Question 1

In a contestable market with one firm in the market, the existing firm will

Accepted Answer

A)  set its price equal to the monopoly price. 
B)  set its price lower than the monopoly price. 
C)  have a demand curve that is horizontal at the price that will attract new firms to enter the market. 
D)  set its price higher than the monopoly price.

Question 2

The outcome of a prisoners' dilemma game with a Nash equilibrium is that _______.

Accepted Answer

A)  one player denies and one player confesses 
B)  both players confess 
C)  both players deny 
D)  there is no equilibrium

Question 3

Dr. Smith
 
-Libertyville has two optometrists, Dr. Smith and Dr. Jones. Each optometrist can choose to advertise his service or not. The incomes of each optometrist, in thousands of dollars, are given in the payoff matrix above. Which of the following statements correctly describes Dr. Jones' strategy given what Dr. Smith may do?

Accepted Answer

A)  Dr. Jones should not advertise no matter what Dr. Smith does. 
B)  Dr. Jones should advertise no matter what Dr. Smith does. 
C)  Dr. Jones should advertise only if Dr. Smith doesn't advertise. 
D)  Dr. Jones should advertise only if Dr. Smith advertises.

Question 4

Oscar
 
-Oscar and Felix are the only firms that clean offices in a large city. They agree to operate as a cartel. The payoff matrix shows the economic profit that each firm can make. If the game is played repeatedly and Felix and Oscar both use a tit- for- tat strategy, then _______.

Accepted Answer

A)  Felix will make - $2 million of economic profit and Oscar will cheat 
B)  Felix will make $10 million of economic profit and Oscar will cheat 
C)  Felix and Oscar will each make $10 million of economic profit 
D)  Felix and Oscar will each make $1 million of economic profit

Question 5

Firm 1
 
-Two software firms have developed an identical new software application. They are debating whether to give the new application away for free and then sell add- ons or sell the application at
$30 a copy. The payoff matrix is above and the payoffs are profits in millions of dollars. What is the Nash equilibrium of the game?

Accepted Answer

A)  Firm 1 will give the application away for free and Firm 2 will sell it at $30. 
B)  There is no Nash equilibrium to this game. 
C)  Both Firm 1 and 2 will sell the software application at $30 a copy. 
D)  Both Firm 1 and 2 will give the software application away for free.

Question 6

In a collusive agreement between two duopolists in an oligopoly, each firm has an incentive to cheat on the agreement because the firm's price

Accepted Answer

A)  exceeds its marginal revenue. 
B)  exceeds its marginal cost. 
C)  is less than its average total cost. 
D)  None of the above answers is correct.

Question 7

The maximum economic profit that can be made by a duopoly that colludes is equal to the _______

Accepted Answer

A)  normal profit made by an oligopoly 
B)  economic profit made by a monopoly 
C)  economic profit made by duopolists who cheat 
D)  normal profit made by firms in perfect competition

Question 8

Game theory is used to explain firms' decisions in

Accepted Answer

A)  an oligopoly. 
B)  a perfectly competitive market. 
C)  a monopolistically competitive market. 
D)  a monopoly.

Question 9

If firms in a duopoly can successfully collude,

Accepted Answer

A)  the industry, that is, both firms taken together, can earn the maximum economic profit. 
B)  each firm can earn an economic profit. 
C)  the firms achieve a cooperative equilibrium. 
D)  All of the above answers are true.

Question 10

Two duopoly firms form a cartel. They decide to collude and fix the price of their good. Each individual firm will earn the highest profit if

Accepted Answer

A)  they both cheat. 
B)  it sticks with the agreement and the other cheats. 
C)  both stick with the agreement. 
D)  it cheats and the other sticks with the agreement.

Question 11

In _______ market structure, a firm's output depends _______.

Accepted Answer

A)  an oligopoly; only on its own marginal revenue and marginal cost curves 
B)  an oligopoly; in part on its competitors' price and quantity decisions 
C)  a monopolistically competitive; in part on its competitors' price and quantity decisions 
D)  a monopolistically competitive; only on its marginal revenue curve

Question 12

Bob
 
-The table above displays the possible outcomes for Bob and Joe, who have been arrested for armed robbery and car theft. Which of the following is true?

Accepted Answer

A)  If Joe does not confess, Bob should not confess. 
B)  If Joe confesses, Bob should not confess. 
C)  The dominant equilibrium is that Joe and Bob both serve 2 years. 
D)  If Bob confesses, Joe should confess.

Question 13

In a duopoly game we observe the following payoffs: if the two firms collude they will each earn
$50,000. If one firm cheats then it earns $60,000 and the other firm earns - $10,000. If both firms cheat then they each earn zero economic profit. In this game what is the Nash equilibrium?

Accepted Answer

A)  Only one firm will cheat. 
B)  Neither firm will cheat. 
C)  Both firms cheat. 
D)  It is impossible to say.

Question 14

If both firms in a duopoly cheat on a collusive agreement, the price _______ and both firms are
_______.

Accepted Answer

A)  rises; better off 
B)  falls; worse off 
C)  rises; worse off 
D)  falls; better off

Question 15

In Australia, a collusive agreement to restrict output and increase prices is

Accepted Answer

A)  the key tool used by monopolistic competitors. 
B)  the key tool used by oligopolists. 
C)  illegal. 
D)  legal.

Question 16

Which of the following models is the BEST to explain price wars?

