Question 1

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

(1) Cheating by the cartel members: chea

Question 2

Cartels such as OPEC are difficult to maintain because cheating is a dominant strategy for all firms involved.

Accepted Answer

A) True 
 B)False

Question 3

In game theory, a dominant strategy ______ exists.

Accepted Answer

A)  always 
B)  never 
C)  sometimes 
D)  evades determining whether it even 
A)  always 
B)  never 
C)  sometimes 
D)  evades determining whether it even

Question 4

Another possible source of why cartels break down is the growth potential of the industry. Although industries with a lot of potential are more willing to invest in the time to form a collusive agreement, such growth potential also deters them from making this investment. Why would that be?

Accepted Answer

A)  High-growth industries are more likely to be monitored by the government. 
B)  High-growth industries are less likely to face an inelastic demand curve. 
C)  High-growth industries are more likely to have lots of entrants. 
D)  High-growth industries are less likely to have the support of the government. 
A)  High-growth industries are more likely to be monitored by the government. 
B)  High-growth industries are less likely to face an inelastic demand curve. 
C)  High-growth industries are more likely to have lots of entrants. 
D)  High-growth industries are less likely to have the support of the government.

Question 5

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 6

When does "tactic collusion" apply?

Accepted Answer

Tactic collusion applies when

Question 7

Do oligopolies price at competitive prices, monopoly prices, or at a different price? Explain.

Accepted Answer

Even if an oligopoly fails to

Question 8

By 1985, OPEC had:

Accepted Answer

A)  sustained effectiveness as a cartel. 
B)  largely failed as a cartel. 
C)  disbanded. 
D)  not yet formed. 
A)  sustained effectiveness as a cartel. 
B)  largely failed as a cartel. 
C)  disbanded. 
D)  not yet formed.

Question 9

From the chapter section on cartels, how does the market output under a cartel differ from the market output in a monopoly market? Explain.

Accepted Answer

Cartel members tend to cheat,

Question 10

Firms operating in a cartel have a large incentive to cheat on the agreement by:

Accepted Answer

A)  lowering prices and increasing production. 
B)  lowering both prices and production. 
C)  raising prices and increasing production. 
D)  raising prices and lowering production. 
A)  lowering prices and increasing production. 
B)  lowering both prices and production. 
C)  raising prices and increasing production. 
D)  raising prices and lowering production.

Question 11

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 12

Major league sports are illegal cartels.

Accepted Answer

A) True 
 B)False

Question 13

In the United States, the government has antitrust laws to prevent firms from acting like cartels, although the government has created cartels in milk and other agricultural products.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following industries would find it easier to establish a cartel?

Accepted Answer

A)  automobile manufacturing 
B)  retail clothing 
C)  agricultural products 
D)  book publishing 
A)  automobile manufacturing 
B)  retail clothing 
C)  agricultural products 
D)  book publishing

Question 15

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 16

A dominant strategy is a strategy that:

Accepted Answer

A)  results in the highest payoff for all parties no matter what. 
B)  has a higher payoff than another strategy some of the time and lower payoff than another strategy the rest of the time. 
C)  has a lower payoff than any other strategy, no matter what the other player does. 
D)  has a higher payoff than any other strategy, no matter what the other player does. 
A)  results in the highest payoff for all parties no matter what. 
B)  has a higher payoff than another strategy some of the time and lower payoff than another strategy the rest of the time. 
C)  has a lower payoff than any other strategy, no matter what the other player does. 
D)  has a higher payoff than any other strategy, no matter what the other player does.

Question 17

Major league basketball, the NBA, is cartelized to:

Accepted Answer

A)  maintain high ticket price of the games. 
B)  keep down players' salaries. 
C)  reduce the competition of the teams. 
D)  prevent teams from exploiting players. 
A)  maintain high ticket price of the games. 
B)  keep down players' salaries. 
C)  reduce the competition of the teams. 
D)  prevent teams from exploiting players.

Question 18

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 19

A cartel member has _____ incentive to increase quantity than a standard monopolist.

Accepted Answer

A)  less 
B)  equal 
C)  more 
D)  no 
A)  less 
B)  equal 
C)  more 
D)  no

Question 20

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

Exam 15: Oligopoly and Game Theory

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.

Cartels such as OPEC are difficult to maintain because cheating is a dominant strategy for all firms involved.

In game theory, a dominant strategy ______ exists.

Another possible source of why cartels break down is the growth potential of the industry. Although industries with a lot of potential are more willing to invest in the time to form a collusive agreement, such growth potential also deters them from making this investment. Why would that be?

Which of the following statements is TRUE?

When does "tactic collusion" apply?

Do oligopolies price at competitive prices, monopoly prices, or at a different price? Explain.

By 1985, OPEC had:

From the chapter section on cartels, how does the market output under a cartel differ from the market output in a monopoly market? Explain.

Firms operating in a cartel have a large incentive to cheat on the agreement by:

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

Major league sports are illegal cartels.

In the United States, the government has antitrust laws to prevent firms from acting like cartels, although the government has created cartels in milk and other agricultural products.

Which of the following industries would find it easier to establish a cartel?

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

A dominant strategy is a strategy that:

Major league basketball, the NBA, is cartelized to:

Which of the following laws makes cartel behavior illegal?

A cartel member has _____ incentive to increase quantity than a standard monopolist.

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

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