Question 1

In the prisoners' dilemma game with Bonnie and Clyde as the players, the likely outcome is one

Accepted Answer

A)  in which neither Bonnie nor Clyde confesses. 
B)  in which both Bonnie and Clyde confess. 
C)  that involves neither Bonnie nor Clyde pursuing a dominant strategy. 
D)  that is ideal in terms of Bonnie's self­interest and in terms of Clyde's self­interest. 
A)  in which neither Bonnie nor Clyde confesses. 
B)  in which both Bonnie and Clyde confess. 
C)  that involves neither Bonnie nor Clyde pursuing a dominant strategy. 
D)  that is ideal in terms of Bonnie's self­interest and in terms of Clyde's self­interest.

Question 2

When oligopolistic firms interacting with one another each choose their best strategy given the strategies chosen by other firms in the market, we have

Accepted Answer

A)  a cartel. 
B)  a group of oligopolists behaving as a monopoly. 
C)  a Nash equilibrium. 
D)  the perfectly competitive outcome. 
A)  a cartel. 
B)  a group of oligopolists behaving as a monopoly. 
C)  a Nash equilibrium. 
D)  the perfectly competitive outcome.

Question 3

Which of the following statements is correct?

Accepted Answer

A)  Strategic situations are more likely to arise when the number of decision-makers is very large rather than very small. 
B)  Strategic situations are more likely to arise in monopolistically competitive markets than in oligopolistic markets. 
C)  Game theory is useful in understanding certain business decisions, but it is not really applicable to ordinary games such as chess or tic-tac-toe. 
D)  Game theory is not necessary for understanding competitive or monopoly markets. 
A)  Strategic situations are more likely to arise when the number of decision-makers is very large rather than very small. 
B)  Strategic situations are more likely to arise in monopolistically competitive markets than in oligopolistic markets. 
C)  Game theory is useful in understanding certain business decisions, but it is not really applicable to ordinary games such as chess or tic-tac-toe. 
D)  Game theory is not necessary for understanding competitive or monopoly markets.

Question 4

When firms have agreements among themselves on the quantity to produce and the price at which to sell output, we refer to their form of organization as a

Accepted Answer

A)  Nash arrangement. 
B)  cartel. 
C)  monopolistically competitive oligopoly. 
D)  perfectly competitive oligopoly. 
A)  Nash arrangement. 
B)  cartel. 
C)  monopolistically competitive oligopoly. 
D)  perfectly competitive oligopoly.

Question 5

Table 17-11
Only two firms, ABC and XYZ, sell a particular product. The table below shows the demand curve for their product. Each firm has the same constant marginal cost of $8 and zero fixed cost.
  
-Refer to Table 17-11. ABC and XYZ agree to maximize joint profits. However, while ABC produces the agreed upon amount, XYZ breaks the agreement and produces 5 more than agreed. How much profit does XYZ make?

Accepted Answer

A)  $90 
B)  $140 
C)  $240 
D)  $280 
A)  $90 
B)  $140 
C)  $240 
D)  $280

Question 6

Laurel and Janet are competitors in a local market and each is trying to decide if it is worthwhile to advertise. If both of them advertise, each will earn a profit of $5,000. If neither of them advertise, each will earn a profit of $10,000. If one advertises and the other doesn't, then the one who advertises will earn a profit of $12,000 and the other will earn $2,000. In this version of the prisoners' dilemma, if the game is played only once, Laurel should

Accepted Answer

A)  advertise, but if the game is to be repeated many times she should probably not advertise. 
B)  advertise, and if the game is to be repeated many times she should still probably advertise. 
C)  not advertise, but if the game is to be repeated many times she should probably advertise. 
D)  not advertise, and if the game is to be repeated many times she should still not advertise. 
A)  advertise, but if the game is to be repeated many times she should probably not advertise. 
B)  advertise, and if the game is to be repeated many times she should still probably advertise. 
C)  not advertise, but if the game is to be repeated many times she should probably advertise. 
D)  not advertise, and if the game is to be repeated many times she should still not advertise.

Question 7

Table 17-2
Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below:
  
-Refer to Table 17-2. If this market for water were perfectly competitive instead of monopolistic, what would be the price for water?