Accepted Answer

A)  Dominant firm oligopoly 
B)  A repeated duopoly game 
C)  A sequential entry game in a contestable market 
D)  A game of chicken

Question 17

Adkins Air is the only seller offering service directly from Melbourne to Bendigo. The market is contestable. Thus the Nash Equilibrium for a game between Adkins Air and a potential entrant is when the potential entrant

Accepted Answer

A)  does not enter and Adkins earns a normal profit. 
B)  does not enter and Adkins earns an economic profit. 
C)  enters and Adkins earns a normal profit. 
D)  enters and Adkins earns an economic profit.

Question 18

The distinguishing features of oligopoly are _______ and _______ in the industry.

Accepted Answer

A)  no barriers to entry; a large number of firms 
B)  no barriers to entry; few firms 
C)  barriers to entry; a large number of firms 
D)  barriers to entry; few firms

Question 19

The prisoners' dilemma describes a single- play game that features

Accepted Answer

A)  a situation in which one player has better odds than the other. 
B)  a large number of rivals cooperating with each other. 
C)  two players who are unable to communicate with each other. 
D)  an outcome in which the participants collude.

Question 20

In a duopoly with a collusive agreement and in a one- time only game, a firm's profit is largest if it
_______ The agreement and if the other firm _______ the agreement.

Accepted Answer

A)  cheats on; cheats on 
B)  complies with; complies with 
C)  cheats on; complies with 
D)  complies with; cheats on

Exam 16: Oligopoly Games and Strategy

In a contestable market with one firm in the market, the existing firm will

The outcome of a prisoners' dilemma game with a Nash equilibrium is that _______.

Oscar -Oscar and Felix are the only firms that clean offices in a large city. They agree to operate as a cartel. The payoff matrix shows the economic profit that each firm can make. If the game is played repeatedly and Felix and Oscar both use a tit- for- tat strategy, then _______.

In a collusive agreement between two duopolists in an oligopoly, each firm has an incentive to cheat on the agreement because the firm's price

The maximum economic profit that can be made by a duopoly that colludes is equal to the _______

Game theory is used to explain firms' decisions in

If firms in a duopoly can successfully collude,

Two duopoly firms form a cartel. They decide to collude and fix the price of their good. Each individual firm will earn the highest profit if

In _ market structure, a firm's output depends _.

Bob -The table above displays the possible outcomes for Bob and Joe, who have been arrested for armed robbery and car theft. Which of the following is true?

In a duopoly game we observe the following payoffs: if the two firms collude they will each earn $50,000. If one firm cheats then it earns $60,000 and the other firm earns - $10,000. If both firms cheat then they each earn zero economic profit. In this game what is the Nash equilibrium?

If both firms in a duopoly cheat on a collusive agreement, the price _ and both firms are _.

In Australia, a collusive agreement to restrict output and increase prices is

Which of the following models is the BEST to explain price wars?

Adkins Air is the only seller offering service directly from Melbourne to Bendigo. The market is contestable. Thus the Nash Equilibrium for a game between Adkins Air and a potential entrant is when the potential entrant

The distinguishing features of oligopoly are _ and _ in the industry.

The prisoners' dilemma describes a single- play game that features

In a duopoly with a collusive agreement and in a one- time only game, a firm's profit is largest if it _ The agreement and if the other firm _ the agreement.

Exam 16: Oligopoly Games and Strategy

In a contestable market with one firm in the market, the existing firm will

The outcome of a prisoners' dilemma game with a Nash equilibrium is that _______.

Oscar -Oscar and Felix are the only firms that clean offices in a large city. They agree to operate as a cartel. The payoff matrix shows the economic profit that each firm can make. If the game is played repeatedly and Felix and Oscar both use a tit- for- tat strategy, then _______.

In a collusive agreement between two duopolists in an oligopoly, each firm has an incentive to cheat on the agreement because the firm's price

The maximum economic profit that can be made by a duopoly that colludes is equal to the _______

Game theory is used to explain firms' decisions in

If firms in a duopoly can successfully collude,

Two duopoly firms form a cartel. They decide to collude and fix the price of their good. Each individual firm will earn the highest profit if

In _______ market structure, a firm's output depends _______.

Bob -The table above displays the possible outcomes for Bob and Joe, who have been arrested for armed robbery and car theft. Which of the following is true?

In a duopoly game we observe the following payoffs: if the two firms collude they will each earn $50,000. If one firm cheats then it earns $60,000 and the other firm earns - $10,000. If both firms cheat then they each earn zero economic profit. In this game what is the Nash equilibrium?

If both firms in a duopoly cheat on a collusive agreement, the price _______ and both firms are _______.

In Australia, a collusive agreement to restrict output and increase prices is

Which of the following models is the BEST to explain price wars?

Adkins Air is the only seller offering service directly from Melbourne to Bendigo. The market is contestable. Thus the Nash Equilibrium for a game between Adkins Air and a potential entrant is when the potential entrant

The distinguishing features of oligopoly are _______ and _______ in the industry.

The prisoners' dilemma describes a single- play game that features

In a duopoly with a collusive agreement and in a one- time only game, a firm's profit is largest if it _______ The agreement and if the other firm _______ the agreement.

In _ market structure, a firm's output depends _.

If both firms in a duopoly cheat on a collusive agreement, the price _ and both firms are _.

The distinguishing features of oligopoly are _ and _ in the industry.

In a duopoly with a collusive agreement and in a one- time only game, a firm's profit is largest if it _ The agreement and if the other firm _ the agreement.