Question 1

As the number of firms in an oligopoly increases,the quantity of output produced (i)	decreases.
(ii)	increases.
(iii)	eventually approaches the socially-optimal level.

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 2

Table 16-14
  
-Refer to Table 16-14.This table shows a game played between two firms,A and B.The firms must choose how much output to produce.The profit for each firm is shown in the table as (Profit for A,Profit for B).Which of the following outcomes represent the Nash equilibrium in this game?

Accepted Answer

A) Q=2 for A and Q=3 for B. 
B) Q=3 for A and Q=2 for B. 
C) There is no Nash equilibrium in this game since neither player has a dominant strategy. 
D) Both a and b are correct. 
A) Q=2 for A and Q=3 for B. 
B) Q=3 for A and Q=2 for B. 
C) There is no Nash equilibrium in this game since neither player has a dominant strategy. 
D) Both a and b are correct.

Question 3

Table 16-10
Two discount superstores (Ultimate Saver and SuperDuper Saver) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Growth-related profits of the two discount superstores are shown in the table below.
  
-Refer to Table 16-10.When this game reaches a Nash equilibrium,the dollar value of growth-related profits will be

Accepted Answer

A) Ultimate Saver $35 and SuperDuper Saver $250. 
B) Ultimate Saver $65 and SuperDuper Saver $50. 
C) Ultimate Saver $275 and SuperDuper Saver $25. 
D) Ultimate Saver $135 and SuperDuper Saver $85. 
A) Ultimate Saver $35 and SuperDuper Saver $250. 
B) Ultimate Saver $65 and SuperDuper Saver $50. 
C) Ultimate Saver $275 and SuperDuper Saver $25. 
D) Ultimate Saver $135 and SuperDuper Saver $85.

Question 4

Scenario 16-5
Assume that a local bank sells two services, checking accounts and ATM card services. Mr. Donethat is willing to pay $8 a month for the bank to service his checking account and $2 a month for unlimited use of his ATM card. Ms. Beenthere is willing to pay only $5 for a checking account, but is willing to pay $9 for unlimited use of her ATM card. Assume that the bank can provide each of these services at zero marginal cost.
-Refer to Scenario 16-5.How much additional profit can the bank earn by switching to the use of a tying strategy to price checking accounts and ATM service rather than pricing these services separately?

Accepted Answer

A) $14 
B) $11 
C) $7 
D) $1 
A) $14 
B) $11 
C) $7 
D) $1

Question 5

As a group,oligopolists would always earn the highest profit if they would

Accepted Answer

A) produce the perfectly competitive quantity of output. 
B) produce more than the perfectly competitive quantity of output. 
C) charge the same price that a monopolist would charge if the market were a monopoly. 
D) operate according to their own individual self-interests. 
A) produce the perfectly competitive quantity of output. 
B) produce more than the perfectly competitive quantity of output. 
C) charge the same price that a monopolist would charge if the market were a monopoly. 
D) operate according to their own individual self-interests.

Question 6

Explain the practice of tying and discuss why it is controversial.

Accepted Answer

Tying is the practice of bundling goods

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

If,in a particular market,firms sell identical products,then the market is (i)	perfectly competitive.
(ii)	monopolistically competitive.
(iii)	an oligopoly.

Accepted Answer

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

Question 9

Very often,the reason that players can solve the prisoners' dilemma and reach the most profitable outcome is that

Accepted Answer

A) each player tries to capture a large portion of the market share. 
B) the players play the game not once but many times. 
C) the game becomes more competitive. 
D) self interest results in the Nash equilibrium which is the best outcome for the players. 
A) each player tries to capture a large portion of the market share. 
B) the players play the game not once but many times. 
C) the game becomes more competitive. 
D) self interest results in the Nash equilibrium which is the best outcome for the players.

Question 10

Table 16-19
Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for repair work and a high price. The annual economic profit from each strategy is indicated in the table. The profits are shown as (Matt, Brian) in each cell.
  
-Refer to Table 16-19.Which of the following statements is correct if Brian and Matt will play this game only once?

Accepted Answer

A) The Nash equilibrium is for players to choose the low price. 
B) A Nash equilibrium cannot be established unless Brian and Matt collude. 
C) A Nash equilibrium cannot be established without the players repeating the game. 
D) The Nash equilibrium price is the low price. 
A) The Nash equilibrium is for players to choose the low price. 
B) A Nash equilibrium cannot be established unless Brian and Matt collude. 
C) A Nash equilibrium cannot be established without the players repeating the game. 
D) The Nash equilibrium price is the low price.

Question 11

In the story of the prisoners' dilemma,one prisoner is always better off confessing,no matter what the other prisoner does.

