Question 1

When prisoners' dilemma games are repeated over and over, sometimes the threat of penalty causes both parties to cooperate.

Accepted Answer

A) True 
 B)False

Question 2

The Sherman Act made cooperative agreements

Accepted Answer

A)  unenforceable outside of established judicial review processes. 
B)  enforceable with proper judicial review. 
C)  a criminal conspiracy. 
D)  a crime, but did not give direction on possible penalties. 
A)  unenforceable outside of established judicial review processes. 
B)  enforceable with proper judicial review. 
C)  a criminal conspiracy. 
D)  a crime, but did not give direction on possible penalties.

Question 3

When individuals are damaged by an illegal arrangement to restrain trade, which law allows them to pursue civil action and recover up to three times the damages sustained?

Accepted Answer

A)  Trade Damage Act 
B)  Clayton Act 
C)  Sherman Act 
D)  No law allows individuals to pursue civil action and recover up to three times the damages sustained. 
A)  Trade Damage Act 
B)  Clayton Act 
C)  Sherman Act 
D)  No law allows individuals to pursue civil action and recover up to three times the damages sustained.

Question 4

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 profit-maximizing digital cable TV companies operating in this market. Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell. What price will premium digital channel cable TV subscriptions be sold at when this market reaches a Nash equilibrium?

Accepted Answer

A)  $30 
B)  $60 
C)  $90 
D)  $120 
A)  $30 
B)  $60 
C)  $90 
D)  $120

Question 5

Table 17-13
Two home-improvement stores (Lopes and HomeMax) 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.
   14.
-Refer to Table 17-13. If both stores follow a dominant strategy, Lopes's annual profit will grow by

Accepted Answer

A)  $0.4 million. 
B)  $1.0 million. 
C)  $2.0 million. 
D)  $3.2 million. 
A)  $0.4 million. 
B)  $1.0 million. 
C)  $2.0 million. 
D)  $3.2 million.

Question 6

Figure 17-5. Two companies, ABC and QRS, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies.  
-Refer to Figure 17-5. Suppose the outcome of the game is one in which ABC's profit is $4 million and QRS's profit is $14 million. The most likely explanation for this outcome is that

Accepted Answer

A)  each company pursued its dominant strategy. 
B)  each company's objective was to maximize the sum of the two companies' profits. 
C)  the two companies reached an agreement on what price to charge, and ABC subsequently cheated. 
D)  the two companies reached an agreement on what price to charge, and QRS subsequently cheated. 
A)  each company pursued its dominant strategy. 
B)  each company's objective was to maximize the sum of the two companies' profits. 
C)  the two companies reached an agreement on what price to charge, and ABC subsequently cheated. 
D)  the two companies reached an agreement on what price to charge, and QRS subsequently cheated.

Question 7

The prisoners' dilemma provides insights into the

Accepted Answer

A)  difficulty of maintaining cooperation. 
B)  benefits of avoiding cooperation. 
C)  benefits of government ownership of monopoly. 
D)  ease with which oligopoly firms maintain high prices. 
A)  difficulty of maintaining cooperation. 
B)  benefits of avoiding cooperation. 
C)  benefits of government ownership of monopoly. 
D)  ease with which oligopoly firms maintain high prices.

Question 8

If a market is a duopoly and additional firms enter and do not cooperate, then

Accepted Answer

A)  price and quantity fall. 
B)  price and quantity rise. 
C)  price falls and quantity rises. 
D)  price rises and quantity falls. 
A)  price and quantity fall. 
B)  price and quantity rise. 
C)  price falls and quantity rises. 
D)  price rises and quantity falls.

Question 9

Figure 17-3. Hector and Bart are roommates. On a particular day, their apartment needs to be cleaned. Each person has to decide whether to take part in cleaning. At the end of the day, either the apartment will be completely clean (if one or both roommates take part in cleaning), or it will remain dirty (if neither roommate cleans). With happiness measured on a scale of 1 (very unhappy) to 10 (very happy), the possible outcomes are as follows:
  
-Refer to Figure 17-3. The possible outcome in which both Hector and Bart clean is analogous to which of the following outcomes of the duopoly game?

Accepted Answer

A)  The duopolists collude to achieve the monopoly outcome. 
B)  The duopolists collude to achieve the monopolistically-competitive outcome. 
C)  The outcome is the one that is most preferable for consumers of the duopolists' product. 
D)  The outcome is the one that is least preferable for both the duopolists and for the consumers of their product. 
A)  The duopolists collude to achieve the monopoly outcome. 
B)  The duopolists collude to achieve the monopolistically-competitive outcome. 
C)  The outcome is the one that is most preferable for consumers of the duopolists' product. 
D)  The outcome is the one that is least preferable for both the duopolists and for the consumers of their product.

