Question 1

The arms race is similar to which of the following economic scenarios?

Accepted Answer

A) the competitive game 
B) the prisoners' dilemma 
C) the welfare choice 
D) cost allocation theory 
A) the competitive game 
B) the prisoners' dilemma 
C) the welfare choice 
D) cost allocation theory

Question 2

Crude oil is supplied to the world market primarily by a few Middle Eastern countries.Such a market is an example of which of the following?
(i) a monopoly market
(ii) an oligopoly market
(iii) an imperfectly competitive market

Accepted Answer

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

Question 3

In the long run, profits will be higher in a monopolistically competitive market than in an oligopoly.

Accepted Answer

A) True 
 B)False

Question 4

The simple tit-for-tat strategy has been able to dominate many more complex strategies in repeated prisoners' dilemma games.

Accepted Answer

A) True 
 B)False

Question 5

Table 16-1
The table below shows the total demand for viewing a rare penguin species at a local reserve.Ecotour companies have to build discreet viewing hides for tourists to view the penguins.Each ecotour company has to pay a fixed fee of $5000 for the right to build on the reserve.Assume that hides can be supplied to tourists at zero marginal cost.Tickets are sold to tourists to use the viewing hides. $\begin{array}{|c|c|}
\hline \text { Quantity (Visits) } & \text { Price(\$ ticket) } \
\hline 0 & 48 \
\hline 2000 & 36 \
\hline 4000 & 24 \
\hline 6000 & 12 \
\hline 8000 & 8 \
\hline 10000 & 4 \
\hline 12000 & 0 \
\hline
\end{array}$ $\begin{array}{|c|c|c|}
\hline \text { Quantity (Visits) } & \text { Price(\$ ticket) } & \text { Revenue } \
\hline 0 & 12 & 0 \
\hline 1000 & 10 & 10 \mathrm{k} \
\hline 2000 & 8 & 16 \mathrm{k} \
\hline 3000 & 6 & 18 \mathrm{k} \
\hline 4000 & 4 & 16 \mathrm{k} \
\hline 5000 & 2 & 10 \mathrm{k} \
\hline 6000 & 0 & 0 \
\hline
\end{array}$ Any firm can change tickets by steps of 500 only.Any 500 step of quantity is assumed to be sold at the midpoint of the two prices (eg.3500 tickets would be sold for $5)
-Refer to Table 16-1.Assuming that oligopolists do not have the opportunity to collude, once they have reached the Nash equilibrium, it:

Accepted Answer

A) is always in their best interest to supply more to the market 
B) is always in their best interest to leave supply unchanged 
C) is always in their best interest to supply less to the market 
D) may be in their best interest to do any of the above, depending on market conditions 
A) is always in their best interest to supply more to the market 
B) is always in their best interest to leave supply unchanged 
C) is always in their best interest to supply less to the market 
D) may be in their best interest to do any of the above, depending on market conditions

Question 6

Which of the following explains why oligopolies can fail to maintain cooperation?
(i) the story of the prisoners' dilemma
(ii) the cartel theory
(iii) the fact that self-interest is not consistent with collective group interest

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 7

Suppose an opal-mining firm is part of an oligopoly.It will have no profit incentive to increase the output of opals when the output effect is:

Accepted Answer

A) is equal to the dominant strategy 
B) equal to the price effect 
C) less than the price effect 
D) greater than the price effect 
A) is equal to the dominant strategy 
B) equal to the price effect 
C) less than the price effect 
D) greater than the price effect

Question 8

A collusive agreement over the quantity of output is difficult for firms to maintain because each firm has a profit incentive to break the agreement and increase production.

Accepted Answer

A) True 
 B)False

Question 9

The prisoners' dilemma is an important game to study because:

Accepted Answer

A) it identifies the fundamental difficulty in maintaining cooperative agreements 
B) most games present zero-sum alternatives 
C) strategic decisions faced by prisoners are identical to those faced by firms engaged in competitive agreements 
D) all of the above are true 
A) it identifies the fundamental difficulty in maintaining cooperative agreements 
B) most games present zero-sum alternatives 
C) strategic decisions faced by prisoners are identical to those faced by firms engaged in competitive agreements 
D) all of the above are true

Question 10

Table 16-6
Two pita-bread stores (Pita Pan and Pita Wrapbit) have both recently opened up in a new suburb and are interested in expanding their market share.Both are considering advertising in the surrounding area to entice more customers to come to their stores.The following table depicts the strategic outcome that results from the game.The profits of the two pita-bread stores under two advertising scenarios are shown.  
-Refer to Table 16-6.If both stores follow a dominant strategy, Pita Pan's profits will be:

Accepted Answer

A) $2950 
B) $1450 
C) $750 
D) $250 
A) $2950 
B) $1450 
C) $750 
D) $250

Question 11

Table 16-6
Two pita-bread stores (Pita Pan and Pita Wrapbit) have both recently opened up in a new suburb and are interested in expanding their market share.Both are considering advertising in the surrounding area to entice more customers to come to their stores.The following table depicts the strategic outcome that results from the game.The profits of the two pita-bread stores under two advertising scenarios are shown.  
-Refer to Table 16-6.If both stores follow a dominant strategy, Pita Wrapbit's growth related profits will be:

Accepted Answer

A) $2600 
B) $950 
C) $400 
D) $350 
A) $2600 
B) $950 
C) $400 
D) $350

Question 12

The typical firm in the Australian economy has some degree of market power, but cannot be considered a monopoly firm.

