Question 1

If the prisoners' dilemma game is repeated, the co-operate outcome can be supported as an equilibrium.

Accepted Answer

A) True 
 B)False

Question 2

The only market where firms need not to be concerned about balancing the price effect and the output effect when making production decisions is a:

Accepted Answer

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

Question 3

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.The socially efficient level of water supplied to the market would be:

Accepted Answer

A) 15 litres 
B) 30 litres 
C) 45 litres 
D) 60 litres 
A) 15 litres 
B) 30 litres 
C) 45 litres 
D) 60 litres

Question 4

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.Since Robert and John operate as a profit-maximising monopoly in the market for water, what price will they charge to sell 45 litres of water?

Accepted Answer

A) $12 
B) $6 
C) $3 
D) none of the above; the price is arbitrary when dealing with a monopoly market 
A) $12 
B) $6 
C) $3 
D) none of the above; the price is arbitrary when dealing with a monopoly market

Question 5

The general term for market structures that fall somewhere in between monopoly and perfect competition is:

Accepted Answer

A) oligopoly markets 
B) monopolistically competitive markets 
C) incomplete markets 
D) imperfectly competitive markets 
A) oligopoly markets 
B) monopolistically competitive markets 
C) incomplete markets 
D) imperfectly competitive markets

Question 6

Table 16-4
In the following duopoly game, the two firms can either set the price of their product high or low.In this market, customers are very price sensitive: when one firm sets a low price it steals the majority of customers from its competitor.The game is represented in the table below. $\begin{array}{|c|c|c|c|}\hline&&\text { Firm B }\&&\text { High Price }&\text { Low Price }\
\hline \text { Firm A }&\text { High Price }&\text { Firm A gets \$500 } & \text { Firm A get \$300 } \
&& \text { Firm B gets \$500 } & \text { Firm B gets \$600 } \
\hline &\text { Low Price }&\text { Firm A gets \$600 } & \text { Firm A gets \$400 } \
&&\text { Firm B gets \$300 } & \text { Firm B gets \$400 } \
\hline
\end{array}$
-Refer to table 16-4.The dominant strategy for the firms are:

Accepted Answer

A) firm A sets low price, firm B sets low price 
B) firm A sets low price, firm B sets high price 
C) firm A sets high price, firm B sets low price 
D) firm A sets high price, firm B sets high price 
A) firm A sets low price, firm B sets low price 
B) firm A sets low price, firm B sets high price 
C) firm A sets high price, firm B sets low price 
D) firm A sets high price, firm B sets high price

Question 7

Binding agreements concerning production levels between oligopolists can lead the involved firms to:

Accepted Answer

A) bankruptcy 
B) higher prices and less profit 
C) monopoly profit 
D) lower prices and more profit 
A) bankruptcy 
B) higher prices and less profit 
C) monopoly profit 
D) lower prices and more profit

Question 8

According to the information provided, what is PM Inc.'s dominant strategy?

Accepted Answer

A) to advertise 
B) to advertise only if Brown Inc.advertises 
C) to advertise only if Brown Inc.does not advertise 
D) to not advertise 
A) to advertise 
B) to advertise only if Brown Inc.advertises 
C) to advertise only if Brown Inc.does not advertise 
D) to not advertise

Question 9

Table 16.7
The USA and China are locked in negotiations to cut emissions.The following table represents the pay-offs from cutting emissions and continuing to pollute:
  
-Refer to Table 16-7.If China plays its dominant strategy, its payoff at the Nash Equilibrium will be:

Accepted Answer

A) $1.5mil 
B) $1mil 
C) $2.4mil 
D) $1.8mil 
A) $1.5mil 
B) $1mil 
C) $2.4mil 
D) $1.8mil

Question 10

If there are many firms participating in a market, the market is either:

Accepted Answer

A) an oligopoly or perfectly competitive 
B) an oligopoly or monopolistically competitive 
C) perfectly competitive or monopolistically competitive 
D) all of the above are possible 
A) an oligopoly or perfectly competitive 
B) an oligopoly or monopolistically competitive 
C) perfectly competitive or monopolistically competitive 
D) all of the above are possible

Question 11

Which of the following happens when the prisoners' dilemma game is repeated numerous times in an oligopoly market?
(i) the firms might reach the monopoly outcome
(ii) the firms might reach the cooperative outcome
(iii) society will always be better off

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 12

Arming a country is a dominant strategy for each country is in an arms race.

Accepted Answer

A) True 
 B)False

Question 13

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.Assume that there are two profit-maximising ecotourist companies operating in this market.Further assume that they are not able to collude on the price and quantity of tickets they sell.How much profit will each firm earn when this market reaches a Nash equilibrium?

