Question 1

A tit-for-tat strategy starts out:

Accepted Answer

A) conciliatory and then encourages an optimal social outcome among the other players 
B) unfriendly and then encourages friendly strategy among players 
C) friendly and then penalises unfriendly players 
D) aggressive and then compensates losing players 
A) conciliatory and then encourages an optimal social outcome among the other players 
B) unfriendly and then encourages friendly strategy among players 
C) friendly and then penalises unfriendly players 
D) aggressive and then compensates losing players

Question 2

When oligopolists cooperate, they end up producing a total quantity that is closer to the social optimum.

Accepted Answer

A) True 
 B)False

Question 3

Table 16-5
Consider the following Duopoly game. $\begin{array}{|c|c|c|c|}\hline&&\text { Firm B }\&&\text { U }&\text { D }\
\hline \text { Firm A }&\text { U }&\text { Firm A gets \$140 } & \text { Firm A get \$220 } \
&& \text { Firm B gets \$80 } & \text { Firm B gets \$160 } \
\hline &\text { D }&\text { Firm A gets \$160 } & \text { Firm A gets \$80 } \
&&\text { Firm B gets \$220 } & \text { Firm B gets \$100 } \
\hline
\end{array}$
-Refer to Table 16-5.If both firms follow a dominant strategy, firm B's profits (losses) will be:

Accepted Answer

A) -$100 
B) -$160 
C) $80 
D) $220 
A) -$100 
B) -$160 
C) $80 
D) $220

Question 4

During the 1990s, the members of OPEC operated independently from one another, causing the world market for crude oil to become close to a(n):

Accepted Answer

A) monopoly market 
B) oligopoly market 
C) competitive market 
D) duopoly market 
A) monopoly market 
B) oligopoly market 
C) competitive market 
D) duopoly market

Question 5

Dominant strategies in a two-person game often lead to:

Accepted Answer

A) the best possible outcome for both players 
B) one person gaining advantage at the expense of the other person 
C) profit minimisation 
D) a less preferred outcome for both players 
A) the best possible outcome for both players 
B) one person gaining advantage at the expense of the other person 
C) profit minimisation 
D) a less preferred outcome for both players

Question 6

The paradoxical nature of the oligopoly game can be described by the fact that even though the monopoly outcome is best for all the oligopolists:

Accepted Answer

A) they cheat themselves out of monopoly profits by increasing production 
B) they collude to set output level equivalent to the Nash equilibrium 
C) they do not behave as profit maximisers 
D) self-interest juxtaposes the profits earned at the Nash equilibrium 
A) they cheat themselves out of monopoly profits by increasing production 
B) they collude to set output level equivalent to the Nash equilibrium 
C) they do not behave as profit maximisers 
D) self-interest juxtaposes the profits earned at the Nash equilibrium

Question 7

An agreement among firms over production and price is called:

Accepted Answer

A) collusion 
B) conspiracy 
C) multinational corporation 
D) trade arrangement 
A) collusion 
B) conspiracy 
C) multinational corporation 
D) trade arrangement

Question 8

If duopolists can enforce an agreement, to produce collectively the monopoly output and split the market between the two firms, then the sum of their output will be:

Accepted Answer

A) be less than the monopoly quantity 
B) be greater than the monopoly quantity 
C) be equal to the monopoly quantity 
D) any of the above are possible 
A) be less than the monopoly quantity 
B) be greater than the monopoly quantity 
C) be equal to the monopoly quantity 
D) any of the above are possible

Question 9

OPEC is an example of a:

Accepted Answer

A) cartel 
B) collective 
C) international free trade agreement 
D) coalition 
A) cartel 
B) collective 
C) international free trade agreement 
D) coalition

Question 10

Two suspected drug dealers are stopped by the highway patrol for speeding.The officer searches the car and finds a small bag of marijuana, and arrests the two.During the interrogation, each is separately made the following offer: 'If you confess to dealing drugs and testify against your partner, you will be given immunity and released while your partner will get 10 years in prison.If you both confess, you will each get five years'.If neither confesses, there is no evidence of drug dealing, and the most they could get is one year each for possession of marijuana.If each suspected drug dealer follows a dominant strategy, what should they do?

