Question 1

In a one-time prisoners' dilemma decision,

Accepted Answer

A)  all firms expect the other firms to cheat. 
B)  cheating is usually not a value-maximizing decision. 
C)  cheating is less likely when the discount rate is low. 
D)  cheating is less likely when the discount rate is high. 
A)  all firms expect the other firms to cheat. 
B)  cheating is usually not a value-maximizing decision. 
C)  cheating is less likely when the discount rate is low. 
D)  cheating is less likely when the discount rate is high. A

Question 2

In the U.S., firms that engage in cooperative efforts to coordinate pricing

Accepted Answer

A)  are always in violation of antitrust laws. 
B)  may face federal charges of illegal collusion if they cannot provide evidence that the coordination of prices was in the best interest of consumers. 
C)  are simply trying to reach a Nash equilibrium and are not viewed by courts as necessarily breaking any laws. 
D)  both b and C 
A)  are always in violation of antitrust laws. 
B)  may face federal charges of illegal collusion if they cannot provide evidence that the coordination of prices was in the best interest of consumers. 
C)  are simply trying to reach a Nash equilibrium and are not viewed by courts as necessarily breaking any laws. 
D)  both b and C A

Question 3

The managers of Alpha and Beta must make repeated advertising decisions simultaneously at the beginning of every month. They choose either low or high levels of advertising expenditure. They both employ a discount rate of 2.5 percent per month. Use the payoff table shown below to answer Questions .
 $\begin{array} { l  } 
 &\text {Beta's advertising  }\
 \text {Alpha's advertising }&\begin{array}{l|l|l|}
& \text {High  }& \text { Low }\
\hline High &\mathrm{A}&\mathrm{B}\
& {\$ 7,000, \$ 3,500} &{\$ 2,000, \$ 6,500} \
\hline Low &\mathrm{C}&\mathrm{D}\&{\$ 8,000}  \$ 1,000 & {\$4,000, \$ 2,000} \
\hline
\end{array}\
\end{array}$
-When Alpha punishes Beta with a retaliatory adjustment in its advertising expenditures, Beta will suffer an undiscounted penalty of $_________ for each month that punishment continues.

Accepted Answer

A)  $1,500 
B)  $2,000 
C)  $3,000 
D)  $4,000 
E)  $5,000 
A)  $1,500 
B)  $2,000 
C)  $3,000 
D)  $4,000 
E)  $5,000 A

Question 4

Using the following payoff table for Hardaway Corporation and Paxton Industries. These two firms must make simultaneous pricing decisions. They can choose low, medium, or high prices. The payoffs given are in thousands of dollars of profit per month.
 $\begin{array} { l  } 
 &\text {  Paxton Industries }\
 \text {Hardaway Corp. }&\begin{array}{l|lc|ll|ll|}
&{\text { Low }} && {\text { Medium }} && {\text { High }} \
\hline\text {Low }& \text {  A } & & \mathrm{B} & & \mathrm{C} & \
&& \$ 30, \$ 30 & & \$ 45, \$ 20 & & \$ 32, \$ 20 \
\hline \text {Medium }&\text { D } & & \mathrm{E} & & \mathrm{F} & \
&& \$ 20, \$ 45 & & \$ 40, \$ 40 & & \$ 45, \$ 35 \
\hline \text {High }&\mathrm{G} & & \mathrm{H} & & \mathrm{I} & \
&& \$ 15, \$ 48 & & \$ 38, \$ 52 & & \$ 50, \$ 50 \
\hline
\end{array}\
 &\text { Payoffs in thousands of dollars of monthly profits. }\\end{array}$
-Following the procedure of successive elimination of dominated strategies, the manager of Hardaway Corporation will eliminate in the first round the strategy of setting

Accepted Answer

A) 	a low price. 
B) 	a medium price. 
C) 	a high price. 
D) 	None of the above; Paxton Industries does not have a dominated strategy. 
A) 	a low price. 
B) 	a medium price. 
C) 	a high price. 
D) 	None of the above; Paxton Industries does not have a dominated strategy.

