Question 1

Limit pricing refers to

Accepted Answer

A) the highest price a monopolist can set. 
B) the highest price that just inflicts a loss on a potential entrant. 
C) a strategy used by entering firms in contestable markets. 
D) the lowest price a duopoly can set. 
E) the price set in a perfectly competitive market. 
A) the highest price a monopolist can set. 
B) the highest price that just inflicts a loss on a potential entrant. 
C) a strategy used by entering firms in contestable markets. 
D) the lowest price a duopoly can set. 
E) the price set in a perfectly competitive market.

Question 2

Consider the cartel of Trick and Gear. The game is repeated indefinitely and each firm employs a tit-for-tat strategy. The equilibrium is

Accepted Answer

A) both firms cheat on the agreement. 
B) both firms comply with the agreement. 
C) Trick cheats and Gear complies with the agreement. 
D) Gear cheats and Trick complies with the agreement. 
E) one of the firms exits the market. 
A) both firms cheat on the agreement. 
B) both firms comply with the agreement. 
C) Trick cheats and Gear complies with the agreement. 
D) Gear cheats and Trick complies with the agreement. 
E) one of the firms exits the market.

Question 3

Consider the cartel of Trick and Gear. The game is repeated indefinitely and each firm employs a tit-for-tat strategy. The equilibrium is called

Accepted Answer

A) a credible strategy equilibrium. 
B) a dominant player equilibrium. 
C) a duopoly equilibrium. 
D) a trigger strategy equilibrium. 
E) a cooperative equilibrium. 
A) a credible strategy equilibrium. 
B) a dominant player equilibrium. 
C) a duopoly equilibrium. 
D) a trigger strategy equilibrium. 
E) a cooperative equilibrium.

Question 4

Use the information below to answer the following questions.
Fact 15.2.1
Two firms, FastNet and SmartCast are the only Internet providers in a city. They have identical costs and one firm's service is a perfect substitute for the other firm's service. The industry is a natural duopoly. FastNet and SmartCast decide to collude and agree to share the market equally.
-Refer to Fact 15.2.1. What is the result if both firms cheat on the agreement?

Accepted Answer

A) Both firms make an economic profit that is less than if they had both complied with the agreement. 
B) Economic profit of both firms is maximized. 
C) Both firms are playing a game of chicken. 
D) Only one firm is playing a game of chicken. 
E) Market output decreases. 
A) Both firms make an economic profit that is less than if they had both complied with the agreement. 
B) Economic profit of both firms is maximized. 
C) Both firms are playing a game of chicken. 
D) Only one firm is playing a game of chicken. 
E) Market output decreases.

Question 5

Two firms are trying to decide how much to budget for research and development. Once a new discovery is made, each firm benefits regardless of which firm developed the innovation. In this R&D game of chicken, the Nash equilibrium is that

Accepted Answer

A) both firms conduct R&D. 
B) neither firm conducts R&D. 
C) only one firm conducts R&D but which firm conducts the R&D cannot be determined. 
D) the larger firm conducts the R&D. 
E) the smaller firm conducts the R&D. 
A) both firms conduct R&D. 
B) neither firm conducts R&D. 
C) only one firm conducts R&D but which firm conducts the R&D cannot be determined. 
D) the larger firm conducts the R&D. 
E) the smaller firm conducts the R&D.

Question 6

Table 15.2.7
  
-Refer to Table 15.2.7. Disney and Fox must decide when to release their next films. The revenues received by each studio depend in part on when the other studio releases its film. Each studio can release its film at Thanksgiving or at Christmas. The revenues received by each studio, in millions of dollars, are given in the payoff matrix above. Which of the following statements correctly describes Disney's strategy given what Fox's release choice may be?

Accepted Answer

A) If Fox chooses a Thanksgiving release, Disney should choose a Christmas release. 
B) If Fox chooses a Christmas release, Disney should choose a Thanksgiving release. 
C) Disney should release on Thanksgiving regardless of what Fox does. 
D) Disney should release on Christmas regardless of what Fox does. 
E) Both answers A and B are correct. 
A) If Fox chooses a Thanksgiving release, Disney should choose a Christmas release. 
B) If Fox chooses a Christmas release, Disney should choose a Thanksgiving release. 
C) Disney should release on Thanksgiving regardless of what Fox does. 
D) Disney should release on Christmas regardless of what Fox does. 
E) Both answers A and B are correct.

Question 7

In a duopoly game, we observe the following payouts. If the two firms collude they each make an economic profit of $50,000. If one firm cheats, then that firm makes an economic profit of $60,000 and the other incurs an economics loss of $10,000. If both firms cheat, then they both make zero economic profit. What is the Nash equilibrium?