Accepted Answer

A) not confess, regardless of the partner's decision 
B) not confess and hope that the partner does confess 
C) confess, regardless of the partner's decision 
D) confess in the hope that the partner does not confess 
A) not confess, regardless of the partner's decision 
B) not confess and hope that the partner does confess 
C) confess, regardless of the partner's decision 
D) confess in the hope that the partner does not confess

Question 11

Raising production will increase total units sold, which will decrease the per unit price of all units sold.This concept is known as the:

Accepted Answer

A) cost effect 
B) output effect 
C) price effect 
D) income effect 
A) cost effect 
B) output effect 
C) price effect 
D) income effect

Question 12

Table 16-8
Consider two countries, Eudora and the Inhabit, that are engaged in an arms race.The question each country must face is whether to build new weapons or to disarm existing weapons.Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs.But each country also prefers to live in a world safe from the other country's weapons.The table shows the possible outcomes for each decision combination.  
-Refer to Table 16-8.For each country, arming is what type of strategy?

Accepted Answer

A) sub-dominant 
B) dominant 
C) sub-optimal 
D) inferior 
A) sub-dominant 
B) dominant 
C) sub-optimal 
D) inferior

Question 13

When an oligopoly market is in Nash equilibrium, firms will not act as profit maximisers.

Accepted Answer

A) True 
 B)False

Question 14

Table 16-2
In the following duopoly game, the two firms can either set the price of their product high or low.The game is represented in the table below. $\begin{array}{|c|c|c|c|}\hline&&\text { Firm B }\&&\text { High Price }&\text { Low Price }\
\hline \text { Firm A }&\text { High Price }&\text { Firm A gets \$1000 } & \text { Firm A get \$1250 } \
&& \text { Firm B gets \$1000 } & \text { Firm B gets \$1100 } \
\hline &\text { Low Price }&\text { Firm A gets \$800 } & \text { Firm A gets \$900 } \
&&\text { Firm B gets \$800 } & \text { Firm B gets \$900 } \
\hline
\end{array}$
-Refer to Table 16-2.What is the profit firm B will earn if it plays its dominant strategy:

Accepted Answer

A) $1000 if firm A has a high price and $800 if firm A has a low price 
B) $1100 if firm A has a high price and $900 if firm A has a low price 
C) $800 if firm A has a high price and $900 if firm A has a low price 
D) $1250 if firm A has a high price and $1100 if firm A has a low price 
A) $1000 if firm A has a high price and $800 if firm A has a low price 
B) $1100 if firm A has a high price and $900 if firm A has a low price 
C) $800 if firm A has a high price and $900 if firm A has a low price 
D) $1250 if firm A has a high price and $1100 if firm A has a low price

Question 15

Larger cartels have a greater probability of reaching the monopoly outcome than do smaller cartels.

Accepted Answer

A) True 
 B)False

Question 16

An important characteristic of a dominant strategy is that:

Accepted Answer

A) it is the best strategy only in prisoner's dilemma 
B) it always leads to a Nash equilibrium that makes all players equally well off 
C) it can prevent the game reaching a Nash equilibrium 
D) it is the best strategy for a player, regardless of whatever strategy the opponent chooses 
A) it is the best strategy only in prisoner's dilemma 
B) it always leads to a Nash equilibrium that makes all players equally well off 
C) it can prevent the game reaching a Nash equilibrium 
D) it is the best strategy for a player, regardless of whatever strategy the opponent chooses

Question 17

Firms in industries that have competitors but, at the same time, do not face so much competition that they are price takers, are operating in either a(n):

Accepted Answer

A) oligopoly or perfectly competitive market 
B) oligopoly or monopolistically competitive market 
C) oligopoly or monopoly market 
D) monopoly or monopolistically competitive market 
A) oligopoly or perfectly competitive market 
B) oligopoly or monopolistically competitive market 
C) oligopoly or monopoly market 
D) monopoly or monopolistically competitive market