Question 10

When firms are faced with making strategic choices to maximize profit, economists typically use

Accepted Answer

A)  the theory of monopoly to model their behavior. 
B)  the theory of aggressive competition to model their behavior. 
C)  game theory to model their behavior. 
D)  cartel theory to model their behavior. 
A)  the theory of monopoly to model their behavior. 
B)  the theory of aggressive competition to model their behavior. 
C)  game theory to model their behavior. 
D)  cartel theory to model their behavior.

Question 11

Antitrust laws tend to target restraint of trade as characterized by .

Accepted Answer

agreements among com

Question 12

A group of firms that act in unison to maximize collective profits is called a

Accepted Answer

A)  monopolistically competitive industry. 
B)  monopoly. 
C)  cartel. 
D)  Nash equilibrium market. 
A)  monopolistically competitive industry. 
B)  monopoly. 
C)  cartel. 
D)  Nash equilibrium market.

Question 13

If the output effect from increased production is larger than the price effect, then an oligopolist would increase production.

Accepted Answer

A) True 
 B)False

Question 14

Table 17-28
Suppose that two firms determine that each could lower its costs and increase its profits if both reduced their advertising budgets. But in order for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's product, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits:
Firm A
Breaks agreement Maintains agreement
and advertises and does not advertise
  
-Refer to Table 17-28. What is the outcome of this game?

Accepted Answer

A)  Firm A will advertise but Firm B will not. 
B)  Firm A will not advertise but Firm B will. 
C)  Neither Firm A nor Firm B will advertise. 
D)  Both Firm A and Firm B will advertise. 
A)  Firm A will advertise but Firm B will not. 
B)  Firm A will not advertise but Firm B will. 
C)  Neither Firm A nor Firm B will advertise. 
D)  Both Firm A and Firm B will advertise.

Question 15

Table 17-16
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 17-16. 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 16

The prisoners' dilemma game

Accepted Answer

A)  provides insight into why cooperation is individually rational. 
B)  provides insight into why cooperation is difficult. 
C)  is a game in which neither player has a dominant strategy. 
D)  is a game in which exactly one of the two players has a dominant strategy. 
A)  provides insight into why cooperation is individually rational. 
B)  provides insight into why cooperation is difficult. 
C)  is a game in which neither player has a dominant strategy. 
D)  is a game in which exactly one of the two players has a dominant strategy.

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. This particular game

Accepted Answer

A)  features a dominant strategy for the U.S. 
B)  features a dominant strategy for Farland. 
C)  is a version of the prisoners' dilemma game. 
D)  All of the above are correct. 
A)  features a dominant strategy for the U.S. 
B)  features a dominant strategy for Farland. 
C)  is a version of the prisoners' dilemma game. 
D)  All of the above are correct.

Question 18

Tying is always profitable for a monopoly.

Accepted Answer

A) True 
 B)False

Question 19

Table 17-6
Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week Kunal and Naj 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 Kunal and Naj 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 17-6. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj 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 20

If one firm left a duopoly market where the firms did not cooperate then

Accepted Answer

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

When prisoners' dilemma games are repeated over and over, sometimes the threat of penalty causes both parties to cooperate.

The Sherman Act made cooperative agreements

When individuals are damaged by an illegal arrangement to restrain trade, which law allows them to pursue civil action and recover up to three times the damages sustained?

The prisoners' dilemma provides insights into the

If a market is a duopoly and additional firms enter and do not cooperate, then

When firms are faced with making strategic choices to maximize profit, economists typically use

Antitrust laws tend to target restraint of trade as characterized by .

A group of firms that act in unison to maximize collective profits is called a

If the output effect from increased production is larger than the price effect, then an oligopolist would increase production.

Table 17-16 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 17-16. Which of the following statements is true regarding this game?

The prisoners' dilemma game

Tying is always profitable for a monopoly.

If one firm left a duopoly market where the firms did not cooperate 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

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Exam 17: Oligopoly

When prisoners' dilemma games are repeated over and over, sometimes the threat of penalty causes both parties to cooperate.

The Sherman Act made cooperative agreements

When individuals are damaged by an illegal arrangement to restrain trade, which law allows them to pursue civil action and recover up to three times the damages sustained?

The prisoners' dilemma provides insights into the

If a market is a duopoly and additional firms enter and do not cooperate, then

When firms are faced with making strategic choices to maximize profit, economists typically use

Antitrust laws tend to target restraint of trade as characterized by .

A group of firms that act in unison to maximize collective profits is called a

If the output effect from increased production is larger than the price effect, then an oligopolist would increase production.

Table 17-16 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 17-16. Which of the following statements is true regarding this game?

The prisoners' dilemma game

Tying is always profitable for a monopoly.

If one firm left a duopoly market where the firms did not cooperate 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