Question 1

Game theory is the study of independent decision making.

Accepted Answer

A) True 
 B)False

Question 2

Use the following to answer questions: Figure: Demand 1  
-(Figure: Demand 1) A cartel facing the market in this diagram would try to cause industry output to:

Accepted Answer

A)  increase from 5 to 10. 
B)  increase from 3 to 6. 
C)  decrease from 6 to 3. 
D)  decrease from 5 to 2. 
A)  increase from 5 to 10. 
B)  increase from 3 to 6. 
C)  decrease from 6 to 3. 
D)  decrease from 5 to 2.

Question 3

Cartels in the United States were outlawed with the passage of the:

Accepted Answer

A)  ACA Act of 1957. 
B)  Sherman Antitrust Act of 1890. 
C)  Fair Labor Standards Act of 1938. 
D)  Wagner Act of 1935. 
A)  ACA Act of 1957. 
B)  Sherman Antitrust Act of 1890. 
C)  Fair Labor Standards Act of 1938. 
D)  Wagner Act of 1935.

Question 4

A cartel is a group of suppliers who try to create greater competition among their industry.

Accepted Answer

A) True 
 B)False

Question 5

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. What is it in your best interest to do?

Accepted Answer

A)  study 
B)  not study 
C)  drop the class 
D)  randomize over studying and not studying 
A)  study 
B)  not study 
C)  drop the class 
D)  randomize over studying and not studying

Question 6

How can the pursuit of market power lead to the social good?

Accepted Answer

A)  It always leads to the lowest prices for the customers. 
B)  It can lead to innovation. 
C)  It leads to less product differentiation. 
D)  It can lead to price discrimination. 
A)  It always leads to the lowest prices for the customers. 
B)  It can lead to innovation. 
C)  It leads to less product differentiation. 
D)  It can lead to price discrimination.

Question 7

Governments:

Accepted Answer

A)  support cartels and never try to break them up. 
B)  support some cartels and try to break up others. 
C)  try to break up all cartels. 
D)  sometimes support cartels and sometimes try to break up cartels, but the same government does not do both. 
A)  support cartels and never try to break them up. 
B)  support some cartels and try to break up others. 
C)  try to break up all cartels. 
D)  sometimes support cartels and sometimes try to break up cartels, but the same government does not do both.

Question 8

Consumers "win" when a firm offers to match any competitor's price plus 10%.

Accepted Answer

A) True 
 B)False

Question 9

When cheating is less profitable or easier to detect, a cartel will be easier to sustain.

Accepted Answer

A) True 
 B)False

Question 10

The prisoner's dilemma is the negative counterpart to the invisible hand.

Accepted Answer

A) True 
 B)False

Question 11

Use the following to answer questions: Table: Mary, Silvia Payoff Table $$\begin{array} { | l | l | c | c | } 
\hline & & \text { Silvia } & { } \
\hline & & \text { Cooperate } & \text { Cheat } \
\hline \text { Mary } & \text { Cooperate } & 20,20 & 10,40 \
\hline & \text { Cheat } & 40,10 & 15,15 \
\hline
\end{array}$$
-(Table: Mary, Silvia Payoff Table) Refer to the table. Mary and Silvia are producers. If Mary cheats, what is Silvia's dominant strategy?

Accepted Answer

A)  to cheat and earn 40 
B)  to cheat and earn 15 
C)  to cooperate and earn 20 
D)  to cooperate and earn 40 
A)  to cheat and earn 40 
B)  to cheat and earn 15 
C)  to cooperate and earn 20 
D)  to cooperate and earn 40

Question 12

Cheating pays when other firms ________ their promise.

Accepted Answer

A)  either keep or break 
B)  break 
C)  keep 
D)  withhold 
A)  either keep or break 
B)  break 
C)  keep 
D)  withhold

Question 13

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 cheating country would:

Accepted Answer

A)  increase from $360 million to $500 million a day. 
B)  increase from $400 million to $475 million a day. 
C)  decrease from $380 million to $360 million a day. 
D)  remain unchanged at $400 million a day. 
A)  increase from $360 million to $500 million a day. 
B)  increase from $400 million to $475 million a day. 
C)  decrease from $380 million to $360 million a day. 
D)  remain unchanged at $400 million a day.

Question 14

The Sherman Antitrust Act of 1890:

Accepted Answer

A)  limits cartel-like behavior in the United States. 
B)  serves to limit anticompetitive behavior by foreign firms that the U.S. trades with. 
C)  has illegalized all cartels in the United States. 
D)  All of the answers are correct. 
A)  limits cartel-like behavior in the United States. 
B)  serves to limit anticompetitive behavior by foreign firms that the U.S. trades with. 
C)  has illegalized all cartels in the United States. 
D)  All of the answers are correct.

Question 15

The milk cartel in the United States:

Accepted Answer

A)  ended when the government prosecuted the owners of four major milk producers who conspired to raise prices. 
B)  is made legal and enforced by the government, and any firm that breaks the cartel is fined. 
C)  frequently breaks down because of firm cheating. 
D)  was put out of business because of new entrants. 
A)  ended when the government prosecuted the owners of four major milk producers who conspired to raise prices. 
B)  is made legal and enforced by the government, and any firm that breaks the cartel is fined. 
C)  frequently breaks down because of firm cheating. 
D)  was put out of business because of new entrants.

Question 16

Which of the following laws makes cartel behavior illegal?

Accepted Answer

A)  Monopoly Act of 1897 
B)  Sherman Antitrust Act of 1890 
C)  Sewon Act of 1955 
D)  Frame Act of 1910 
A)  Monopoly Act of 1897 
B)  Sherman Antitrust Act of 1890 
C)  Sewon Act of 1955 
D)  Frame Act of 1910

Question 17

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 2's strategy in this game?

Accepted Answer

A)  always cooperate 
B)  always cheat 
C)  cooperate when Player 1 cooperates; cheat when Player 1 cheats 
D)  cheat when Player 1 cooperates; cooperate when Player 1 cheats 
A)  always cooperate 
B)  always cheat 
C)  cooperate when Player 1 cooperates; cheat when Player 1 cheats 
D)  cheat when Player 1 cooperates; cooperate when Player 1 cheats

Question 18

An oligopoly is a market that is dominated by a small number of large firms.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements regarding cartels is FALSE?

Accepted Answer

A)  Cheating by cartel members is less profitable and easier to detect if there are fewer firms in the industry. 
B)  New entrants can be prevented when the cartel-controlled good is limited in supply. 
C)  Cartels should control natural resources that are rare and more valuable. 
D)  Cartels are more successful if they are backed by government and the power of the law. 
A)  Cheating by cartel members is less profitable and easier to detect if there are fewer firms in the industry. 
B)  New entrants can be prevented when the cartel-controlled good is limited in supply. 
C)  Cartels should control natural resources that are rare and more valuable. 
D)  Cartels are more successful if they are backed by government and the power of the law.

Question 20

A dominant strategy is a strategy that a player should take only if the other player cheats.

Accepted Answer

A) True 
 B)False

Exam 15: Oligopoly and Game Theory

Game theory is the study of independent decision making.

Use the following to answer questions: Figure: Demand 1 -(Figure: Demand 1) A cartel facing the market in this diagram would try to cause industry output to:

Cartels in the United States were outlawed with the passage of the:

A cartel is a group of suppliers who try to create greater competition among their industry.

How can the pursuit of market power lead to the social good?

Governments:

Consumers "win" when a firm offers to match any competitor's price plus 10%.

When cheating is less profitable or easier to detect, a cartel will be easier to sustain.

The prisoner's dilemma is the negative counterpart to the invisible hand.

Use the following to answer questions: Table: Mary, Silvia Payoff Table Silvia Cooperate Cheat Mary Cooperate 20,20 10,40 Cheat 40,10 15,15 -(Table: Mary, Silvia Payoff Table) Refer to the table. Mary and Silvia are producers. If Mary cheats, what is Silvia's dominant strategy?

Cheating pays when other firms ________ their promise.

The Sherman Antitrust Act of 1890:

The milk cartel in the United States:

Which of the following laws makes cartel behavior illegal?

An oligopoly is a market that is dominated by a small number of large firms.

Which of the following statements regarding cartels is FALSE?

A dominant strategy is a strategy that a player should take only if the other player cheats.

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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