Exam 16: Business Strategy

Table 16-5 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 stores and parking lots to accommodate potential growth in their customer base. The following table depicts the strategic outcomes that result from the game. Growth-related profits of the two discount superstores under two scenarios are shown. -Refer to Table 16-5. Non-cooperative outcomes typically imply an outcome:

Two suspected drug dealers are stopped by the highway patrol for speeding. The officer searches the car and finds a small bag of marijuana, and arrests the two. During the interrogation, each is separately made the following offer: 'If you confess to dealing drugs and testify against your partner, you will be given immunity and released while your partner will get 10 years in prison. If you both confess, you will each get five years'. If neither confesses, there is no evidence of drug dealing, and the most they could get is one year each for possession of marijuana. If each suspected drug dealer follows a dominant strategy, what should they do?

The only way a cartel is able to maintain its market power is if:

Table 16-4 Consider the following Duopoly game. -Refer to Table 16-4. If both firms follow a dominant strategy, firm B's profits (losses) will be:

When an oligopolist decreases production, it is likely that the output effect is less than the price effect.

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. -Refer to Table 16-3. If the market for water was perfectly competitive instead of monopolistic, how many litres of water would be produced and sold?

As a group, oligopolists would always be better off if they would act collectively:

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

When deciding which structure best describes a market, you will need to know which of the following? (i) the number of sellers (ii) the type of product being sold (iii) the average fixed cost curves for the given firms

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

In markets characterised by oligopoly collusive agreements will always prevail.

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

Table 16-7 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 16-7. For each country, arming is what type of strategy?

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

OPEC is an example of a:

An important characteristic of a dominant strategy is that:

Table 16.6 Two firms share a common fishery. One strategy available to the firms is to fish sustainably. This maintains a healthy breeding population of fish, and keeps the price of fish relatively high. The other strategy is to overfish. This reduces the breeding population and fish prices tend to fall. The game is represented in the following table. -Refer to Table 16-6. When this game reaches a Nash equilibrium, profits for firm A and firm B will be:

Assume that the countries of Irun and Urun are the only two producers of crude oil. Further assume that both countries have entered into an agreement to maintain certain production levels in order to maximise profits. The world market for oil is represented by a downward-sloping demand curve. -According to the information provided, if Irun fails to live up to the production agreement and overproduces, Urun will be:

Table 16-5 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 stores and parking lots to accommodate potential growth in their customer base. The following table depicts the strategic outcomes that result from the game. Growth-related profits of the two discount superstores under two scenarios are shown. -Refer to Table 16-5. If both stores follow a dominant strategy, SuperDuper Saver's growth related profits will be:

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 $10 000 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. Any firm can change tickets by steps of 1000 only. Prices for missing quantities are the exact midpoint between two adjacent prices. -Refer to Table 16-1. Assume that there are two ecotourist companies operating in this market. If they are able to collude on the price of tickets to sell, what price will they charge, and how many tickets will they collectively sell?