Question 1

Why does a prisoner's dilemma lead to a noncooperative equilibrium?

Accepted Answer

A) because each player had agreed before the game started to minimize the harm that he can inflict on the other players 
B) because each player is uncertain how other players will play the game 
C) because players must choose from a limited number of non-dominant strategies 
D) because each rational player has a dominant strategy to play a certain way regardless of what other players do 
A) because each player had agreed before the game started to minimize the harm that he can inflict on the other players 
B) because each player is uncertain how other players will play the game 
C) because players must choose from a limited number of non-dominant strategies 
D) because each rational player has a dominant strategy to play a certain way regardless of what other players do

Question 2

Collusion makes firms better off because if they act as a single entity (a cartel)they can reduce output and increase their prices and profits.But some cartels have failed and others are unstable.Which of the following is a reason why cartels often break down?

Accepted Answer

A) Most cartels do not have a dominant strategy. 
B) When a cartel is profitable the amount of competition it faces increases. 
C) Members of a cartel may resent having to share their profits equally. 
D) Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement. 
A) Most cartels do not have a dominant strategy. 
B) When a cartel is profitable the amount of competition it faces increases. 
C) Members of a cartel may resent having to share their profits equally. 
D) Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement.

Question 3

A game in which pursuing dominant strategies results in noncooperation that leaves all parties worse off is a

Accepted Answer

A) prisoner's dilemma. 
B) cooperative equilibrium. 
C) first-price auction. 
D) zero-sum game. 
A) prisoner's dilemma. 
B) cooperative equilibrium. 
C) first-price auction. 
D) zero-sum game.

Question 4

If economies of scale are relatively unimportant in an industry,the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales.The industry will be ________.

Accepted Answer

A) large; competitive 
B) large; an oligopoly 
C) small; competitive 
D) small; an oligopoly 
A) large; competitive 
B) large; an oligopoly 
C) small; competitive 
D) small; an oligopoly

Question 5

Because many business situations are repeated games,firms may be able to avoid the prisoner's dilemma and implicitly collude to keep prices high.

Accepted Answer

A) True 
 B)False

Question 6

The most important barrier to entry is economies of scale.

Accepted Answer

A) True 
 B)False

Question 7

A baseball hat worn by the Boston Red Sox Hall of Fame outfielder Ted Williams was auctioned on eBay.The three highest bidders and their bids were: Roger Bulava $5,000
Tony Millasiti $4,900
Joe Albano $4,200
What price did Roger have to pay for the Ted Williams hat?

Accepted Answer

A) $4,200 
B) $4,700 (the average of the three highest bids) 
C) $4,900 
D) $5,000 
A) $4,200 
B) $4,700 (the average of the three highest bids) 
C) $4,900 
D) $5,000

Question 8

Doctors and lawyers in every state need a license to practice.This is an example of

Accepted Answer

A) consumer protection laws. 
B) consumer advocacy. 
C) occupational licensing. 
D) ownership of a key input. 
A) consumer protection laws. 
B) consumer advocacy. 
C) occupational licensing. 
D) ownership of a key input.

Question 9

Natural resource cartels such as OPEC are inherently unstable because their members operate with excess capacity and have an incentive to cheat on their output quotas.

Accepted Answer

A) True 
 B)False

Question 10

Table 14-1   Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito.Each firm must decide on whether to increase its advertising spending to compete for customers.If one firm increases its advertising budget but the other does not,then the firm with the higher advertising budget will increase its profit.Table 14-1 shows the payoff matrix for this advertising game.
-Refer to Table 14-1.What is the Nash equilibrium in this game?

Accepted Answer

A) There is no Nash equilibrium. 
B) Baine increases its advertising budget,but Alistair does not. 
C) Alistair increases its advertising budget,but Baine does not. 
D) Both Alistair and Baine increase their advertising budgets. 
A) There is no Nash equilibrium. 
B) Baine increases its advertising budget,but Alistair does not. 
C) Alistair increases its advertising budget,but Baine does not. 
D) Both Alistair and Baine increase their advertising budgets.

Question 11

Table 14-6  
-Refer to Table 14-6.Saudi Arabia and Yemen must decide how much oil to produce.Since the demand for oil is inelastic,relatively low production rates drive up prices and profits.Saudi Arabia,the world's largest and lowest cost producer,is able to influence market price; it has an incentive to keep output low.Yemen,on the other hand,is a relatively high cost producer with much smaller reserves.Use the payoff matrix in Table 14-6 to answer the following questions.
a.What is the dominant strategy for Saudi Arabia?
b.What is the dominant strategy for Yemen?
c.What is the Nash equilibrium?

Accepted Answer

a.Saudi Arabia's dominant strategy is to

Question 12

When Wal-Mart decides to build a new retail store in a town,it will decide to build a large store rather than a small store if the large store is expected to earn a greater economic profit.What other motive would Wal-Mart have for choosing to build a large store?

Accepted Answer

A) A larger store will help Wal-Mart maintain its position as the leading retail company in the world more than a smaller store would. 
B) A larger store will give Wal-Mart greater political influence in the community. 
C) A larger store may deter entry into the town by a rival firm. 
D) Because of economies of scale,the average total cost of production is less for a larger store than a smaller store. 
A) A larger store will help Wal-Mart maintain its position as the leading retail company in the world more than a smaller store would. 
B) A larger store will give Wal-Mart greater political influence in the community. 
C) A larger store may deter entry into the town by a rival firm. 
D) Because of economies of scale,the average total cost of production is less for a larger store than a smaller store.