Question 18

If an oligopolist is part of a cartel that is collectively producing at the monopoly level of output, then the oligopolist, being self-interested, will:

Accepted Answer

A) lower production and drive up prices 
B) increase production and push prices down 
C) do nothing, thus allowing the cartel to realise monopoly profits 
D) do none of the above 
A) lower production and drive up prices 
B) increase production and push prices down 
C) do nothing, thus allowing the cartel to realise monopoly profits 
D) do none of the above

Question 19

An important characteristic of an oligopoly market structure is that:

Accepted Answer

A) there are a large number of firms in the industry that produce identical products 
B) products typically sell where price is equal to the marginal cost of production 
C) the actions of one seller can have a large impact on the profitability of other sellers 
D) the actions of one seller can have no impact on the profitability of other sellers because the market is so large 
A) there are a large number of firms in the industry that produce identical products 
B) products typically sell where price is equal to the marginal cost of production 
C) the actions of one seller can have a large impact on the profitability of other sellers 
D) the actions of one seller can have no impact on the profitability of other sellers because the market is so large

Question 20

Table 16-3
Imagine a small town in which only two residents, Robert and John, own wells that produce water for safe drinking.Each Saturday, Robert and John work together to decide how many litres of water to pump, bring the water to town, and sell it at whatever price the market will bear.To keep things simple, suppose that Robert and John can pump as much water as they want without cost; therefore, the marginal cost of water equals zero.The weekly town demand schedule and total revenue schedule for water are shown in the table. $\begin{array}{|c|c|c|}
\hline \text { Weekly quantity (in litres) } & \text { Price (\$)per litre } & \begin{array}{c}
\text { Weekly total revenue (and } \
\text { total profit) (\$) }
\end{array} \
\hline 0 & 12 & \$ 0 \
\hline 5 & 11 & 55 \\hline 10 & 10 & 100 \
\hline 15 & 9 & 135 \
\hline 20 & 8 & 160 \
\hline 25 & 7 & 175 \
\hline 30 & 6 & 180 \
\hline 35 & 5 & 175 \
\hline 40 & 4 & 160 \
\hline 45 & 3 & 135 \
\hline 50 & 2 & 100 \
\hline 55 & 1 & 55 \
\hline 60 & 0 & 0 \
\hline
\end{array}$
-Refer to Table 16-3.Suppose the town enacts new anti-trust laws that prohibit Robert and John from operating as a monopolist.What will the new price of water end up being once the Nash equilibrium is reached?

Accepted Answer

A) $7 
B) $6 
C) $5 
D) $4 
A) $7 
B) $6 
C) $5 
D) $4

Exam 17: Business Strategy and Oligopoly

A tit-for-tat strategy starts out:

When oligopolists cooperate, they end up producing a total quantity that is closer to the social optimum.

During the 1990s, the members of OPEC operated independently from one another, causing the world market for crude oil to become close to a(n):

Dominant strategies in a two-person game often lead to:

The paradoxical nature of the oligopoly game can be described by the fact that even though the monopoly outcome is best for all the oligopolists:

An agreement among firms over production and price is called:

If duopolists can enforce an agreement, to produce collectively the monopoly output and split the market between the two firms, then the sum of their output will be:

OPEC is an example of a:

Raising production will increase total units sold, which will decrease the per unit price of all units sold.This concept is known as the:

When an oligopoly market is in Nash equilibrium, firms will not act as profit maximisers.

Larger cartels have a greater probability of reaching the monopoly outcome than do smaller cartels.

An important characteristic of a dominant strategy is that:

Firms in industries that have competitors but, at the same time, do not face so much competition that they are price takers, are operating in either a(n):

If an oligopolist is part of a cartel that is collectively producing at the monopoly level of output, then the oligopolist, being self-interested, will:

An important characteristic of an oligopoly market structure is that:

Ten Lessons From 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

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

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