Question 1

Tacit collusion

Accepted Answer

A) is a form of cooperation that occurs without explicit communication. 
B) is illegal per se in the U.S. 
C) involves strict adherence to quotas. 
D) seems to rare,especially among manufacturers of consumer durables. 
A) is a form of cooperation that occurs without explicit communication. 
B) is illegal per se in the U.S. 
C) involves strict adherence to quotas. 
D) seems to rare,especially among manufacturers of consumer durables. A

Question 2

Interdependence occurs when

Accepted Answer

A) firms consider the actions of other firms when making price and output decisions. 
B) all firms in an industry are affected by the same general economic conditions,like consumer incomes and the unemployment rate. 
C) firms cooperate to increase profit. 
D) both a and b 
E) all of the above 
A) firms consider the actions of other firms when making price and output decisions. 
B) all firms in an industry are affected by the same general economic conditions,like consumer incomes and the unemployment rate. 
C) firms cooperate to increase profit. 
D) both a and b 
E) all of the above A

Question 3

Punishment for cheating on pricing agreements usually takes the form of

Accepted Answer

A) a retaliatory advertising campaign. 
B) a retaliatory price cut. 
C) a legal suit. 
D) a monetary fine. 
A) a retaliatory advertising campaign. 
B) a retaliatory price cut. 
C) a legal suit. 
D) a monetary fine. B

Question 4

In a repeated prisoners' dilemma decision,both managers can make credible threats to punish cheating because

Accepted Answer

A) if either manager cheats,the other manager can increase its profit by also cheating. 
B) both of the cheating cells in the payoff table are strategically stable cells. 
C) when both firms cheat,they both avoid the Nash equilibrium cell. 
D) both a and C 
A) if either manager cheats,the other manager can increase its profit by also cheating. 
B) both of the cheating cells in the payoff table are strategically stable cells. 
C) when both firms cheat,they both avoid the Nash equilibrium cell. 
D) both a and C

Question 5

Two men's clothing stores that compete for most of the market in a small town in Ohio and will choose their weekly advertising levels sequentially.The newspaper advertising department calls the clothing stores in alphabetical order to find out how much advertising each firm wishes to buy.Somehow - and nobody at the newspaper knows exactly how this happens - Arbuckle's advertising decision "leaks out" to Mr.B's,which then knows Arbuckle's advertising decision when it makes its advertising decision for the week. The following payoff table facing the two firms,Arbuckle & Son and Mr.B's,shows the weekly profit outcomes for the various advertising decision combinations.The payoff table is common knowledge.Use this payoff table to construct the appropriate sequential decision on the blank game tree provided below.
    If the manager at Arbuckle and Son employs the roll-back method to make the advertising decision for Arbuckle,the likely outcome will be$3,500 of weekly profit for Arbuckle and $3,500 of weekly profit for Mr.B's.

Accepted Answer

A) $5,000 of weekly profit for Arbuckle and $5,000 of weekly profit for Mr.B's. 
B) $5,000 of weekly profit for Arbuckle and $3,000 of weekly profit for Mr.B's. 
C) $3,000 of weekly profit for Arbuckle and $5,000 of weekly profit for Mr.B's. 
D) $4,000 of weekly profit for Arbuckle and $4,000 of weekly profit for Mr.B's. 
A) $5,000 of weekly profit for Arbuckle and $5,000 of weekly profit for Mr.B's. 
B) $5,000 of weekly profit for Arbuckle and $3,000 of weekly profit for Mr.B's. 
C) $3,000 of weekly profit for Arbuckle and $5,000 of weekly profit for Mr.B's. 
D) $4,000 of weekly profit for Arbuckle and $4,000 of weekly profit for Mr.B's.

Question 6

Which of the following are trigger strategies?

Accepted Answer

A) eye-for-an-eye 
B) tit-for-tat 
C) grim 
D) both b and c 
E) all of the above 
A) eye-for-an-eye 
B) tit-for-tat 
C) grim 
D) both b and c 
E) all of the above

Question 7

participants in a game choose to take actions that result in a Nash equilibrium,

Accepted Answer

A) no single participant has an incentive to change its action. 
B) each participant has chosen the best action possible,given what the others have chosen. 
C) no other set of actions could make ALL participants better off. 
D) both a and b 
E) all of the above 
A) no single participant has an incentive to change its action. 
B) each participant has chosen the best action possible,given what the others have chosen. 
C) no other set of actions could make ALL participants better off. 
D) both a and b 
E) all of the above

Question 8

One reason a firm or firms might charge a price lower than its profit-maximizing price is

Accepted Answer

A) to discourage the entry of new firms. 
B) to follow a tit-for-tat strategy. 
C) to erect multiproduct barriers to entry. 
D) both a and c 
E) all of the above 
A) to discourage the entry of new firms. 
B) to follow a tit-for-tat strategy. 
C) to erect multiproduct barriers to entry. 
D) both a and c 
E) all of the above

Question 9

In a repeated decision for which the present value of the benefits of cheating is greater than the present value of the costs of cheating,

Accepted Answer

A) deciding not to cheat is a value-maximizing decision. 
B) deciding to cooperate is a value-maximizing decision. 
C) deciding to cheat is a value-maximizing decision. 
D) both a and b 
A) deciding not to cheat is a value-maximizing decision. 
B) deciding to cooperate is a value-maximizing decision. 
C) deciding to cheat is a value-maximizing decision. 
D) both a and b

Question 10

Burger Doodle,the incumbent firm,wishes to set a limit price of $8 rather than the profit-maximizing price of $12)to prevent Designer Burger from entering its profitable market.The game tree above shows the payoffs for various decisions.Burger Doodle makes its pricing decision,then Designer Burger decides whether to enter or stay out of the market.If Designer Burger chooses to enter the market,then Burger Doodle may or may not decide to accommodate Designer's entry by changing its initial price to the Nash equilibrium price of $10.   In order for Burger Doodle to successfully implement a limit pricing strategy for entry deterrence,it must be able to

Accepted Answer

A) convince Designer Burger that it will set the Nash price of $10 should Designer Burger decide to stay out of the market. 
B) convince Designer Burger that it will set the Nash price of $10 should Designer Burger decide to enter the market. 
C) make a credible commitment to maintain its initial price should Designer Burger decide to enter the market. 
D) make a credible promise to price its burgers at $12. 
E) make a credible threat to lower its price to $8 should Designer Burger choose to enter it market. 
A) convince Designer Burger that it will set the Nash price of $10 should Designer Burger decide to stay out of the market. 
B) convince Designer Burger that it will set the Nash price of $10 should Designer Burger decide to enter the market. 
C) make a credible commitment to maintain its initial price should Designer Burger decide to enter the market. 
D) make a credible promise to price its burgers at $12. 
E) make a credible threat to lower its price to $8 should Designer Burger choose to enter it market.

Question 11

Two men's clothing stores that compete for most of the market in a small town in Ohio and will choose their weekly advertising levels sequentially.The newspaper advertising department calls the clothing stores in alphabetical order to find out how much advertising each firm wishes to buy.Somehow - and nobody at the newspaper knows exactly how this happens - Arbuckle's advertising decision "leaks out" to Mr.B's,which then knows Arbuckle's advertising decision when it makes its advertising decision for the week. The following payoff table facing the two firms,Arbuckle & Son and Mr.B's,shows the weekly profit outcomes for the various advertising decision combinations.The payoff table is common knowledge.Use this payoff table to construct the appropriate sequential decision on the blank game tree provided below.
    When Arbuckle and Son makes its advertising decision first,

Accepted Answer

A) it need not consider what Mr.B's advertising decision will be since Arbuckle and Son cannot know what decision Mr.B will make. 
B) the common knowledge that both managers have about the payoff table insures that Arbuckle will earn $5,000 of weekly profit. 
C) it should use the roll-back method to insure that it will earn $5,000 of weekly profit. 
D) all of the above. 
E) none of the above 
A) it need not consider what Mr.B's advertising decision will be since Arbuckle and Son cannot know what decision Mr.B will make. 
B) the common knowledge that both managers have about the payoff table insures that Arbuckle will earn $5,000 of weekly profit. 
C) it should use the roll-back method to insure that it will earn $5,000 of weekly profit. 
D) all of the above. 
E) none of the above