Question 5

Actions taken by oligopolists to plan for and react to actions of rival firms represent

Accepted Answer

A)  strategic behavior. 
B)  interdependence. 
C)  cooperative behavior. 
D)  game theory. 
E)  all of the above. 
A)  strategic behavior. 
B)  interdependence. 
C)  cooperative behavior. 
D)  game theory. 
E)  all of the above.

Question 6

Two men's clothing stores that compete for most of the market in a small town in Ohio must choose their advertising levels simultaneously. The following payoff table facing the two firms, Arbuckle & Son and Mr. B's, shows the weekly profit outcomes for the various advertising decision combinations. Use this payoff table to answer Questions  .
 $\begin{array} { l  } 
 &\text {Mr: B's aavertisinglevel  }\
 \text {Arbuckle \& Son advertising level }&\begin{array}{l|l|l|}
& \text {High  }& \text { Low }\
\hline High &\mathrm{A}&\mathrm{B}\
& {\$ 4,000, \$ 4,000} &{\$ 3,000, \$ 5,000} \
\hline Low &\mathrm{C}&\mathrm{D}\&{\$ 5,000}  \$ 3,000 & {\$ 3,500, \$ 3,500} \
\hline
\end{array}\
\end{array}$
-Mr. B's

Accepted Answer

A)  has a dominant strategy: choose a high level of advertising. 
B)  has a dominant strategy: choose a low level of advertising. 
C)  has a dominated strategy: choose a low level of advertising. 
D)  has no dominated strategy 
E)  both a and c. 
A)  has a dominant strategy: choose a high level of advertising. 
B)  has a dominant strategy: choose a low level of advertising. 
C)  has a dominated strategy: choose a low level of advertising. 
D)  has no dominated strategy 
E)  both a and c.

Question 7

Firms make credible commitments by taking _________________ , _______________ actions.

Accepted Answer

A)  irreversible, unconditional 
B)  reversible, uncontrollable 
C)  reversible, believable 
D)  costly, but believable 
E)  costly, reversible 
A)  irreversible, unconditional 
B)  reversible, uncontrollable 
C)  reversible, believable 
D)  costly, but believable 
E)  costly, reversible

Question 8

Using the following payoff table for Hardaway Corporation and Paxton Industries. These two firms must make simultaneous pricing decisions. They can choose low, medium, or high prices. The payoffs given are in thousands of dollars of profit per month.
 $\begin{array} { l  } 
 &\text {  Paxton Industries }\
 \text {Hardaway Corp. }&\begin{array}{l|lc|ll|ll|}
&{\text { Low }} && {\text { Medium }} && {\text { High }} \
\hline\text {Low }& \text {  A } & & \mathrm{B} & & \mathrm{C} & \
&& \$ 30, \$ 30 & & \$ 45, \$ 20 & & \$ 32, \$ 20 \
\hline \text {Medium }&\text { D } & & \mathrm{E} & & \mathrm{F} & \
&& \$ 20, \$ 45 & & \$ 40, \$ 40 & & \$ 45, \$ 35 \
\hline \text {High }&\mathrm{G} & & \mathrm{H} & & \mathrm{I} & \
&& \$ 15, \$ 48 & & \$ 38, \$ 52 & & \$ 50, \$ 50 \
\hline
\end{array}\
 &\text { Payoffs in thousands of dollars of monthly profits. }\\end{array}$
-Following the procedure of successive elimination of dominated strategies, the manager of Paxton Industries will eliminate in the first round the strategy of setting

Accepted Answer

A) 	a low price. 
B) 	a medium price. 
C) 	a high price. 
D) 	None of the above; Paxton Industries does not have a dominated strategy. 
A) 	a low price. 
B) 	a medium price. 
C) 	a high price. 
D) 	None of the above; Paxton Industries does not have a dominated strategy.

