Question 1

Which one of the following is not illustrated by the so-called Prisoner's Dilemma?

Accepted Answer

A)  Each player in the game ends up with results that depend on the other player's action. 
B)  It does not pay for the players to collude with each other. 
C)  Both players would be better off, if they could only agree on which action to take. 
D)  The results for each player in the game are uncertain, if they are not able to communicate. 
A)  Each player in the game ends up with results that depend on the other player's action. 
B)  It does not pay for the players to collude with each other. 
C)  Both players would be better off, if they could only agree on which action to take. 
D)  The results for each player in the game are uncertain, if they are not able to communicate. B

Question 2

A strategy that is better than any alternative strategy-regardless of what the other firm does-is called a

Accepted Answer

A)  dominant strategy. 
B)  simultaneous strategy. 
C)  positive-sum strategy. 
D)  one-time strategy. 
A)  dominant strategy. 
B)  simultaneous strategy. 
C)  positive-sum strategy. 
D)  one-time strategy. A

Question 3

If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?

Accepted Answer

A)  the kinked demand curve model of oligopoly 
B)  the price-leadership model of oligopoly 
C)  the pure monopoly model 
D)  the monopolistic competition model 
A)  the kinked demand curve model of oligopoly 
B)  the price-leadership model of oligopoly 
C)  the pure monopoly model 
D)  the monopolistic competition model C

Question 4

Unlike a monopoly, an oligopoly tends to achieve allocative efficiency due to the rivalry among several firms.

Accepted Answer

A) True 
 B)False

Question 5

In the long run, an oligopoly

Accepted Answer

A)  will produce less than a monopoly. 
B)  may be able to earn positive economic profits. 
C)  will always produce in the range of decreasing returns to scale. 
D)  will produce on the portion of the demand curve where demand is price-inelastic. 
A)  will produce less than a monopoly. 
B)  may be able to earn positive economic profits. 
C)  will always produce in the range of decreasing returns to scale. 
D)  will produce on the portion of the demand curve where demand is price-inelastic.

Question 6

An industry having a four-firm concentration ratio of 85 percent

Accepted Answer

A)  approximates pure competition. 
B)  is monopolistically competitive. 
C)  is a pure monopoly. 
D)  is an oligopoly. 
A)  approximates pure competition. 
B)  is monopolistically competitive. 
C)  is a pure monopoly. 
D)  is an oligopoly.

Question 7

One major problem with four-firm concentration ratios is that they fail to take into account

Accepted Answer

A)  the localized market for products. 
B)  excess capacity in production. 
C)  price leadership. 
D)  mutual interdependence. 
A)  the localized market for products. 
B)  excess capacity in production. 
C)  price leadership. 
D)  mutual interdependence.

Question 8

As a general rule, oligopoly exists when the four-firm concentration ratio

Accepted Answer

A)  equals the Herfindahl index. 
B)  yields a Herfindahl index below 500. 
C)  is 40 percent or more. 
D)  is 50 percent or more. 
A)  equals the Herfindahl index. 
B)  yields a Herfindahl index below 500. 
C)  is 40 percent or more. 
D)  is 50 percent or more.

Question 9

In game theory, a credible threat of coercion by a dominant firm tends to

Accepted Answer

A)  prevent cheating in collusive agreements. 
B)  increase the incentives to cheat. 
C)  reduce discipline among cartel members. 
D)  discourage collusive agreements. 
A)  prevent cheating in collusive agreements. 
B)  increase the incentives to cheat. 
C)  reduce discipline among cartel members. 
D)  discourage collusive agreements.

Question 10

The likelihood of a cartel being successful is greater when

Accepted Answer

A)  firms are producing a differentiated, rather than a homogeneous, product. 
B)  cost and demand curves of various participants are very similar. 
C)  the number of firms involved is relatively large. 
D)  the economy is in the recession phase of the business cycle. 
A)  firms are producing a differentiated, rather than a homogeneous, product. 
B)  cost and demand curves of various participants are very similar. 
C)  the number of firms involved is relatively large. 
D)  the economy is in the recession phase of the business cycle.

