Unec 1642279326

1) An oligopoly is a market structure in which there are
A) only a few buyers but many sellers.

B) only a few sellers selling either an identical or differentiated product.
C) many sellers selling a differentiated product.
D) a few products sold by many sellers.
Answer: B
Topic: Oligopoly
Skill: Recognition
AACSB: Reflective Thinking
2) Which of the following is a distinguishing characteristic of oligopoly?

A) A small number of firms compete.
B) No one firm’s actions directly affect the actions of the other firms.
C) Firms are free to enter and exit the industry.
D) Natural barriers cannot prevent the entry of new firms.
Answer: A
Topic: Oligopoly
Skill: Recognition
1
Copyright © 2010 Pearson Education, Inc.
In the figure, D is the demand curve for taxi rides in a town, and ATC is the average total cost
curve of a taxi company.
27) In the scenario above, the market is:

A) A natural duopoly
B) A natural oligopoly with three firms
C) A natural monopoly
D) Monopolistically competitive
Answer: A
Topic: Duopoly
Skill: Analytical
AACSB: Analytical Skills
28) When producers agree to restrict output, raise the price, and increase profits, the agreement is
called ________.
A) a pricing agreement
B) an oligopoly agreement
C) a collusive agreement
D) a monopoly agreement
Answer: C
Topic: Cartel
Skill: Recognition
2
2) Game theory is applicable to oligopoly behavior because oligopolists
A) use strategic behavior.
B) ignore rival firms.
C) are price takers.
D) can only be profitable if they collude.
Answer: A
Topic: Game Theory
Skill: Conceptual
9) In game theory, strategies include ________.

A) all possible actions of each player
B) only the winning action of each player
C) all possible actions and payoffs of each player
D) the payoff matrix
Answer: A
Topic: Game Theory
Skill: Recognition
10) A table that shows the payoffs for every possible action by each player for every possible
action by each other player is called the ________.
A) strategy table
B) game matrix
C) payoff matrix
D) strategy matrix
Answer: C
Topic: Game Theory
Skill: Recognition
11) In the prisoners' dilemma game, when each player takes the best possible action given the
action of the other player, ________.
A) a competitive equilibrium is reached
B) one player denies and one player confesses
C) both players deny
D) a Nash equilibrium is reached
Answer: D
Topic: Prisoners' Dilemma
Skill: Recognition
3
13) The prisoners' dilemma describes a single-play game that features
A) an outcome in which the participants collude.
B) a large number of rivals cooperating with each other.
C) a situation in which one player has better odds than the other.
D) two players who are unable to communicate with each other.
Answer: D
Skill: Recognition
14) In a prisoner's dilemma, the Nash equilibrium occurs where

A) neither person ends up with their best outcome
B) both end up with their best outcome
C) only one ends up with his best outcome
D) the one who goes first ends up with his best outcome
Answer: A
Skill: Conceptual
15) In a prisoner's dilemma game, each person will pick