Accepted Answer

A) True 
 B)False

Question 13

It is individually irrational for players to cooperate in the prisoner's dilemma game because cooperation is not the dominant strategy.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is a consequence of oligopolist hotdog vendors on the beach failing to cooperate with one another on the quantity of hotdogs they should sell?
(i) the quantity supplied to the market will be closer to the socially optimal level
(ii) the invisible hand of the market will help to allocate resources more efficiently
(iii) markets will become less competitive

Accepted Answer

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

Question 15

If all the oligopolists in a market collude to form a cartel, total profit for the cartel is less than that of a monopolist.

Accepted Answer

A) True 
 B)False

Question 16

If there is an increase in the number of firms in an oligopoly, what effect would this have on the market if:
(a) they act independently of each other, and
(b) they collude and enforce a cartel agreement?

Accepted Answer

If there is an increase in the number of

Question 17

In the prisoners' dilemma game, each player always has a dominate strategy.

Accepted Answer

A) True 
 B)False

Question 18

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.If Inhabit chooses to arm, the country of Eudora will:

Accepted Answer

A) arm in order to promote world peace 
B) arm in order to prevent the loss of influence in world affairs 
C) disarm in order to prevent the loss of influence in world affairs 
D) disarm in order to promote world peace 
A) arm in order to promote world peace 
B) arm in order to prevent the loss of influence in world affairs 
C) disarm in order to prevent the loss of influence in world affairs 
D) disarm in order to promote world peace

Question 19

Table 16-6
Two pita-bread stores (Pita Pan and Pita Wrapbit) have both recently opened up in a new suburb and are interested in expanding their market share.Both are considering advertising in the surrounding area to entice more customers to come to their stores.The following table depicts the strategic outcome that results from the game.The profits of the two pita-bread stores under two advertising scenarios are shown.  
-Refer to Table 16-6.Non-cooperative outcomes typically imply an outcome:

Accepted Answer

A) that is worse for both parties to the 'game' 
B) that is better for both parties to the 'game' 
C) in which society is always worse off 
D) in which society is always better off 
A) that is worse for both parties to the 'game' 
B) that is better for both parties to the 'game' 
C) in which society is always worse off 
D) in which society is always better off

Question 20

Markets with only a few sellers, each offering a product similar or identical to the others, are typically referred to as:

Accepted Answer

A) monopolistically competitive markets 
B) oligopoly markets 
C) monopoly markets 
D) competitive markets 
A) monopolistically competitive markets 
B) oligopoly markets 
C) monopoly markets 
D) competitive markets

Exam 17: Business Strategy and Oligopoly

The arms race is similar to which of the following economic scenarios?

Crude oil is supplied to the world market primarily by a few Middle Eastern countries.Such a market is an example of which of the following? (i) a monopoly market (ii) an oligopoly market (iii) an imperfectly competitive market

In the long run, profits will be higher in a monopolistically competitive market than in an oligopoly.

The simple tit-for-tat strategy has been able to dominate many more complex strategies in repeated prisoners' dilemma games.

Which of the following explains why oligopolies can fail to maintain cooperation? (i) the story of the prisoners' dilemma (ii) the cartel theory (iii) the fact that self-interest is not consistent with collective group interest

Suppose an opal-mining firm is part of an oligopoly.It will have no profit incentive to increase the output of opals when the output effect is:

A collusive agreement over the quantity of output is difficult for firms to maintain because each firm has a profit incentive to break the agreement and increase production.

The prisoners' dilemma is an important game to study because:

The typical firm in the Australian economy has some degree of market power, but cannot be considered a monopoly firm.

It is individually irrational for players to cooperate in the prisoner's dilemma game because cooperation is not the dominant strategy.

If all the oligopolists in a market collude to form a cartel, total profit for the cartel is less than that of a monopolist.

If there is an increase in the number of firms in an oligopoly, what effect would this have on the market if: (a) they act independently of each other, and (b) they collude and enforce a cartel agreement?

In the prisoners' dilemma game, each player always has a dominate strategy.

Markets with only a few sellers, each offering a product similar or identical to the others, are typically referred to as:

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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