Question 1

For a firm,strategic interactions with other firms in the market become more important as the number of firms in the market becomes larger.

Accepted Answer

A) True 
 B)False

Question 2

In a prisoners' dilemma game,

Accepted Answer

A)  the solution when playing the game once will be the same as the solution when the players play the game repeatedly,since agreements cannot be maintained in a prisoners' dilemma. 
B)  if the players play the game repeatedly,the players can achieve a higher payoff,on average,than when they play the game only once. 
C)  repeated play will always result in a better outcome for both players than when the game is played only once. 
D)  the tit-for-tat strategy in repeated play requires players to always select the opposite strategy as their opponent. 
A)  the solution when playing the game once will be the same as the solution when the players play the game repeatedly,since agreements cannot be maintained in a prisoners' dilemma. 
B)  if the players play the game repeatedly,the players can achieve a higher payoff,on average,than when they play the game only once. 
C)  repeated play will always result in a better outcome for both players than when the game is played only once. 
D)  the tit-for-tat strategy in repeated play requires players to always select the opposite strategy as their opponent.

Question 3

Scenario 17-3.Consider two countries,Muria and Zenya,that are engaged in an arms race.Each country must decide 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 following table shows the possible outcomes for each decision combination.The numbers in each cell represent the country's ranking of the outcome (4 = best outcome,1 = worst outcome).
  
-Refer to Scenario 17-3.Suppose the two countries agreed to disarm existing weapons.In reality these two countries may have a hard time keeping this agreement due to which of the following reasons?

Accepted Answer

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

Question 4

An equilibrium in which each firm in an oligopoly maximizes profit,given the actions of its rivals,is called

Accepted Answer

A)  a general equilibrium. 
B)  a dominant equilibrium. 
C)  a Nash equilibrium. 
D)  an oligopoly equilibrium. 
A)  a general equilibrium. 
B)  a dominant equilibrium. 
C)  a Nash equilibrium. 
D)  an oligopoly equilibrium.

Question 5

The equilibrium quantity in markets characterized by oligopoly is

Accepted Answer

A)  higher than in monopoly markets and higher than in perfectly competitive markets. 
B)  higher than in monopoly markets and lower than in perfectly competitive markets. 
C)  lower than in monopoly markets and higher than in perfectly competitive markets. 
D)  lower than in monopoly markets and lower than in perfectly competitive markets. 
A)  higher than in monopoly markets and higher than in perfectly competitive markets. 
B)  higher than in monopoly markets and lower than in perfectly competitive markets. 
C)  lower than in monopoly markets and higher than in perfectly competitive markets. 
D)  lower than in monopoly markets and lower than in perfectly competitive markets.

Question 6

Policymakers should be aggressive in using their powers to place limits on firm behavior,because business practices that appear to reduce competition never have any legitimate purposes.

Accepted Answer

A) True 
 B)False

Question 7

In the prisoners' dilemma game,self-interest leads

Accepted Answer

A)  each prisoner to confess. 
B)  to a breakdown of any agreement that the prisoners might have made before being questioned. 
C)  to an outcome that is not particularly good for either prisoner. 
D)  All of the above are correct. 
A)  each prisoner to confess. 
B)  to a breakdown of any agreement that the prisoners might have made before being questioned. 
C)  to an outcome that is not particularly good for either prisoner. 
D)  All of the above are correct.

Question 8

Scenario 17-4.Consider two cigarette companies,PM Inc.and Brown Inc.If neither company advertises,the two companies split the market and earn $50 million each.If they both advertise,they again split the market,but profits are lower by $10 million since each company must bear the cost of advertising.Yet if one company advertises while the other does not,the one that advertises attracts customers from the other.In this case,the company that advertises earns $60 million while the company that does not advertise earns only $30 million.
-Refer to Scenario 17-4.In 1971,Congress passed a law that banned cigarette advertising on television.If cigarette companies are profit maximizers,it is likely that

Accepted Answer

A)  neither company opposed the ban on advertising. 
B)  Brown Inc.sued the federal government on grounds that the ban constitutes a civil rights violation. 
C)  both companies sued the federal government on grounds that the ban constitutes a civil rights violation. 
D)  both companies retaliated with black-market operations. 
A)  neither company opposed the ban on advertising. 
B)  Brown Inc.sued the federal government on grounds that the ban constitutes a civil rights violation. 
C)  both companies sued the federal government on grounds that the ban constitutes a civil rights violation. 
D)  both companies retaliated with black-market operations.