Question 13

Decision trees are commonly used to illustrate how firms make business decisions that depend on the actions of rival firms.A decision tree has boxes that contain points that represent when firms must make the decisions contained in the boxes.What are these points called?

Accepted Answer

A) option points 
B) decision nodes 
C) either-or terminals 
D) decision options 
A) option points 
B) decision nodes 
C) either-or terminals 
D) decision options

Question 14

The De Beers Company blocked competition

Accepted Answer

A) in the diamond market by controlling the output of most of the world's diamond mines. 
B) by controlling the supply of most of the world's high-quality bauxite,the mineral used to produce aluminum. 
C) in the market for fresh and frozen cranberries because it controls about 80 percent of the cranberry crop. 
D) because it has lower costs of producing than other department stores due to economies of scale. 
A) in the diamond market by controlling the output of most of the world's diamond mines. 
B) by controlling the supply of most of the world's high-quality bauxite,the mineral used to produce aluminum. 
C) in the market for fresh and frozen cranberries because it controls about 80 percent of the cranberry crop. 
D) because it has lower costs of producing than other department stores due to economies of scale.

Question 15

Table 14-4
   The payoff matrix shown above assumes that Pepsi and Coca-Cola must decide whether to advertise their products.The matrix shows how much profit each firm will earn if it does or does not advertise.The amount of profit for one firm depends on whether the other firm advertises.
-Refer to Table 14-4.Which of the following statements is true?

Accepted Answer

A) Given that Coca-Cola advertises,Pepsi's best strategy is to not advertise. 
B) Given that Pepsi advertises,Coca-Cola's best strategy is to advertise. 
C) Pepsi and Coca-Cola will agree to collude in order to maximize their profits. 
D) Neither Pepsi nor Coca-Cola will advertise; this decision will decrease their costs and allow each firm to earn more than $1,800 million in profits. 
A) Given that Coca-Cola advertises,Pepsi's best strategy is to not advertise. 
B) Given that Pepsi advertises,Coca-Cola's best strategy is to advertise. 
C) Pepsi and Coca-Cola will agree to collude in order to maximize their profits. 
D) Neither Pepsi nor Coca-Cola will advertise; this decision will decrease their costs and allow each firm to earn more than $1,800 million in profits.

Why does a prisoner's dilemma lead to a noncooperative equilibrium?

Collusion makes firms better off because if they act as a single entity (a cartel)they can reduce output and increase their prices and profits.But some cartels have failed and others are unstable.Which of the following is a reason why cartels often break down?

A game in which pursuing dominant strategies results in noncooperation that leaves all parties worse off is a

If economies of scale are relatively unimportant in an industry,the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a fraction of total industry sales.The industry will be .

Because many business situations are repeated games,firms may be able to avoid the prisoner's dilemma and implicitly collude to keep prices high.

The most important barrier to entry is economies of scale.

A baseball hat worn by the Boston Red Sox Hall of Fame outfielder Ted Williams was auctioned on eBay.The three highest bidders and their bids were: Roger Bulava $5,000 Tony Millasiti $4,900 Joe Albano $4,200 What price did Roger have to pay for the Ted Williams hat?

Doctors and lawyers in every state need a license to practice.This is an example of

Natural resource cartels such as OPEC are inherently unstable because their members operate with excess capacity and have an incentive to cheat on their output quotas.

When Wal-Mart decides to build a new retail store in a town,it will decide to build a large store rather than a small store if the large store is expected to earn a greater economic profit.What other motive would Wal-Mart have for choosing to build a large store?

Decision trees are commonly used to illustrate how firms make business decisions that depend on the actions of rival firms.A decision tree has boxes that contain points that represent when firms must make the decisions contained in the boxes.What are these points called?

The De Beers Company blocked competition

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Filters

Exam 14: Oligopoly: Firms in Less Competitive Markets

Why does a prisoner's dilemma lead to a noncooperative equilibrium?

Collusion makes firms better off because if they act as a single entity (a cartel)they can reduce output and increase their prices and profits.But some cartels have failed and others are unstable.Which of the following is a reason why cartels often break down?

A game in which pursuing dominant strategies results in noncooperation that leaves all parties worse off is a

If economies of scale are relatively unimportant in an industry,the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales.The industry will be ________.

Because many business situations are repeated games,firms may be able to avoid the prisoner's dilemma and implicitly collude to keep prices high.

The most important barrier to entry is economies of scale.

A baseball hat worn by the Boston Red Sox Hall of Fame outfielder Ted Williams was auctioned on eBay.The three highest bidders and their bids were: Roger Bulava $5,000 Tony Millasiti $4,900 Joe Albano $4,200 What price did Roger have to pay for the Ted Williams hat?

Doctors and lawyers in every state need a license to practice.This is an example of

Natural resource cartels such as OPEC are inherently unstable because their members operate with excess capacity and have an incentive to cheat on their output quotas.

When Wal-Mart decides to build a new retail store in a town,it will decide to build a large store rather than a small store if the large store is expected to earn a greater economic profit.What other motive would Wal-Mart have for choosing to build a large store?

Decision trees are commonly used to illustrate how firms make business decisions that depend on the actions of rival firms.A decision tree has boxes that contain points that represent when firms must make the decisions contained in the boxes.What are these points called?

The De Beers Company blocked competition

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Filters

If economies of scale are relatively unimportant in an industry,the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a fraction of total industry sales.The industry will be .