Question 1

An oligopoly is likely to be below monopoly levels but above competitive levels. Why? Explain.

Accepted Answer

In a competitive industry, no firm is ab

Question 2

Cheating in cartels is most likely to occur if members are:

Accepted Answer

A)  very friendly. 
B)  not friendly. 
C)  somewhat friendly. 
D)  socially neutral toward one another. 
A)  very friendly. 
B)  not friendly. 
C)  somewhat friendly. 
D)  socially neutral toward one another.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Table: Payoff Matrix
 
The table represents the payoffs for two firms operating as a cartel. Based on the payoffs, what is the dominant strategy for each firm? Will the cartel agreement between the two firms be easy or hard to maintain? Explain.

Accepted Answer

The dominant strategy is for both firms

Question 5

Most cartels are:

Accepted Answer

A)  illegal in the United States as a result of the Sherman Antitrust Act. 
B)  illegal everywhere in the world. 
C)  legal in the United States as long as the government is able to regulate prices in the market. 
D)  legal in the United States as long as the firms involved are foreign-owned. 
A)  illegal in the United States as a result of the Sherman Antitrust Act. 
B)  illegal everywhere in the world. 
C)  legal in the United States as long as the government is able to regulate prices in the market. 
D)  legal in the United States as long as the firms involved are foreign-owned.

Question 6

A cartel is a group of consumers that tries to act together to increase their bargaining power.

Accepted Answer

A) True 
 B)False

Question 7

OPEC is a cartel.

Accepted Answer

A) True 
 B)False

Question 8

Game theory is used to model decisions in situations where the players interact.

Accepted Answer

A) True 
 B)False

Question 9

A cartel is a:

Accepted Answer

A)  group of suppliers that tries to act as if they were a monopoly. 
B)  market that is dominated by a small number of firms. 
C)  market with a large number of firms selling similar but not identical products. 
D)  group of suppliers that tries to act as if they were a perfectly competitive market. 
A)  group of suppliers that tries to act as if they were a monopoly. 
B)  market that is dominated by a small number of firms. 
C)  market with a large number of firms selling similar but not identical products. 
D)  group of suppliers that tries to act as if they were a perfectly competitive market.

Question 10

OPEC nations cheat on their cartel agreement by producing more oil than they pledged to.

Accepted Answer

A) True 
 B)False

Question 11

Table: Dana, Marnee Payoff Table
 
Refer to the table. Using the information in the table, answer the following questions.
a. What is Dana Milk Producer's dominant strategy?
b. What is Marnee Milk Producer's dominant strategy?

Accepted Answer

Both firms

Question 12

People sometimes point to similar gas prices at competing gas stations as evidence of collusion when they could just be selling at market price. If this is not good evidence of collusion, what is?

Accepted Answer

A)  The profits of the companies are unusually high in the short run. 
B)  The station owners regularly have morning coffee together. 
C)  There is some kind of punishment for cheating. 
D)  Someone thinks they overheard their plans for collusion. 
A)  The profits of the companies are unusually high in the short run. 
B)  The station owners regularly have morning coffee together. 
C)  There is some kind of punishment for cheating. 
D)  Someone thinks they overheard their plans for collusion.

Question 13

Cartels do not last because their members find them difficult to maintain since:

Accepted Answer

A)  each of the member firms can attain lower costs outside the cartel. 
B)  each firm in the cartel can gain from secret price cuts. 
C)  all the firms prefer an expansion in industry supply. 
D)  all the firms face less elastic demand curves when outside the cartel. 
A)  each of the member firms can attain lower costs outside the cartel. 
B)  each firm in the cartel can gain from secret price cuts. 
C)  all the firms prefer an expansion in industry supply. 
D)  all the firms face less elastic demand curves when outside the cartel.

Question 14

As the price of oil goes up, what happens to the incentive to develop alternative fuels?

Accepted Answer

A)  It increases. 
B)  It decreases. 
C)  Nothing happens. 
D)  It is impossible to say without more information. 
A)  It increases. 
B)  It decreases. 
C)  Nothing happens. 
D)  It is impossible to say without more information.

Question 15

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 16

It is easier to prosecute collusion when the colluding firms never meet.

Accepted Answer

A) True 
 B)False

Question 17

If a television factory wanted to conspire with its competitors to raise the price of televisions, which of the following would help stabilize the long-term viability of such a cartel?

Accepted Answer

A)  prevent co-conspirators from differentiating their product in trivial ways 
B)  create an advertising campaign that depicts watching TV shows on a computer as a negative experience 
C)  secure a government subsidy that goes to all TV manufacturers 
D)  cut everyone's marginal cost of production 
A)  prevent co-conspirators from differentiating their product in trivial ways 
B)  create an advertising campaign that depicts watching TV shows on a computer as a negative experience 
C)  secure a government subsidy that goes to all TV manufacturers 
D)  cut everyone's marginal cost of production

Question 18

In the prisoner's dilemma, a dominant strategy:

Accepted Answer

A)  always exists. 
B)  never exists. 
C)  sometimes exists. 
D)  cannot be determined to exist. 
A)  always exists. 
B)  never exists. 
C)  sometimes exists. 
D)  cannot be determined to exist.

Question 19

A cartel is a group of suppliers who act together in order to:

Accepted Answer

A)  increase demand, raise prices, and increase profits. 
B)  increase supply, reduce prices, and increase profits. 
C)  increase demand, reduce prices, and increase profits. 
D)  reduce supply, increase prices, and increase profits. 
A)  increase demand, raise prices, and increase profits. 
B)  increase supply, reduce prices, and increase profits. 
C)  increase demand, reduce prices, and increase profits. 
D)  reduce supply, increase prices, and increase profits.

Question 20

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

Exam 15: Oligopoly and Game Theory

An oligopoly is likely to be below monopoly levels but above competitive levels. Why? Explain.

Cheating in cartels is most likely to occur if members are:

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

Table: Payoff Matrix The table represents the payoffs for two firms operating as a cartel. Based on the payoffs, what is the dominant strategy for each firm? Will the cartel agreement between the two firms be easy or hard to maintain? Explain.

Most cartels are:

A cartel is a group of consumers that tries to act together to increase their bargaining power.

OPEC is a cartel.

Game theory is used to model decisions in situations where the players interact.

A cartel is a:

OPEC nations cheat on their cartel agreement by producing more oil than they pledged to.

Table: Dana, Marnee Payoff Table Refer to the table. Using the information in the table, answer the following questions. a. What is Dana Milk Producer's dominant strategy? b. What is Marnee Milk Producer's dominant strategy?

People sometimes point to similar gas prices at competing gas stations as evidence of collusion when they could just be selling at market price. If this is not good evidence of collusion, what is?

Cartels do not last because their members find them difficult to maintain since:

As the price of oil goes up, what happens to the incentive to develop alternative fuels?

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

It is easier to prosecute collusion when the colluding firms never meet.

If a television factory wanted to conspire with its competitors to raise the price of televisions, which of the following would help stabilize the long-term viability of such a cartel?

In the prisoner's dilemma, a dominant strategy:

A cartel is a group of suppliers who act together in order to:

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