Question 1

A Nash Equilibrium is a stable outcome for an oligopoly market situation.
​

Accepted Answer

A) True 
 B)False

Question 2

Table 17-7
The information in the table below shows the total demand for internet radio subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year) and that the marginal cost of providing an additional subscription is always $16.  
-Refer to Table 17-7. Assume there are two profit-maximizing internet radio providers operating in this market. Further assume that they are able to collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions. If the firms divide the market evenly, how much profit will each company earn?

Accepted Answer

A) $12,000 
B) $16,000 
C) $44,000 
D) $60,000 
A) $12,000 
B) $16,000 
C) $44,000 
D) $60,000

Question 3

In the language of game theory, a situation in which each person must consider how others might respond to his or her own actions is called a

Accepted Answer

A) quantifiable situation. 
B) cooperative situation. 
C) strategic situation. 
D) tactical situation. 
A) quantifiable situation. 
B) cooperative situation. 
C) strategic situation. 
D) tactical situation.

Question 4

In a two-person repeated game, a tit-for-tat strategy starts with

Accepted Answer

A) cooperation and then each player mimics the other player's last move. 
B) cooperation and then each player is unresponsive to the strategic moves of the other player. 
C) noncooperation and then each player pursues his or her own self-interest. 
D) noncooperation and then each player cooperates when the other player demonstrates a desire for the cooperative solution. 
A) cooperation and then each player mimics the other player's last move. 
B) cooperation and then each player is unresponsive to the strategic moves of the other player. 
C) noncooperation and then each player pursues his or her own self-interest. 
D) noncooperation and then each player cooperates when the other player demonstrates a desire for the cooperative solution.

Question 5

Why would lack of cooperation between criminal suspects be desirable for society as a whole?

Accepted Answer

A) The suspects are able to choose optimal outcomes for themselves by acting in their own self interest. 
B) The prisoners' dilemma safeguards the criminals' constitutional rights. 
C) More criminals will be convicted. 
D) None of the above is correct. 
A) The suspects are able to choose optimal outcomes for themselves by acting in their own self interest. 
B) The prisoners' dilemma safeguards the criminals' constitutional rights. 
C) More criminals will be convicted. 
D) None of the above is correct.

Question 6

The Sherman Antitrust Act

Accepted Answer

A) was passed to encourage judicial leniency in the review of cooperative agreements. 
B) was concerned with self-interest dominated Nash equilibriums in prisoners' dilemma games. 
C) enhanced the ability to enforce cartel agreements. 
D) restricted the ability of competitors to engage in cooperative agreements. 
A) was passed to encourage judicial leniency in the review of cooperative agreements. 
B) was concerned with self-interest dominated Nash equilibriums in prisoners' dilemma games. 
C) enhanced the ability to enforce cartel agreements. 
D) restricted the ability of competitors to engage in cooperative agreements.

Question 7

The Clayton Act

Accepted Answer

A) preceded the Sherman Act. 
B) replaced the Sherman Act. 
C) strengthened the Sherman Act. 
D) was specifically designed to reduce the ability of cartels to organize. 
A) preceded the Sherman Act. 
B) replaced the Sherman Act. 
C) strengthened the Sherman Act. 
D) was specifically designed to reduce the ability of cartels to organize.

Question 8

Table 17-2
Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below:  
-Refer to Table 17-2. Suppose the town enacts new antitrust laws that prohibit Abby and Brad from operating as a monopoly. How much profit will Abby and Brad each earn once they reach a Nash equilibrium?

Accepted Answer

A) $36 
B) $32 
C) $18 
D) $16 
A) $36 
B) $32 
C) $18 
D) $16

Question 9

Table 17-4
The table shows the town of Mauston's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline.  
-Refer to Table 17-4. If the market for gasoline in Mauston is perfectly competitive, then the equilibrium price of gasoline is

Accepted Answer

A) $7 and the equilibrium quantity is 150 gallons. 
B) $5 and the equilibrium quantity is 250 gallons. 
C) $3 and the equilibrium quantity is 350 gallons. 
D) $0 and the equilibrium quantity is 500 gallons. 
A) $7 and the equilibrium quantity is 150 gallons. 
B) $5 and the equilibrium quantity is 250 gallons. 
C) $3 and the equilibrium quantity is 350 gallons. 
D) $0 and the equilibrium quantity is 500 gallons.

Question 10

Oligopolists may well be able to reach their preferred, cooperative outcome if

Accepted Answer

A) the number of oligopolists is large. 
B) they learn that a Nash equilibrium is in their best long-term interests. 
C) a sufficient number of firms can be persuaded to lower their prices. 
D) the game they play is repeated a sufficient number of times. 
A) the number of oligopolists is large. 
B) they learn that a Nash equilibrium is in their best long-term interests. 
C) a sufficient number of firms can be persuaded to lower their prices. 
D) the game they play is repeated a sufficient number of times.

