Question 1

Total profit for an oligopolist is more than that of a perfectly competitive firm.

Accepted Answer

A) True 
 B)False

Question 2

As the number of firms in an oligopoly grows larger, what happens to the quantity produced?
(i) it approaches the socially optimal level
(ii) it increases
(iii) it decreases

Accepted Answer

A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) (ii) only 
A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) (ii) only

Question 3

An oligopolist will increase production if the output effect is:

Accepted Answer

A) less than the price effect 
B) greater than the price effect 
C) equal to the price effect 
D) greater than or equal to the price effect 
A) less than the price effect 
B) greater than the price effect 
C) equal to the price effect 
D) greater than or equal to the price effect

Question 4

Two fishing firms share a common fishery.One strategy available to the firms is to fish sustainably.This maintains a healthy breeding population of fish, and keeps the price of fish relatively high.The other strategy is to overfish.This reduces the breeding population and fish prices tend to fall.The game is represented in the following table:   
Explain what the Nash equilibrium for this game is and identify the profit each player gets at this solution.Is the Nash equilibrium the best social outcome for this problem?

Accepted Answer

For firm A, overfish is the dominant str

Question 5

In the case of oligopoly markets, self-interest prevents cooperation and leads to an inferior outcome for the parties involved.

Accepted Answer

A) True 
 B)False

Question 6

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 the information provided.What will these two companies do if they behave as individual profit maximisers?

Accepted Answer

A) they will both advertise 
B) neither will advertise 
C) one will advertise, the other will not 
D) there is no way of knowing without more information 
A) they will both advertise 
B) neither will advertise 
C) one will advertise, the other will not 
D) there is no way of knowing without more information

Question 7

According to the information provided, Gargantuan Gas's dominant strategy would lead to what sort of well-drilling behaviour?

Accepted Answer

A) Gargantuan Gas will drill a second well only if Big Petro Inc.drills a well 
B) Gargantuan Gas will drill a second well only if Big Petro Inc.does not drill a well 
C) Gargantuan Gas will never drill a second well 
D) Gargantuan Gas will always drill a second well 
A) Gargantuan Gas will drill a second well only if Big Petro Inc.drills a well 
B) Gargantuan Gas will drill a second well only if Big Petro Inc.does not drill a well 
C) Gargantuan Gas will never drill a second well 
D) Gargantuan Gas will always drill a second well

Question 8

When deciding which structure best describes a market, you will need to know which of the following?
(i) the number of sellers
(ii) the type of product being sold
(iii) the average fixed cost curves for the given firms

Accepted Answer

A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) (i), (ii) and (iii) 
A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) (i), (ii) and (iii)

Question 9

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.The Nash equilibrium for this game is for:

Accepted Answer

A) both firms to sell the product at a low price 
B) both firms to sell the product at a high price 
C) firm A to sell at a low price and for firm B to sell at a high price 
D) firm A to sell at a high price and for firm B to sell at a low price 
A) both firms to sell the product at a low price 
B) both firms to sell the product at a high price 
C) firm A to sell at a low price and for firm B to sell at a high price 
D) firm A to sell at a high price and for firm B to sell at a low price

Question 10

Describe the source of tension between cooperation and self-interest in a market characterised by oligopoly.Use an example of an actual cartel arrangement to demonstrate why this tension creates instability in cartels.

Accepted Answer

The source of the tension exists because

Question 11

In which of the following prisoners' dilemma games is the non-cooperative outcome actually bad for society as well as for the players?
(i) oligopolists try to maintain monopoly profits
(ii) two countries are involved in an arms race
(iii) two oil producers act on their own self-interest when deciding how many wells to dig

Accepted Answer

A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) (i), (ii) and (iii) 
A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) (i), (ii) and (iii)

Question 12

The logic of self-interest causes the duopoly's output level to be which of the following?
(i) above the monopoly level
(ii) above the oligopoly level
(iii) below the competitive level

Accepted Answer

A) (i) and (ii) 
B) (i) and (iii) 
C) (ii) and (iii) 
D) (i), (ii) and (iii) 
A) (i) and (ii) 
B) (i) and (iii) 
C) (ii) and (iii) 
D) (i), (ii) and (iii)

Question 13

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

Accepted Answer

A) the police are able to convict more criminals 
B) the suspects are able to choose optimal outcomes for themselves by acting on self-interest 
C) the prisoners' dilemma safeguards the criminals' constitutional rights 
D) all of the above are true 
A) the police are able to convict more criminals 
B) the suspects are able to choose optimal outcomes for themselves by acting on self-interest 
C) the prisoners' dilemma safeguards the criminals' constitutional rights 
D) all of the above are true

Question 14

Monopolistically competitive firms are typically characterised by:

Accepted Answer

A) many firms selling identical products 
B) a few firms selling similar or identical products 
C) a few firms selling highly different products 
D) many firms selling similar, but not identical products 
A) many firms selling identical products 
B) a few firms selling similar or identical products 
C) a few firms selling highly different products 
D) many firms selling similar, but not identical products

Question 15

According to the information provided, the fact that both countries have colluded to earn higher profit shows their desire to keep production levels:

Accepted Answer

A) higher than the competitive market equilibrium 
B) lower than the Nash equilibrium 
C) at the Nash equilibrium 
D) higher than the Nash equilibrium 
A) higher than the competitive market equilibrium 
B) lower than the Nash equilibrium 
C) at the Nash equilibrium 
D) higher than the Nash equilibrium

Question 16

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.In reality these two countries may have a hard time keeping arms levels at the social optimal level due to which of the following reasons?
(i) both countries have incentives to cheat on the agreement
(ii) they may have trouble agreeing on the level of allowable arms
(iii) they both want to increase their world power

Accepted Answer

A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) (i), (ii) and (iii) 
A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) (i), (ii) and (iii)

Question 17

If duopolists individually pursue their own self-interest when deciding how much to produce, the price they are able to charge for their product will be equal to the monopoly price.

Accepted Answer

A) True 
 B)False

Question 18

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 A's profits (losses) will be:

Accepted Answer

A) $140 
B) $220 
C) -$160 
D) -$80 
A) $140 
B) $220 
C) -$160 
D) -$80

Question 19

What is OPEC and how effective was it at colluding to maintain high prices for its product?

Accepted Answer

OPEC is the Organization of Petroleum Ex

Question 20

Refer to the information provided.In a non-repetitive game, which of the following is the dominant strategy of Irun when production levels are in accordance with the collusive agreement?

Accepted Answer

A) increase production only after Urun increases production 
B) unilaterally increase production 
C) decrease production only after Urun increases production 
D) unilaterally decrease production 
A) increase production only after Urun increases production 
B) unilaterally increase production 
C) decrease production only after Urun increases production 
D) unilaterally decrease production

Exam 17: Business Strategy and Oligopoly

Total profit for an oligopolist is more than that of a perfectly competitive firm.

As the number of firms in an oligopoly grows larger, what happens to the quantity produced? (i) it approaches the socially optimal level (ii) it increases (iii) it decreases

An oligopolist will increase production if the output effect is:

In the case of oligopoly markets, self-interest prevents cooperation and leads to an inferior outcome for the parties involved.

According to the information provided, Gargantuan Gas's dominant strategy would lead to what sort of well-drilling behaviour?

When deciding which structure best describes a market, you will need to know which of the following? (i) the number of sellers (ii) the type of product being sold (iii) the average fixed cost curves for the given firms

Describe the source of tension between cooperation and self-interest in a market characterised by oligopoly.Use an example of an actual cartel arrangement to demonstrate why this tension creates instability in cartels.

The logic of self-interest causes the duopoly's output level to be which of the following? (i) above the monopoly level (ii) above the oligopoly level (iii) below the competitive level

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

Monopolistically competitive firms are typically characterised by:

According to the information provided, the fact that both countries have colluded to earn higher profit shows their desire to keep production levels:

If duopolists individually pursue their own self-interest when deciding how much to produce, the price they are able to charge for their product will be equal to the monopoly price.

What is OPEC and how effective was it at colluding to maintain high prices for its product?

Refer to the information provided.In a non-repetitive game, which of the following is the dominant strategy of Irun when production levels are in accordance with the collusive agreement?

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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