Accepted Answer

A) Both firms cheat. 
B) Neither firm cheats. 
C) One firm cheats but we don't know which one. 
D) Only the larger firm cheats. 
E) Only the smaller firm cheats. 
A) Both firms cheat. 
B) Neither firm cheats. 
C) One firm cheats but we don't know which one. 
D) Only the larger firm cheats. 
E) Only the smaller firm cheats.

Question 8

Use the information below to answer the following questions.
Fact 15.1.1 An Energy Drink with a Monster of a Stock
The $5.7 billion energy-drink category, in which Monster holds the No. 2 position behind industry leader Red Bull, has slowed down as copycat brands jostle for shelf space. Over the past five years Red Bull's market share in dollar terms has gone from 91 percent to well under 50 percent and much of that loss has been Monster's gain.
-Refer to Fact 15.1.1. If Monster and Red Bull successfully formed a cartel, the priced charged for energy drinks would ________ and economic profit would ________.

Accepted Answer

A) rise; increase 
B) rise; decrease 
C) fall; increase 
D) fall; decrease 
E) remain unchanged; remain unchanged 
A) rise; increase 
B) rise; decrease 
C) fall; increase 
D) fall; decrease 
E) remain unchanged; remain unchanged

Question 9

Limit pricing is the practice of

Accepted Answer

A) limiting the amount that can be purchased to drive up prices. 
B) threatening to go to the limit in a price war if someone enters your market. 
C) charging a monopoly price, but producing a quantity greater than the quantity at which MC = MR. 
D) setting the price at the highest level that inflicts a loss on the entrant. 
E) charging a price higher than the monopoly price, but producing a quantity greater than the quantity at which MC = MR. 
A) limiting the amount that can be purchased to drive up prices. 
B) threatening to go to the limit in a price war if someone enters your market. 
C) charging a monopoly price, but producing a quantity greater than the quantity at which MC = MR. 
D) setting the price at the highest level that inflicts a loss on the entrant. 
E) charging a price higher than the monopoly price, but producing a quantity greater than the quantity at which MC = MR.

Question 10

Which of the following quotes shows a contestable market in the widget industry?

Accepted Answer

A) "I am producing extra widgets, even though it costs me short-run profits, to stop Wally's Widgets from expanding into my market." 
B) "I am producing more widgets than Wally and I agreed to in our talk last week." 
C) "If only Wally and I could agree on a higher price, we could make more profits." 
D) "I have been spending extra on research and development of my new two-way widget." 
E) None of the above 
A) "I am producing extra widgets, even though it costs me short-run profits, to stop Wally's Widgets from expanding into my market." 
B) "I am producing more widgets than Wally and I agreed to in our talk last week." 
C) "If only Wally and I could agree on a higher price, we could make more profits." 
D) "I have been spending extra on research and development of my new two-way widget." 
E) None of the above

Question 11

Canada's anti-combine law dates from the

Accepted Answer

A) 1880s. 
B) 1910s. 
C) 1930s. 
D) 1960s. 
E) 1980s. 
A) 1880s. 
B) 1910s. 
C) 1930s. 
D) 1960s. 
E) 1980s.

Question 12

Which one of the following is not a feature common to all games?

Accepted Answer

A) rules 
B) collusion 
C) strategies 
D) payoffs 
E) an outcome 
A) rules 
B) collusion 
C) strategies 
D) payoffs 
E) an outcome

Question 13

A Nash equilibrium occurs when

Accepted Answer

A) there is a clear strategy for each player independent of the other player's actions. 
B) each player takes the best possible action given the other player's action. 
C) each player complies with the collusive agreement. 
D) you cooperate until the other player cheats, and then you cheat forever. 
E) jail time is minimized. 
A) there is a clear strategy for each player independent of the other player's actions. 
B) each player takes the best possible action given the other player's action. 
C) each player complies with the collusive agreement. 
D) you cooperate until the other player cheats, and then you cheat forever. 
E) jail time is minimized.

Question 14

Because an oligopoly has a small number of firms,

Accepted Answer

A) each firm can act like a monopoly. 
B) the firms may legally form a cartel. 
C) the HHI for the industry is small. 
D) the four-firm concentration ratio for the industry is small. 
E) the firms are interdependent. 
A) each firm can act like a monopoly. 
B) the firms may legally form a cartel. 
C) the HHI for the industry is small. 
D) the four-firm concentration ratio for the industry is small. 
E) the firms are interdependent.

Question 15

In a repeated game, punishments that result in heavy damages are an incentive for players to adopt the strategies that result in a ________ equilibrium.

