartel price at the profit-maximizing output level. 
C) each firm has the incentive to lower its price to sell more than the allotted amount. 
D) each firm has the incentive to cheat by raising its price to maximize profit. 
E) price is less than marginal cost for each member of the cartel. 
A) each individual member has the incentive to restrict its own output to maximize profit. 
B) the marginal cost is equal to the cartel price at the profit-maximizing output level. 
C) each firm has the incentive to lower its price to sell more than the allotted amount. 
D) each firm has the incentive to cheat by raising its price to maximize profit. 
E) price is less than marginal cost for each member of the cartel.

Question 7

A market with a single firm but no barriers to entry is known as

Accepted Answer

A) a natural monopoly. 
B) a contestable market. 
C) a perfectly competitive market. 
D) monopolistic competition. 
E) an oligopoly 
A) a natural monopoly. 
B) a contestable market. 
C) a perfectly competitive market. 
D) monopolistic competition. 
E) an oligopoly

Question 8

Use the figure below to answer the following question.
   
Figure 15.1.1
In the figure, D is the demand curve for taxi rides in a town, and ATC is the average total cost curve of a taxi company.
-Refer to Figure 15.1.1.In the scenario above,the market is:

Accepted Answer

A) A natural duopoly 
B) A natural oligopoly with three firms 
C) A natural monopoly 
D) Monopolistically competitive 
E) perfectly competitive 
A) A natural duopoly 
B) A natural oligopoly with three firms 
C) A natural monopoly 
D) Monopolistically competitive 
E) perfectly competitive

Question 9

Which of the following quotes shows a contestable market in the widget industry?

Accepted Answer

A) "I am producing extra widgets, even though it costs me short-run profits, to stop Wally's Widgets from expanding into my market." 
B) "I am producing more widgets than Wally and I agreed to in our talk last week." 
C) "If only Wally and I could agree on a higher price, we could make more profits." 
D) "I have been spending extra on research and development of my new two-way widget." 
E) none of the above 
A) "I am producing extra widgets, even though it costs me short-run profits, to stop Wally's Widgets from expanding into my market." 
B) "I am producing more widgets than Wally and I agreed to in our talk last week." 
C) "If only Wally and I could agree on a higher price, we could make more profits." 
D) "I have been spending extra on research and development of my new two-way widget." 
E) none of the above

Question 10

Use the table below to answer the following questions.
Table 15.2.2
  
-Table 15.2.2 gives the payoff matrix in terms of economic profit for firms A and B when there are two strategies facing each firm: (1)charge a low price,or (2)charge a high price.Refer to the nonrepeated game in the table.In Nash equilibrium,firm A will make an economic profit of

Accepted Answer

A) -$10. 
B) $2. 
C) $10. 
D) $20. 
E) $5. 
A) -$10. 
B) $2. 
C) $10. 
D) $20. 
E) $5.

Question 11

All games share four common features.They are

Accepted Answer

A) costs, prices, profit, and strategies. 
B) revenues, elasticity, profit, and payoffs. 
C) rules, strategies, profit, and outcome. 
D) patents, copyrights, barriers to entry, and rules. 
E) rules, strategies, payoffs, and outcome. 
A) costs, prices, profit, and strategies. 
B) revenues, elasticity, profit, and payoffs. 
C) rules, strategies, profit, and outcome. 
D) patents, copyrights, barriers to entry, and rules. 
E) rules, strategies, payoffs, and outcome.

Question 12

Use the table below to answer the following question.
Table 15.2.3
  
-Refer to Table 15.2.3.Store X and Store Y must decide whether or not to lower their prices.The table gives the economic profit made by Store X and Store Y.Which one of the following observations is correct?

Accepted Answer

A) Both Store X and Store Y have a dominant strategy of raising their prices. 
B) If Store X lowers its prices and Store Y does not, Store X will earn a $20 profit. 
C) If Store Y lowers its prices, Store X will be better off not lowering its prices. 
D) Both Store X and Store Y would be better off if they could collude and agree to not lower prices. 
E) Both Store X and Store Y have a dominant strategy of lowering their prices. 
A) Both Store X and Store Y have a dominant strategy of raising their prices. 
B) If Store X lowers its prices and Store Y does not, Store X will earn a $20 profit. 
C) If Store Y lowers its prices, Store X will be better off not lowering its prices. 
D) Both Store X and Store Y would be better off if they could collude and agree to not lower prices. 
E) Both Store X and Store Y have a dominant strategy of lowering their prices.

Question 13

A contestable market is similar to a perfectly competitive market in that there

Accepted Answer

A) are barriers to entry. 
B) are no barriers to entry. 
C) can be only one firm in the market. 
D) will be no entry if the existing firm makes an economic profit. 
E) is a perfectly elastic demand. 
A) are barriers to entry. 
B) are no barriers to entry. 
C) can be only one firm in the market. 
D) will be no entry if the existing firm makes an economic profit. 
E) is a perfectly elastic demand.

Question 14

Sarah's Soothing Diapers,Inc.and Orville's Odorless Diapers,Inc.are duopolists,who have agreed to collude.Orville has decided that he will comply with the collusive agreement as long as Sarah cooperated in the previous period.But if Sarah cheated in the previous period,Orville will punish Sarah by cheating in the current period.Orville's strategy is referred to as a

Accepted Answer

A) Nash strategy. 
B) tit-for-tat strategy. 
C) trigger strategy. 
D) monkey-see, monkey-do strategy. 
E) dominant firm strategy. 
A) Nash strategy. 
B) tit-for-tat strategy. 
C) trigger strategy. 
D) monkey-see, monkey-do strategy. 
E) dominant firm strategy.

