Question 1

In the prisoners' dilemma game, confessing is a dominant strategy for each of the two prisoners.

Accepted Answer

A) True 
 B)False

Question 2

A central issue in the Microsoft antitrust lawsuit involved Microsoft's integration of its Internet browser into its Windows operating system, to be sold as one unit. This practice is known as

Accepted Answer

A) tying. 
B) predation. 
C) wholesale maintenance. 
D) retail maintenance. 
A) tying. 
B) predation. 
C) wholesale maintenance. 
D) retail maintenance.

Question 3

The Sherman Antitrust Act states that if a person can prove that he was damaged by an illegal arrangement to restrain trade, he could sue and recover three times the damages he sustained.

Accepted Answer

A) True 
 B)False

Question 4

Scenario 17-1
​
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 17-1. 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 5

Which strategy was the most successful in the prisoners' dilemma tournament?

Accepted Answer

The answer of Which strategy was the most successful in...

Question 6

The essence of an oligopolistic market is that there are only a few sellers.

Accepted Answer

A) True 
 B)False

Question 7

Table 17-8
This table shows the payoffs for a game played between two players, A and B.
  
-Refer to Table 17-8. 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 8

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) There are no games where 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) There are no games where the cooperative outcome of the game is good for the two players and bad for society.

Question 9

The story of the prisoners' dilemma contains a general lesson that applies to any group trying to maintain cooperation among its members.

Accepted Answer

A) True 
 B)False

Question 10

Table 17-13
Suppose that Robert and Howard own the only two movie studios in California. Each producer must choose between a low budget and a high budget strategy for his next film. The economic profit from each strategy is indicated in the table below:
Howard
Low budget High budget
  
-Refer to Table 17-13. Is there a Nash equilibrium? If so, describe it.

Accepted Answer

Yes. Robert has a dominant strategy to c

Question 11

Table 17-6
Two home-improvement stores (Lopes and HomeMax) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Increases in annual profits (in millions of dollars) of the two home-improvement stores are shown in the following figure.
​
  
-Refer to Table 17-6. If both stores follow a dominant strategy, HomeMax's annual profit will grow by

Accepted Answer

A) $0.6 million. 
B) $1.5 million. 
C) $2.5 million. 
D) $3.4 million. 
A) $0.6 million. 
B) $1.5 million. 
C) $2.5 million. 
D) $3.4 million.

Question 12

Why do economists use game theory to study the actions of firms in oligopoly markets but not in other markets?

Accepted Answer

In oligopoly markets, there are a few fi

Question 13

When a group of firms acts in unison to maximize profits as if they were a monopoly, they form a __________.

Accepted Answer

The answer of When a group of firms acts in...

Question 14

In some games, the noncooperative equilibrium is bad for the players and bad for society.

Accepted Answer

A) True 
 B)False

Question 15

Game theory is just as necessary for understanding competitive or monopoly markets as it is for understanding oligopolistic markets.

Accepted Answer

A) True 
 B)False

Question 16

Table 17-12
Suppose that Angelina and Brad own the only two professional photography stores in town. Each must choose between a low price and a high price for senior photo packages. The annual economic profit from each strategy is indicated in the table below:
Angelina
Low price High price
 $\begin{array}{c}
\begin{array}{|l}
\hline\
\text { Brad }\
\
\
\hline
\end{array}
\begin{array} { | l | l | l | } 
\hline \text { Low price } & \begin{array} { l } 
\text { Angelina's profit } = \$ 20,000 \
\text { Brad's profit } = \$ 20,000
\end{array} & \begin{array} { l } 
\text { Angelina's profit } = \$ 4,000 \
\text { Brad's profit } = \$ 23,000
\end{array} \
\hline  { \text { High price } } & \text { Angelina's profit } = \$ 25,000 & \text { Angelina's pro fit } = \$ 22,000 \
& \text { Brad's profit } = \$ 5,000 & \text { Brad's profit } = \$ 22,000 \
\hline
\end{array}
\end{array}$
-Refer to Table 17-12. Does Angelina have a dominant strategy? If so, describe it.

