Question 1

Suppose a cartel collapses. The firms resume individual rather than collusive production. This outcome:

Accepted Answer

A)  may or may not be desirable for society as a whole 
B)  is not a concern because collusion is not a dominant strategy 
C)  is worse for society because profits for the firms will be lower 
D)  is desirable for society as a whole

Question 2

Assume that the countries of Irun and Urun are the only two producers of crude oil. Further assume that both countries have entered into an agreement to maintain certain production levels in order to maximise profits. The world market for oil is represented by a downward-sloping demand curve.
-According to the information provided, as the production level deviates from the agreed-upon quantity, the total profit earned collectively by the two countries:

Accepted Answer

A)  falls 
B)  falls, as long as production levels are greater than the Nash equilibrium 
C)  falls, as long as production levels are equal to the Nash equilibrium 
D)  falls, as long as production levels are greater than the competitive equilibrium

Question 3

Crude oil is supplied to the world market primarily by a few Middle Eastern countries. Such a market is an example of which of the following? (i) a monopoly market
(ii) an oligopoly market
(iii) an imperfectly competitive market

Accepted Answer

A)  (i) and (ii) 
B)  (ii) and (iii) 
C)  (i) and (iii) 
D)  (i) only

Question 4

Society will always be better off if the prisoners' dilemma game is repeated numerous times in an oligopoly market

Accepted Answer

A) True 
 B)False

Question 5

Table 16-7
Consider two countries, Eudora and the Inhabit, that are engaged in an arms race. The question each country must face is whether to build new weapons or to disarm existing weapons. Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs. But each country also prefers to live in a world safe from the other country's weapons. The table shows the possible outcomes for each decision combination.
 
-Refer to Table 16-7. In reality these two countries may have a hard time keeping arms levels at the social optimal level due to which of the following reasons? (i) both countries have incentives to cheat on the agreement
(ii) they may have trouble agreeing on the level of allowable arms
(iii) they both want to increase their world power

Accepted Answer

A)  (i) and (ii) 
B)  (ii) and (iii) 
C)  (i) and (iii) 
D)  (i), (ii) and (iii)

Question 6

Briefly contrast the difference between equilibrium market outcomes in a monopoly, oligopoly and perfect competition.

Accepted Answer

The answer of Briefly contrast the difference between equilibrium market...

Question 7

Table 16-3
Imagine a small town in which only two residents, Robert and John, own wells that produce water for safe drinking. Each Saturday, Robert and John work together to decide how many litres of water to pump, bring the water to town, and sell it at whatever price the market will bear. To keep things simple, suppose that Robert and John can pump as much water as they want without cost; therefore, the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water are shown in the table.
 
-Refer to Table 16-3. Suppose the town enacts new anti-trust laws that prohibit Robert and John from operating as a monopolist. What will the new price of water end up being once the Nash equilibrium is reached?

Accepted Answer

A)  $6 
B)  $5 
C)  $4 
D)  $3

Question 8

Table 16-3
Imagine a small town in which only two residents, Robert and John, own wells that produce water for safe drinking. Each Saturday, Robert and John work together to decide how many litres of water to pump, bring the water to town, and sell it at whatever price the market will bear. To keep things simple, suppose that Robert and John can pump as much water as they want without cost; therefore, the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water are shown in the table.
 
-Refer to Table 16-3. Since Robert and John operate as a profit-maximising monopoly in the market for water, what price will they charge to sell 80 litres of water?

Accepted Answer

A)  $4 
B)  $9 
C)  $12 
D)  none of the above; the price is arbitrary when dealing with a monopoly market

Question 9

As the number of firms in an oligopolistic market grows larger, the price approaches:

Accepted Answer

A)  the monopoly price 
B)  average cost 
C)  marginal revenue 
D)  marginal cost

Question 10

In the case of oligopoly markets, self-interest prevents cooperation and leads to an inferior outcome for the parties involved.

Accepted Answer

A) True 
 B)False

Question 11

Table 16-4
Consider the following Duopoly game.
 
-Refer to Table 16-4. When this game reaches a Nash equilibrium, profits for firm A and firm B will be:

Accepted Answer

A)  -$10 and -$12, respectively 
B)  -$20 and $24 respectively 
C)  $20 and -$24, respectively 
D)  $10 and -$12, respectively

Question 12

Assume that the countries of Irun and Urun are the only two producers of crude oil. Further assume that both countries have entered into an agreement to maintain certain production levels in order to maximise profits. The world market for oil is represented by a downward-sloping demand curve.
-According to the information provided, if Irun fails to live up to the production agreement and overproduces, which of the following statements will be true of Urun's condition?

