Question 1

A prisoner's dilemma leads to a noncooperative equilibrium.

Accepted Answer

A) True 
 B)False

Question 2

The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called

Accepted Answer

A)  Nash equilibrium. 
B)  the prisoner's dilemma. 
C)  game theory. 
D)  dominant strategy equilibrium. 
A)  Nash equilibrium. 
B)  the prisoner's dilemma. 
C)  game theory. 
D)  dominant strategy equilibrium.

Question 3

In a sequential game,one firm will act first and then other firms will respond.

Accepted Answer

A) True 
 B)False

Question 4

Table 14-1   
Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. 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)  Godrickporter increases its advertising budget, but Star Connections does not. 
C)  Star Connections increases its advertising budget, but Godrickporter does not. 
D)  Both Godrickporter and Star Connections increase their advertising budgets. 
A)  There is no Nash equilibrium. 
B)  Godrickporter increases its advertising budget, but Star Connections does not. 
C)  Star Connections increases its advertising budget, but Godrickporter does not. 
D)  Both Godrickporter and Star Connections increase their advertising budgets.

Question 5

Patents,tariffs and quotas are all examples of

Accepted Answer

A)  government-imposed barriers. 
B)  economic regulations that increase efficiency. 
C)  entry barriers that improve a country's standard of living. 
D)  entry barriers that protect consumers. 
A)  government-imposed barriers. 
B)  economic regulations that increase efficiency. 
C)  entry barriers that improve a country's standard of living. 
D)  entry barriers that protect consumers.

Question 6

Figure 14-1  
 Assume that Lexus (L) is the first automobile company to produce a luxury class hybrid automobile and is the only such company for the past four years. BMW is now considering producing its own luxury hybrid automobile and Lexus must decide whether or not to lower the price of its luxury hybrid to counter BMW's entry into the luxury hybrid niche.
-Refer to Figure 14-1.If Lexus lowers its price,will this deter BMW from entering the market?

Accepted Answer

A)  Yes, because BMW stands to lose $100 million if it competes with Lexus. 
B)  Yes, because BMW will make a smaller profit than Lexus if it chooses to compete. 
C)  No, because BMW will still make a profit of $120 if it competes with Lexus. 
D)  No, because BMW will be able to break Lexus' first mover advantage. 
A)  Yes, because BMW stands to lose $100 million if it competes with Lexus. 
B)  Yes, because BMW will make a smaller profit than Lexus if it chooses to compete. 
C)  No, because BMW will still make a profit of $120 if it competes with Lexus. 
D)  No, because BMW will be able to break Lexus' first mover advantage.

Question 7

Table 14-1   
Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. Table 14-1 shows the payoff matrix for this advertising game.
-Refer to Table 14-1.Let's suppose the game starts with each firm adhering to its original budget so that Godrickporter earns a profit of $6,000 and Star Connections earns a profit of $12,000.Is there an incentive for any one firm to increase its advertising budget?

Accepted Answer

A)  No, neither firm has an incentive to raise its advertising spending. 
B)  Yes, both firms have an incentive to raise their advertising budgets. 
C)  Yes, Star Connections has an incentive to increase its advertising budget, but Godrickporter does not. 
D)  Yes, Godrickporter has an incentive to increase its advertising budget, but Star Connections does not. 
A)  No, neither firm has an incentive to raise its advertising spending. 
B)  Yes, both firms have an incentive to raise their advertising budgets. 
C)  Yes, Star Connections has an incentive to increase its advertising budget, but Godrickporter does not. 
D)  Yes, Godrickporter has an incentive to increase its advertising budget, but Star Connections does not.

Question 8

Occupational licensing is an example of an entry barrier that improves a country's standard of living.

Accepted Answer

A) True 
 B)False

Question 9

Figure 14-3   
Rainbow Writer (RW) is a small online company selling a highly rated software package for printing color labels directly onto CDs. The firm currently earns a profit of $2 million per year selling its package exclusively on its Web site. Odeon, the producer of the most popular software package for editing and burning CDs and DVDs has expressed interest in bundling Rainbow Writer's product into its own package. Odeon expects that bundling would further boost its sales and allow it to sell the new bundled product at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14.3 shows the decision tree for the Rainbow Writer-Odeon bargaining game.
-Refer to Figure 14-3.What is the equilibrium outcome in this game and is this a subgame-perfect equilibrium?

Accepted Answer

A)  Odeon's offer of $40 per copy of the software package is accepted and this is a subgame-perfect equilibrium. 
B)  In the equilibrium, Odeon offers $40 per copy of the software package and is accepted but this is not a subgame-perfect equilibrium. 
C)  In the equilibrium, Odeon offers $30 per copy of the software package and is rejected, and this is a subgame-perfect equilibrium. 
D)  There is no equilibrium in this game. 
A)  Odeon's offer of $40 per copy of the software package is accepted and this is a subgame-perfect equilibrium. 
B)  In the equilibrium, Odeon offers $40 per copy of the software package and is accepted but this is not a subgame-perfect equilibrium. 
C)  In the equilibrium, Odeon offers $30 per copy of the software package and is rejected, and this is a subgame-perfect equilibrium. 
D)  There is no equilibrium in this game.

Question 10

Which of the following is not among Porter's competitive forces?

Accepted Answer

A)  power of buyers 
B)  power of suppliers 
C)  threat of new entrants 
D)  changing consumer tastes 
A)  power of buyers 
B)  power of suppliers 
C)  threat of new entrants 
D)  changing consumer tastes

Question 11

Table 14-3   
Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 14-3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota.
-Refer to Table 14-3.Which of the following statements is true?

