Question 1

Which federal law makes most cartels in the United States illegal?

Accepted Answer

A)  Interstate Commerce Act of 1901 
B)  Federal Reserve Act of 1914 
C)  Supreme Court case Johnson v. J. P. Morgan 
D)  Sherman Antitrust Act of 1890 
A)  Interstate Commerce Act of 1901 
B)  Federal Reserve Act of 1914 
C)  Supreme Court case Johnson v. J. P. Morgan 
D)  Sherman Antitrust Act of 1890

Question 2

Use the following to answer questions: Table: Market for Oil
Suppose that oil is produced by 10 countries, each of which produces 10 million barrels of oil a day (MBD) for a total 100 MBD. The world price of oil at this quantity is $36 per barrel so each country earns $360 million a day. $$\begin{array} { | c | c | } 
\hline \text { World Price (per barrel) } & \text { World Quantity (MBD) } \
\hline \$ 36 & 100 \
\hline 37.50 & 98 \
\hline 47.50 & 82 \
\hline 50 & 80 \
\hline
\end{array}$$
-(Table: Market for Oil) Refer to the table. Suppose that these countries form a cartel and each country produces 8 MBD. If one of the cartel members cheats by secretly pushing its production back to 10 MBD rather than 8, total revenue for the noncheating countries would:

Accepted Answer

A)  decrease from $400 million to $380 million a day. 
B)  decrease from $360 million to $288 million a day. 
C)  increase from $400 million to $500 million a day. 
D)  remain unchanged at $380 million a day. 
A)  decrease from $400 million to $380 million a day. 
B)  decrease from $360 million to $288 million a day. 
C)  increase from $400 million to $500 million a day. 
D)  remain unchanged at $380 million a day.

Question 3

Use the following to answer questions: Figure: Competitive Market  
-(Figure: Competitive Market) Refer to the figure. If the market is competitive, price and output in the market would be:

Accepted Answer

A)  P1 and Q1. 
B)  P1 and Q2. 
C)  P2 and Q1. 
D)  P2 and Q2. 
A)  P1 and Q1. 
B)  P1 and Q2. 
C)  P2 and Q1. 
D)  P2 and Q2.

Question 4

A government-supported cartel usually means:

Accepted Answer

A)  lower prices. 
B)  higher quality of service. 
C)  more innovation. 
D)  higher prices. 
A)  lower prices. 
B)  higher quality of service. 
C)  more innovation. 
D)  higher prices.

Question 5

The higher the profits for each firm in a cartel, the harder it is to maintain the cartel.

Accepted Answer

A) True 
 B)False

Question 6

A cartel is a:

Accepted Answer

A)  group of suppliers that tries to act as if they were a monopoly. 
B)  market that is dominated by a small number of firms. 
C)  market with a large number of firms selling similar but not identical products. 
D)  group of suppliers that tries to act as if they were a perfectly competitive market. 
A)  group of suppliers that tries to act as if they were a monopoly. 
B)  market that is dominated by a small number of firms. 
C)  market with a large number of firms selling similar but not identical products. 
D)  group of suppliers that tries to act as if they were a perfectly competitive market.

Question 7

Overfishing in oceans is a prisoner's ______ outcome.

Accepted Answer

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

Question 8

In reference to the Lowe's and Home Depot example in the textbook (prisoner's dilemma), equilibrium will occur when:

Accepted Answer

A)  both firms set the price at the high price. 
B)  Lowe's sets the price at the high price and Home Depot sets price at the low price. 
C)  Lowe's sets the price at the low price and Home Depot sets price at the high price. 
D)  both firms set the price at the low price. 
A)  both firms set the price at the high price. 
B)  Lowe's sets the price at the high price and Home Depot sets price at the low price. 
C)  Lowe's sets the price at the low price and Home Depot sets price at the high price. 
D)  both firms set the price at the low price.

Question 9

A cartel is a group of consumers that tries to act together to increase their bargaining power.

Accepted Answer

A) True 
 B)False

Question 10

What are three reasons that cartels collapse? Provide an example of each.

Accepted Answer

There are three reasons cartels collapse

Question 11

Oligopolies tend to set prices:

Accepted Answer

A)  higher than monopolies. 
B)  higher than cartels. 
C)  lower than monopolies but higher than competitive markets. 
D)  that equal marginal cost. 
A)  higher than monopolies. 
B)  higher than cartels. 
C)  lower than monopolies but higher than competitive markets. 
D)  that equal marginal cost.

Question 12

Use the following to answer questions: Table: Three-Country Oil Production $$\begin{array} { | c | c | } 
\hline \text { Total Market Output } & \text { Market Price } \
\hline 600 & 90 \
\hline 800 & 80 \
\hline 1,000 & 70 \
\hline 1,200 & 60 \
\hline 1,400 & 50 \
\hline 1,600 & 40 \
\hline 1,800 & 30 \
\hline
\end{array}$$
-(Table: Three-Country Oil Production) Refer to the table. Suppose that three countries are engaged in oil production. For simplicity, assume zero costs so that revenue equals profit. Assume that Country A cheats on the cartel agreement by producing 200 more barrels than the other two countries. What is the resultant profit earned by each of the other two countries?

Accepted Answer

A)  20,000 
B)  30,000 
C)  70,000 
D)  24,000 
A)  20,000 
B)  30,000 
C)  70,000 
D)  24,000

Question 13

Cartels in manufactured goods are difficult to maintain because other firms can enter the market and easily produce substitute products.

Accepted Answer

A) True 
 B)False

Question 14

OPEC nations cheat on their cartel agreement by producing more oil than they pledged to.

Accepted Answer

A) True 
 B)False

Question 15

Table: Payoff Matrix $$\begin{array} { | l | l | l } 
\hline & \text { Firm l Cheats } & \text { Firm l Doesn't Cheat } \
\hline \text { Firm 2 Cheats } & \text { Firm 1 earns: } & \text { Firm 1 earns: } \
\hline & \$ 2,000 & \$ 1,000 \
\hline & \text { Firm 2 earns: } & \text { Firm } 2 \text { earns: } \
\hline & \$ 2,000 & \$ 4,000 \
\hline & \text { Firm 1 earns: } & \text { Firm 1 earns: } \
\hline & \$ 4,000 & \$ 3,000 \
\hline \text { Doesn't Cheat } & \text { Firm 2 earns: } & \text { Firm } 2 \text { earns: } \
\hline & \$ 1,000 & \$ 3,000 \
\hline
\end{array}$$ 
The table represents the payoffs for two firms operating as a cartel. Based on the payoffs, what is the dominant strategy for each firm? Will the cartel agreement between the two firms be easy or hard to maintain? Explain.

Accepted Answer

The dominant strategy is for both firms

Question 16

A market dominated by a small number of firms is called a(n):

Accepted Answer

A)  oligopoly. 
B)  natural monopoly. 
C)  monopoly. 
D)  network market. 
A)  oligopoly. 
B)  natural monopoly. 
C)  monopoly. 
D)  network market.

Question 17

Within OPEC, cheating is associated with:

Accepted Answer

A)  holding oil reserves without reaching quota. 
B)  meeting quota. 
C)  zero production. 
D)  producing oil beyond quota. 
A)  holding oil reserves without reaching quota. 
B)  meeting quota. 
C)  zero production. 
D)  producing oil beyond quota.

Question 18

A dominant strategy is a strategy that a player should take regardless of the strategy chosen by the other player.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is NOT a reason why cartels collapse?

Accepted Answer

A)  cheating by the cartel members 
B)  new entrants and demand response 
C)  government prosecution 
D)  increasing production costs 
A)  cheating by the cartel members 
B)  new entrants and demand response 
C)  government prosecution 
D)  increasing production costs

Question 20

Suppose that an industry consists of a two-firm cartel: Firm A and Firm B. Each firm agrees to produce and sell only 100 units of output per week. This level of output maximizes total industry profit. Which of the following is TRUE?

Accepted Answer

A)  Firm B could increase its profits by producing and selling only 90 units of output per week. 
B)  Both firms could increase their profit by lowering their price and expanding output. 
C)  Firm A could increase its profit by producing and selling a little more than 100 units of output. 
D)  Firm B could increase Firm A's profits by producing and selling 10 percent more output. 
A)  Firm B could increase its profits by producing and selling only 90 units of output per week. 
B)  Both firms could increase their profit by lowering their price and expanding output. 
C)  Firm A could increase its profit by producing and selling a little more than 100 units of output. 
D)  Firm B could increase Firm A's profits by producing and selling 10 percent more output.

Exam 15: Oligopoly and Game Theory

Which federal law makes most cartels in the United States illegal?

Use the following to answer questions: Figure: Competitive Market -(Figure: Competitive Market) Refer to the figure. If the market is competitive, price and output in the market would be:

A government-supported cartel usually means:

The higher the profits for each firm in a cartel, the harder it is to maintain the cartel.

A cartel is a:

Overfishing in oceans is a prisoner's ______ outcome.

In reference to the Lowe's and Home Depot example in the textbook (prisoner's dilemma), equilibrium will occur when:

A cartel is a group of consumers that tries to act together to increase their bargaining power.

What are three reasons that cartels collapse? Provide an example of each.

Oligopolies tend to set prices:

Cartels in manufactured goods are difficult to maintain because other firms can enter the market and easily produce substitute products.

OPEC nations cheat on their cartel agreement by producing more oil than they pledged to.

A market dominated by a small number of firms is called a(n):

Within OPEC, cheating is associated with:

A dominant strategy is a strategy that a player should take regardless of the strategy chosen by the other player.

Which of the following is NOT a reason why cartels collapse?

Suppose that an industry consists of a two-firm cartel: Firm A and Firm B. Each firm agrees to produce and sell only 100 units of output per week. This level of output maximizes total industry profit. Which of the following is TRUE?

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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