Question 1

A tit-for-tat strategy, in a repeated game, is one in which a player starts by cooperating and then does whatever the other player did last time.

Accepted Answer

A) True 
 B)False

Question 2

Assume that Samorola has entered into an enforceable resale price maintenance agreement with Trint and U-Mobile. Which of the following will always be true?

Accepted Answer

A) The wholesale price of Samorolas will be different for Trint than it is for U-Mobile. 
B) U-Mobile will benefit from customers who go to Trint for information about different mobile phones. 
C) Trint will sell Samorolas at a lower price than U-Mobile. 
D) U-Mobile and Trint will always sell Samorolas for exactly the same price. 
A) The wholesale price of Samorolas will be different for Trint than it is for U-Mobile. 
B) U-Mobile will benefit from customers who go to Trint for information about different mobile phones. 
C) Trint will sell Samorolas at a lower price than U-Mobile. 
D) U-Mobile and Trint will always sell Samorolas for exactly the same price.

Question 3

A cooperative agreement among oligopolists is less likely to be maintained,

Accepted Answer

A) the greater the number of oligopolists. 
B) the larger the number of buyers of the oligopolists' product. 
C) the smaller the number of buyers of the oligopolists' product. 
D) the more likely it is that the game among the oligopolists will be played over and over again. 
A) the greater the number of oligopolists. 
B) the larger the number of buyers of the oligopolists' product. 
C) the smaller the number of buyers of the oligopolists' product. 
D) the more likely it is that the game among the oligopolists will be played over and over again.

Question 4

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 5

The prisoners' dilemma game

Accepted Answer

A) is a situation in which two players both have dominant strategies which lead to the highest total payoff for the two players. 
B) has no Nash equilibrium since players, after agreeing to play their dominant strategy, will have an incentive to switch to another strategy. 
C) has a Nash equilibrium, but the Nash equilibrium outcome is not the outcome the players would agree to if they could cooperate with each other. 
D) Both a and c are correct. 
A) is a situation in which two players both have dominant strategies which lead to the highest total payoff for the two players. 
B) has no Nash equilibrium since players, after agreeing to play their dominant strategy, will have an incentive to switch to another strategy. 
C) has a Nash equilibrium, but the Nash equilibrium outcome is not the outcome the players would agree to if they could cooperate with each other. 
D) Both a and c are correct.

Question 6

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. How much profit will Miguel and Maria each earn once they reach a Nash equilibrium?

Accepted Answer

A) $40 
B) $36 
C) $32 
D) $30 
A) $40 
B) $36 
C) $32 
D) $30

Question 7

Table 17-12
The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost.  
-Refer to Table 17-12. If the market for gasoline in Driveaway is a monopoly, then the monopolist's maximum profit is

Accepted Answer

A) $350. 
B) $400. 
C) $450. 
D) $500. 
A) $350. 
B) $400. 
C) $450. 
D) $500.

Question 8

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 9

Scenario 17-5
Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost.
-Refer to Scenario 17-5. If the restaurant is unable to use tying, what is the profit-maximizing price to charge for a steak?

Accepted Answer

A) $20 
B) $16 
C) $12 
D) $8 
A) $20 
B) $16 
C) $12 
D) $8

Question 10

Table 17-9
The table shows the demand schedule for a particular product.  
-Refer to Table 17-9. Suppose the market for this product is served by two firms that have formed a cartel. What price will the cartel charge in this market if the marginal cost of production is $0?

Accepted Answer

A) $6 
B) $8 
C) $10 
D) $12 
A) $6 
B) $8 
C) $10 
D) $12

Question 11

Games that are played more than once generally

Accepted Answer

A) lead to outcomes dominated purely by self-interest. 
B) lead to outcomes that do not reflect joint rationality. 
C) encourage cheating on cartel production quotas. 
D) make collusive arrangements easier to enforce. 
A) lead to outcomes dominated purely by self-interest. 
B) lead to outcomes that do not reflect joint rationality. 
C) encourage cheating on cartel production quotas. 
D) make collusive arrangements easier to enforce.

Question 12

As a group, oligopolists would always earn the highest profit if they would

Accepted Answer

A) produce the perfectly competitive quantity of output. 
B) produce more than the perfectly competitive quantity of output. 
C) charge the same price that a monopolist would charge if the market were a monopoly. 
D) operate according to their own individual self-interests. 
A) produce the perfectly competitive quantity of output. 
B) produce more than the perfectly competitive quantity of output. 
C) charge the same price that a monopolist would charge if the market were a monopoly. 
D) operate according to their own individual self-interests.

Question 13

Briefly describe the two arguments that economists make to defend the practice of resale price maintenance.