Question 9

Table 17-8.For a certain small town,the table shows the demand schedule for water.Assume the marginal cost of supplying water is constant at $4 per bottle.
  
-Refer to Table 17-8.If there are two suppliers of water,Mort and Callie,then what will be their combined level of output when a Nash equilibrium is reached?

Accepted Answer

A)  200 
B)  400 
C)  600 
D)  800 
A)  200 
B)  400 
C)  600 
D)  800

Question 10

Tying involves a firm

Accepted Answer

A)  colluding with another firm to restrict output and raise prices. 
B)  selling two individual products together for a single price rather than selling each product individually at separate prices. 
C)  temporarily cutting the price of its product to drive a competitor out of the market. 
D)  requiring that the firm reselling its product do so at a specified price. 
A)  colluding with another firm to restrict output and raise prices. 
B)  selling two individual products together for a single price rather than selling each product individually at separate prices. 
C)  temporarily cutting the price of its product to drive a competitor out of the market. 
D)  requiring that the firm reselling its product do so at a specified price.

Question 11

Table 17-5.Imagine a small town in which only two residents,Bill and Ben,own wells that produce safe drinking water.Each week Bill and Ben work together to decide how many gallons of water to pump,to bring the water to town,and to sell it at whatever price the market will bear.Assume Bill and Ben can pump as much water as they want without cost so that the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water are shown in the table below.
  
-Refer to Table 17-5.Suppose the town enacts new antitrust laws that prohibit Bill and Ben from operating as a monopolist.What will the new price of water be once the Nash equilibrium is reached?

Accepted Answer

A)  $3 
B)  $4 
C)  $5 
D)  $6 
A)  $3 
B)  $4 
C)  $5 
D)  $6

Question 12

Table 17-14.This table shows a game played between two players,A and B.The payoffs are given in the table as (Payoff to A,Payoff to B).
  
-Refer to Table 17-14.Which of the following statements is true regarding this game?

Accepted Answer

A)  Both players have a dominant strategy. 
B)  Neither player has a dominant strategy. 
C)  A has a dominant strategy,but B does not have a dominant strategy. 
D)  B has a dominant strategy,but A does not have a dominant strategy. 
A)  Both players have a dominant strategy. 
B)  Neither player has a dominant strategy. 
C)  A has a dominant strategy,but B does not have a dominant strategy. 
D)  B has a dominant strategy,but A does not have a dominant strategy.

Question 13

Oligopolists may well be able to reach their preferred,cooperative outcome if

Accepted Answer

A)  the number of oligopolists is large. 
B)  they learn that a Nash equilibrium is in their best long-term interests. 
C)  a sufficient number of firms can be persuaded to lower their prices. 
D)  the game they play is repeated a sufficient number of times. 
A)  the number of oligopolists is large. 
B)  they learn that a Nash equilibrium is in their best long-term interests. 
C)  a sufficient number of firms can be persuaded to lower their prices. 
D)  the game they play is repeated a sufficient number of times.

Question 14

In a duopoly situation,the logic of self-interest results in a total output level that

Accepted Answer

A)  equals the output level that would prevail in a competitive market. 
B)  equals the output level that would prevail in a monopoly. 
C)  exceeds the monopoly level of output,but falls short of the competitive level of output. 
D)  falls short of the monopoly level of output. 
A)  equals the output level that would prevail in a competitive market. 
B)  equals the output level that would prevail in a monopoly. 
C)  exceeds the monopoly level of output,but falls short of the competitive level of output. 
D)  falls short of the monopoly level of output.

Question 15

As a group,oligopolists earn the highest profit when they

Accepted Answer

A)  achieve a Nash equilibrium. 
B)  produce a total quantity of output that falls short of the Nash-equilibrium total quantity. 
C)  produce a total quantity of output that exceeds the Nash-equilibrium total quantity. 
D)  charge a price that falls short of the Nash-equilibrium price. 
A)  achieve a Nash equilibrium. 
B)  produce a total quantity of output that falls short of the Nash-equilibrium total quantity. 
C)  produce a total quantity of output that exceeds the Nash-equilibrium total quantity. 
D)  charge a price that falls short of the Nash-equilibrium price.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

A distinguishing feature of an oligopolistic industry is the tension between

Accepted Answer

A)  profit maximization and cost minimization. 
B)  cooperation and self interest. 
C)  producing a small amount of output and charging a price above marginal cost. 
D)  short-run decisions and long-run decisions. 
A)  profit maximization and cost minimization. 
B)  cooperation and self interest. 
C)  producing a small amount of output and charging a price above marginal cost. 
D)  short-run decisions and long-run decisions.

Question 18

Suppose two companies own adjacent oil fields.Under the two fields is a common pool of oil worth $30 million.For each well that is drilled,the company that drills the well incurs a cost of $3 million.Each company can drill up to two wells.What is the likely outcome of this game if each company pursues its own self-interest?

Accepted Answer

A)  Each company drills one well and experiences a profit of $12 million. 
B)  Each company drills one well and experiences a profit of $10 million. 
C)  Each company drills two wells and experiences a profit of $9 million. 
D)  One company drills two wells and experiences a profit of $14 million;the other company drills one well and experiences a profit of $7 million. 
A)  Each company drills one well and experiences a profit of $12 million. 
B)  Each company drills one well and experiences a profit of $10 million. 
C)  Each company drills two wells and experiences a profit of $9 million. 
D)  One company drills two wells and experiences a profit of $14 million;the other company drills one well and experiences a profit of $7 million.

Question 19

Table 17-11
Two home-improvement stores (Big Box Deluxe and Homes R Us)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.Increases in annual profits of the two home-improvement stores are shown in the table below.
  
-Refer to Table 17-11.When this game reaches a Nash equilibrium,annual profit will grow by

Accepted Answer

A)  $0.75 million for Homes R Us and by $0.50 million for Big Box Deluxe. 
B)  $1.70 million for Homes R Us and by $0.20 million for Big Box Deluxe. 
C)  $0.30 million for Homes R Us and by $1.60 million for Big Box Deluxe. 
D)  $1.25 million for Homes R Us and by $1.00 million for Big Box Deluxe. 
A)  $0.75 million for Homes R Us and by $0.50 million for Big Box Deluxe. 
B)  $1.70 million for Homes R Us and by $0.20 million for Big Box Deluxe. 
C)  $0.30 million for Homes R Us and by $1.60 million for Big Box Deluxe. 
D)  $1.25 million for Homes R Us and by $1.00 million for Big Box Deluxe.

Question 20

George and Jerry are competitors in a local market.Each is trying to decide if it is better to advertise on TV,on radio,or not at all.If they both advertise on TV,each will earn a profit of $3,000.If they both advertise on radio,each will earn a profit of $5,000.If neither advertises at all,each will earn a profit of $10,000.If one advertises on TV and the other advertises on radio,then the one advertising on TV will earn $4,000 and the other will earn $2,000.If one advertises on TV and the other does not advertise,then the one advertising on TV will earn $8,000 and the other will earn $5,000.If one advertises on radio and the other does not advertise,then the one advertising on radio will earn $9,000 and the other will earn $6,000.If both follow their dominant strategy,then George will

Accepted Answer

A)  advertise on TV and earn $3,000. 
B)  advertise on radio and earn $5,000. 
C)  advertise on TV and earn $8,000. 
D)  not advertise and earn $10,000. 
A)  advertise on TV and earn $3,000. 
B)  advertise on radio and earn $5,000. 
C)  advertise on TV and earn $8,000. 
D)  not advertise and earn $10,000.

Exam 17: Oligopoly

For a firm,strategic interactions with other firms in the market become more important as the number of firms in the market becomes larger.

In a prisoners' dilemma game,

An equilibrium in which each firm in an oligopoly maximizes profit,given the actions of its rivals,is called

The equilibrium quantity in markets characterized by oligopoly is

Policymakers should be aggressive in using their powers to place limits on firm behavior,because business practices that appear to reduce competition never have any legitimate purposes.

In the prisoners' dilemma game,self-interest leads

Tying involves a firm

Table 17-14.This table shows a game played between two players,A and B.The payoffs are given in the table as (Payoff to A,Payoff to B). -Refer to Table 17-14.Which of the following statements is true regarding this game?

Oligopolists may well be able to reach their preferred,cooperative outcome if

In a duopoly situation,the logic of self-interest results in a total output level that

As a group,oligopolists earn the highest profit when they

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

A distinguishing feature of an oligopolistic industry is the tension between

Ten Principles of 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

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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