Question 1

In general, game theory is the study of

Accepted Answer

A)   how people behave in strategic situations.
B)   how people behave when the possible actions of other people are irrelevant.
C)   oligopolistic markets.
D)   all types of markets, including competitive markets, monopolistic markets, and oligopolistic markets.E) A) and D)
F) A) and B)

Question 2

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. In pursuing his own self-interest, Bart will

Accepted Answer

A)   refrain from cleaning whether or not Hector cleans.
B)   clean only if Hector cleans.
C)   clean only if Hector refrains from cleaning.
D)   clean whether or not Hector cleans.E) A) and D)
F) B) and D)

Question 3

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. In pursuing his own self-interest, Hector will

Accepted Answer

A)   refrain from cleaning whether or not Bart cleans.
B)   clean only if Bart cleans.
C)   clean only if Bart refrains from cleaning.
D)   clean whether or not Bart cleans.E) All of the above
F) A) and D)

Question 4

Because oligopoly markets have only a few sellers, the actions of any one seller

Accepted Answer

A)   do not affect other sellers in the market.
B)   can have a large impact on the profits of other sellers in the market.
C)   will affect how other firms behave in the market.
D)   Both b and c are correct.E) B) and C)
F) A) and B)

Question 5

Suppose three firms form a cartel and agree to charge a specific price for their output. Each individual firm has an incentive to maintain the agreement because the firm's individual profits will be the greatest under the cartel arrangement.

Accepted Answer

A) True 
 B)False

Question 6

George and Jerry are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of $3,000. If they both advertise on radio, each will earn a profit of $5,000. If neither advertises at all, each will earn a profit of $10,000. If one advertises on TV and the other advertises on radio, then the one advertising on TV will earn $4,000 and the other will earn $2,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $8,000 and the other will earn $5,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $9,000 and the other will earn $6,000. If both follow their dominant strategy, then George will

Accepted Answer

A)   advertise on TV and earn $3,000.
B)   advertise on radio and earn $5,000.
C)   advertise on TV and earn $8,000.
D)   not advertise and earn $10,000.E) B) and C)
F) B) and D)

Question 7

Scenario 17-1.
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 maximize profits. In the world market for oil, the demand curve is downward sloping.
-Refer to Scenario 17-1. As long as the combined level of output is less than the Nash equilibrium level, both Irun and Urun have the individual incentive to

Accepted Answer

A)   hold production constant.
B)   decrease production.
C)   increase production.
D)   increase price.E) All of the above
F) A) and B)

Question 8

The decisions of the US and Soviet Union to build nuclear weapons is much like the prisoners' dilemma.

Accepted Answer

A) True 
 B)False

Question 9

In which of the following markets are strategic interactions among firms most likely to occur?

Accepted Answer

A)   markets to which patent and copyright laws apply
B)   the market for piano lessons
C)   the market for tennis balls
D)   the market for cornE) None of the above
F) A) and B)

Question 10

Very often, the reason that players can solve the prisoners' dilemma and reach the most profitable outcome is that

Accepted Answer

A)   each player tries to capture a large portion of the market share.
B)   the players play the game not once but many times.
C)   the game becomes more competitive.
D)   self interest results in the Nash equilibrium which is the best outcome for the players.E) A) and D)
F) None of the above

Question 11

As the number of sellers in an oligopoly becomes very large,

Accepted Answer

A)   the quantity of output approaches the socially efficient quantity.
B)   the price approaches marginal cost.
C)   the price effect is diminished.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 12

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. Which of the following statements does not correctly characterize the outcome of this game?

Accepted Answer

A)   There is a Nash equilibrium.
B)   Both firms collectively would earn the highest joint profits by maintaining the agreement not to advertise.
C)   Only one firm has a dominant strategy.
D)   The game is an example of the Prisoners' Dilemma.E) A) and B)
F) C) and D)

Question 13

Table 17-19
Consider a small town that has two grocery stores from which residents can choose to buy a loaf of bread. The store owners each must make a decision to set a high bread price or a low bread price. The payoff table, showing profit per week, is provided below. The profit in each cell is shown as (Store 1, Store 2) .
 
-Refer to Table 17-19. What is grocery store 1's dominant strategy?

Accepted Answer

A)   Grocery store 1 does not have a dominant strategy.
B)   Grocery store 1 should always set a low price.
C)   Grocery store 1 should always set a high price.
D)   Grocery store 1 should set a low price when grocery store 2 sets a low price, and grocery store 1 should set a high price when grocery store 2 sets a high price.E) A) and B)
F) All of the above

Question 14

If a certain market were a monopoly, then the monopolist would maximize its profit by producing 4,000 units of output. If, instead, that market were a duopoly, then which of the following outcomes would be most likely if the duopolists successfully collude?

Accepted Answer

A)   Each duopolist produces 4,000 units of output.
B)   Each duopolist produces 1,500 units of output.
C)   One duopolist produces 2,400 units of output and the other produces 1,600 units of output.
D)   One duopolist produces 3,000 units of output and the other produces 1,500 units of output.E) All of the above
F) A) and B)

Question 15

Why would lack of cooperation between criminal suspects be desirable for society as a whole?