Question 11

Aluminum competes with copper in the market for power transmission lines. This illustrates

Accepted Answer

A)  mutual interdependence. 
B)  differentiated oligopoly. 
C)  interindustry competition. 
D)  homogeneous oligopoly. 
A)  mutual interdependence. 
B)  differentiated oligopoly. 
C)  interindustry competition. 
D)  homogeneous oligopoly.

Question 12

(Consider This) The story about three sellers of Native American arts and crafts best illustrates the idea of

Accepted Answer

A)  strategic behavior. 
B)  excess capacity. 
C)  the role of advertising. 
D)  product differentiation. 
A)  strategic behavior. 
B)  excess capacity. 
C)  the role of advertising. 
D)  product differentiation.

Question 13

When oligopolists collude, they collectively tend to achieve similar results as a monopolist.

Accepted Answer

A) True 
 B)False

Question 14

A sequential game can be modeled in two forms: payoff-matrix form and game-tree form.

Accepted Answer

A) True 
 B)False

Question 15

In game theory, credible threats can be used to maintain collusive agreements between firms.

Accepted Answer

A) True 
 B)False

Question 16

A natural monopoly's preemption of entry by other firms by exploiting its economies of scale is an example of

Accepted Answer

A)  first-mover advantage. 
B)  a repeated game with reciprocity. 
C)  Nash equilibrium in a single-period game. 
D)  collusion in game theory. 
A)  first-mover advantage. 
B)  a repeated game with reciprocity. 
C)  Nash equilibrium in a single-period game. 
D)  collusion in game theory.

Question 17

The terminal nodes in an extensive form representation

Accepted Answer

A)  are used solely to show payoffs that represent a Nash equilibrium. 
B)  represent the starting points for a sequential game. 
C)  indicate the strategies available to the players of a game. 
D)  indicate the possible outcomes of a game. 
A)  are used solely to show payoffs that represent a Nash equilibrium. 
B)  represent the starting points for a sequential game. 
C)  indicate the strategies available to the players of a game. 
D)  indicate the possible outcomes of a game.

Question 18

Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlines and Friendly Flyers are looking to enter that market. (They are the only two.) The figure shows in extensive form the possible outcomes of the two firms' decisions. The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. Assuming the two firms have perfect information about this game, what can we conclude about the existence of a Nash equilibrium?

Accepted Answer

A)  The solution to the game is a Nash equilibrium. 
B)  There are multiple Nash equilibria for this game. 
C)  There is no Nash equilibrium for this game. 
D)  There is a Nash equilibrium for this game, but it does not coincide with the solution to the game. 
A)  The solution to the game is a Nash equilibrium. 
B)  There are multiple Nash equilibria for this game. 
C)  There is no Nash equilibrium for this game. 
D)  There is a Nash equilibrium for this game, but it does not coincide with the solution to the game.

Question 19

A player is said to have a dominant strategy when one of the options available is superior, regardless of what strategy the other player chooses.

Accepted Answer

A) True 
 B)False

Question 20

Negative-sum games do not exist, because neither player has an incentive to play the game.

Accepted Answer

A) True 
 B)False

Exam 14: Oligopoly and Strategic Behavior

Which one of the following is not illustrated by the so-called Prisoner's Dilemma?

A strategy that is better than any alternative strategy-regardless of what the other firm does-is called a

If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?

Unlike a monopoly, an oligopoly tends to achieve allocative efficiency due to the rivalry among several firms.

In the long run, an oligopoly

An industry having a four-firm concentration ratio of 85 percent

One major problem with four-firm concentration ratios is that they fail to take into account

As a general rule, oligopoly exists when the four-firm concentration ratio

In game theory, a credible threat of coercion by a dominant firm tends to

The likelihood of a cartel being successful is greater when

Aluminum competes with copper in the market for power transmission lines. This illustrates

(Consider This) The story about three sellers of Native American arts and crafts best illustrates the idea of

When oligopolists collude, they collectively tend to achieve similar results as a monopolist.

A sequential game can be modeled in two forms: payoff-matrix form and game-tree form.

In game theory, credible threats can be used to maintain collusive agreements between firms.

A natural monopoly's preemption of entry by other firms by exploiting its economies of scale is an example of

The terminal nodes in an extensive form representation

A player is said to have a dominant strategy when one of the options available is superior, regardless of what strategy the other player chooses.

Negative-sum games do not exist, because neither player has an incentive to play the game.

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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