Accepted Answer

A) $0 
B) $8000 
C) $3000 
D) each firm will incur economic losses in a Nash equilibrium 
A) $0 
B) $8000 
C) $3000 
D) each firm will incur economic losses in a Nash equilibrium

Question 14

Once a cartel is formed, the market is in effect served by:

Accepted Answer

A) imperfect competition 
B) a monopoly 
C) monopolistic competition 
D) an oligopoly 
A) imperfect competition 
B) a monopoly 
C) monopolistic competition 
D) an oligopoly

Question 15

Describe the output and price effects that influence the profit-maximising decision faced by a firm in an oligopoly market.How does this differ from output and price effects in a monopoly market?

Accepted Answer

Output effect: Price > Marginal cost @#LAT-DLM&inc

Question 16

The tit-for-tat strategy in repeated prisoners' dilemma games:

Accepted Answer

A) is often dominated by more complex gaming strategies 
B) is never dominated by more complex gaming strategies 
C) often dominates more complex gaming strategies 
D) was not socially optimal according to Robert Axelrod 
A) is often dominated by more complex gaming strategies 
B) is never dominated by more complex gaming strategies 
C) often dominates more complex gaming strategies 
D) was not socially optimal according to Robert Axelrod

Question 17

Table 16.7
The USA and China are locked in negotiations to cut emissions.The following table represents the pay-offs from cutting emissions and continuing to pollute:
  
-Refer to Table 16-7.If the USA plays its dominant strategy, its payoff at the Nash Equilibrium will be:

Accepted Answer

A) $1mil 
B) $2.5mil 
C) $0.8mil 
D) $2mil 
A) $1mil 
B) $2.5mil 
C) $0.8mil 
D) $2mil

Question 18

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.If the two firms wanted to achieve the optimal level of profit they would:

Accepted Answer

A) both sell at a low price 
B) both sell at a high price 
C) collude to let firm A sell at a low price and firm B to sell at a high price 
D) collude to let firm A sell at a high price and firm B to sell at a low price 
A) both sell at a low price 
B) both sell at a high price 
C) collude to let firm A sell at a low price and firm B to sell at a high price 
D) collude to let firm A sell at a high price and firm B to sell at a low price

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.The dominate strategies of Pita Pan and Pita Wrapbit are:

Accepted Answer

A) Advertise and Do Not Advertise, respectively 
B) both Advertise 
C) Do Not Advertise and Advertise, respectively 
D) both Do Not Advertise 
A) Advertise and Do Not Advertise, respectively 
B) both Advertise 
C) Do Not Advertise and Advertise, respectively 
D) both Do Not Advertise

Question 20

If the number of firms in an oligopoly grows smaller, an oligopolistic market looks less and less like:

Accepted Answer

A) a monopoly 
B) a duopoly 
C) a competitive market 
D) none of the above 
A) a monopoly 
B) a duopoly 
C) a competitive market 
D) none of the above

Exam 17: Business Strategy and Oligopoly

If the prisoners' dilemma game is repeated, the co-operate outcome can be supported as an equilibrium.

The only market where firms need not to be concerned about balancing the price effect and the output effect when making production decisions is a:

The general term for market structures that fall somewhere in between monopoly and perfect competition is:

Binding agreements concerning production levels between oligopolists can lead the involved firms to:

According to the information provided, what is PM Inc.'s dominant strategy?

Table 16.7 The USA and China are locked in negotiations to cut emissions.The following table represents the pay-offs from cutting emissions and continuing to pollute: -Refer to Table 16-7.If China plays its dominant strategy, its payoff at the Nash Equilibrium will be:

If there are many firms participating in a market, the market is either:

Which of the following happens when the prisoners' dilemma game is repeated numerous times in an oligopoly market? (i) the firms might reach the monopoly outcome (ii) the firms might reach the cooperative outcome (iii) society will always be better off

Arming a country is a dominant strategy for each country is in an arms race.

Once a cartel is formed, the market is in effect served by:

Describe the output and price effects that influence the profit-maximising decision faced by a firm in an oligopoly market.How does this differ from output and price effects in a monopoly market?

The tit-for-tat strategy in repeated prisoners' dilemma games:

Table 16.7 The USA and China are locked in negotiations to cut emissions.The following table represents the pay-offs from cutting emissions and continuing to pollute: -Refer to Table 16-7.If the USA plays its dominant strategy, its payoff at the Nash Equilibrium will be:

If the number of firms in an oligopoly grows smaller, an oligopolistic market looks less and less like:

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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