Question 11

The oligopoly price will be greater than marginal cost but less than the monopoly price when

Accepted Answer

A) the oligopolists collude by jointly choosing a quantity to produce and maintaining their agreement. 
B) the oligopolists collude by jointly choosing a price to charge and maintaining their agreement. 
C) each oligopolist individually chooses a quantity to produce to maximize profit. 
D) each oligopolist's objective is minimization of average total cost, rather than maximization of profit. 
A) the oligopolists collude by jointly choosing a quantity to produce and maintaining their agreement. 
B) the oligopolists collude by jointly choosing a price to charge and maintaining their agreement. 
C) each oligopolist individually chooses a quantity to produce to maximize profit. 
D) each oligopolist's objective is minimization of average total cost, rather than maximization of profit.

Question 12

Table 17-15
This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B).  
-Refer to Table 17-15. Which of the following outcomes represents a Nash equilibrium in the game?

Accepted Answer

A) Up-Center 
B) Middle-Right 
C) Down-Left 
D) Down-Center 
A) Up-Center 
B) Middle-Right 
C) Down-Left 
D) Down-Center

Question 13

Explain the practice of tying and discuss why it is controversial.

Accepted Answer

Tying is the practice of bundling goods

Question 14

To increase their individual profits, members of a cartel have an incentive to

Accepted Answer

A) charge a higher price than the other members of the cartel. 
B) increase production above the level agreed upon. 
C) ignore the choices made by the other firms and act as a monopolist. 
D) charge the same price a monopolist would charge. 
A) charge a higher price than the other members of the cartel. 
B) increase production above the level agreed upon. 
C) ignore the choices made by the other firms and act as a monopolist. 
D) charge the same price a monopolist would charge.

Question 15

Suppose that antitrust laws were successful in moving the allocation of resources in the computer software industry closer to the social optimum. This situation would illustrate which of the following Ten Principles of Economics?

Accepted Answer

A) Trade can make everyone better off. 
B) The cost of something is what you give up to get it. 
C) Governments can sometimes improve market outcomes. 
D) A country's standard of living depends on its ability to produce goods and services. 
A) Trade can make everyone better off. 
B) The cost of something is what you give up to get it. 
C) Governments can sometimes improve market outcomes. 
D) A country's standard of living depends on its ability to produce goods and services.

Question 16

In which of the following games is it clearly the case that the cooperative outcome of the game is good for the two players and bad for society?

Accepted Answer

A) Two oil companies own adjacent oil fields over a common pool of oil, and each company decides whether to drill one well or two wells. 
B) Two airlines dominate air travel between City A and City B, and each airline decides whether to charge a "high" airfare or a "low" airfare on flights between those two cities. 
C) Two superpowers decide whether to build new weapons or to disarm. 
D) In all of the above cases, the cooperative outcome of the game is good for the two players and bad for society 
A) Two oil companies own adjacent oil fields over a common pool of oil, and each company decides whether to drill one well or two wells. 
B) Two airlines dominate air travel between City A and City B, and each airline decides whether to charge a "high" airfare or a "low" airfare on flights between those two cities. 
C) Two superpowers decide whether to build new weapons or to disarm. 
D) In all of the above cases, the cooperative outcome of the game is good for the two players and bad for society

Question 17

Table 17-3
Imagine a small town in a remote area where only two residents, Maria and Miguel, own dairies that produce milk that is safe to drink. Each week Maria and Miguel work together to decide how many gallons of milk to produce. They bring milk to town and sell it at whatever price the market will bear. To keep things simple, suppose that Maria and Miguel can produce as much milk as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for milk is shown in the table below:  
-Refer to Table 17-3. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel from operating as a monopoly. What will be the price of milk once Maria and Miguel reach a Nash equilibrium?

Accepted Answer

A) $14 
B) $12 
C) $10 
D) $8 
A) $14 
B) $12 
C) $10 
D) $8

Question 18

Figure 17-2. Two companies, Acme and Pinnacle, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies.  
-Refer to Figure 17-2. Which of the following statements is correct?

Accepted Answer

A) Acme can potentially earn its highest possible profit if it produces a good quality product, and for that reason it is a dominant strategy for Acme to produce a good quality product. 
B) The highest possible combined profit for the two firms occurs when both produce a poor quality product, and for that reason producing a poor quality product is a dominant strategy for both firms. 
C) Regardless of the strategy pursued by Acme, Pinnacle's best strategy is to produce a good quality product, and for that reason producing a good quality product is a dominant strategy for Pinnacle. 
D) Our knowledge of game theory suggests that the most likely outcome of the game, if it is played only once, is for one firm to produce a poor quality product and for the other firm to produce a good quality product. 
A) Acme can potentially earn its highest possible profit if it produces a good quality product, and for that reason it is a dominant strategy for Acme to produce a good quality product. 
B) The highest possible combined profit for the two firms occurs when both produce a poor quality product, and for that reason producing a poor quality product is a dominant strategy for both firms. 
C) Regardless of the strategy pursued by Acme, Pinnacle's best strategy is to produce a good quality product, and for that reason producing a good quality product is a dominant strategy for Pinnacle. 
D) Our knowledge of game theory suggests that the most likely outcome of the game, if it is played only once, is for one firm to produce a poor quality product and for the other firm to produce a good quality product.

Question 19

Figure 17-2. Two companies, Acme and Pinnacle, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies.  
-Refer to Figure 17-2. Acme and Pinnacle agree to cooperate so as to maximize total profit. If this game is played repeatedly and Acme uses a tit-for-tat strategy, it will choose a

Accepted Answer

A) good quality product in the first round and in subsequent rounds it will choose whatever Pinnacle chose in the previous round. 
B) poor quality product in the first round and in subsequent rounds it will choose whatever Pinnacle chose in the previous round. 
C) good quality product in all rounds, regardless of the choice made by Pinnacle. 
D) poor quality product in all rounds, regardless of the choice made by Pinnacle. 
A) good quality product in the first round and in subsequent rounds it will choose whatever Pinnacle chose in the previous round. 
B) poor quality product in the first round and in subsequent rounds it will choose whatever Pinnacle chose in the previous round. 
C) good quality product in all rounds, regardless of the choice made by Pinnacle. 
D) poor quality product in all rounds, regardless of the choice made by Pinnacle.

Question 20

​Table 17-36
The information in the table shows the total demand for water service in Takoma. Assume that there are two companies operating in Takoma. Each company that provides these services incurs an annual fixed cost of $400 and that the marginal cost of providing the service to each customer is exactly $2.00. Figures listed are for an annual service contract.
​  
-Refer to Table 17-36. Suppose that this is a perfectly competitive market. What would total output be?

Accepted Answer

A) ​0 
B) ​1000 
C) ​1100 
D) ​1200 
A) ​0 
B) ​1000 
C) ​1100 
D) ​1200

A Nash Equilibrium is a stable outcome for an oligopoly market situation.

In the language of game theory, a situation in which each person must consider how others might respond to his or her own actions is called a

In a two-person repeated game, a tit-for-tat strategy starts with

Why would lack of cooperation between criminal suspects be desirable for society as a whole?

The Sherman Antitrust Act

The Clayton Act

Table 17-4 The table shows the town of Mauston's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline. -Refer to Table 17-4. If the market for gasoline in Mauston is perfectly competitive, then the equilibrium price of gasoline is

Oligopolists may well be able to reach their preferred, cooperative outcome if

The oligopoly price will be greater than marginal cost but less than the monopoly price when

Table 17-15 This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B). -Refer to Table 17-15. Which of the following outcomes represents a Nash equilibrium in the game?

Explain the practice of tying and discuss why it is controversial.

To increase their individual profits, members of a cartel have an incentive to

Suppose that antitrust laws were successful in moving the allocation of resources in the computer software industry closer to the social optimum. This situation would illustrate which of the following Ten Principles of Economics?

In which of the following games is it clearly the case that the cooperative outcome of the game is good for the two players and bad for society?

Figure 17-2. Two companies, Acme and Pinnacle, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-2. Which of the following statements is correct?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Filters

Exam 17: Oligopoly

A Nash Equilibrium is a stable outcome for an oligopoly market situation. ​

In the language of game theory, a situation in which each person must consider how others might respond to his or her own actions is called a

In a two-person repeated game, a tit-for-tat strategy starts with

Why would lack of cooperation between criminal suspects be desirable for society as a whole?

The Sherman Antitrust Act

The Clayton Act

Table 17-4 The table shows the town of Mauston's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline. -Refer to Table 17-4. If the market for gasoline in Mauston is perfectly competitive, then the equilibrium price of gasoline is

Oligopolists may well be able to reach their preferred, cooperative outcome if

The oligopoly price will be greater than marginal cost but less than the monopoly price when

Table 17-15 This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B). -Refer to Table 17-15. Which of the following outcomes represents a Nash equilibrium in the game?

Explain the practice of tying and discuss why it is controversial.

To increase their individual profits, members of a cartel have an incentive to

Suppose that antitrust laws were successful in moving the allocation of resources in the computer software industry closer to the social optimum. This situation would illustrate which of the following Ten Principles of Economics?

In which of the following games is it clearly the case that the cooperative outcome of the game is good for the two players and bad for society?

Figure 17-2. Two companies, Acme and Pinnacle, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-2. Which of the following statements is correct?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Filters

A Nash Equilibrium is a stable outcome for an oligopoly market situation.