Question 9

One reason a firm or firms might charge a price lower than its profit-maximizing price is

Accepted Answer

A)  to discourage the entry of new firms. 
B)  to follow a tit-for-tat strategy. 
C)  to erect multiproduct barriers to entry. 
D)  both a and c 
E)  all of the above 
A)  to discourage the entry of new firms. 
B)  to follow a tit-for-tat strategy. 
C)  to erect multiproduct barriers to entry. 
D)  both a and c 
E)  all of the above

Question 10

A second-mover advantage

Accepted Answer

A)  exists when a firm can earn greater profit by reacting to earlier decisions made by rivals. 
B)  always arises when there is not a first-mover advantage in a sequential decision. 
C)  arises because rivals have imperfect information about payoffs. 
D)  none of the above 
A)  exists when a firm can earn greater profit by reacting to earlier decisions made by rivals. 
B)  always arises when there is not a first-mover advantage in a sequential decision. 
C)  arises because rivals have imperfect information about payoffs. 
D)  none of the above

Question 11

Burger Doodle, the incumbent firm, wishes to set a limit price of $8 (rather than the profit-maximizing price of $12) to prevent Designer Burger from entering its profitable market. The game tree above shows the payoffs for various decisions. Burger Doodle makes its pricing decision, then Designer Burger decides whether to enter or stay out of the market. If Designer Burger chooses to enter the market, then Burger Doodle may or may not decide to accommodate Designer's entry by changing its initial price to the Nash equilibrium price of $10. Use the following game tree to answer Question 65 through 68:  
-If the condition in the question above is NOT met, Burger Doodle will set price equal to $________ at decision node 1 and the outcome _____________(is, is not) a Nash equilibrium.

Accepted Answer

A)  8; is 
B)  8; is not 
C)  12; is 
D)  12; is not 
A)  8; is 
B)  8; is not 
C)  12; is 
D)  12; is not

Question 12

Burger Doodle, the incumbent firm, wishes to set a limit price of $8 (rather than the profit-maximizing price of $12) to prevent Designer Burger from entering its profitable market. The game tree above shows the payoffs for various decisions. Burger Doodle makes its pricing decision, then Designer Burger decides whether to enter or stay out of the market. If Designer Burger chooses to enter the market, then Burger Doodle may or may not decide to accommodate Designer's entry by changing its initial price to the Nash equilibrium price of $10. Use the following game tree to answer Question 65 through 68:  
-If the condition in the question 14-67 is NOT met, Burger Doodle will set price equal to $________ at decision node 3 and it will earn $__________ of profit while Designer Burger will earn $__________ of profit.

Accepted Answer

A)  8; 125,000; 0 
B)  8; 75,000; -40,000 
C)  10; 101,000; 25,000 
D)  10: 96,000; 25,000 
E)  12; 165,000; 0 
A)  8; 125,000; 0 
B)  8; 75,000; -40,000 
C)  10; 101,000; 25,000 
D)  10: 96,000; 25,000 
E)  12; 165,000; 0

Question 13

Credible commitments give committing firms

Accepted Answer

A)  the first moves in sequential games. 
B)  a second-mover advantage in sequential games. 
C)  a way to improve their payoffs. 
D)  both a and c 
E)  both b and c 
A)  the first moves in sequential games. 
B)  a second-mover advantage in sequential games. 
C)  a way to improve their payoffs. 
D)  both a and c 
E)  both b and c

Question 14

The managers of Alpha and Beta must make repeated advertising decisions simultaneously at the beginning of every month. They choose either low or high levels of advertising expenditure. They both employ a discount rate of 2.5 percent per month. Use the payoff table shown below to answer Questions .
 $\begin{array} { l  } 
 &\text {Beta's advertising  }\
 \text {Alpha's advertising }&\begin{array}{l|l|l|}
& \text {High  }& \text { Low }\
\hline High &\mathrm{A}&\mathrm{B}\
& {\$ 7,000, \$ 3,500} &{\$ 2,000, \$ 6,500} \
\hline Low &\mathrm{C}&\mathrm{D}\&{\$ 8,000}  \$ 1,000 & {\$4,000, \$ 2,000} \
\hline
\end{array}\
\end{array}$
-Beta expects punishment to last for two months after being caught . What would be the value-maximizing decision for Beta?

Accepted Answer

A) Cooperate since $3,000 > PVBenefits of cheating. B) Cooperate since $6,500/(1.025) > PVBenefits of cheating. C) Cheat since PVBenefits of cheating > $2,820. D) Cheat since PVBenefits of cheating < $5,641. A) Cooperate since $3,000 > PVBenefits of cheating. B) Cooperate since $6,500/(1.025) > PVBenefits of cheating. C) Cheat since PVBenefits of cheating > $2,820. D) Cheat since PVBenefits of cheating < $5,641.

Question 15

Oligopolists face interdependent profits because

Accepted Answer

A)  there are few firms in the market. 
B)  the product is differentiated. 
C)  industry sales are large. 
D)  all of the above 
A)  there are few firms in the market. 
B)  the product is differentiated. 
C)  industry sales are large. 
D)  all of the above

Question 16

Interdependence occurs when

Accepted Answer

A)  firms take the actions of other firms into account when making price and output decisions. 
B)  all firms in an industry are affected by the same general economic conditions, like consumer incomes and the unemployment rate. 
C)  firms cooperate to increase profit. 
D)  both a and b 
E)  all of the above 
A)  firms take the actions of other firms into account when making price and output decisions. 
B)  all firms in an industry are affected by the same general economic conditions, like consumer incomes and the unemployment rate. 
C)  firms cooperate to increase profit. 
D)  both a and b 
E)  all of the above

Question 17

Which of the following is not an implication of oligopoly interdependence:

Accepted Answer

A)  strategic behavior 
B)  the need to get into the heads of rival managers 
C)  making decisions that result in the equating of marginal revenue and marginal cost 
D)  thinking ahead in sequential decisions to anticipate rivals' future actions 
A)  strategic behavior 
B)  the need to get into the heads of rival managers 
C)  making decisions that result in the equating of marginal revenue and marginal cost 
D)  thinking ahead in sequential decisions to anticipate rivals' future actions

Question 18

Two men's clothing stores that compete for most of the market in a small town in Ohio and will choose their weekly advertising levels sequentially. The newspaper advertising department calls the clothing stores in alphabetical order to find out how much advertising each firm wishes to buy. Somehow - and nobody at the newspaper knows exactly how this happens - Arbuckle's advertising decision "leaks out" to Mr. B's, which then knows Arbuckle's advertising decision when it makes its advertising decision for the week.
The following payoff table facing the two firms, Arbuckle & Son and Mr. B's, shows the weekly profit outcomes for the various advertising decision combinations. The payoff table is common knowledge. Use this payoff table to construct the appropriate sequential decision on the blank game tree provided below. Then answer questions  .
 $\begin{array} { l  } 
 &\text {Mr: B's aavertisinglevel  }\
 \text {Arbuckle \& Son advertising level }&\begin{array}{l|l|l|}
& \text {High  }& \text { Low }\
\hline High &\mathrm{A}&\mathrm{B}\
& {\$ 4,000, \$ 4,000} &{\$ 3,000, \$ 5,000} \
\hline Low &\mathrm{C}&\mathrm{D}\&{\$ 5,000}  \$ 3,000 & {\$ 3,500, \$ 3,500} \
\hline
\end{array}\
\end{array}$ 
  
-By making its advertising decision after Arbuckle and Son, Mr. B's

Accepted Answer

A)  enjoys a first-mover advantage. 
B)  enjoys a second-mover advantage. 
C)  does not end up any better off than if it made its advertising decision first. 
D)  can secure a $5,000 profit payoff for itself. 
E)  both b and d. 
A)  enjoys a first-mover advantage. 
B)  enjoys a second-mover advantage. 
C)  does not end up any better off than if it made its advertising decision first. 
D)  can secure a $5,000 profit payoff for itself. 
E)  both b and d.

