Question 1

Overt collusion is relatively rare because:

Accepted Answer

A)  they are illegal in some countries, including the United States. 
B)  members find it difficult to agree on key decisions. 
C)  members frequently have an incentive to cheat on the cartel. 
D)  of all the above reasons. 
A)  they are illegal in some countries, including the United States. 
B)  members find it difficult to agree on key decisions. 
C)  members frequently have an incentive to cheat on the cartel. 
D)  of all the above reasons.

Question 2

Exhibit 15-2 Two cigarette manufacturers (Firm A and Firm B)are faced with lawsuits from states to recover the health care-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 the cigarette manufacturers,and thus will have difficulty recovering full costs without the help of at least one tobacco firm's evidence.Each firm has been presented with an opportunity to lower their liability in the suit if they cooperate with attorneys representing the states.
  Refer to Exhibit 15-2.If both firms follow a dominant strategy,Firm B's profits (losses)will be:

Accepted Answer

A)  -$50 billion 
B)  -$20 billion 
C)  -$15 billion 
D)  -$10 billion 
A)  -$50 billion 
B)  -$20 billion 
C)  -$15 billion 
D)  -$10 billion

Question 3

In which market structure is there clear interdependence between individual firms with regard to prices and sales?

Accepted Answer

A)  pure competition. 
B)  monopolistic competition. 
C)  oligopoly. 
D)  monopoly. 
A)  pure competition. 
B)  monopolistic competition. 
C)  oligopoly. 
D)  monopoly.

Question 4

In the "Prisoners' Dilemma" game:

Accepted Answer

A)  prisoners are able to collude with one another. 
B)  prisoners are unable to communicate with one another. 
C)  the Nash equilibrium results in prisoners serving the smallest combined prison term. 
D)  the Nash equilibrium results in one prisoner confessing, while the other does not. 
A)  prisoners are able to collude with one another. 
B)  prisoners are unable to communicate with one another. 
C)  the Nash equilibrium results in prisoners serving the smallest combined prison term. 
D)  the Nash equilibrium results in one prisoner confessing, while the other does not.

Question 5

An oligopoly is a market:

Accepted Answer

A)  dominated by a few buyers. 
B)  dominated by one buyer. 
C)  dominated by a few sellers. 
D)  with many sellers. 
A)  dominated by a few buyers. 
B)  dominated by one buyer. 
C)  dominated by a few sellers. 
D)  with many sellers.

Question 6

Which is the following is true of games,in interactions between oligopolists?

Accepted Answer

A)  All games are cooperative in nature. 
B)  Those in cooperative games are assumed to act independently. 
C)  Interdependence is a facet of noncooperative games. 
D)  Most games are noncooperative games. 
A)  All games are cooperative in nature. 
B)  Those in cooperative games are assumed to act independently. 
C)  Interdependence is a facet of noncooperative games. 
D)  Most games are noncooperative games.

Question 7

An example of an oligopoly is:

Accepted Answer

A)  the commercial airline industry. 
B)  a stock market. 
C)  the video rental industry. 
D)  the market for eyeglasses. 
A)  the commercial airline industry. 
B)  a stock market. 
C)  the video rental industry. 
D)  the market for eyeglasses.

Question 8

When the prisoners follow their dominant strategy and confess,they will be worse off than if both had remained silent-hence,the "prisoners' dilemma."

Accepted Answer

A) True 
 B)False

Question 9

The tools of "game theory" are most helpful to economists in markets characterized by:

Accepted Answer

A)  perfect competition. 
B)  oligopoly. 
C)  monopolistic competition. 
D)  monopoly. 
A)  perfect competition. 
B)  oligopoly. 
C)  monopolistic competition. 
D)  monopoly.

Question 10

Which of the following is a unique characteristic of the oligopolistic market structure?

Accepted Answer

A)  low barriers to entry 
B)  a large number of firms 
C)  product differentiation 
D)  mutual interdependence among firms 
A)  low barriers to entry 
B)  a large number of firms 
C)  product differentiation 
D)  mutual interdependence among firms

Question 11

In a typical cartel agreement,the cartel maximizes profit when it:

Accepted Answer

A)  behaves as a duopolist. 
B)  is flexible in enforcing production targets. 
C)  behaves as a monopolist. 
D)  behaves as a perfectly competitive firm. 
A)  behaves as a duopolist. 
B)  is flexible in enforcing production targets. 
C)  behaves as a monopolist. 
D)  behaves as a perfectly competitive firm.