Question 12

game theory,a dominant strategy is

Accepted Answer

A) a strategy used by a large firm to compete against smaller firms. 
B) a strategy followed by the price leader. 
C) a strategy involving a high risk but also a high return. 
D) a strategy that leads to the best outcome no matter what a rival does. 
E) none of the above 
A) a strategy used by a large firm to compete against smaller firms. 
B) a strategy followed by the price leader. 
C) a strategy involving a high risk but also a high return. 
D) a strategy that leads to the best outcome no matter what a rival does. 
E) none of the above

Question 13

The managers of Alpha and Beta must make repeated advertising decisions simultaneously at the beginning of every month.They choose either low or high levels of advertising expenditure.They both employ a discount rate of 2.5 percent per month.   If Beta decides not to cooperate,its undiscounted benefit from cheating for one month is

Accepted Answer

A) $1,500 
B) $2,000 
C) $3,000 
D) $4,000 
E) $5,000 
A) $1,500 
B) $2,000 
C) $3,000 
D) $4,000 
E) $5,000

Question 14

In a duopoly situation with two firms A and B,A's best-response curve

Accepted Answer

A) gives A's profit-maximizing price given B's anticipated price. 
B) gives A's minimax solution. 
C) is derived based upon the underlying interdependence of firms A and B. 
D) both a and c 
E) all of the above 
A) gives A's profit-maximizing price given B's anticipated price. 
B) gives A's minimax solution. 
C) is derived based upon the underlying interdependence of firms A and B. 
D) both a and c 
E) all of the above

Question 15

Credible commitments give committing firms

Accepted Answer

A) the first moves in sequential games. 
B) a second-mover advantage in sequential games. 
C) a way to improve their payoffs. 
D) both a and c 
E) both b and c 
A) the first moves in sequential games. 
B) a second-mover advantage in sequential games. 
C) a way to improve their payoffs. 
D) both a and c 
E) both b and c

Question 16

In the U.S.,firms that engage in cooperative efforts to coordinate pricing

Accepted Answer

A) are always in violation of antitrust laws. 
B) may face federal charges of illegal collusion if they cannot provide evidence that the coordination of prices was in the best interest of consumers. 
C) are simply trying to reach a Nash equilibrium and are not viewed by courts as necessarily breaking any laws. 
D) both b and C 
A) are always in violation of antitrust laws. 
B) may face federal charges of illegal collusion if they cannot provide evidence that the coordination of prices was in the best interest of consumers. 
C) are simply trying to reach a Nash equilibrium and are not viewed by courts as necessarily breaking any laws. 
D) both b and C

Question 17

Which of the following will NOT make cooperation more likely?

Accepted Answer

A) any action that reduces the benefit of cheating 
B) a strategy of price matching 
C) posting prices on the internet 
D) any action that makes it more costly to monitor rival's prices. 
E) developing a reputation for harshly punishing cheating 
A) any action that reduces the benefit of cheating 
B) a strategy of price matching 
C) posting prices on the internet 
D) any action that makes it more costly to monitor rival's prices. 
E) developing a reputation for harshly punishing cheating

Question 18

The managers of Alpha and Beta must make repeated advertising decisions simultaneously at the beginning of every month.They choose either low or high levels of advertising expenditure.They both employ a discount rate of 2.5 percent per month.   Beta expects punishment to last for two months after being caught i.e.,to be penalized in months 2 and 3).What would be the value-maximizing decision for Beta?

Accepted Answer

A) Cooperate since $3,000 > PVBenefits of cheating. B) Cooperate since $6,500/1.025)> PVBenefits of cheating. C) Cheat since PVBenefits of cheating > $2,820. D) Cheat since PVBenefits of cheating < $5,641. A) Cooperate since $3,000 > PVBenefits of cheating. B) Cooperate since $6,500/1.025)> PVBenefits of cheating. C) Cheat since PVBenefits of cheating > $2,820. D) Cheat since PVBenefits of cheating < $5,641.

