Question 1

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 2

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

Accepted Answer

A) True 
 B)False

Question 3

Game theory is the study of:

Accepted Answer

A)  random decision making. 
B)  strategic decision making. 
C)  cartel decision making. 
D)  decision making allowing for irrational behavior. 
A)  random decision making. 
B)  strategic decision making. 
C)  cartel decision making. 
D)  decision making allowing for irrational behavior.

Question 4

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).   Reference: Ref 15-4 (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 5

In 2010, which was the location of more advertisement for the iPad?

Accepted Answer

A)  Charlottesville, Virginia 
B)  Berlin, Germany 
C)  Silicon Valley, California 
D)  These markets were equally saturated with iPad ads. 
A)  Charlottesville, Virginia 
B)  Berlin, Germany 
C)  Silicon Valley, California 
D)  These markets were equally saturated with iPad ads.

Question 6

Reference: Ref 15-5 (Table: Russia, Saudi Payoff Table) Refer to the table. What is Saudi Arabia's best strategy and associated payoff if Russia cooperates?

Accepted Answer

A)  cooperate; $800 
B)  cheat; $600 
C)  cooperate; $1,000 
D)  cheat; $1,000 
A)  cooperate; $800 
B)  cheat; $600 
C)  cooperate; $1,000 
D)  cheat; $1,000

Question 7

Persuasive advertising:

Accepted Answer

A)  is informative. 
B)  is wasteful. 
C)  can create market power for firms through brand differentiation. 
D)  has been shown to do little to increase sales. 
A)  is informative. 
B)  is wasteful. 
C)  can create market power for firms through brand differentiation. 
D)  has been shown to do little to increase sales.

Question 8

Which of the following statements is TRUE?

Accepted Answer

A)  Cartels are an important source of economic growth in developing countries. 
B)  Economists are not opposed to government-created cartels since they usually provide high-quality products and service. 
C)  One cost of government-sponsored cartels is that people spend resources trying to obtain or maintain a cartel rather than produce better products. 
D)  All of the answers are correct. 
A)  Cartels are an important source of economic growth in developing countries. 
B)  Economists are not opposed to government-created cartels since they usually provide high-quality products and service. 
C)  One cost of government-sponsored cartels is that people spend resources trying to obtain or maintain a cartel rather than produce better products. 
D)  All of the answers are correct.

Question 9

Which of the following statements is TRUE?

Accepted Answer

A)  When a cartel cheater increases quantity beyond the profit- maximizing quantity of a monopoly the cheater benefits other cartel members. 
B)  When a cartel cheater increases quantity beyond the profit- maximizing quantity of a monopoly the cheater benefits itself and other cartel members. 
C)  When a cartel cheater increases quantity beyond the profit- maximizing quantity of a monopoly the cheater hurts itself. 
D)  When a cartel cheater increases quantity beyond the profit- maximizing quantity of a monopoly the cheater hurts other cartel members. 
A)  When a cartel cheater increases quantity beyond the profit- maximizing quantity of a monopoly the cheater benefits other cartel members. 
B)  When a cartel cheater increases quantity beyond the profit- maximizing quantity of a monopoly the cheater benefits itself and other cartel members. 
C)  When a cartel cheater increases quantity beyond the profit- maximizing quantity of a monopoly the cheater hurts itself. 
D)  When a cartel cheater increases quantity beyond the profit- maximizing quantity of a monopoly the cheater hurts other cartel members.

Question 10

High prices maintained by a cartel usually make the cartel less successful because high price of the good:

Accepted Answer

A)  leads to more conservation. 
B)  motivates demand to switch to substitutes of the goods 
C)  encourages a search for new supplies. 
D)  All of the answers are correct. 
A)  leads to more conservation. 
B)  motivates demand to switch to substitutes of the goods 
C)  encourages a search for new supplies. 
D)  All of the answers are correct.

Question 11

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.   Reference: Ref 15-2 (Table: Market for Oil) Refer to the table. Suppose that these countries form a cartel and each country produces 8 MBD. If 9 of the cartel members cheat and produce 10 MBD while one country keeps its promise and maintains production at 8 MBD each cheater would earn revenue of:

Accepted Answer

A)  $375 million a day, while the non-cheating country would earn $300 million a day. 
B)  $375 million a day, while the non-cheating country would earn $360 million a day. 
C)  $400 million a day, while the non-cheating country would earn $300 million a day. 
D)  $400 million a day, while the non-cheating country would earn $360 million a day. 
A)  $375 million a day, while the non-cheating country would earn $300 million a day. 
B)  $375 million a day, while the non-cheating country would earn $360 million a day. 
C)  $400 million a day, while the non-cheating country would earn $300 million a day. 
D)  $400 million a day, while the non-cheating country would earn $360 million a day.

Question 12

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 13

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 14

Monopolistic competition is similar to that of monopoly, but allows for free entry and exit of competing firms.

Accepted Answer

A) True 
 B)False

Question 15

A cartel is a group of firms that try to monopolize the market.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Reference: Ref 15-6 (Table: Ozzie, 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 18

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 19

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 20

Which of the following makes a cartel short-lived?

Accepted Answer

A)  stable market demand 
B)  few firms in the cartel 
C)  cheating 
D)  contracting 
A)  stable market demand 
B)  few firms in the cartel 
C)  cheating 
D)  contracting

Exam 15: Oligopoly and Game Theory

Which of the following laws makes cartel behavior illegal?

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

Game theory is the study of:

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). Reference: Ref 15-4 (Table: Payoff Matrix) Refer to the table. What type of "game" does this payoff matrix represent?

In 2010, which was the location of more advertisement for the iPad?

Reference: Ref 15-5 (Table: Russia, Saudi Payoff Table) Refer to the table. What is Saudi Arabia's best strategy and associated payoff if Russia cooperates?

Persuasive advertising:

Which of the following statements is TRUE?

Which of the following statements is TRUE?

High prices maintained by a cartel usually make the cartel less successful because high price of the good:

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

OPEC stands for:

Monopolistic competition is similar to that of monopoly, but allows for free entry and exit of competing firms.

A cartel is a group of firms that try to monopolize the market.

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

Reference: Ref 15-6 (Table: Ozzie, Manny's Payoff Table) Refer to the table. Which of the following statements is true?

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

The high prices charged by cartels:

Which of the following makes a cartel short-lived?

The Big Ideas in Economics

The Power of Trade and Comparative Advantage

Business Fluctuations: Aggregate Demand and Supply

Equilibrium: How Supply and Demand Determine Prices

Elasticity and Its Applications

Taxes and Subsidies

The Price System: Signals, Speculation, and Prediction

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 and Pricing Strategy

Competing for Monopoly: the Economics of Network Goods

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

Asymmetric Information: Moral Hazard and Adverse Selection

Consumer Choice

Gdp and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation, and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Supply and Demand

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

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