Question 1

The pursuit of market power reduces the social good.

Accepted Answer

A) True 
 B)False

Question 2

Firms operating in a cartel have a large incentive to cheat on the agreement by:

Accepted Answer

A)  lowering prices and increasing production. 
B)  lowering both prices and production. 
C)  raising prices and increasing production. 
D)  raising prices and lowering production. 
A)  lowering prices and increasing production. 
B)  lowering both prices and production. 
C)  raising prices and increasing production. 
D)  raising prices and lowering production.

Question 3

Which of the following is NOT a possible way for a price-fixing scheme on potatoes to fall apart?

Accepted Answer

A)  Potato farmers get arrested for anticompetitive pricing. 
B)  Some farmers sell more potatoes than agreed on. 
C)  People stop buying potatoes and switch to other foods. 
D)  The cost of producing potatoes falls. 
A)  Potato farmers get arrested for anticompetitive pricing. 
B)  Some farmers sell more potatoes than agreed on. 
C)  People stop buying potatoes and switch to other foods. 
D)  The cost of producing potatoes falls.

Question 4

Oligopolies are able to earn more than "Normal" profit.

Accepted Answer

A) True 
 B)False

Question 5

In forming a cartel:

Accepted Answer

A)  all firms will cooperate. 
B)  there are no incentives to cheat. 
C)  there are no incentives to cooperate. 
D)  there are incentives to cheat. 
A)  all firms will cooperate. 
B)  there are no incentives to cheat. 
C)  there are no incentives to cooperate. 
D)  there are incentives to cheat.

Question 6

Which of the following statements is TRUE?
I. It is easier to form a cartel for a product with few substitutes.
II. Cartels that are backed and supported by the government tend to have less power.
III. Cartels are more likely to collapse the more firms there are in an industry.

Accepted Answer

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

Question 7

Cartels tend to collapse and lose their power for three reasons. List these reasons and briefly explain why each of them causes cartels to collapse.

Accepted Answer

(1) Cheating by the cartel members: chea

Question 8

Use the following to answer questions: Table: Payoff Matrix
The following shows a payoff matrix with two players and two strategies. The payoffs are listed in the order of Player 1's payoffs, Player 2's payoffs. $$\begin{array} { | l | l | c | c | } 
\hline & & \text { Player 2 } & { \text { Cheat } } \
\hline & & \text { Cooperate } & ( 400,2,000 ) \
\hline \text { Player 1 } & \text { Cooperate } & ( 1,000,1,000 ) & ( 500,500 ) \
\hline & \text { Cheat } & ( 2,000,400 ) & \
\hline
\end{array}$$
-(Table: Payoff Matrix) Refer to the table. What is Player 1's strategy in this game?

Accepted Answer

A)  always cooperate 
B)  always cheat 
C)  cooperate when Player 2 cooperates; cheat when Player 2 cheats 
D)  cheat when Player 2 cooperates; cooperate when Player 2 cheats 
A)  always cooperate 
B)  always cheat 
C)  cooperate when Player 2 cooperates; cheat when Player 2 cheats 
D)  cheat when Player 2 cooperates; cooperate when Player 2 cheats

Question 9

In 2011, 11 modeling agencies in Singapore were found to have acted together in raising prices of modeling services. These firms acted as a:

Accepted Answer

A)  disunion. 
B)  cartel. 
C)  co-op. 
D)  Bertrand monopoly. 
A)  disunion. 
B)  cartel. 
C)  co-op. 
D)  Bertrand monopoly.

Question 10

The prisoner's dilemma describes a scenario in which each player, acting out of self-interest, will make a decision that results in all players being worse off.

Accepted Answer

A) True 
 B)False

Question 11

Use the following to answer questions: Table: Ozzie's, Manny's Payoff Table $$\begin{array} { | l | l | c | c | } 
\hline & & \begin{array} { c } 
\text { Ozzie's Cement } \
\text { (profit in 1,000s) }
\end{array} &{ } \
\hline & & \text { Low Price } & \text { High Price } \
\hline \text { Manny's Cement } & \text { Low Price } & \$ 60 , \$ 60 & \$ 130 , \$ 20 \
\hline \text { (profit in 1,000s) } & \text { High Price } & \$ 20 , \$ 130 & \$ 80 , \$ 80 \
\hline
\end{array}$$
-(Table: Ozzie's, Manny's Payoff Table) Refer to the table. Which of the following statements is TRUE?

Accepted Answer

A)  Manny and Ozzie do not have dominant strategies. 
B)  Manny's dominant strategy is low price, and Ozzie's dominant strategy is high price. 
C)  Manny's dominant strategy is high price, and Ozzie's dominant strategy is high price. 
D)  Manny's dominant strategy is low price, and Ozzie's dominant strategy is low price. 
A)  Manny and Ozzie do not have dominant strategies. 
B)  Manny's dominant strategy is low price, and Ozzie's dominant strategy is high price. 
C)  Manny's dominant strategy is high price, and Ozzie's dominant strategy is high price. 
D)  Manny's dominant strategy is low price, and Ozzie's dominant strategy is low price.

Question 12

A dominant strategy is a strategy that:

Accepted Answer

A)  all players must follow. 
B)  has a higher payoff than any other strategy no matter what the other player does. 
C)  leads to one player's interests dominating the interests of the other players. 
D)  a player follows regardless of the strategies followed by other players. 
A)  all players must follow. 
B)  has a higher payoff than any other strategy no matter what the other player does. 
C)  leads to one player's interests dominating the interests of the other players. 
D)  a player follows regardless of the strategies followed by other players.

Question 13

A cartel is characterized by firms that act together in order to:
I. increase competition.
II. raise prices.
III. raise profit.

Accepted Answer

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

Question 14

Barriers to entry include:

Accepted Answer

A)  control over a key resource or input. 
B)  economies of scale. 
C)  government barriers. 
D)  They are all barriers to entry. 
A)  control over a key resource or input. 
B)  economies of scale. 
C)  government barriers. 
D)  They are all barriers to entry.

Question 15

Cartels are ______ by new market entrants.

Accepted Answer

A)  reinforced 
B)  ignored 
C)  challenged 
D)  discovered 
A)  reinforced 
B)  ignored 
C)  challenged 
D)  discovered

Question 16

If your economics class was graded on a curve and everyone agrees to study only half as much, everyone would get the same grade that they otherwise would earn. You, however, will earn an A if you study more than the others, a C if you study the same amount as others, and an F if everyone else studies more than you. You don't like studying, but you'd rather study and get an A than get a C without studying, or study and get a C than get an F without studying. All the students in your class get together and agree not to study, but have no way of verifying if anyone does study. Do you think that this cartel will succeed?

Accepted Answer

A)  Yes, everyone will probably cut back on their studying. 
B)  No, some (and maybe all) participants will cheat on the agreement. 
C)  It depends on the professor. 
D)  This situation is not like a cartel. 
A)  Yes, everyone will probably cut back on their studying. 
B)  No, some (and maybe all) participants will cheat on the agreement. 
C)  It depends on the professor. 
D)  This situation is not like a cartel.

Question 17

A cartel is a group of suppliers who act together in order to:

Accepted Answer

A)  increase demand, raise prices, and increase profits. 
B)  increase supply, reduce prices, and increase profits. 
C)  increase demand, reduce prices, and increase profits. 
D)  reduce supply, increase prices, and increase profits. 
A)  increase demand, raise prices, and increase profits. 
B)  increase supply, reduce prices, and increase profits. 
C)  increase demand, reduce prices, and increase profits. 
D)  reduce supply, increase prices, and increase profits.

Question 18

Which of the following is NOT a feature of the prisoner's dilemma?

Accepted Answer

A)  It explains why cartels fail. 
B)  It describes how producers can lock themselves into a suboptimal outcome by pursuing their own self-interest. 
C)  It shows a dominant strategy for each of the players. 
D)  It explains why there is so much recidivism. 
A)  It explains why cartels fail. 
B)  It describes how producers can lock themselves into a suboptimal outcome by pursuing their own self-interest. 
C)  It shows a dominant strategy for each of the players. 
D)  It explains why there is so much recidivism.

Question 19

An oligopoly is likely to be below monopoly levels but above competitive levels. Why? Explain.

Accepted Answer

In a competitive industry, no firm is ab

Question 20

Cheating in cartels is most likely to occur if members are:

Accepted Answer

A)  very friendly. 
B)  not friendly. 
C)  somewhat friendly. 
D)  socially neutral toward one another. 
A)  very friendly. 
B)  not friendly. 
C)  somewhat friendly. 
D)  socially neutral toward one another.

Exam 15: Oligopoly and Game Theory

The pursuit of market power reduces the social good.

Firms operating in a cartel have a large incentive to cheat on the agreement by:

Which of the following is NOT a possible way for a price-fixing scheme on potatoes to fall apart?

Oligopolies are able to earn more than "Normal" profit.

In forming a cartel:

Which of the following statements is TRUE? I. It is easier to form a cartel for a product with few substitutes. II. Cartels that are backed and supported by the government tend to have less power. III. Cartels are more likely to collapse the more firms there are in an industry.

Cartels tend to collapse and lose their power for three reasons. List these reasons and briefly explain why each of them causes cartels to collapse.

In 2011, 11 modeling agencies in Singapore were found to have acted together in raising prices of modeling services. These firms acted as a:

The prisoner's dilemma describes a scenario in which each player, acting out of self-interest, will make a decision that results in all players being worse off.

A dominant strategy is a strategy that:

A cartel is characterized by firms that act together in order to: I. increase competition. II. raise prices. III. raise profit.

Barriers to entry include:

Cartels are ______ by new market entrants.

A cartel is a group of suppliers who act together in order to:

Which of the following is NOT a feature of the prisoner's dilemma?

An oligopoly is likely to be below monopoly levels but above competitive levels. Why? Explain.

Cheating in cartels is most likely to occur if members are:

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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