Question 19

Burger Doodle,the incumbent firm,wishes to set a limit price of $8 rather than the profit-maximizing price of $12)to prevent Designer Burger from entering its profitable market.The game tree above shows the payoffs for various decisions.Burger Doodle makes its pricing decision,then Designer Burger decides whether to enter or stay out of the market.If Designer Burger chooses to enter the market,then Burger Doodle may or may not decide to accommodate Designer's entry by changing its initial price to the Nash equilibrium price of $10.   If the condition in the question above is NOT met,Burger Doodle will set price equal to $________ at decision node 1 and the outcome _____________is,is not)a Nash equilibrium.

Accepted Answer

A) 8; is 
B) 8; is not 
C) 12; is 
D) 12; is not 
A) 8; is 
B) 8; is not 
C) 12; is 
D) 12; is not

Question 20

In sequential decision making situations,using the roll-back method

Accepted Answer

A) results in a Nash equilibrium. 
B) allows the decision maker going second to predict what the decision maker going first will do. 
C) allows predictions about what the decision maker going second will do to be used by the decision maker going first. 
D) both a and b 
E) both a and c 
A) results in a Nash equilibrium. 
B) allows the decision maker going second to predict what the decision maker going first will do. 
C) allows predictions about what the decision maker going second will do to be used by the decision maker going first. 
D) both a and b 
E) both a and c

Tacit collusion

Interdependence occurs when

Punishment for cheating on pricing agreements usually takes the form of

In a repeated prisoners' dilemma decision,both managers can make credible threats to punish cheating because

Which of the following are trigger strategies?

participants in a game choose to take actions that result in a Nash equilibrium,

One reason a firm or firms might charge a price lower than its profit-maximizing price is

In a repeated decision for which the present value of the benefits of cheating is greater than the present value of the costs of cheating,

game theory,a dominant strategy is

In a duopoly situation with two firms A and B,A's best-response curve

Credible commitments give committing firms

In the U.S.,firms that engage in cooperative efforts to coordinate pricing

Which of the following will NOT make cooperation more likely?

In sequential decision making situations,using the roll-back method

Managers, profits, and Markets

Demand, supply, and Market Equilibrium

Marginal Analysis for Optimal Decision Making

Basic Estimation Techniques

Theory of Consumer Behavior

Elasticity and Demand

Demand Estimation and Forecasting

Production and Cost in the Short Run

Production and Cost in the Long Run

Production and Cost Estimation

Managerial Decisions in Competitive Markets

Managerial Decisions for Firms With Market Power

Advanced Pricing Techniques

Decisions Under Risk and Uncertainty

Government Regulation of Business

Filters

Exam 13: Strategic Decision Making in Oligopoly Markets

Tacit collusion

Interdependence occurs when

Punishment for cheating on pricing agreements usually takes the form of

In a repeated prisoners' dilemma decision,both managers can make credible threats to punish cheating because

Which of the following are trigger strategies?

participants in a game choose to take actions that result in a Nash equilibrium,

One reason a firm or firms might charge a price lower than its profit-maximizing price is

In a repeated decision for which the present value of the benefits of cheating is greater than the present value of the costs of cheating,

game theory,a dominant strategy is

In a duopoly situation with two firms A and B,A's best-response curve

Credible commitments give committing firms

In the U.S.,firms that engage in cooperative efforts to coordinate pricing

Which of the following will NOT make cooperation more likely?

In sequential decision making situations,using the roll-back method

Managers, profits, and Markets

Demand, supply, and Market Equilibrium

Marginal Analysis for Optimal Decision Making

Basic Estimation Techniques

Theory of Consumer Behavior

Elasticity and Demand

Demand Estimation and Forecasting

Production and Cost in the Short Run

Production and Cost in the Long Run

Production and Cost Estimation

Managerial Decisions in Competitive Markets

Managerial Decisions for Firms With Market Power

Advanced Pricing Techniques

Decisions Under Risk and Uncertainty

Government Regulation of Business

Filters