Accepted Answer

A)   The suspects are able to choose optimal outcomes for themselves by acting in their own self interest.
B)   The prisoners' dilemma safeguards the criminals' constitutional rights.
C)   More criminals will be convicted.
D)   None of the above is correct.E) B) and D)
F) C) and D)

Question 16

Table 17-7
The information in the table below shows the total demand for internet radio subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year)  and that the marginal cost of providing an additional subscription is always $16.
 
-Refer to Table 17-7. The socially efficient level of output supplied to this market is

Accepted Answer

A)   4,000
B)   5,000
C)   6,000
D)   8,000E) B) and D)
F) B) and C)

Question 17

Table 17-14
This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B) .
 
-Refer to Table 17-14. If player A chooses his/her best strategy, player B should

Accepted Answer

A)   choose left and earn a payoff of 4.
B)   choose left and earn a payoff of 6.
C)   choose right and earn a payoff of 2.
D)   choose right and earn a payoff of 0.E) B) and D)
F) None of the above

Question 18

Table 17-25
There are just two producers of a certain product. Each is considering offering promotional discounts.
 
-Refer to Table 17-25. The dominant strategy

Accepted Answer

A)   for both firms is to offer the discount.
B)   for both firms is to not offer the discount.
C)   for firm A is to offer the discount. The dominant strategy for firm B is to not offer the discount.
D)   for firm A is to not offer the discount. The dominant strategy for firm B is to offer the discount.E) C) and D)
F) B) and C)

Question 19

An oligopolist will increase production if the output effect is

Accepted Answer

A)   less than the price effect.
B)   equal to the price effect.
C)   greater than the price effect.
D)   The oligopolist never has an incentive to increase production.E) A) and D)
F) A) and B)

Question 20

Which of the following statements is correct?

Accepted Answer

A)   If duopolists successfully collude, then their combined output will be equal to the output that would be observed if the market were a monopoly.
B)   Although the logic of self­interest decreases a duopoly's price below the monopoly price, it does not push the duopolists to reach the competitive price.
C)   Although the logic of self­interest increases a duopoly's level of output above the monopoly level, it does not push the duopolists to reach the competitive level.
D)   All of the above are correct.E) A) and D)
F) B) and D)

Exam 17: Oligopoly

Suppose three firms form a cartel and agree to charge a specific price for their output. Each individual firm has an incentive to maintain the agreement because the firm's individual profits will be the greatest under the cartel arrangement.

Correct Answer
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Table 17-14 This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B) . -Refer to Table 17-14. If player A chooses his/her best strategy, player B should

Correct Answer
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Correct Answer
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As the number of sellers in an oligopoly becomes very large,

Correct Answer
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An oligopolist will increase production if the output effect is

Correct Answer
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Correct Answer
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Why would lack of cooperation between criminal suspects be desirable for society as a whole?

Correct Answer
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In general, game theory is the study of

Correct Answer
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Correct Answer
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Table 17-25 There are just two producers of a certain product. Each is considering offering promotional discounts. -Refer to Table 17-25. The dominant strategy

Correct Answer
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Correct Answer
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The decisions of the US and Soviet Union to build nuclear weapons is much like the prisoners' dilemma.

Correct Answer
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Which of the following statements is correct?

Correct Answer
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If a certain market were a monopoly, then the monopolist would maximize its profit by producing 4,000 units of output. If, instead, that market were a duopoly, then which of the following outcomes would be most likely if the duopolists successfully collude?

Correct Answer
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In which of the following markets are strategic interactions among firms most likely to occur?

Correct Answer
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Correct Answer
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Because oligopoly markets have only a few sellers, the actions of any one seller

Correct Answer
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Correct Answer
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Very often, the reason that players can solve the prisoners' dilemma and reach the most profitable outcome is that

Correct Answer
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Correct Answer
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Exam 17: Oligopoly

Suppose three firms form a cartel and agree to charge a specific price for their output. Each individual firm has an incentive to maintain the agreement because the firm's individual profits will be the greatest under the cartel arrangement.

Correct AnswerverifiedShow Answer

Table 17-14 This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B) . -Refer to Table 17-14. If player A chooses his/her best strategy, player B should

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

As the number of sellers in an oligopoly becomes very large,

Correct AnswerverifiedShow Answer

An oligopolist will increase production if the output effect is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Why would lack of cooperation between criminal suspects be desirable for society as a whole?

Correct AnswerverifiedShow Answer

In general, game theory is the study of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Table 17-25 There are just two producers of a certain product. Each is considering offering promotional discounts. -Refer to Table 17-25. The dominant strategy

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The decisions of the US and Soviet Union to build nuclear weapons is much like the prisoners' dilemma.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

If a certain market were a monopoly, then the monopolist would maximize its profit by producing 4,000 units of output. If, instead, that market were a duopoly, then which of the following outcomes would be most likely if the duopolists successfully collude?

Correct AnswerverifiedShow Answer

In which of the following markets are strategic interactions among firms most likely to occur?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Because oligopoly markets have only a few sellers, the actions of any one seller

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Very often, the reason that players can solve the prisoners' dilemma and reach the most profitable outcome is that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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