Question 1

If two tit-for-tat players interact together over a long period of time, the result will be&#10;A)Cooperation&#10;B)Defection&#10;C)Marginal cost pricing&#10;D)A leader will emerge as in the Stackelberg model

Accepted Answer

Tit-for-tat strategy involves reciprocating the opponent's last move, which means if the opponent cooperates, the player cooperates in return. If two players use this strategy, there is a highly likely chance of cooperation.

Question 2

Excess capacity for a firm in an oligopoly situation&#10;A)Can not contribute to long run profit for a firm&#10;B)Encourages competitors to enter the market and build at optimal capacity&#10;C)Is a deterrent to entry in the market by potential competitors&#10;D)Will be temporary if the planning was done right

Accepted Answer

Excess capacity can act as a deterrent to entry because it signals potential competitors that the firm can increase production without incurring significant additional costs, thus potentially driving down prices and making entry less attractive.

Question 3

One difficulty is that tit-for-tat's effectiveness depends on the existence of&#10;A)Perfect information about another's actions&#10;B)Only two players in the game&#10;C)An infinite number of players in the game&#10;D)An industry that is not growing

Accepted Answer

B

Question 4

In a prisoner's dilemma game a dominant strategy would mean that one of the players&#10;A)Follows the moves of the opponent no matter what the opponent does&#10;B)Knows the payoff matrix outcomes while the other does not&#10;C)Is sure to come out with the most preferred outcome no matter what the other does&#10;D)Will benefit most from one particular move no matter what the opponent does

Accepted Answer

A dominant strategy in a prisoner's dilemma is one where a player benefits most from a particular move, regardless of the opponent's actions.

Question 5

In a battle of Boeing and Airbus a Nash equilibrium will exist if&#10;A)They both have agreed to a monopoly pricing structure&#10;B)They are presently operating at a point where neither one would benefit by unilaterally changing strategies&#10;C)Boeing has the power to drive Airbus out of business with a predatory pricing strategy&#10;D)Both pass up profit opportunities because they fear retaliation

Accepted Answer

A Nash equilibrium is a situation where no player would benefit from unilaterally changing their strategy. In the context of a battle between Boeing and Airbus, a Nash equilibrium would exist if both companies are presently operating at a point where neither would benefit from changing their strategies. This would mean that they have found a stable balance in terms of pricing, product development, market segmentation, etc. It does not require any specific agreement or power dynamics between the players. Option A is incorrect because a monopoly pricing structure would only benefit one player and cannot be considered an equilibrium. Option C is incorrect because predatory pricing is illegal and not a sustainable strategy for driving a competitor out of business. Option D is incorrect because fearing retaliation is not a sufficient condition for a Nash equilibrium. Both players need to have no incentive to deviate from their current strategies in order for a Nash equilibrium to exist.

Question 6

In the Bertrand model&#10;A)Each firm takes the quantities produced by its rivals as given&#10;B)Each firm takes the prices charged by its rivals as given&#10;C)One firm plays a leadership role and its rivals merely follow&#10;D)Prices are higher and quantities are slightly less than we would see if the firms colluded to achieve the monopoly outcome

Accepted Answer

In the Bertrand model, each firm takes the prices charged by its rivals as given. The firms compete by setting prices, rather than quantities, which differentiates the Bertrand model from the Cournot model. The outcome of the Bertrand model is generally competitive, with prices equal to marginal cost and quantities produced equal to the market demand.

Question 7

Which of the following markets can most accurately be described as monopolistically competitive?&#10;A)Toothpaste&#10;B)Milk&#10;C)Electricity&#10;D)Apples

Accepted Answer

Toothpaste is a product that has many competing brands with differentiation, it has some pricing power, but it is not a perfect substitute for other brands. This is the main feature of a monopolistically competitive market. Milk (B) is a commodity product with less differentiation, whereas Electricity (C) and Apples (D) are examples of markets with fewer sellers/oligopoly and perfect competition respectively.

Question 8

When each company follows its dominant strategy the profits for each of the firms are equal to:&#10;A)$2,499&#10;B)$2,500&#10;C)$2,000&#10;D)$4,998

Accepted Answer

The answer of When each company follows its dominant strategy...

Question 9

In the Cournot model&#10;A)Each firm takes the quantities produced by its rivals as given&#10;B)Each firm takes the prices charged by its rivals as given&#10;C)One firm plays a leadership role and its rivals merely follow&#10;D)Prices are higher and quantities are slightly less than we would see if the firms colluded

Accepted Answer

In the Cournot model, each firm takes the quantities produced by its rivals as given and decides how much to produce based on that information. The firms do not coordinate or collude, and each one tries to maximize its own profit given the output decisions of the other firms. This results in a Nash equilibrium where the quantities produced are lower than if the firms had colluded, but the prices are higher.

Question 10

In the payoff matrix above the Nash equilibrium for the game is&#10;A)for both players to follow strategy A&#10;B)for both players to follow strategy B&#10;C)for player 2 to follow strategy A and for player 2 to follow strategy B&#10;D)there is no Nash equilibrium in this game

Accepted Answer

The Nash equilibrium is the strategy combination that maximizes the payoff for each player, given the strategy of the other player. In this game, the Nash equilibrium is for both players to follow strategy A. This is because if player 1 follows strategy A, then player 2 will get a payoff of 2 if they follow strategy A and a payoff of 1 if they follow strategy B. Therefore, player 2 will always follow strategy A. Similarly, if player 2 follows strategy A, then player 1 will get a payoff of 3 if they follow strategy A and a payoff of 2 if they follow strategy B. Therefore, player 1 will always follow strategy A.