Question 15

A duopoly occurs when ________.

Accepted Answer

A) there are only two producers of a particular good competing in the same market 
B) there are two producers of two goods competing in an oligopoly market 
C) there are numerous producers of two goods competing in a competitive market 
D) the one producer of two goods sells the goods in a monopoly market 
E) a competitive market produces two goods 
A) there are only two producers of a particular good competing in the same market 
B) there are two producers of two goods competing in an oligopoly market 
C) there are numerous producers of two goods competing in a competitive market 
D) the one producer of two goods sells the goods in a monopoly market 
E) a competitive market produces two goods

Question 16

Use the table below to answer the following questions.
Table 15.2.1
  
-Refer to Table 15.2.1.This table includes the sentences that Bob and Joe will receive if convicted.They have been apprehended by the police under the suspicion of committing armed robbery.The two are immediately separated and questioned about the case.Which one of the following observations is correct?

Accepted Answer

A) Bob would be smart to confess no matter what Joe does. 
B) Joe would be smart not to confess no matter what Bob does. 
C) Both Bob and Joe would be better off not confessing if they both do not confess. 
D) Both Bob and Joe would be better off "coming clean" and confessing to their crime. 
E) Both Bob and Joe have a dominant strategy of not confessing. 
A) Bob would be smart to confess no matter what Joe does. 
B) Joe would be smart not to confess no matter what Bob does. 
C) Both Bob and Joe would be better off not confessing if they both do not confess. 
D) Both Bob and Joe would be better off "coming clean" and confessing to their crime. 
E) Both Bob and Joe have a dominant strategy of not confessing.

Question 17

Why might only a few firms dominate an oligopolistic industry?

Accepted Answer

A) A natural or legal barrier to entry exists. 
B) Perfectly elastic demand makes small-scale operation economically inefficient. 
C) Decreasing returns to scale may make small-scale firms more advantageous. 
D) Inelastic market demand leads to the domination of the industry by a few firms. 
E) It is due to the outcome of the prisoners' dilemma. 
A) A natural or legal barrier to entry exists. 
B) Perfectly elastic demand makes small-scale operation economically inefficient. 
C) Decreasing returns to scale may make small-scale firms more advantageous. 
D) Inelastic market demand leads to the domination of the industry by a few firms. 
E) It is due to the outcome of the prisoners' dilemma.

Question 18

Use the table below to answer the following questions.
Table 15.2.4
  
-Refer to Table 15.2.4.The marketers of Budweiser Light beer and Miller Lite beer must decide whether or not to offer new advertising campaigns promoting their products.The payoffs in the table are the economic profit made by Bud and Miller.Which one of the following observations is correct?

Accepted Answer

A) This game has no dominant strategies. 
B) This game has no Nash equilibrium. 
C) Miller has a dominant strategy but Bud does not. 
D) Bud has a dominant strategy but Miller does not. 
E) Bud and Miller each have a dominant strategy. 
A) This game has no dominant strategies. 
B) This game has no Nash equilibrium. 
C) Miller has a dominant strategy but Bud does not. 
D) Bud has a dominant strategy but Miller does not. 
E) Bud and Miller each have a dominant strategy.

Question 19

Which one of the following characteristics applies to oligopolistic markets?

Accepted Answer

A) There is free entry of rival firms. 
B) Firms are so large relative to the market that they do not have to consider the behaviour of rival firms. 
C) Firms are mutually independent because there are many firms in the industry. 
D) Firms have to consider the behaviour of their rivals since their rivals are also large relative to the size of the market as a whole. 
E) Economic profit of each firm equals zero. 
A) There is free entry of rival firms. 
B) Firms are so large relative to the market that they do not have to consider the behaviour of rival firms. 
C) Firms are mutually independent because there are many firms in the industry. 
D) Firms have to consider the behaviour of their rivals since their rivals are also large relative to the size of the market as a whole. 
E) Economic profit of each firm equals zero.

Question 20

In an oligopoly market,the Herfindahl-Hirschman Index is usually

Accepted Answer

A) below 1,800. 
B) zero. 
C) above 1,800. 
D) equal to 10,000. 
E) between 100 and 1,000. 
A) below 1,800. 
B) zero. 
C) above 1,800. 
D) equal to 10,000. 
E) between 100 and 1,000.

Exam 15: Oligopoly

A trigger strategy can be used

A monopolistically competitive firm is like an oligopolistic firm insofar as

A contestable market exists whenever

In a cartel,the incentive to cheat is significant because

A market with a single firm but no barriers to entry is known as

Use the figure below to answer the following question. Figure 15.1.1 In the figure, D is the demand curve for taxi rides in a town, and ATC is the average total cost curve of a taxi company. -Refer to Figure 15.1.1.In the scenario above,the market is:

Which of the following quotes shows a contestable market in the widget industry?

All games share four common features.They are

Use the table below to answer the following question. Table 15.2.3 -Refer to Table 15.2.3.Store X and Store Y must decide whether or not to lower their prices.The table gives the economic profit made by Store X and Store Y.Which one of the following observations is correct?

A contestable market is similar to a perfectly competitive market in that there

A duopoly occurs when ________.

Why might only a few firms dominate an oligopolistic industry?

Which one of the following characteristics applies to oligopolistic markets?

In an oligopoly market,the Herfindahl-Hirschman Index is usually

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