A) their best outcome given what the other person will do
B) their best outcome.
C) their worse outcome.
D) their best outcome after consulting with the other person
Answer: A
Topic: Nash Equilibrium
Skill: Conceptual
4
Bob
Don't
Confess
Confess
B: 10 years B: 20 years
Confess
J: 10 years J: 1 year
Joe
Don't B: 1 year B: 2 years
Confess J: 20 years J: 2 years
24) 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?
A) If Joe confesses, Bob should not confess.
B) If Bob confesses, Joe should confess.
C) The dominant equilibrium is that Joe and Bob both serve 2 years.
D) If Joe does not confess, Bob should not confess.
Answer: B
Skill: Conceptual
5
Player A
Confess Don't confess
A: 3 years A: 10 years
Confess
B: 3 years B: 1 year
Player B
Don't A: 1 year A: 2 years
confess B: 10 years B: 2 years
25) The table above shows the payoff matrix for a prisoners' dilemma game. The Nash
equilibrium is that
A) both prisoners do not confess.
B) both prisoners confess.
C) prisoner A confesses while prisoner B does not confess.
D) prisoner A does not confess while prisoner B confesses.
Answer: B
Skill: Analytical
26) The table above shows the payoff matrix for a prisoners' dilemma. In the Nash equilibrium,
A) both prisoners get 3 years in jail.
B) both prisoners get 2 years in jail.
C) both prisoners get 1 year in jail.
D) both prisoners get 10 years in jail.
Answer: A
Skill: Analytical
27) The problem for the prisoners in the prisoners' dilemma game in the above table is that
A) the Nash equilibrium is not the best outcome.
B) there is no equilibrium outcome.
C) neither prisoner has a workable strategy.
D) None of the above answers is correct.
Answer: A
Skill: Conceptual
6
Firm 1
Sell Give away
1: $3 1: $4
Sell
2: $3 2: -$1
Firm 2
1: -$1 1: $2
Give away
2: $4 2: $2
28) Two software firms have developed an identical new software application. They are debating
whether to give the new application away 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
Firm 1's best strategy?
A) Give away the application regardless of what Firm 2 does.
B) Sell the application at $30 a copy regardless of what Firm 2 does.
C) Give away the application only if Firm 2 sells the application.
D) Give away the application only if Firm 2 gives away the application.
Answer: A
Topic: Game Theory
Skill: Analytical
29) Two software firms have developed an identical new software application. They are debating
whether to give the new application away 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?
A) Both Firm 1 and 2 will sell the software application at $30 a copy.
B) Both Firm 1 and 2 will give the software application away free.
C) Firm 1 will give the application away free and Firm 2 will sell it at $30.
D) There is no Nash equilibrium to this game.
Answer: B
Topic: Game Theory, Nash Equilibrium
Skill: Analytical
7
Jane
Advertise Don't advertise
J: $6,000 J: $3,000
Advertise
B: $10,000 B: $20,000
Bob
Don't J: $12,000 J $10,000
advertise B: $5,000 B: $15,000
30) The payoff matrix of economic profits above displays the possible outcomes for Bob and
Jane who are involved in game of whether or not to advertise. After each player chooses his or
her best strategy and sees the result,
A) only Bob would like to change his decision.
B) neither player would be willing to change his or her decision unless the other player also
changes his or her decision.
C) if Jane does not change her decision, Bob would like to change his.
D) if Bob does not change his decision, Jane would like to change hers.
Answer: B
Skill: Analytical
Firm A
R&D No R&D
A: $25 A: -$3
R&D
B: $15 B: $60
Firm
B
A: $60 A: $50
No R&D
B: -$3 B: $35
31) Firms A and B can conduct research and development (R&D) or not conduct it. R&D is
costly but can increase the quality of the product and increase sales. The payoff matrix is the
economic profits of the two firms and is given above, where the numbers are millions of dollars.
A's best strategy is to
A) conduct R&D regardless of what B does.
B) not conduct R&D regardless of what B does.
C) conduct R&D only if B conducts R&D.
D) conduct R&D only if B does not conduction R&D.
Answer: A
Topic: Game Theory
Skill: Analytical
32) Firms A and B can conduct research and development (R&D) or not conduct it. R&D is
8
costly but can increase the quality of the product and increase sales. The payoff matrix is the
economic profits of the two firms and is given above, where the numbers are millions of dollars.
The Nash equilibrium occurs when
A) both A and B conduct R&D.
B) only A conducts R&D.
C) only B conducts R&D.
D) neither A nor B conduct R&D.
Answer: A
Skill: Analytical
Disney
Thanksgiving Christmas
release release
Thanksgiving D: $100 D: $105
release F: $80 F: $95
Fox
Christmas D: $110 D: $95
release F: $100 F: $85
33) Disney and Fox must decide when to release their next films. The revenues received by each
studio depends in part on when the other studio releases its film. Each studio can release its film
at Thanksgiving or at Christmas. The revenues received by each studio, in millions of dollars, are
depicted in the payoff matrix above. Which of the following statements correctly describes Fox's
strategy given what Disney's release choice may be?
A) If Disney chooses a Thanksgiving release, Fox should choose a Christmas release.
B) If Disney chooses a Christmas release, Fox should choose a Thanksgiving release.
C) Fox should release on Christmas regardless of what Disney does.
D) Both answers A and B are correct.
Answer: D
Topic: Game Theory
Skill: Analytical
9
34) Disney and Fox must decide when to release their next films. The revenues received by each
studio depends in part on when the other studio releases its film. Each studio can release its film
at Thanksgiving or at Christmas. The revenues received by each studio, in millions of dollars, are
depicted in the payoff matrix above. Which of the following statements correctly describes
Disney's strategy given what Fox's release choice may be?
A) If Fox chooses a Thanksgiving release, Disney should choose a Christmas release.
B) If Fox chooses a Christmas release, Disney should choose a Thanksgiving release.
C) Disney should release on Thanksgiving regardless of what Fox does.
D) Both answers A and B are correct.
Answer: D
Topic: Game Theory
Skill: Analytical
Dr. Smith
Advertise Don't advertise
S: $80 S: $60
Advertise
J: $70 J: $110
Dr. Jones
Don't S: $120 S: $100
advertise J: $60 J: $90
35) 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. Smith's
strategy given what Dr. Jones may do?
A) Dr. Smith should advertise no matter what Dr. Jones does.
B) Dr. Smith should not advertise no matter what Dr. Jones does.
C) Dr. Smith should advertise only if Dr. Jones doesn't advertise.
D) Dr. Smith should advertise only if Dr. Jones advertises.
Answer: A
Topic: Game Theory
Skill: Analytical
10
in the payoff matrix above. Which of the following statements correctly describes Dr. Jones'
strategy given what Dr. Smith may do?
A) Dr. Jones should advertise no matter what Dr. Smith does.
B) Dr. Jones should not 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.
Answer: A
Topic: Game Theory
Skill: Analytical
in the payoff matrix above. Which of the following statements correctly categorizes the Nash
equilibrium for the game?
A) The game has a Nash equilibrium in which both optometrists advertise.
B) The game has a Nash equilibrium in which both optometrists do not advertise.
C) The game has a Nash equilibrium in which Dr. Smith advertises and Dr. Jones does not
advertise.
D) The game has a Nash equilibrium in which Dr. Smith does not advertise and Dr. Jones does
advertise.
Answer: A
Skill: Analytical
11
52) Which of the following is true regarding a collusive agreement?
I. They are illegal in the United States.
II. Two or more producers agree to restrict output or raise prices.
III. Firms' profits are never maximized under this sort of agreement.
A) I and II
B) I and III
C) II and III
D) I, II and III
Answer: A
Topic: Cartel
Skill: Recognition
12
53) A cartel tries to ________ its members' economic profit and thereby the cartel ________
consumer surplus.
A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
Answer: B
Topic: Cartel
Skill: Conceptual
55) If two duopolists can collude successfully, then both will