Question 12

Which of the following is true for a typical firm in a typical cartel?

Accepted Answer

A)  "I can never do better for myself than by following agreed-upon cartel policies." 
B)  "If everyone cheats, I'm better off, and so is everyone else in the cartel." 
C)  "If I alone cheat, I'm better off; if everyone cheats, I'm worse off." 
D)  "If I suspect others are planning to cheat, I'll do best for myself by refraining from cheating." 
A)  "I can never do better for myself than by following agreed-upon cartel policies." 
B)  "If everyone cheats, I'm better off, and so is everyone else in the cartel." 
C)  "If I alone cheat, I'm better off; if everyone cheats, I'm worse off." 
D)  "If I suspect others are planning to cheat, I'll do best for myself by refraining from cheating."

Question 13

The key characteristic of oligopoly markets is "interdependence among firms." This means that:

Accepted Answer

A)  the demand curve faced by each firm is perfectly elastic. 
B)  each firm produces a product identical to its rivals. 
C)  each firm must consider how its decisions will affect its competitors. 
D)  firms will be able to earn above-normal profits in the long run. 
A)  the demand curve faced by each firm is perfectly elastic. 
B)  each firm produces a product identical to its rivals. 
C)  each firm must consider how its decisions will affect its competitors. 
D)  firms will be able to earn above-normal profits in the long run.

Question 14

In the "Prisoners' Dilemma" game:

Accepted Answer

A)  both players have a dominant strategy not to confess. 
B)  only one player has a dominant strategy to confess. 
C)  both players have a dominant strategy to confess. 
D)  neither player has a dominant strategy. 
A)  both players have a dominant strategy not to confess. 
B)  only one player has a dominant strategy to confess. 
C)  both players have a dominant strategy to confess. 
D)  neither player has a dominant strategy.

Question 15

Explain the different sources of negative network externalities.

Accepted Answer

Negative network externalities may be a

Question 16

A cartel is a group of firms that attempt to collude by coordinating price and output decisions.

Accepted Answer

A) True 
 B)False

Question 17

The demand curve faced by an oligopolistic producer depends on how rival firms react to its prices and policies.

Accepted Answer

A) True 
 B)False

Question 18

Firms in oligopoly often behave like the prisoners in the prisoners' dilemma,carefully
anticipating the moves of their rivals in an uncertain environment.

Accepted Answer

A) True 
 B)False

Question 19

The primary difference between cooperative and noncooperative games is the ability to form contracts.

Accepted Answer

A) True 
 B)False

Question 20

Cartels are difficult to maintain because:

Accepted Answer

A)  there are generally few barriers to entry in oligopoly markets. 
B)  firms have a strong private incentive to cheat on agreements. 
C)  it is difficult to enforce a cartel agreement. 
D)  both (b) and (c). 
A)  there are generally few barriers to entry in oligopoly markets. 
B)  firms have a strong private incentive to cheat on agreements. 
C)  it is difficult to enforce a cartel agreement. 
D)  both (b) and (c).

Exam 15: Oligopoly and Strategic Behavior

Overt collusion is relatively rare because:

In which market structure is there clear interdependence between individual firms with regard to prices and sales?

In the "Prisoners' Dilemma" game:

An oligopoly is a market:

Which is the following is true of games,in interactions between oligopolists?

An example of an oligopoly is:

When the prisoners follow their dominant strategy and confess,they will be worse off than if both had remained silent-hence,the "prisoners' dilemma."

The tools of "game theory" are most helpful to economists in markets characterized by:

Which of the following is a unique characteristic of the oligopolistic market structure?

In a typical cartel agreement,the cartel maximizes profit when it:

Which of the following is true for a typical firm in a typical cartel?

The key characteristic of oligopoly markets is "interdependence among firms." This means that:

In the "Prisoners' Dilemma" game:

Explain the different sources of negative network externalities.

A cartel is a group of firms that attempt to collude by coordinating price and output decisions.

The demand curve faced by an oligopolistic producer depends on how rival firms react to its prices and policies.

Firms in oligopoly often behave like the prisoners in the prisoners' dilemma,carefully anticipating the moves of their rivals in an uncertain environment.

The primary difference between cooperative and noncooperative games is the ability to form contracts.

Cartels are difficult to maintain because:

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

Filters