Accepted Answer

A) True 
 B)False

Question 12

Monopolistically competitive firms are typically characterized by

Accepted Answer

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

Question 13

Table 16-18
The Chicken Game is named for a contest in which drivers test their courage by driving straight at each other. John and Paul have a common interest to avoid crashing into each other, but they also have a personal, competing interest to not turn first to demonstrate their courage to those observing the contest. The payoff table for this situation is provided below. The payoffs are shown as (John, Paul).
  
-Refer to Table 16-18.If Paul chooses Turn,what will John choose to do and what will John's payoff equal?

Accepted Answer

A) Turn, 10 
B) Drive Straight, 20 
C) Turn, 5 
D) Drive Straight, 0 
A) Turn, 10 
B) Drive Straight, 20 
C) Turn, 5 
D) Drive Straight, 0

Question 14

In imperfectly competitive markets,increasing production will increase the quantity sold,but will also decrease the price of all units sold.This concept is known as the

Accepted Answer

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

Question 15

In the prisoners' dilemma,

Accepted Answer

A) the prisoners easily collude in order to achieve the best possible payoff for both. 
B) only one player has a dominant strategy. 
C) when each player chooses his dominant strategy the players achieve the best joint outcome. 
D) when each player chooses his dominant strategy the players reach a Nash equilibrium. 
A) the prisoners easily collude in order to achieve the best possible payoff for both. 
B) only one player has a dominant strategy. 
C) when each player chooses his dominant strategy the players achieve the best joint outcome. 
D) when each player chooses his dominant strategy the players reach a Nash equilibrium.

Question 16

Table 16-8
Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the healthcare related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses). State prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without the help of at least one cigarette firm study. Each firm has been presented with an opportunity to lower its liability in the suit if it cooperates with attorneys representing the states.
  
-Refer to Table 16-8.If both firms follow a dominant strategy,Firm A's profits (losses)will be

Accepted Answer

A) $-50 
B) $-20 
C) $-10 
D) $-5 
A) $-50 
B) $-20 
C) $-10 
D) $-5

Question 17

Table 16-17
Amy and Heather are two college roommates who both prefer a clean common space in their dorm room, but neither enjoys cleaning. The roommates must each make a decision to either clean or not clean the dorm room's common space. The payoff table for this situation is provided below. The payoffs in each cell are shown as (Amy, Heather).
  
-Refer to Table 16-17.If Heather chooses Don't Clean,what will Amy choose to do? And if Heather chooses Don't Clean,what will Amy's payoff equal?

Accepted Answer

A) Clean, $100 
B) Don't Clean, $20 
C) Clean, $15 
D) Don't Clean, $75 
A) Clean, $100 
B) Don't Clean, $20 
C) Clean, $15 
D) Don't Clean, $75

Question 18

In 1971,Congress passed a law that banned cigarette advertising on television.After the ban it is most likely that the (i)	profits of cigarette companies increased.
(ii)	prices of cigarettes increased.
(iii)	total costs incurred by cigarette companies increased.

Accepted Answer

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

Question 19

Ford and General Motors are considering expanding into the Vietnamese automobile market.Devise a simple prisoners' dilemma game to demonstrate the strategic considerations that are relevant to this decision.

Accepted Answer

The answer should present two strategies

Question 20

The Sherman Antitrust Act prohibits competing firms from even talking about fixing prices.

Accepted Answer

A) True 
 B)False

Exam 16: Oligopoly

As the number of firms in an oligopoly increases,the quantity of output produced (i) decreases. (ii) increases. (iii) eventually approaches the socially-optimal level.

Table 16-14 -Refer to Table 16-14.This table shows a game played between two firms,A and B.The firms must choose how much output to produce.The profit for each firm is shown in the table as (Profit for A,Profit for B).Which of the following outcomes represent the Nash equilibrium in this game?

As a group,oligopolists would always earn the highest profit if they would

Explain the practice of tying and discuss why it is controversial.

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

If,in a particular market,firms sell identical products,then the market is (i) perfectly competitive. (ii) monopolistically competitive. (iii) an oligopoly.

Very often,the reason that players can solve the prisoners' dilemma and reach the most profitable outcome is that

In the story of the prisoners' dilemma,one prisoner is always better off confessing,no matter what the other prisoner does.

Monopolistically competitive firms are typically characterized by

In imperfectly competitive markets,increasing production will increase the quantity sold,but will also decrease the price of all units sold.This concept is known as the

In the prisoners' dilemma,

In 1971,Congress passed a law that banned cigarette advertising on television.After the ban it is most likely that the (i) profits of cigarette companies increased. (ii) prices of cigarettes increased. (iii) total costs incurred by cigarette companies increased.

Ford and General Motors are considering expanding into the Vietnamese automobile market.Devise a simple prisoners' dilemma game to demonstrate the strategic considerations that are relevant to this decision.

The Sherman Antitrust Act prohibits competing firms from even talking about fixing prices.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

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

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality 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 Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

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

Five Debates Over Macroeconomic Policy

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