Accepted Answer

A)  The Nash equilibrium is a noncooperative, dominant strategy equilibrium. 
B)  The Nash equilibrium is a cooperative equilibrium. 
C)  The Nash equilibrium is a collusive equilibrium. 
D)  There is no Nash equilibrium in this game because each party pursues its dominant strategy. 
A)  The Nash equilibrium is a noncooperative, dominant strategy equilibrium. 
B)  The Nash equilibrium is a cooperative equilibrium. 
C)  The Nash equilibrium is a collusive equilibrium. 
D)  There is no Nash equilibrium in this game because each party pursues its dominant strategy.

Question 12

What is the dominant strategy in a second-price auction?

Accepted Answer

A)  bidding below one's true value 
B)  bidding above one's true value 
C)  bidding one's true value 
D)  There is no dominant strategy. 
A)  bidding below one's true value 
B)  bidding above one's true value 
C)  bidding one's true value 
D)  There is no dominant strategy.

Question 13

Each member of OPEC can increase its income by selling more oil than its output quota because

Accepted Answer

A)  by selling more at OPEC's cartel price, a member will automatically earn more income. 
B)  each member's demand is more elastic than the total demand for oil. 
C)  the demand for oil is inelastic so total revenue increases. 
D)  the demand for oil is perfectly elastic. 
A)  by selling more at OPEC's cartel price, a member will automatically earn more income. 
B)  each member's demand is more elastic than the total demand for oil. 
C)  the demand for oil is inelastic so total revenue increases. 
D)  the demand for oil is perfectly elastic.

Question 14

Assume that two interior design companies,Alistair and Baine,are competing for customers and if they both advertise,they would each earn $30 million in profits.If neither advertises,they each earn $50 million in profits.If one advertises and the other doesn't,the firm that advertises earns $40 million in profit while the other earns $20 million in profit.
a.Present the information above in the form of a payoff matrix.Let Baine be the row player and Alistair the column player.
b.Does each firm have a dominant strategy and if so what is it?
c.What is the Nash equilibrium?

Accepted Answer

a.Please see the table below. @#IMG-DLM& b.No,ther

Question 15

One reason why,in the last four decades,the number of new auto makers in the world has been very small compared to the past is that

Accepted Answer

A)  the automobile cannot be improved upon in any way by new producers. 
B)  new auto makers cannot obtain necessary inputs to produce new cars. 
C)  governments restrict who can produce automobiles. 
D)  new producers cannot match the economies of scale of existing auto makers. 
A)  the automobile cannot be improved upon in any way by new producers. 
B)  new auto makers cannot obtain necessary inputs to produce new cars. 
C)  governments restrict who can produce automobiles. 
D)  new producers cannot match the economies of scale of existing auto makers.

Question 16

What is the incentive for a firm to join a cartel?

Accepted Answer

A)  to be able to earn profits in the long run but not in the short run 
B)  to be able to earn larger profits than if it was not part of the cartel 
C)  to completely insulate itself from competition 
D)  to produce a larger amount of output than if it was not part of the cartel 
A)  to be able to earn profits in the long run but not in the short run 
B)  to be able to earn larger profits than if it was not part of the cartel 
C)  to completely insulate itself from competition 
D)  to produce a larger amount of output than if it was not part of the cartel

Question 17

Which of the following is the best example of an oligopolistic industry?

Accepted Answer

A)  the beef market 
B)  the pharmaceutical industry 
C)  public education 
D)  the beauty products industry 
A)  the beef market 
B)  the pharmaceutical industry 
C)  public education 
D)  the beauty products industry

Question 18

Table 14-4  
-Refer to Table 14-4.Suppose the payoff matrix in the above figure represents the payoffs to Saudi Arabia and Yemen for the production of oil.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.Assume Saudi Arabia now decides to try to further influence the oil market by offering to pay Yemen $25 million to produce a low output.
a.Create a new payoff matrix that reflects Saudi Arabia's willingness to pay Yemen $25 million to produce a low output.
b.What is the dominant strategy for each country in this new game?
c.What is the new Nash equilibrium?

Accepted Answer

a.See payoff matrix below.
b.T

Question 19

Marginal revenue for an oligopolist is

Accepted Answer

A)  identical to the demand for the firm's product. 
B)  difficult to determine because the firm's demand curve is typically unknown. 
C)  downward sloping beneath the firm's demand curve. 
D)  horizontal on a price-quantity diagram. 
A)  identical to the demand for the firm's product. 
B)  difficult to determine because the firm's demand curve is typically unknown. 
C)  downward sloping beneath the firm's demand curve. 
D)  horizontal on a price-quantity diagram.

Question 20

What happens to the profit a car company makes on each car sold if it offers cash rebates to customers? What happens to the company's profit per car if it offers zero percent financing? How might a car company decide which of these strategies to use?

Accepted Answer

Offering cash rebates and offering zero

Exam 14: Oligopoly: Firms in Less Competitive Markets

A prisoner's dilemma leads to a noncooperative equilibrium.

The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called

In a sequential game,one firm will act first and then other firms will respond.

Patents,tariffs and quotas are all examples of

Occupational licensing is an example of an entry barrier that improves a country's standard of living.

Which of the following is not among Porter's competitive forces?

What is the dominant strategy in a second-price auction?

Each member of OPEC can increase its income by selling more oil than its output quota because

One reason why,in the last four decades,the number of new auto makers in the world has been very small compared to the past is that

What is the incentive for a firm to join a cartel?

Which of the following is the best example of an oligopolistic industry?

Marginal revenue for an oligopolist is

What happens to the profit a car company makes on each car sold if it offers cash rebates to customers? What happens to the company's profit per car if it offers zero percent financing? How might a car company decide which of these strategies to use?

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

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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