Accepted Answer

A)  Urun's profit will be maximised by holding its production constant 
B)  Urun will be hurt more if it follows suit and increases production 
C)  Urun will invariably be worse off than before the agreement was broken 
D)  Urun will counter by decreasing its production in order to maintain price stability

Question 13

An oligopoly is a market with a few sellers, each offering a similar or identical product.

Accepted Answer

A) True 
 B)False

Question 14

The tit-for-tat strategy in repeated prisoners' dilemma games:

Accepted Answer

A)  is often dominated by more complex gaming strategies 
B)  is never dominated by more complex gaming strategies 
C)  often dominates more complex gaming strategies 
D)  was not socially optimal according to Robert Axelrod

Question 15

When firms are faced with making strategic choices in order to maximise profit, economists typically use:

Accepted Answer

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

Question 16

Dominant strategies in a two-person game often lead to:

Accepted Answer

A)  the best possible outcome for both players 
B)  one person gaining advantage at the expense of the other person 
C)  profit minimisation 
D)  a less preferred outcome for both players

Question 17

Table 16-7
Consider two countries, Eudora and the Inhabit, that are engaged in an arms race. The question each country must face is whether to build new weapons or to disarm existing weapons. Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs. But each country also prefers to live in a world safe from the other country's weapons. The table shows the possible outcomes for each decision combination.
 
-Refer to Table 16-7. In which of the following situations is Eudora better off arming? (i) if Inhabit arms
(ii) if Inhabit disarms
(iii) if arming is their sub-dominant gaming strategy

Accepted Answer

A)  (i), (ii) and (iii) 
B)  (ii) and (iii) 
C)  (i) and (iii) 
D)  (i) and (ii)

Question 18

If the number of firms in an oligopoly grows smaller, an oligopolistic market looks less and less like:

Accepted Answer

A)  a monopoly 
B)  a duopoly 
C)  a competitive market 
D)  none of the above

Question 19

Suppose an opal-mining firm notices that the price of opals is above marginal cost. Selling one more unit of opals at the going price also increases profit. This concept is known as the:

Accepted Answer

A)  income effect 
B)  price effect 
C)  opal effect 
D)  output effect

Question 20

*Each firm reasons that the monopoly price ($24) earns them $48 000 each (2000 tickets each). If one of them increases output by 1000, the price drops to $18 (midpoint). At 5000 tickets, the firm that drops its price earns 3000 x $18 000 = $54 000. The other firm earns
$36 000. The NE is for both firms to increase output to 3000.
-Refer to Table 16-1. Assume that there are two profit-maximising ecotourist companies operating in this market. Further assume that they are not able to collude on the price and quantity of tickets they sell. What price will the tickets be sold at when this market reaches a Nash equilibrium?

Accepted Answer

A)  $12 
B)  $18 
C)  $24 
D)  from the information given in the table, we can't determine price in a Nash equilibrium

Exam 16: Business Strategy

Suppose a cartel collapses. The firms resume individual rather than collusive production. This outcome:

Crude oil is supplied to the world market primarily by a few Middle Eastern countries. Such a market is an example of which of the following? (i) a monopoly market (ii) an oligopoly market (iii) an imperfectly competitive market

Society will always be better off if the prisoners' dilemma game is repeated numerous times in an oligopoly market

Briefly contrast the difference between equilibrium market outcomes in a monopoly, oligopoly and perfect competition.

As the number of firms in an oligopolistic market grows larger, the price approaches:

In the case of oligopoly markets, self-interest prevents cooperation and leads to an inferior outcome for the parties involved.

Table 16-4 Consider the following Duopoly game. -Refer to Table 16-4. When this game reaches a Nash equilibrium, profits for firm A and firm B will be:

An oligopoly is a market with a few sellers, each offering a similar or identical product.

The tit-for-tat strategy in repeated prisoners' dilemma games:

When firms are faced with making strategic choices in order to maximise profit, economists typically use:

Dominant strategies in a two-person game often lead to:

If the number of firms in an oligopoly grows smaller, an oligopolistic market looks less and less like:

Suppose an opal-mining firm notices that the price of opals is above marginal cost. Selling one more unit of opals at the going price also increases profit. This concept is known as the: