Question 1

A strategy that has a higher payoff than any other strategy no matter what the other player does is called a:

Accepted Answer

A)  cartel strategy. 
B)  maximizing strategy. 
C)  valuable strategy. 
D)  dominant strategy. 
A)  cartel strategy. 
B)  maximizing strategy. 
C)  valuable strategy. 
D)  dominant strategy.

Question 2

There was a dramatic increase in the price of oil in:

Accepted Answer

A)  the early 1970s. 
B)  the early 1980s. 
C)  the early 1990s. 
D)  the late 1990s. 
A)  the early 1970s. 
B)  the early 1980s. 
C)  the early 1990s. 
D)  the late 1990s.

Question 3

Which of the following statements is TRUE?

Accepted Answer

A)  It is easier to establish a cartel for a manufactured good than for a natural resource. 
B)  Cartels are more successful when there are many substitutes for the cartel's good. 
C)  The high prices charged by a cartel might lead to new firms entering the industry, reducing the cartel's market power. 
D)  OPEC's high oil prices encourage countries like Mexico, Great Britain, and the Netherlands to cut back on oil production. 
A)  It is easier to establish a cartel for a manufactured good than for a natural resource. 
B)  Cartels are more successful when there are many substitutes for the cartel's good. 
C)  The high prices charged by a cartel might lead to new firms entering the industry, reducing the cartel's market power. 
D)  OPEC's high oil prices encourage countries like Mexico, Great Britain, and the Netherlands to cut back on oil production.

Question 4

Which of the following factors is NOT significant in leading to the collapse of a cartel?

Accepted Answer

A)  cheating by cartel members 
B)  new entrants and demand response 
C)  transparency of action among members 
D)  government prosecution and regulation 
A)  cheating by cartel members 
B)  new entrants and demand response 
C)  transparency of action among members 
D)  government prosecution and regulation

Question 5

One sign of the cartel power of the NBA is the use of salary caps.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is NOT a result of the network effect?

Accepted Answer

A)  Facebook is more valuable to a person the more friends use it. 
B)  eBay is more valuable to a buyer the more sellers there are. 
C)  eBay is more valuable to a seller the more buyers there are. 
D)  "Network effects" tend to limit the size of the firm. 
A)  Facebook is more valuable to a person the more friends use it. 
B)  eBay is more valuable to a buyer the more sellers there are. 
C)  eBay is more valuable to a seller the more buyers there are. 
D)  "Network effects" tend to limit the size of the firm.

Question 7

Use the following to answer questions: Table: Russia, Saudi Payoff Table
Suppose that the oil market is dominated by two large firms, Saudi Arabia and Russia. Both Saudi Arabia and Russia have two choices or strategies: cooperate by cutting back production or cheat by increasing production. The payoff table below shows the potential revenues associated with each firm's strategies. For instance, if Saudi Arabia cheats and Russia cooperates, the payoff to Saudi Arabia is $1,000 and the payoff to Russia is $400. $$\begin{array} { | l | l | c | c | } 
\hline & & \text { Russia's Strategies } & { \text { Cheat } } \
\hline & & \text { Cooperate } & ( \$ 400 , \$ 1,000 ) \
\hline \text { Saudi Arabia's } & \text { Cooperate } & ( \$ 800 , \$ 800 ) & ( \$ 600 , \$ 600 ) \
\hline \text { Strategies } & \text { Cheat } & ( \$ 1,000 , \$ 400 ) & ( \$ 5 ) \
\hline
\end{array}$$
-(Table: Russia, Saudi Payoff Table) Refer to the table. The dominant strategies are to:

Accepted Answer

A)  cheat, for both Russia and Saudi Arabia. 
B)  cooperate, for both Russia and Saudi Arabia. 
C)  cheat for Russia and to cooperate for Saudi Arabia. 
D)  cooperate for Russia and to cheat for Saudi Arabia. 
A)  cheat, for both Russia and Saudi Arabia. 
B)  cooperate, for both Russia and Saudi Arabia. 
C)  cheat for Russia and to cooperate for Saudi Arabia. 
D)  cooperate for Russia and to cheat for Saudi Arabia.

Question 8

Businesses can increase their incentives to lower prices by using loyalty plans.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is TRUE?

Accepted Answer

A)  Cartels generally persist and are quite common. 
B)  Few cartels move an industry from competition to pure monopoly. 
C)  Cartels work better when there are more firms involved. 
D)  Cartels persist because the cartel members enforce their agreements. 
A)  Cartels generally persist and are quite common. 
B)  Few cartels move an industry from competition to pure monopoly. 
C)  Cartels work better when there are more firms involved. 
D)  Cartels persist because the cartel members enforce their agreements.

Question 10

Game theory is used to model decisions in situations where the players interact.

Accepted Answer

A) True 
 B)False

Question 11

Loyalty programs increase monopoly power making the demand curve more inelastic and increasing prices.

Accepted Answer

A) True 
 B)False

Question 12

Scientists are working on techniques to create bacteria that excrete oil as waste. How might OPEC have contributed to this research?

Accepted Answer

A)  OPEC donated money to fund this research. 
B)  The high price of oil charged by OPEC made it profitable to invest in such research. 
C)  Several members of the Saudi royal family personally worked on this research. 
D)  OPEC is offering a prize to whoever can develop a substitute for oil. 
A)  OPEC donated money to fund this research. 
B)  The high price of oil charged by OPEC made it profitable to invest in such research. 
C)  Several members of the Saudi royal family personally worked on this research. 
D)  OPEC is offering a prize to whoever can develop a substitute for oil.

Question 13

A cartel is a group of firms that try to monopolize the market.

Accepted Answer

A) True 
 B)False

Question 14

Explain the impact of new entrants and consumer response on a cartel.

Accepted Answer

Cartel profits encourage new firms to en

Question 15

One way a cartel gets its power is by controlling a natural resource that is found in large quantities in a few places.

Accepted Answer

A) True 
 B)False

Question 16

Strategic decision making is decision making in situations that are interactive.

Accepted Answer

A) True 
 B)False

Question 17

Cartel member strategy can be like a prisoner's ______ game.

Accepted Answer

A)  release 
B)  call 
C)  cooperation 
D)  dilemma 
A)  release 
B)  call 
C)  cooperation 
D)  dilemma

Question 18

With price matching plus 10% of the difference, which of the following is TRUE?
I. The consumer benefits.
II. The seller benefits.
III. The consumer pays a higher price.

Accepted Answer

A)  I only 
B)  II only 
C)  II and III only 
D)  I and II only 
A)  I only 
B)  II only 
C)  II and III only 
D)  I and II only

Question 19

It is easy for a cartel to behave monopolistically.

Accepted Answer

A) True 
 B)False

Question 20

OPEC is a(n) ________ of oil-exporting countries.

Accepted Answer

A)  cartel 
B)  group 
C)  monopoly 
D)  oligopoly 
A)  cartel 
B)  group 
C)  monopoly 
D)  oligopoly

Exam 15: Oligopoly and Game Theory

A strategy that has a higher payoff than any other strategy no matter what the other player does is called a:

There was a dramatic increase in the price of oil in:

Which of the following statements is TRUE?

Which of the following factors is NOT significant in leading to the collapse of a cartel?

One sign of the cartel power of the NBA is the use of salary caps.

Which of the following is NOT a result of the network effect?

Businesses can increase their incentives to lower prices by using loyalty plans.

Which of the following statements is TRUE?

Game theory is used to model decisions in situations where the players interact.

Loyalty programs increase monopoly power making the demand curve more inelastic and increasing prices.

Scientists are working on techniques to create bacteria that excrete oil as waste. How might OPEC have contributed to this research?

A cartel is a group of firms that try to monopolize the market.

Explain the impact of new entrants and consumer response on a cartel.

One way a cartel gets its power is by controlling a natural resource that is found in large quantities in a few places.

Strategic decision making is decision making in situations that are interactive.

Cartel member strategy can be like a prisoner's ______ game.

With price matching plus 10% of the difference, which of the following is TRUE? I. The consumer benefits. II. The seller benefits. III. The consumer pays a higher price.

It is easy for a cartel to behave monopolistically.

OPEC is a(n) ________ of oil-exporting countries.

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

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