Question 1

A(n) ________ is a group of suppliers who try to act together to reduce supply.

Accepted Answer

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

Question 2

Without government support, cartels tend to break down over time.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following best explains why cartel agreements are hard to maintain?

Accepted Answer

A)  Each firm in the cartel has the incentive to raise prices and earn larger profits. 
B)  Each firm in the cartel has the incentive to increase production and earn larger profits. 
C)  Cartels are typically very profitable for firms in the short run, but not in the long run. 
D)  It is hard for each firm in the cartel to maintain a level of production equal to that of the other firms. 
A)  Each firm in the cartel has the incentive to raise prices and earn larger profits. 
B)  Each firm in the cartel has the incentive to increase production and earn larger profits. 
C)  Cartels are typically very profitable for firms in the short run, but not in the long run. 
D)  It is hard for each firm in the cartel to maintain a level of production equal to that of the other firms.

Question 4

There are no government supported cartels in the United States.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is NOT a reason why cartels tend to collapse and lose their power?

Accepted Answer

A)  new entrants and demand response 
B)  government prosecution and regulation 
C)  cheating by the cartel members 
D)  They mistakenly raise the price too high. 
A)  new entrants and demand response 
B)  government prosecution and regulation 
C)  cheating by the cartel members 
D)  They mistakenly raise the price too high.

Question 6

It is easier to maintain a cartel for ________ than for ________.

Accepted Answer

A)  services; natural resources 
B)  natural resources; manufactured goods 
C)  products with lots of substitutes; products without substitutes 
D)  copper; nutmeg 
A)  services; natural resources 
B)  natural resources; manufactured goods 
C)  products with lots of substitutes; products without substitutes 
D)  copper; nutmeg

Question 7

It is easier to maintain a cartel in a market for a(n) ________ than in a market for a(n) ________.

Accepted Answer

A)  intermediate good; final good 
B)  final good; intermediate good 
C)  natural resource; manufactured good 
D)  manufactured good; natural resource 
A)  intermediate good; final good 
B)  final good; intermediate good 
C)  natural resource; manufactured good 
D)  manufactured good; natural resource

Question 8

For many years the International Tin Council, a cartel made up of 22 leading tin-producing and tin-consuming nations, was able to keep the world price of tin high by restricting supply. Recently, however, the cartel collapsed due to a decrease in demand for tin and an increase in production by non-cartel countries. The decrease in demand for tin came mainly as manufacturers began to use more plastics and other metals in their production. Explain why a cartel that was so successful for many years all of a sudden faced this type of collapse.

Accepted Answer

Cartels that keep prices high for long p

Question 9

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

Accepted Answer

A)  winning strategy. 
B)  superior strategy. 
C)  advanced strategy. 
D)  dominant strategy. 
A)  winning strategy. 
B)  superior strategy. 
C)  advanced strategy. 
D)  dominant strategy.

Question 10

In some cases cartels are successful because:

Accepted Answer

A)  the cartel produces a manufactured good with many substitutes. 
B)  the marginal costs of production are high. 
C)  the barriers to entry in the market are low. 
D)  the cartel controls access to a key input. 
A)  the cartel produces a manufactured good with many substitutes. 
B)  the marginal costs of production are high. 
C)  the barriers to entry in the market are low. 
D)  the cartel controls access to a key input.

Question 11

Figure: Demand 3   If the two-firm oligopoly facing the market in this diagram is currently producing at the competitive output level and one of the firms reduces output by 4 units, the firm's profits would increase from _________________.

Accepted Answer

A)  $64 to $96 
B)  $0 to $24 
C)  $0 to $48 
D)  $32 to $48 
A)  $64 to $96 
B)  $0 to $24 
C)  $0 to $48 
D)  $32 to $48

Question 12

Table: Firms A, B $$\begin{array} { | c | l | c | c } 
\hline & & \begin{array} { c } 
\text { Firm B (profits } \
\text { millions) }
\end{array} & \
\hline & & \text { Restrict Output } & \text { Expand Output } \
\hline \text { Firm A (profits } & \text { Restrict output } & \$ 15 , \$ 15 & \$ 6 , \$ 25 \
\hline \text { millions) } & \text { Expand output } & \$ 25 , \$ 6 & \$ 12 , \$ 12 \
\hline
\end{array}$$ 
Refer to the table. What is the equilibrium outcome if Firms A and B form a cartel and do not cheat? What is the equilibrium outcome if at least one firm decides to cheat?