Accepted Answer

A)  $0 
B)  $4 
C)  $6 
D)  $12 
A)  $0 
B)  $4 
C)  $6 
D)  $12

Question 8

Table 17-26
Two prescription drug manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the healthcare related expenses associated with side-effects from its drugs. Each drug manufacturer has evidence that indicates that taking its prescription drug causes liver failure. State prosecutors do not have access to the same data used by drug manufacturers and thus will have difficulty recovering full costs without the help of at least one of the drug manufacturer's studies. Each firm has been presented with an opportunity to lower its liability in the suit if it cooperates with attorneys representing the states.
   Refer to Table 17-26. Pursuing its own best interests, Firm A will concede that taking their prescription drug
causes liver failure
e. only if Firm B concedes that taking its drug causes liver failure.
f. only if Firm B does not concede that taking its drug causes liver failure.
g. regardless of whether Firm B concedes that taking its drug causes liver failure.
h. None of the above. In pursuing its own best interests, Firm A will in no case concede that taking its prescription drug causes liver failure.
ANSWER: d
POINTS: 1
DIFFICULTY: Difficulty: Moderate
LEARNING OBJECTIVES: ECON.MANK.15.84 - LO: 17-2
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Game Theory
KEYWORDS: BLOOM'S: Application
NOTES: r
-Refer to Table 17-26. Pursuing its own best interests, Firm B will concede that taking its drug causes liver failure

Accepted Answer

A)  only if Firm A concedes that taking its drug causes liver failure. 
B)  only if Firm A does not concede that taking its drug causes liver failure. 
C)  regardless of whether Firm A concedes that taking its drug causes liver failure. 
D)  None of the above; in pursuing its own best interests, Firm B will in no case concede that taking its drug causes liver failure. 
A)  only if Firm A concedes that taking its drug causes liver failure. 
B)  only if Firm A does not concede that taking its drug causes liver failure. 
C)  regardless of whether Firm A concedes that taking its drug causes liver failure. 
D)  None of the above; in pursuing its own best interests, Firm B will in no case concede that taking its drug causes liver failure.

Question 9

In game theory, a Nash equilibrium is

Accepted Answer

A)  an outcome in which each player is doing his best given the strategies chosen by the other players. 
B)  an outcome in which no player wishes to change her chosen strategy given the strategies chosen by the other players. 
C)  the outcome that occurs when all players have a dominant strategy. 
D)  All of the above are correct. 
A)  an outcome in which each player is doing his best given the strategies chosen by the other players. 
B)  an outcome in which no player wishes to change her chosen strategy given the strategies chosen by the other players. 
C)  the outcome that occurs when all players have a dominant strategy. 
D)  All of the above are correct.

Question 10

Table 17-1
Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each week Rochelle and Alec work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Rochelle and Alec 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 is shown in the table below:
   21.
-Refer to Table 17-1. If the market for water were perfectly competitive instead of monopolistic, how many gallons of water would be produced and sold?

Accepted Answer

A)  0 gallons 
B)  600 gallons 
C)  900 gallons 
D)  1,200 gallons 
A)  0 gallons 
B)  600 gallons 
C)  900 gallons 
D)  1,200 gallons

Question 11

In choosing among alternative courses of action, Raj must consider how others might respond to the action he takes. In the language of game theory, we say that Raj must think

Accepted Answer

A)  openly. 
B)  strategically. 
C)  dominantly. 
D)  cooperatively. 
A)  openly. 
B)  strategically. 
C)  dominantly. 
D)  cooperatively.

Question 12

How does the prisoners' dilemma game apply to real­life situations?

Accepted Answer

It illustrates how cooperation

Question 13

Government regulators might suspect a firm of engaging in predatory pricing if it charges prices that seem to be too
__________.

Accepted Answer

The answer of Government regulators might suspect a firm of...

Question 14

Table 17-5
The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $200,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero.
  
-Refer to Table 17-5. Assume there are two digital cable TV companies operating in this market. If they are able to collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions, then their agreement will stipulate that

Accepted Answer

A)  each firm will charge a price of $90 and each firm will sell 4,500 subscriptions. 
B)  each firm will charge a price of $90 and each firm will sell 9,000 subscriptions. 
C)  each firm will charge a price of $120 and each firm will sell 3,000 subscriptions. 
D)  each firm will charge a price of $150 and each firm will sell 1,500 subscriptions. 
A)  each firm will charge a price of $90 and each firm will sell 4,500 subscriptions. 
B)  each firm will charge a price of $90 and each firm will sell 9,000 subscriptions. 
C)  each firm will charge a price of $120 and each firm will sell 3,000 subscriptions. 
D)  each firm will charge a price of $150 and each firm will sell 1,500 subscriptions.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Table 17-2
Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below:
  
-Refer to Table 17-2. Suppose that Abby and Brad work together to operate as a profit-maximizing monopolist. How many gallons of water will be produced and sold?

Accepted Answer

A)  4 gallons 
B)  5 gallons 
C)  6 gallons 
D)  8 gallons 
A)  4 gallons 
B)  5 gallons 
C)  6 gallons 
D)  8 gallons

Question 17

Table 17-27
Each year the United States considers renewal of Most Favored Nation (MFN) trading status with Farland (a mythical nation). Historically, legislators have made threats of not renewing MFN status because of human rights abuses in Farland. The non-renewal of MFN trading status is likely to involve some retaliatory measures by Farland. The payoff table below shows the potential economic gains associated with a game in which Farland may impose trade sanctions against U.S. firms and the United States may not renew MFN status with Farland. The table contains the dollar value of all trade-flow benefits to the United States and Farland.
  
-Refer to Table 17-27. Pursuing its own best interests, the U.S. will renew MFN status with Farland

Accepted Answer

A)  only if Farland does not impose trade sanctions against U.S. firms. 
B)  only if Farland imposes trade sanctions against U.S. firms. 
C)  regardless of whether Farland imposes trade sanctions against U.S. firms. 
D)  None of the above is correct. In pursuing its own best interests, the United States will in no case renew MFN status with Farland. 
A)  only if Farland does not impose trade sanctions against U.S. firms. 
B)  only if Farland imposes trade sanctions against U.S. firms. 
C)  regardless of whether Farland imposes trade sanctions against U.S. firms. 
D)  None of the above is correct. In pursuing its own best interests, the United States will in no case renew MFN status with Farland.

Question 18

Which of these situations produces the largest profits for oligopolists?

Accepted Answer

A)  The firms reach a Nash equilibrium. 
B)  The firms reach the monopoly outcome. 
C)  The firms reach the competitive outcome. 
D)  The firms produce a quantity of output that lies between the competitive outcome and the monopoly outcome. 
A)  The firms reach a Nash equilibrium. 
B)  The firms reach the monopoly outcome. 
C)  The firms reach the competitive outcome. 
D)  The firms produce a quantity of output that lies between the competitive outcome and the monopoly outcome.

Question 19

Acme Computer Co. sells computers to retail stores for $400. If Acme requires the retailers to charge customers $500 for the computers, then it is engaging in

Accepted Answer

A)  resale price maintenance. 
B)  predatory pricing. 
C)  tying. 
D)  monopolistic competition. 
A)  resale price maintenance. 
B)  predatory pricing. 
C)  tying. 
D)  monopolistic competition.

Question 20

If duopoly firms that are not colluding were able to successfully collude, then

Accepted Answer

A)  price and quantity would rise. 
B)  price and quantity would fall. 
C)  price would rise and quantity would fall. 
D)  price would fall and quantity would rise. 
A)  price and quantity would rise. 
B)  price and quantity would fall. 
C)  price would rise and quantity would fall. 
D)  price would fall and quantity would rise.

In the prisoners' dilemma game with Bonnie and Clyde as the players, the likely outcome is one

When oligopolistic firms interacting with one another each choose their best strategy given the strategies chosen by other firms in the market, we have

Which of the following statements is correct?

When firms have agreements among themselves on the quantity to produce and the price at which to sell output, we refer to their form of organization as a

In game theory, a Nash equilibrium is

In choosing among alternative courses of action, Raj must consider how others might respond to the action he takes. In the language of game theory, we say that Raj must think

How does the prisoners' dilemma game apply to reallife situations?

Government regulators might suspect a firm of engaging in predatory pricing if it charges prices that seem to be too __________.

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

Which of these situations produces the largest profits for oligopolists?

Acme Computer Co. sells computers to retail stores for $400. If Acme requires the retailers to charge customers $500 for the computers, then it is engaging in

If duopoly firms that are not colluding were able to successfully collude, then

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

Filters

Exam 17: Oligopoly

In the prisoners' dilemma game with Bonnie and Clyde as the players, the likely outcome is one

When oligopolistic firms interacting with one another each choose their best strategy given the strategies chosen by other firms in the market, we have

Which of the following statements is correct?

When firms have agreements among themselves on the quantity to produce and the price at which to sell output, we refer to their form of organization as a

In game theory, a Nash equilibrium is

In choosing among alternative courses of action, Raj must consider how others might respond to the action he takes. In the language of game theory, we say that Raj must think

How does the prisoners' dilemma game apply to real­life situations?

Government regulators might suspect a firm of engaging in predatory pricing if it charges prices that seem to be too __________.

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

Which of these situations produces the largest profits for oligopolists?

Acme Computer Co. sells computers to retail stores for $400. If Acme requires the retailers to charge customers $500 for the computers, then it is engaging in

If duopoly firms that are not colluding were able to successfully collude, then

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

Filters

How does the prisoners' dilemma game apply to reallife situations?