Question 19

Using the following payoff table for Hardaway Corporation and Paxton Industries. These two firms must make simultaneous pricing decisions. They can choose low, medium, or high prices. The payoffs given are in thousands of dollars of profit per month.
 $\begin{array} { l  } 
 &\text {  Paxton Industries }\
 \text {Hardaway Corp. }&\begin{array}{l|lc|ll|ll|}
&{\text { Low }} && {\text { Medium }} && {\text { High }} \
\hline\text {Low }& \text {  A } & & \mathrm{B} & & \mathrm{C} & \
&& \$ 30, \$ 30 & & \$ 45, \$ 20 & & \$ 32, \$ 20 \
\hline \text {Medium }&\text { D } & & \mathrm{E} & & \mathrm{F} & \
&& \$ 20, \$ 45 & & \$ 40, \$ 40 & & \$ 45, \$ 35 \
\hline \text {High }&\mathrm{G} & & \mathrm{H} & & \mathrm{I} & \
&& \$ 15, \$ 48 & & \$ 38, \$ 52 & & \$ 50, \$ 50 \
\hline
\end{array}\
 &\text { Payoffs in thousands of dollars of monthly profits. }\\end{array}$
-For the simultaneous pricing decision facing Hardaway Corporation and Paxton Industries,

Accepted Answer

A)  cell I is a strategically stable pricing outcome. 
B)  cell A is the likely outcome of the pricing decision. 
C)  cell E is the equilibrium pricing decision. 
D)  both firms pricing low is a Nash equilibrium. 
E)  both b and d. 
A)  cell I is a strategically stable pricing outcome. 
B)  cell A is the likely outcome of the pricing decision. 
C)  cell E is the equilibrium pricing decision. 
D)  both firms pricing low is a Nash equilibrium. 
E)  both b and d.

Question 20

In simultaneous decision making situations, common knowledge means that

Accepted Answer

A)  at least one of the decision makers knows what is going to happen. 
B)  all of the decision makers know what the outcome of the decision will be. 
C)  even people not involved in making the decision will be able predict the outcome. 
D)  the managers of the firms failed to keep all of the information about their decision plans secret. 
E)  none of the above 
A)  at least one of the decision makers knows what is going to happen. 
B)  all of the decision makers know what the outcome of the decision will be. 
C)  even people not involved in making the decision will be able predict the outcome. 
D)  the managers of the firms failed to keep all of the information about their decision plans secret. 
E)  none of the above

In a one-time prisoners' dilemma decision,

In the U.S., firms that engage in cooperative efforts to coordinate pricing

Actions taken by oligopolists to plan for and react to actions of rival firms represent

Firms make credible commitments by taking ___ , _ actions.

One reason a firm or firms might charge a price lower than its profit-maximizing price is

A second-mover advantage

Credible commitments give committing firms

Oligopolists face interdependent profits because

Interdependence occurs when

Which of the following is not an implication of oligopoly interdependence:

In simultaneous decision making situations, common knowledge means that

Managers, Profits, and Markets

Demand, Supply, and Market Equilibrium

Marginal Analysis for Optimal Decisions

Basic Estimation Techniques

Theory of Consumer Behavior

Elasticity and Demand

Demand Estimation and Forecasting

Production and Cost in the Short Run

Production and Cost in the Long Run

Production and Cost Estimation

Managerial Decisions in Competitive Markets

Managerial Decisions for Firms With Market Power

Advanced Pricing Techniques

Decisions Under Risk and Uncertainty

Government Regulation of Business

Filters

Exam 13: Strategic Decision Making in Oligopoly Markets

In a one-time prisoners' dilemma decision,

In the U.S., firms that engage in cooperative efforts to coordinate pricing

Actions taken by oligopolists to plan for and react to actions of rival firms represent

Firms make credible commitments by taking _________________ , _______________ actions.

One reason a firm or firms might charge a price lower than its profit-maximizing price is

A second-mover advantage

Credible commitments give committing firms

Oligopolists face interdependent profits because

Interdependence occurs when

Which of the following is not an implication of oligopoly interdependence:

In simultaneous decision making situations, common knowledge means that

Managers, Profits, and Markets

Demand, Supply, and Market Equilibrium

Marginal Analysis for Optimal Decisions

Basic Estimation Techniques

Theory of Consumer Behavior

Elasticity and Demand

Demand Estimation and Forecasting

Production and Cost in the Short Run

Production and Cost in the Long Run

Production and Cost Estimation

Managerial Decisions in Competitive Markets

Managerial Decisions for Firms With Market Power

Advanced Pricing Techniques

Decisions Under Risk and Uncertainty

Government Regulation of Business

Filters

Firms make credible commitments by taking ___ , _ actions.