Exam 16: Business Strategy

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, the agreed upon production level between the two countries will invariably be:

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 less than the monopoly price.

Table 16-2 In the following duopoly game, the two firms can either set the price of their product high or low. If one firm's price is lower than the other, most of the market will buy from them. This will increase the low-price firm's profit at the expense of the other firm. The game is represented in the table below. -Refer to Table 16-2. What is the profit firm A will earn if it plays its dominant strategy:

Why is a lack of cooperation between criminal suspects desirable for society as a whole?

The prisoners' dilemma provides insights into how easy it is to maintain cooperation.

Monopolistic competition describes a market structure in which there is one firm.

A dominant strategy is the best strategy for a player to follow regardless of the strategies pursued by other players.

Hyundai and Toyota 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 paradoxical nature of the oligopoly game can be described by the fact that even though the monopoly outcome is best for all the oligopolists:

When deciding whether the market is an oligopoly or not, there is no magical number of firms that defines an oligopoly.

In a two-person repeated game, a tit-for-tat strategy starts with:

In a competitive market, strategic interactions among the firms are not important.

When oligopoly firms maximise profit, the output effect:

Games that are played more than once generally make collusive arrangements harder to enforce.

Imagine that two oil companies, Big Petro Inc. and Gargantuan Gas, own adjacent oil fields. Under the fields is a common pool of oil worth $24 million. Drilling a well to recover oil costs $2 million per well. If each company drills one well, each will get half of the oil and earn a $10 million profit ($12 million in revenue - $2 million in costs). If a company has X per cent of the total wells, then it will collect X per cent of the total revenue. -According to the information provided, if Big Petro Inc. were to drill a second well and Gargantuan Gas also drilled a second well, what would Big Petro Inc's profit be?

What is OPEC and how effective was it at colluding to maintain high prices for its product?

In which of the following prisoners' dilemma games is the non-cooperative outcome actually bad for society as well as for the players? (i) oligopolists try to maintain monopoly profits (ii) two countries are involved in an arms race (iii) two oil producers act on their own self-interest when deciding how many wells to dig

In the case of oligopolists trying to maintain monopoly profits, the profit-maximising level of production is:

Some companies have competitors but do not face much competition; in this case they are not price takers. Economists call this situation:

Table 16-2 In the following duopoly game, the two firms can either set the price of their product high or low. If one firm's price is lower than the other, most of the market will buy from them. This will increase the low-price firm's profit at the expense of the other firm. The game is represented in the table below. -Refer to Table 16-2. The Nash equilibrium for this game is for: