Question 1

Governments create barriers to entry with licenses or other regulations that limit entry.

Accepted Answer

A) True 
 B)False

Question 2

Iran and Iraq disbanded from OPEC when engaging in war from 1980-1988.

Accepted Answer

A) True 
 B)False

Question 3

Cartels have lots of market power and rarely ever collapse because cartel members have no incentive to expand output beyond the limits set by the carte.l

Accepted Answer

A) True 
 B)False

Question 4

In April 2011, Procter & Gamble and Unilever received fines of 315 million euros by the European Commission for fixing the price of laundry detergent in eight European countries. They admitted to this cartel, which resulted in a 10 percent discount in the fines. The 3-year investigation started because of a tip-off by another competitor, Henkel, who was also part of the price-fixing scheme. Henkel received no fine because of its cooperation with investigators. Besides the fines, how did investigators make maintaining this cartel difficult to continue?

Accepted Answer

A)  by offering a 10 percent discount on the fine if the parties admit to wrongdoing 
B)  by investigating the cartel for 3 years so they could prosecute 
C)  by reminding consumers that laundry detergent has a lot of long-run substitutes 
D)  by waiving the fine for just Henkel, which encouraged Henkel to cheat 
A)  by offering a 10 percent discount on the fine if the parties admit to wrongdoing 
B)  by investigating the cartel for 3 years so they could prosecute 
C)  by reminding consumers that laundry detergent has a lot of long-run substitutes 
D)  by waiving the fine for just Henkel, which encouraged Henkel to cheat

Question 5

OPEC stands for:

Accepted Answer

A)  the Organization of Petroleum, Energy, and Consumption. 
B)  the Organization of Petroleum Exporting Countries. 
C)  the Outcome of Petroleum Energy Cooperation. 
D)  the Organization of Petroleum and Energy Corporation. 
A)  the Organization of Petroleum, Energy, and Consumption. 
B)  the Organization of Petroleum Exporting Countries. 
C)  the Outcome of Petroleum Energy Cooperation. 
D)  the Organization of Petroleum and Energy Corporation.

Question 6

One reason cartels have limited power is that demand curves become:

Accepted Answer

A)  less elastic over time. 
B)  more elastic over time. 
C)  fragmented over time. 
D)  stable once the cartel is established. 
A)  less elastic over time. 
B)  more elastic over time. 
C)  fragmented over time. 
D)  stable once the cartel is established.

Question 7

_____ cartels can move an industry from competition to pure monopoly.

Accepted Answer

A)  All 
B)  Most 
C)  Many 
D)  Very few 
A)  All 
B)  Most 
C)  Many 
D)  Very few

Question 8

The prisoner's dilemma describes situations where the pursuit of individual interest leads to a group outcome that is in the interest of everyone.

Accepted Answer

A) True 
 B)False

Question 9

Cartels can be upheld because cheating is not profitable when other countries keep their promise to abide with the agreement.

Accepted Answer

A) True 
 B)False

Question 10

The more successful a cartel is in raising the profits of the firms in the cartel, the:

Accepted Answer

A)  less likely there will be cheating. 
B)  more likely there will be cheating. 
C)  more competitive the cartel. 
D)  more likely there will be a price war. 
A)  less likely there will be cheating. 
B)  more likely there will be cheating. 
C)  more competitive the cartel. 
D)  more likely there will be a price war.

Question 11

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 type of "game" does this payoff matrix represent?

Accepted Answer

A)  cartel game 
B)  coordination game 
C)  prisoners' dilemma 
D)  cheating game 
A)  cartel game 
B)  coordination game 
C)  prisoners' dilemma 
D)  cheating game

Question 12

In the 1990s, the FBI and Department of Justice sued:

Accepted Answer

A)  Avomeen. 
B)  Archer Daniels Midland. 
C)  Bunge Limited. 
D)  the Andersons Inc. 
A)  Avomeen. 
B)  Archer Daniels Midland. 
C)  Bunge Limited. 
D)  the Andersons Inc.

Question 13

In an oligopolistic market, prices will tend to be closer to the competitive price:

Accepted Answer

A)  the more government regulation there is in the market. 
B)  when the product is more distinguishable from its competitors. 
C)  the greater the number of firms in the industry. 
D)  the greater the number of sales. 
A)  the more government regulation there is in the market. 
B)  when the product is more distinguishable from its competitors. 
C)  the greater the number of firms in the industry. 
D)  the greater the number of sales.

Question 14

The high prices charged by cartels:

Accepted Answer

A)  serve as a barrier to entry, allowing the cartel to earn above-normal profits. 
B)  give an incentive for new firms to enter the industry, causing an expansion of industry output and lower prices. 
C)  reduce the incentive for increased conservation. 
D)  All of the answers are correct. 
A)  serve as a barrier to entry, allowing the cartel to earn above-normal profits. 
B)  give an incentive for new firms to enter the industry, causing an expansion of industry output and lower prices. 
C)  reduce the incentive for increased conservation. 
D)  All of the answers are correct.

Question 15

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. Suppose that Country A cheats on the cartel agreement by producing 200 more barrels than the other two countries. What would Country B's reaction be?

Accepted Answer

A)  lower its own quantity to 200 units 
B)  increase its own quantity to 1,600 units 
C)  increase the market price to $60 
D)  increase its own quantity to 600 units 
A)  lower its own quantity to 200 units 
B)  increase its own quantity to 1,600 units 
C)  increase the market price to $60 
D)  increase its own quantity to 600 units

Question 16

As the price of oil goes up, what happens to the incentive to develop alternative fuels?

Accepted Answer

A)  It increases. 
B)  It decreases. 
C)  Nothing happens. 
D)  It is impossible to say without more information. 
A)  It increases. 
B)  It decreases. 
C)  Nothing happens. 
D)  It is impossible to say without more information.

Question 17

Major league sports are illegal cartels.

Accepted Answer

A) True 
 B)False

Question 18

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. If the countries create a cartel and agree to mimic monopoly-like behavior, what level of output would each firm produce?

Accepted Answer

A)  1,200 
B)  400 
C)  200 
D)  700 
A)  1,200 
B)  400 
C)  200 
D)  700

Question 19

In a competitive market, each firm earns ________ economic profits, whereas firms in a successful cartel will earn ________.

Accepted Answer

A)  positive; zero economic profits 
B)  negative; positive economic profits 
C)  positive; monopoly profits 
D)  zero; positive economic profits 
A)  positive; zero economic profits 
B)  negative; positive economic profits 
C)  positive; monopoly profits 
D)  zero; positive economic profits

Question 20

Which of the following explains why the NBA cartel is sustainable?

Accepted Answer

A)  Team owners make more money, but players make less money. 
B)  Access to the NBA league is the good that the cartel controls to keep its members from cheating 
C)  NBA games compete against other professional and collegiate sports. 
D)  Consumers benefit from the salary cap that prevents rich teams from buying up all the great players. 
A)  Team owners make more money, but players make less money. 
B)  Access to the NBA league is the good that the cartel controls to keep its members from cheating 
C)  NBA games compete against other professional and collegiate sports. 
D)  Consumers benefit from the salary cap that prevents rich teams from buying up all the great players.

Exam 15: Oligopoly and Game Theory

Governments create barriers to entry with licenses or other regulations that limit entry.

Iran and Iraq disbanded from OPEC when engaging in war from 1980-1988.

Cartels have lots of market power and rarely ever collapse because cartel members have no incentive to expand output beyond the limits set by the carte.l

OPEC stands for:

One reason cartels have limited power is that demand curves become:

_____ cartels can move an industry from competition to pure monopoly.

The prisoner's dilemma describes situations where the pursuit of individual interest leads to a group outcome that is in the interest of everyone.

Cartels can be upheld because cheating is not profitable when other countries keep their promise to abide with the agreement.

The more successful a cartel is in raising the profits of the firms in the cartel, the:

In the 1990s, the FBI and Department of Justice sued:

In an oligopolistic market, prices will tend to be closer to the competitive price:

The high prices charged by cartels:

As the price of oil goes up, what happens to the incentive to develop alternative fuels?

Major league sports are illegal cartels.

In a competitive market, each firm earns ________ economic profits, whereas firms in a successful cartel will earn ________.

Which of the following explains why the NBA cartel is sustainable?

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

Filters

In a competitive market, each firm earns economic profits, whereas firms in a successful cartel will earn .