Question 1

According to the information provided, the agreed upon production level between the two countries will invariably be:

Accepted Answer

A) lower than the Nash equilibrium 
B) equal to the duopoly market equilibrium 
C) higher than the duopoly market equilibrium 
D) equal to the Nash equilibrium 
A) lower than the Nash equilibrium 
B) equal to the duopoly market equilibrium 
C) higher than the duopoly market equilibrium 
D) equal to the Nash equilibrium

Question 2

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.When this game reaches a Nash equilibrium, profits for firm A and firm B will be:

Accepted Answer

A) $140 and $80, respectively 
B) $220 and -$160, respectively 
C) -$160 and $220, respectively 
D) -$80 and -$100, respectively 
A) $140 and $80, respectively 
B) $220 and -$160, respectively 
C) -$160 and $220, respectively 
D) -$80 and -$100, respectively

Question 3

Which of the following statements are true of the prisoners' dilemma?
(i) cooperation between the prisoners is difficult to maintain
(ii) rational self-interest leads neither party to confess
(iii) cooperation between the prisoners is individually irrational

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 4

Which of the following will weaken OPEC's effect on the world price of oil?
(i) member countries increase their own production
(ii) member countries set their level of production in order to capture a larger share of the total profit available
(iii) member countries abide by the regulatory policy set forth under the original collusive agreement

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 5

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 A will earn if it plays its dominant strategy:

Accepted Answer

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

Question 6

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.As long as Robert and John operate as a profit-maximising monopoly, what will their weekly revenue be?

Accepted Answer

A) $100 
B) $135 
C) $175 
D) $180 
A) $100 
B) $135 
C) $175 
D) $180

Question 7

According to the information provided, as the production level deviates from the agreed-upon quantity, the total profit earned collectively by the two countries:

Accepted Answer

A) falls 
B) falls, as long as production levels are greater than the Nash equilibrium 
C) falls, as long as production levels are equal to the Nash equilibrium 
D) falls, as long as production levels are greater than the competitive equilibrium 
A) falls 
B) falls, as long as production levels are greater than the Nash equilibrium 
C) falls, as long as production levels are equal to the Nash equilibrium 
D) falls, as long as production levels are greater than the competitive equilibrium

Question 8

An imperfectly market that has only two firms is called:

Accepted Answer

A) a duopoly 
B) a split monopoly 
C) a triopoly 
D) a binary market 
A) a duopoly 
B) a split monopoly 
C) a triopoly 
D) a binary market

Question 9

The price-effect of an increase in production refers to the extra profit an oligopolist receives from outputting one extra unit.

Accepted Answer

A) True 
 B)False

Question 10

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 which of the following situations is Eudora better off arming?
(i) if Inhabit arms
(ii) if Inhabit disarms
(iii) if arming is their sub-dominant gaming strategy

Accepted Answer

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

Question 11

For the non-colluding oligopolist, there are two factors that affect the decision to raise production.These factors are the:

Accepted Answer

A) output effect and the cost effect 
B) cost effect and the price effect 
C) production effect and the output effect 
D) output effect and the price effect 
A) output effect and the cost effect 
B) cost effect and the price effect 
C) production effect and the output effect 
D) output effect and the price effect

Question 12

If both countries agree on a certain level of arms in an arms race game, social welfare will decrease if both countries keep their end of the bargain.

Accepted Answer

A) True 
 B)False

Question 13

As the number of firms in an oligopolistic market grows larger, the price approaches:

Accepted Answer

A) the monopoly price 
B) average cost 
C) marginal revenue 
D) marginal cost 
A) the monopoly price 
B) average cost 
C) marginal revenue 
D) marginal cost

Question 14

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:

Accepted Answer

A) less than the monopoly price 
B) greater than the monopoly price 
C) possibly less than or greater than the monopoly price 
D) equal to the perfectly competitive market price 
A) less than the monopoly price 
B) greater than the monopoly price 
C) possibly less than or greater than the monopoly price 
D) equal to the perfectly competitive market price

Question 15

Oligopolies can end up looking like competitive firms if the number of firms is:

Accepted Answer

A) large and they all cooperate 
B) small and they all cooperate 
C) large and they do not cooperate 
D) small and they do not cooperate 
A) large and they all cooperate 
B) small and they all cooperate 
C) large and they do not cooperate 
D) small and they do not cooperate

Question 16

In an oligopoly, the actions of any one market participant can have an impact on the marginal revenue of other participants.

Accepted Answer

A) True 
 B)False

Question 17

Individual profit earned by Dave, an oligopolist, depends on which of the following?
(i) the quantity that Dave produces
(ii) the quantity that the other firms in the market produce
(iii) the price Dave can sell his product for in the market

Accepted Answer

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

Question 18

Oligopoly markets are characterised by:

Accepted Answer

A) the universal existence of collusive agreements 
B) a fall in collective profits if a cartel is organised 
C) the pursuit of self-interest by profit-maximising firms always maximising collective profits 
D) a conflict between cooperation and self-interest 
A) the universal existence of collusive agreements 
B) a fall in collective profits if a cartel is organised 
C) the pursuit of self-interest by profit-maximising firms always maximising collective profits 
D) a conflict between cooperation and self-interest

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.If the owners of Pita Pan and Pita Wrapbit meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimise their profits, they should both agree to:

Accepted Answer

A) share the context of their conversation with the Australian Competition and Consumer Commission 
B) be more competitive in capturing market share 
C) agree to both not advertise 
D) both advertise 
A) share the context of their conversation with the Australian Competition and Consumer Commission 
B) be more competitive in capturing market share 
C) agree to both not advertise 
D) both advertise

Question 20

What is the output effect and the price effect? How do these effects influence the output decision of an oligopolist?

Accepted Answer

The output effect is the increase in pro

Exam 17: Business Strategy and Oligopoly

According to the information provided, the agreed upon production level between the two countries will invariably be:

Which of the following statements are true of the prisoners' dilemma? (i) cooperation between the prisoners is difficult to maintain (ii) rational self-interest leads neither party to confess (iii) cooperation between the prisoners is individually irrational

According to the information provided, as the production level deviates from the agreed-upon quantity, the total profit earned collectively by the two countries:

An imperfectly market that has only two firms is called:

The price-effect of an increase in production refers to the extra profit an oligopolist receives from outputting one extra unit.

For the non-colluding oligopolist, there are two factors that affect the decision to raise production.These factors are the:

If both countries agree on a certain level of arms in an arms race game, social welfare will decrease if both countries keep their end of the bargain.

As the number of firms in an oligopolistic market grows larger, the price approaches:

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:

Oligopolies can end up looking like competitive firms if the number of firms is:

In an oligopoly, the actions of any one market participant can have an impact on the marginal revenue of other participants.

Individual profit earned by Dave, an oligopolist, depends on which of the following? (i) the quantity that Dave produces (ii) the quantity that the other firms in the market produce (iii) the price Dave can sell his product for in the market

Oligopoly markets are characterised by:

What is the output effect and the price effect? How do these effects influence the output decision of an oligopolist?

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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