Accepted Answer

A) contestable 
B) strategic 
C) complementary 
D) cooperative 
E) satisfying 
A) contestable 
B) strategic 
C) complementary 
D) cooperative 
E) satisfying

Question 16

Table 15.2.8
  
-Refer to Table 15.2.8. Libertyville has two optometrists, Dr. Smith and Dr. Jones. Each optometrist can choose to advertise his service or not. The incomes of each optometrist, in thousands of dollars, are given in the payoff matrix above. Which of the following statements correctly describes Dr. Jones' strategy given what Dr. Smith may do?

Accepted Answer

A) Dr. Jones advertises no matter what Dr. Smith does. 
B) Dr. Jones does not advertise no matter what Dr. Smith does. 
C) Dr. Jones advertises only if Dr. Smith doesn't advertise. 
D) Dr. Jones advertises only if Dr. Smith advertises. 
E) Dr. Jones does not advertise if Dr. Smith advertises. 
A) Dr. Jones advertises no matter what Dr. Smith does. 
B) Dr. Jones does not advertise no matter what Dr. Smith does. 
C) Dr. Jones advertises only if Dr. Smith doesn't advertise. 
D) Dr. Jones advertises only if Dr. Smith advertises. 
E) Dr. Jones does not advertise if Dr. Smith advertises.

Question 17

If a duopoly collusive agreement is made that maximizes joint profit,

Accepted Answer

A) each of the duopolists has no incentive to cheat on the agreement. 
B) each duopolist has the incentive to cheat on the duopoly agreement by lowering the price. 
C) each duopolist has the incentive to cheat on the agreement by increasing the price to make monopoly profit. 
D) there is no concern over the entrance of potential rivals, since they cannot decrease the duopolists' profit. 
E) the dominant strategy is to collude. 
A) each of the duopolists has no incentive to cheat on the agreement. 
B) each duopolist has the incentive to cheat on the duopoly agreement by lowering the price. 
C) each duopolist has the incentive to cheat on the agreement by increasing the price to make monopoly profit. 
D) there is no concern over the entrance of potential rivals, since they cannot decrease the duopolists' profit. 
E) the dominant strategy is to collude.

Question 18

Use the table below to answer the following questions.
Table 15.2.2
  
-Table 15.2.2 gives the payoff matrix in terms of economic profit for firms A and B when there are two strategies facing each firm: (1)charge a low price, or (2)charge a high price. Refer to the nonrepeated game in the table. In Nash equilibrium, firm A will make an economic profit of

Accepted Answer

A) -$10. 
B) $2. 
C) $10. 
D) $20. 
E) $5. 
A) -$10. 
B) $2. 
C) $10. 
D) $20. 
E) $5.

Question 19

The Competition Act distinguishes between business practices that are criminal and noncriminal. Which of the following is noncriminal?

Accepted Answer

A) conspiracy to fix prices 
B) bid-rigging 
C) resale price maintenance 
D) false advertising 
E) refusal to deal 
A) conspiracy to fix prices 
B) bid-rigging 
C) resale price maintenance 
D) false advertising 
E) refusal to deal

Question 20

In a prisoners' dilemma game, which of the following strategies gives the best outcome for both prisoners?

Accepted Answer

A) Both players deny. 
B) Both players confess. 
C) One player confesses and the other player denies. 
D) Both players hire good lawyers. 
E) None of the above 
A) Both players deny. 
B) Both players confess. 
C) One player confesses and the other player denies. 
D) Both players hire good lawyers. 
E) None of the above

Exam 15: Oligopoly

Limit pricing refers to

Consider the cartel of Trick and Gear. The game is repeated indefinitely and each firm employs a tit-for-tat strategy. The equilibrium is

Consider the cartel of Trick and Gear. The game is repeated indefinitely and each firm employs a tit-for-tat strategy. The equilibrium is called

Two firms are trying to decide how much to budget for research and development. Once a new discovery is made, each firm benefits regardless of which firm developed the innovation. In this R&D game of chicken, the Nash equilibrium is that

Limit pricing is the practice of

Which of the following quotes shows a contestable market in the widget industry?

Canada's anti-combine law dates from the

Which one of the following is not a feature common to all games?

A Nash equilibrium occurs when

Because an oligopoly has a small number of firms,

In a repeated game, punishments that result in heavy damages are an incentive for players to adopt the strategies that result in a ________ equilibrium.

If a duopoly collusive agreement is made that maximizes joint profit,

The Competition Act distinguishes between business practices that are criminal and noncriminal. Which of the following is noncriminal?

In a prisoners' dilemma game, which of the following strategies gives the best outcome for both prisoners?

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

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Governments Actions in Markets

Global Markets in Action

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Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

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The Business Cycle, Inflation, and Deflation

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