Accepted Answer

Yes, regardless of Brad's strategy, Ange

Question 17

Table 17-5
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.
​
​
 $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity } \
\text { (Gallons) }
\end{array} & \begin{array} { c } 
\text { Price } \
\text { (Dollars per gallon) }
\end{array} & \begin{array} { c } 
\text { Total Revenue } \
\text { (Dollars) }
\end{array} \
\hline 0 & 8 & 0 \
\hline 50 & 7 & 350 \
\hline 100 & 6 & 600 \
\hline 150 & 5 & 750 \
\hline 200 & 4 & 800 \
\hline 250 & 3 & 750 \
\hline 300 & 2 & 600 \
\hline 350 & 1 & 350 \
\hline 400 & 0 & 0 \
\hline
\end{array}$$
-Refer to Table 17-5. If the market for gasoline in Driveaway is perfectly competitive, then the equilibrium price of gasoline is

Accepted Answer

A) $0 and the equilibrium quantity is 400 gallons. 
B) $1 and the equilibrium quantity is 350 gallons. 
C) $2 and the equilibrium quantity is 300 gallons. 
D) $4 and the equilibrium quantity is 200 gallons. 
A) $0 and the equilibrium quantity is 400 gallons. 
B) $1 and the equilibrium quantity is 350 gallons. 
C) $2 and the equilibrium quantity is 300 gallons. 
D) $4 and the equilibrium quantity is 200 gallons.

Question 18

When an oligopoly market reaches a Nash equilibrium,

Accepted Answer

A) the market price will be different for each firm. 
B) the firms will not have behaved as profit maximizers. 
C) a firm will have chosen its best strategy, given the strategies chosen by other firms in the market. 
D) a firm will not take into account the strategies of competing firms. 
A) the market price will be different for each firm. 
B) the firms will not have behaved as profit maximizers. 
C) a firm will have chosen its best strategy, given the strategies chosen by other firms in the market. 
D) a firm will not take into account the strategies of competing firms.

Question 19

Table 17-7
Two companies, Wonka and Gekko, 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 (in millions of dollars) for the two companies.
  
-Refer to Table 17-7. Wonka and Gekko agree to cooperate so as to maximize total profit. If this game is played repeatedly and Wonka 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 Gekko chose in the previous round. 
B) poor quality product in the first round and in subsequent rounds it will choose whatever Gekko chose in the previous round. 
C) good quality product in all rounds, regardless of the choice made by Gekko. 
D) poor quality product in all rounds, regardless of the choice made by Gekko. 
A) good quality product in the first round and in subsequent rounds it will choose whatever Gekko chose in the previous round. 
B) poor quality product in the first round and in subsequent rounds it will choose whatever Gekko chose in the previous round. 
C) good quality product in all rounds, regardless of the choice made by Gekko. 
D) poor quality product in all rounds, regardless of the choice made by Gekko.

Question 20

Table 17-2
The information in the following table 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.
​
​
 $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Quantity Demanded } \
\text { (Internet radio } \
\text { sub scriptions) }
\end{array} & \begin{array} { c } 
\text { Price } \
\text { (Dollars per subscription } \
\text { per year) }
\end{array} \
\hline 0 & 64 \
\hline 500 & 60 \
\hline 1,000 & 56 \
\hline 1,500 & 52 \
\hline 2,000 & 48 \
\hline 2,500 & 44 \
\hline 3,000 & 40 \
\hline 3,500 & 36 \
\hline 4,000 & 32 \
\hline 4,500 & 28 \
\hline 5,000 & 24 \
\hline 5,500 & 20 \
\hline 6,000 & 16 \
\hline 6,500 & 12 \
\hline 7,000 & 8 \
\hline 7,500 & 4 \
\hline 8,000 & 0 \
\hline
\end{array}$$ ​
-Refer to Table 17-2. Assume there are two profit-maximizing internet radio providers operating in this market. Further assume that they are not able to collude on the price and quantity of subscriptions to sell. How many subscriptions will be sold altogether when this market reaches a Nash equilibrium?

Accepted Answer

A) 2,000 
B) 3,000 
C) 4,000 
D) 5,000 
A) 2,000 
B) 3,000 
C) 4,000 
D) 5,000

Exam 17: Oligopoly

In the prisoners' dilemma game, confessing is a dominant strategy for each of the two prisoners.

A central issue in the Microsoft antitrust lawsuit involved Microsoft's integration of its Internet browser into its Windows operating system, to be sold as one unit. This practice is known as

The Sherman Antitrust Act states that if a person can prove that he was damaged by an illegal arrangement to restrain trade, he could sue and recover three times the damages he sustained.

Which strategy was the most successful in the prisoners' dilemma tournament?

The essence of an oligopolistic market is that there are only a few sellers.

Table 17-8 This table shows the payoffs for a game played between two players, A and B. -Refer to Table 17-8. Which of the following outcomes represents a Nash equilibrium in the game?

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?

The story of the prisoners' dilemma contains a general lesson that applies to any group trying to maintain cooperation among its members.

Why do economists use game theory to study the actions of firms in oligopoly markets but not in other markets?

When a group of firms acts in unison to maximize profits as if they were a monopoly, they form a __________.

In some games, the noncooperative equilibrium is bad for the players and bad for society.

Game theory is just as necessary for understanding competitive or monopoly markets as it is for understanding oligopolistic markets.

When an oligopoly market reaches a Nash equilibrium,

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 Nations 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

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