Accepted Answer

The cartel outcome is for both

Question 13

Cheating in cartels is most likely to occur when actions are:

Accepted Answer

A)  always observable. 
B)  not observable. 
C)  sometimes observable. 
D)  usually observable. 
A)  always observable. 
B)  not observable. 
C)  sometimes observable. 
D)  usually observable.

Question 14

Compared to a competitive market, firms operating in a cartel will charge a price that is:

Accepted Answer

A)  higher than the competitive price. 
B)  lower than the competitive price. 
C)  equal to their marginal cost of production. 
D)  equal to their average cost of production. 
A)  higher than the competitive price. 
B)  lower than the competitive price. 
C)  equal to their marginal cost of production. 
D)  equal to their average cost of production.

Question 15

Asphalt firms between 2005 and 2007 in Kentucky are an example of tactic collusion.

Accepted Answer

A) True 
 B)False

Question 16

List the four most common "Barriers to Entry" for oligopolies.

Accepted Answer

1. Control over a key resource

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

When cartels are successful at driving up prices,:

Accepted Answer

A)  production of substitute goods will decrease. 
B)  new firms will begin to enter the market. 
C)  competition among firms will decrease. 
D)  cheating will be eliminated. 
A)  production of substitute goods will decrease. 
B)  new firms will begin to enter the market. 
C)  competition among firms will decrease. 
D)  cheating will be eliminated.

Question 19

The NBA and NCAA are examples of:

Accepted Answer

A)  a buyer's cartel, keeping the salaries of players lower than they would be in a competitive market. 
B)  monopolistically competitive markets. 
C)  natural resource monopolies. 
D)  markets with low barriers to entry. 
A)  a buyer's cartel, keeping the salaries of players lower than they would be in a competitive market. 
B)  monopolistically competitive markets. 
C)  natural resource monopolies. 
D)  markets with low barriers to entry.

Question 20

Use the following to answer questions: Table: Oil Output $$\begin{array} { | l | l | c | c | } 
\hline & & \begin{array} { c } 
\text { Iran National Oil } \
\text { (profit in millions) }
\end{array} &  { } \
\hline & & \text { Restrict Oil Output } & \text { Expand Oil Output } \
\hline \text { Iraq National Oil } & \text { Restrict Oil Output } & \$ 78 , \$ 78 & \$ 60 , \$ 89 \
\hline \text { (profit in millions) } & \text { Expand Oil Output } & \$ 89 , \$ 60 & \$ 65 , \$ 65 \
\hline
\end{array}$$
-(Table: Oil Output) Refer to the table. If both countries abide by the cartel agreement (i.e., not cheat):

Accepted Answer

A)  each country earns $78. 
B)  each country earns $65. 
C)  Iraq earns $89 and Iran earns $60. 
D)  Iraq earns $60 and Iran earns $89. 
A)  each country earns $78. 
B)  each country earns $65. 
C)  Iraq earns $89 and Iran earns $60. 
D)  Iraq earns $60 and Iran earns $89.

Exam 15: Oligopoly and Game Theory

A(n) ________ is a group of suppliers who try to act together to reduce supply.

Without government support, cartels tend to break down over time.

Which of the following best explains why cartel agreements are hard to maintain?

There are no government supported cartels in the United States.

Which of the following is NOT a reason why cartels tend to collapse and lose their power?

It is easier to maintain a cartel for ________ than for ________.

It is easier to maintain a cartel in a market for a(n) ________ than in a market for a(n) ________.

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

In some cases cartels are successful because:

Figure: Demand 3 If the two-firm oligopoly facing the market in this diagram is currently producing at the competitive output level and one of the firms reduces output by 4 units, the firm's profits would increase from _________________.

Cheating in cartels is most likely to occur when actions are:

Compared to a competitive market, firms operating in a cartel will charge a price that is:

Asphalt firms between 2005 and 2007 in Kentucky are an example of tactic collusion.

List the four most common "Barriers to Entry" for oligopolies.

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

When cartels are successful at driving up prices,:

The NBA and NCAA are examples of:

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

It is easier to maintain a cartel for than for .

It is easier to maintain a cartel in a market for a(n) than in a market for a(n) .