A) earn greater profits than if they did not collude.
B) price at marginal cost.
C) price below average total cost.
D) lower their economic profits.
Answer: A
Topic: Colluding to Maximize Profits
Skill: Conceptual
13
57) If there is a collusive agreement in a duopoly to maximize profit, then the price will
A) equal the marginal cost of production.
B) equal the average total cost of production.
C) be the same as the price set by a monopoly.
D) be the same as the price set by a competitive industry.
Answer: C
Skill: Conceptual
58) The maximum economic profit that can be made by a duopoly that colludes is equal to the
________.
A) economic profit made by duopolists who cheat
B) normal profit made by an oligopoly
C) economic profit made by a monopoly
D) normal profit made by firms in perfect competition
Answer: C
Skill: Recognition
59) Two firms, Alpha and Beta, produce identical computer hard drives. They have identical
costs, and the hard drives they produce are identical. The industry is a natural duopoly. Alpha
and Beta enter into a collusive agreement, according to which they split the market equally. If
both firms comply with the agreement,
A) they will operate in a way indistinguishable from a monopoly.
B) the price of a hard drive will be equal to marginal cost.
C) each firm will make zero economic profit.
D) the oligopoly will produce more hard drives than a profit-maximizing monopoly would
produce.
Answer: A
Skill: Conceptual
14
15
76) In a duopoly game we observe the following payouts: if the two firms collude they will each
earn $50,000. If one firm cheats then he 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?
A) Both firms cheat.
B) Only one firm will cheat.
C) Neither firm will cheat.
D) It is impossible to say.
Answer: A
Skill: Analytical
Suppose two firms, FastNet and SmartCast are the only fast Internet providers in a city. They
have identical costs and one firm's service is a perfect substitute for the other’s. The industry is a
natural duopoly. Suppose that FastNet and SmartCast collude and agree to share the market
equally.
77) In the scenario above, which of the following actions will maximize the industry's economic
profit?
A) Both firms comply with the agreement.
B) Both firms cheat on the agreement, producing more than the agreed amount.
C) One of the firms complies with the agreement while the other firm cheats, producing more
than the agreed amount.
D) The two firms merge.
Answer: A
Skill: Conceptual
78) In the scenario above, if both firms cheat on the agreement, producing more than the agreed
amount, then:
A) Each firm makes zero economic profit.
B) The outcome is identical to a monopoly.
C) The industry's economic profit is the maximum profit that can be made by the duopoly.
D) Each firm makes a greater economic profit than it would make if it complied with the
agreement.
Answer: A
Skill: Conceptual
16
17
decisions that are made." Is the previous definition of a Nash equilibrium correct or incorrect?
Answer: The definition is incorrect. A Nash equilibrium is an equilibrium in which each player
takes the best possible action given the action of the other player.
Skill: Conceptual
AACSB: Communication
17) What is the real dilemma facing the prisoners in the prisoners' dilemma game?
Answer: The real dilemma facing the prisoners in the prisoners' dilemma game is that when each
prisoner plays his or her best strategy, the best outcome is not achieved.
Topic: Equilibrium of the Prisoners' Dilemma
Skill: Conceptual
AACSB: Communication
18
19

Unec 1642279326

Uploaded by

Copyright:

Available Formats

You might also like

Unec 1642279326

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Unec 1642279326

Uploaded by

Copyright:

Available Formats

1) An oligopoly is a market structure in which there are

A) only a few buyers but many sellers.

2) Which of the following is a distinguishing characteristic of oligopoly?

27) In the scenario above, the market is:

9) In game theory, strategies include ________.

14) In a prisoner's dilemma, the Nash equilibrium occurs where

15) In a prisoner's dilemma game, each person will pick

55) If two duopolists can collude successfully, then both will

You might also like