Accepted Answer

First, economists do not agree that resa

Question 14

Table 17-27
Each year the United States considers renewal of Most Favored Nation (MFN) trading status with Farland (a mythical nation). Historically, legislators have made threats of not renewing MFN status because of human rights abuses in Farland. The non-renewal of MFN trading status is likely to involve some retaliatory measures by Farland. The payoff table below shows the potential economic gains associated with a game in which Farland may impose trade sanctions against U.S. firms and the United States may not renew MFN status with Farland. The table contains the dollar value of all trade-flow benefits to the United States and Farland.  
-Refer to Table 17-27. This particular game

Accepted Answer

A) features a dominant strategy for the U.S. 
B) features a dominant strategy for Farland. 
C) is a version of the prisoners' dilemma game. 
D) All of the above are correct. 
A) features a dominant strategy for the U.S. 
B) features a dominant strategy for Farland. 
C) is a version of the prisoners' dilemma game. 
D) All of the above are correct.

Question 15

Scenario 17-4.
​
Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market and earn $50 million each. If they both advertise, they again split the market, but profits are lower by $10 million since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $60 million while the company that does not advertise earns only $30 million.
-Refer to Scenario 17-4. PM Inc.'s dominant strategy is to

Accepted Answer

A) refrain from advertising regardless of whether Brown Inc. advertises. 
B) advertise only if Brown Inc. advertises. 
C) advertise only if Brown Inc. does not advertise. 
D) advertise regardless of whether Brown Inc. advertises. 
A) refrain from advertising regardless of whether Brown Inc. advertises. 
B) advertise only if Brown Inc. advertises. 
C) advertise only if Brown Inc. does not advertise. 
D) advertise regardless of whether Brown Inc. advertises.

Question 16

If two players engaged in a prisoner's dilemma game are likely to repeat the game, they are more likely to cooperate than if they play the game only once.

Accepted Answer

A) True 
 B)False

Question 17

If a market is a duopoly and additional firms enter and do not cooperate, then

Accepted Answer

A) price and quantity fall. 
B) price and quantity rise. 
C) price falls and quantity rises. 
D) price rises and quantity falls. 
A) price and quantity fall. 
B) price and quantity rise. 
C) price falls and quantity rises. 
D) price rises and quantity falls.

Question 18

Table 17-29
Suppose that two firms, Wild Willy's Wonderdrink (Firm W) and Hyper Hank's Hydration (Firm H), comprise the market for energy drinks. Each firm determines that it could lower its costs and increase its profits if both firms reduced their advertising budgets. But for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's energy drinks, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits:
Firm W
Breaks agreement Maintains agreement
and advertises and does not advertise  
-Refer to Table 17-29. Which of the following statement(s) correctly characterizes the outcome of this game?

Accepted Answer

A) There is a Nash equilibrium when both firms advertise. 
B) Both Firm W and Firm H have a dominant strategy to advertise. 
C) Although both firms collectively would earn higher profits by maintaining the agreement not to advertise, self-interest will cause each firm to break the agreement. 
D) All of the above are correct. 
A) There is a Nash equilibrium when both firms advertise. 
B) Both Firm W and Firm H have a dominant strategy to advertise. 
C) Although both firms collectively would earn higher profits by maintaining the agreement not to advertise, self-interest will cause each firm to break the agreement. 
D) All of the above are correct.

Question 19

The likely outcome of the standard prisoners' dilemma game is that

Accepted Answer

A) neither prisoner confesses. 
B) exactly one prisoner confesses. 
C) both prisoners confess. 
D) Not enough information is given to answer this question. 
A) neither prisoner confesses. 
B) exactly one prisoner confesses. 
C) both prisoners confess. 
D) Not enough information is given to answer this question.

Question 20

In cartels, the reason that the monopoly output is unstable is due to the factors that are present in a prisoner's dilemma.
​

Accepted Answer

A) True 
 B)False

Exam 17: Oligopoly

A tit-for-tat strategy, in a repeated game, is one in which a player starts by cooperating and then does whatever the other player did last time.

Assume that Samorola has entered into an enforceable resale price maintenance agreement with Trint and U-Mobile. Which of the following will always be true?

A cooperative agreement among oligopolists is less likely to be maintained,

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?

The prisoners' dilemma game

Table 17-12 The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost. -Refer to Table 17-12. If the market for gasoline in Driveaway is a monopoly, then the monopolist's maximum profit is

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

Table 17-9 The table shows the demand schedule for a particular product. -Refer to Table 17-9. Suppose the market for this product is served by two firms that have formed a cartel. What price will the cartel charge in this market if the marginal cost of production is $0?

Games that are played more than once generally

As a group, oligopolists would always earn the highest profit if they would

Briefly describe the two arguments that economists make to defend the practice of resale price maintenance.

If two players engaged in a prisoner's dilemma game are likely to repeat the game, they are more likely to cooperate than if they play the game only once.

If a market is a duopoly and additional firms enter and do not cooperate, then

The likely outcome of the standard prisoners' dilemma game is that

In cartels, the reason that the monopoly output is unstable is due to the factors that are present in a prisoner's dilemma. ​

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

Applications: 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

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

In cartels, the reason that the monopoly output is unstable is due to the factors that are present in a prisoner's dilemma.