Question 1

The prisoner's dilemma game illustrates rational decisions made by individuals which lead to a jointly efficient outcome.

Accepted Answer

The prisoner's dilemma illustrates how rational decisions made by individuals, based on self-interest, can lead to a jointly inefficient outcome, where both parties end up worse off than if they had cooperated.

Question 2

The profit-maximizing monopolistic competitive firm produces a level of output at which marginal revenue equals marginal cost.

Accepted Answer

In both monopolistic competition and perfect competition, firms maximize profit by producing at the level of output where marginal revenue equals marginal cost.

Question 3

Cartels are easy to form and to maintain.

Accepted Answer

Cartels are difficult to form and maintain due to the incentives for individual members to cheat for personal gain, differences in interests among members, and legal and regulatory actions against such practices.

Question 4

Concentration ratios are often used to determine the degree of oligopoly in an industry.

Accepted Answer

Concentration ratios, which measure the market share of the largest firms in an industry, are used to assess the degree of market control and thus indicate the presence of an oligopoly.

Question 5

Grade inflation in colleges may possibly be a result of college professors being in a prisoner's dilemma setting.

Accepted Answer

In a prisoner's dilemma setting, college professors might inflate grades to avoid the negative consequences of giving lower grades than their colleagues, such as receiving poor evaluations from students or being less popular among students, which mirrors the scenario where individuals in a prisoner's dilemma choose to defect (or betray) to avoid worse outcomes for themselves, even though cooperation (or not inflating grades) would be better for the group (academic integrity) as a whole.

Question 6

In the prisoner's dilemma, each prisoner would be better off if neither one confesses.

Accepted Answer

In the prisoner's dilemma, if neither prisoner confesses, they both receive a lighter sentence than if one betrays the other, making it the collectively optimal outcome.

Question 7

In long-run equilibrium, a monopolistic competitive firm will most likely produce a level of output for which price equals average total cost.

Accepted Answer

In long-run equilibrium, a monopolistically competitive firm will produce at a point where demand (or price) equals average total cost, ensuring zero economic profit. This is because new firms will enter the market if there are profits, driving the price down until profits are eliminated.

Question 8

The excess capacity theorem states that in equilibrium a monopolistic competitor will produce an output level larger than the one that would minimize its unit costs.

Accepted Answer

The answer of The excess capacity theorem states that in...

Question 9

One of the necessary conditions for a contestable market is that new firms entering the market have a cost advantage over the existing firms.

Accepted Answer

One of the necessary conditions for a contestable market is the absence of significant barriers to entry and exit, not that new firms have a cost advantage over existing firms.

Question 10

In an oligopolistic market, the product being produced can be either homogeneous or differentiated.

Accepted Answer

In an oligopolistic market, firms can produce similar (homogeneous) products, such as steel or cement, or differentiated products, which are similar but vary in terms of branding, quality, or other features, like automobiles or smartphones.

Question 11

Wikipedia is an example of a project that follows the pattern of unstructured collaboration.

Accepted Answer

Wikipedia allows anyone to edit its articles, contributing to its content in an unstructured manner without a predefined system or hierarchy guiding the contributions.

Question 12

One of the assumptions of the theory of monopolistic competition is that all firms in the industry produce and sell a homogenous product.

Accepted Answer

In monopolistic competition, firms sell differentiated products, which are not identical and can vary in quality, features, or branding.

Question 13

The cigarette industry is a good example of the oligopoly market structure.

Accepted Answer

The cigarette industry is characterized by a few large firms dominating the market, high barriers to entry, and interdependent decision-making, all of which are hallmarks of an oligopoly market structure.

Question 14

In recent years, industries with high four- and eight-firm concentration ratios include cars, cereal breakfast foods, and farm machinery.

Accepted Answer

These industries typically have a small number of firms controlling a large market share, leading to high concentration ratios. The automotive, cereal, and farm machinery sectors are known for being dominated by a few major companies, which is indicative of high four- and eight-firm concentration ratios.

Question 15

One of the ways in which some monopolistic competitors try to become more like monopolists is through the use of designer labels.

Accepted Answer

Monopolistic competitors often use designer labels to differentiate their products from those of competitors, creating a unique identity and perceived value that can give them more control over their pricing, similar to a monopolist's power.

Question 16

One of the main criticisms of the theory of contestable markets is that the assumption of extremely free entry into (and costless exit from) the industry is unlikely to hold in the real world.

Accepted Answer

The theory of contestable markets assumes that firms can enter and exit the market freely and without cost, which is criticized for being unrealistic in many real-world scenarios where barriers to entry and exit exist.

Question 17

A monopolistic competitive firm faces a horizontal demand curve for its product.

Accepted Answer

In monopolistic competition, firms face a downward-sloping demand curve, not a horizontal one, because while firms have some power to set prices due to product differentiation, they still face competition from other firms.

Question 18

One of the key assumptions of the theory of oligopoly is that firms act interdependently.

Accepted Answer

In an oligopoly, a market is dominated by a few firms, and each firm's decisions regarding prices, output, and strategies are influenced by the actions of the other firms in the market, leading to interdependent behavior.

Question 19

The prisoner's dilemma can be used to help analyze such diverse topics as the arms race and the need for speed limit laws.

Accepted Answer

The prisoner's dilemma is a fundamental concept in game theory that illustrates why two completely rational individuals might not cooperate, even if it appears that it is in their best interest to do so. This concept can be applied to a wide range of situations, including the arms race, where countries may escalate their armaments despite the mutual benefit of disarmament, and the establishment of speed limit laws, where individual desires for fast travel conflict with collective safety needs.

Question 20

A monopolistic competitive firm is a price taker, while an oligopolist is a price searcher.

Accepted Answer

In a monopolistic competitive market, firms are price searchers because they have some control over their prices due to product differentiation. An oligopolist may also have some degree of price control, not being a pure price taker, due to a limited number of competitors and potential collusion.

Quiz 24: Monopolistic Competition Oligopoly and Game Theory