Question 1

One sign of the cartel power of the NBA is the use of salary caps.

Accepted Answer

A) True 
 B)False

Question 2

A firm receives the largest profit from cheating on a cartel agreement when:

Accepted Answer

A)  all members of the cartel cheat. 
B)  none of the other cartel members cheats. 
C)  all cartel members expand output. 
D)  its demand curve is more inelastic than other cartel members. 
A)  all members of the cartel cheat. 
B)  none of the other cartel members cheats. 
C)  all cartel members expand output. 
D)  its demand curve is more inelastic than other cartel members.

Question 3

Reference: Ref 15-4 (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 4

Which of the following statements is TRUE?

Accepted Answer

A)  Cartels generally persist and are quite common. 
B)  Few cartels move an industry from competition to pure monopoly. 
C)  Cartels work better when there are more firms involved. 
D)  Cartels persist because the cartel members enforce their agreements. 
A)  Cartels generally persist and are quite common. 
B)  Few cartels move an industry from competition to pure monopoly. 
C)  Cartels work better when there are more firms involved. 
D)  Cartels persist because the cartel members enforce their agreements.

Question 5

Prices in an oligopolistic market are likely to be:

Accepted Answer

A)  equal to that of a monopoly market. 
B)  lower than that of a monopoly market. 
C)  equal to that of a competitive market. 
D)  lower than that of a competitive market. 
A)  equal to that of a monopoly market. 
B)  lower than that of a monopoly market. 
C)  equal to that of a competitive market. 
D)  lower than that of a competitive market.

Question 6

The prisoner's dilemma describes situations where the pursuit of:

Accepted Answer

A)  all interests lead to a group outcome that is in the interest of no one. 
B)  all interests lead to a group outcome that is in the interest of everyone. 
C)  individual interest leads to a group outcome that is in the interest of no one. 
D)  individual interest leads to a group outcome that is in the interest of everyone. 
A)  all interests lead to a group outcome that is in the interest of no one. 
B)  all interests lead to a group outcome that is in the interest of everyone. 
C)  individual interest leads to a group outcome that is in the interest of no one. 
D)  individual interest leads to a group outcome that is in the interest of everyone.

Question 7

Reference: Ref 15-3 (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. Assume that Country A cheats on the cartel agreement by producing 200 more barrels than the other two countries. What is the new market price when Country A cheats on the agreement?

Accepted Answer

A)  60 
B)  50 
C)  20 
D)  40 
A)  60 
B)  50 
C)  20 
D)  40

Question 8

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

a. Cheating by the cartel members: cheat

Question 9

One way a cartel gets its power is by controlling a natural resource that is found in large quantities in a few places.

Accepted Answer

A) True 
 B)False

Question 10

Reference: Ref 15-3 (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. Assume that Country A cheats on the cartel agreement by producing 200 more barrels than the other two countries. What is the resultant profit earned by Country A?

Accepted Answer

A)  70,000 
B)  6,000 
C)  24,000 
D)  30,000 
A)  70,000 
B)  6,000 
C)  24,000 
D)  30,000

Question 11

Figure: Competitive Market   Reference: Ref 15-1 (Figure: Competitive Market) Refer to the figure. If all firms in the market form a successful cartel, price and output in the market would be:

Accepted Answer

A)  P1 and Q1. 
B)  P1 and Q2. 
C)  P2 and Q1. 
D)  P2 and Q2. 
A)  P1 and Q1. 
B)  P1 and Q2. 
C)  P2 and Q1. 
D)  P2 and Q2.

Question 12

Reference: Ref 15-7 (Table: Oil Output) Refer to the table. The equilibrium outcome is:

Accepted Answer

A)  $78, $78. 
B)  $65, $65. 
C)  $89, $60. 
D)  $60, $89. 
A)  $78, $78. 
B)  $65, $65. 
C)  $89, $60. 
D)  $60, $89.

Question 13

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 14

The more firms there are in an oligopolistic market, the closer prices will be to monopoly levels.

Accepted Answer

A) True 
 B)False

Question 15

Reference: Ref 15-3 (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. Assume that Country A cheats on the cartel agreement by producing 200 more barrels than the other two countries. What is the resultant profit earned by each of the other two countries?

Accepted Answer

A)  20,000 
B)  30,000 
C)  70,000 
D)  24,000 
A)  20,000 
B)  30,000 
C)  70,000 
D)  24,000

Question 16

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 17

Reference: Ref 15-7 (Table: Oil Output) Refer to the table. The situation between Iraq and Iran is similar to a:

Accepted Answer

A)  calibration cramp. 
B)  prisoner's dilemma. 
C)  flippant switch. 
D)  cooperative equilibrium. 
A)  calibration cramp. 
B)  prisoner's dilemma. 
C)  flippant switch. 
D)  cooperative equilibrium.

Question 18

The copper cartel (the International Council of Copper Exporting Countries) has been very successful.

Accepted Answer

A) True 
 B)False

Question 19

(Table: Market Outcomes) Refer to the table. Suppose two firms create a cartel that attempts to mimic the monopoly profit outcome. Assume zero costs and answer the following questions.     a. What quantity would each firm produce if together they were to achieve the monopoly market outcome? What would each producer's profit be? b. Is there any incentive for either of the producers to cheat and increase production by 200 units? c. If one of the producers cheats by increasing quantity by 200 units, will the other producer also retaliate and increase quantity? d. How far will market quantity increase if cheating ensues?

Accepted Answer

a. Each firm would produce 500 units and

Question 20

Reference: Ref 15-7 (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

One sign of the cartel power of the NBA is the use of salary caps.

A firm receives the largest profit from cheating on a cartel agreement when:

Reference: Ref 15-4 (Table: Payoff Matrix) Refer to the table. What is Player 2's strategy in this game?

Which of the following statements is TRUE?

Prices in an oligopolistic market are likely to be:

The prisoner's dilemma describes situations where the pursuit of:

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.

One way a cartel gets its power is by controlling a natural resource that is found in large quantities in a few places.

Figure: Competitive Market Reference: Ref 15-1 (Figure: Competitive Market) Refer to the figure. If all firms in the market form a successful cartel, price and output in the market would be:

Reference: Ref 15-7 (Table: Oil Output) Refer to the table. The equilibrium outcome is:

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

The more firms there are in an oligopolistic market, the closer prices will be to monopoly levels.

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

Reference: Ref 15-7 (Table: Oil Output) Refer to the table. The situation between Iraq and Iran is similar to a:

The copper cartel (the International Council of Copper Exporting Countries) has been very successful.

Reference: Ref 15-7 (Table: Oil Output) Refer to the table. If both countries abide by the cartel agreement (i.e., not cheat):

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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