Question 11

The unraveling problem in interdependent relationships arises from a situation in which&#10;A)There is a known, finite number of future interactions&#10;B)There is not a known, finite number of future interactions&#10;C)Interactions suddenly and surprisingly cease&#10;D)A recession hits an industry

Accepted Answer

The answer of The unraveling problem in interdependent relationships arises...

Question 12

You are given the four payout option show below for a coin toss.If you are using a maximum strategy, which option do you choose?&#10;A)Heads you win $500, tails you lose $100&#10;B)Heads you win $1,000, tails you lose $110&#10;C)Heads you win $50, tails you lose $25&#10;D)Heads you win $5, tails you lose $0

Accepted Answer

The answer of You are given the four payout option...

Question 13

In game theory, a player follows its maximum strategy is the option that&#10;A)makes the lowest possible payoff as large as possible&#10;B)gives the highest possible payoff.&#10;C)makes the highest possible payoff as large as possible&#10;D)allow the player to maximize his/her losses.

Accepted Answer

The answer of In game theory, a player follows its...

Question 14

A tit for tat strategy has the best chance of working if&#10;A)A transaction is a one time event&#10;B)The interaction between participants is frequent and open-ended&#10;C)The interaction is frequent, but has a specific end date&#10;D)Neither side in the interaction trusts the other's commitment to the strategy

Accepted Answer

The answer of A tit for tat strategy has the...

Question 15

If one company defects the agreement and the other one doesn't, then the defecting company would make profits equal to:&#10;A)$4,998&#10;B)$2,500&#10;C)$2000&#10;D)$0

Accepted Answer

The answer of If one company defects the agreement and...

Question 16

In sequential game strategies, each player could avoid the worst case outcomes by&#10;A)Assuming that the other player will always rationally avoid its worst case outcome&#10;B)Pursuing a strategy that leads toward the highest end point gains possible&#10;C)Pursuing a strategy that leads in the direction of the worst case scenario&#10;D)The strategies listed in both a and b will definitely keep one from the worst case scenario

Accepted Answer

The answer of In sequential game strategies, each player could...

Question 17

The model of monopolistic competition differs from the model of perfect competition in which of the following assumptions?&#10;A)Free entry and exit&#10;B)Product homogeneity&#10;C)Large number of firms&#10;D)Perfect information

Accepted Answer

The answer of The model of monopolistic competition differs from...

Question 18

The strategy of tit-for-tat is&#10;A)To cooperate for the first interaction, and to defect for each subsequent interaction&#10;B)To cooperate for the first interaction, and to imitate your rival's behavior in each subsequent interaction&#10;C)To defect for the first interaction, and to cooperate for each subsequent interaction&#10;D)To always be the first one to defect

Accepted Answer

The answer of The strategy of tit-for-tat is&#10;A)To cooperate for...

Question 19

Oligopoly is a market structure in which&#10;A)Firms are price takers&#10;B)There exist many firms, each producing a product that is a close, but imperfect, substitute for the products of other firms&#10;C)There are only a few sellers&#10;D)There is only one seller

Accepted Answer

The answer of Oligopoly is a market structure in which&#10;A)Firms...

Question 20

The conditions discussed by Axelrod help to explain&#10;A)Only when people are most likely to defect&#10;B)Only when people cooperate&#10;C)When people cooperate and also when they are most likely not to cooperate&#10;D)Why there is never mutual restraint in trench warfare

Accepted Answer

The answer of The conditions discussed by Axelrod help to...

Question 21

When marginal cost is constant and zero, the interdependence between Cournot duopolists causes&#10;A)Price to be 1/3 higher and quantity to be 1/3 lower than the corresponding values in the monopoly case&#10;B)Price to be 1/3 lower and quantity to be 1/3 higher than the corresponding values in the monopoly case&#10;C)Prices and quantities to be the same as they would be in the monopoly case&#10;D)Prices and quantities to be the same as they would be in the perfectly competitive case

Accepted Answer

The answer of When marginal cost is constant and zero,...

Question 22

The strategy for the Stackelberg Leader is&#10;A)To sell a marginally higher quantity of goods than the rival&#10;B)To sell at a marginally lower price than the rival&#10;C)Collusion&#10;D)To take account of the effect of its own behavior on the rival firm's quantity choice

Accepted Answer

The answer of The strategy for the Stackelberg Leader is&#10;A)To...

Question 23

In the above diagram the profit-maximizing price is at&#10;A)02&#10;B)03&#10;C)04&#10;D)05

Accepted Answer

The answer of In the above diagram the profit-maximizing price...

Question 24

The strategy for the shared monopoly is&#10;A)To sell a marginally higher quantity of goods than the rival&#10;B)To sell at a marginally lower price than the rival&#10;C)Collusion&#10;D)To take account of the effect of its own behavior on the rival firm's quantity choice

Accepted Answer

The answer of The strategy for the shared monopoly is&#10;A)To...

Question 25

The demand curve shown below has four points depicting possible total market oligopoly outcomes of quantity and price.For the given demand and price coordinates labeled A-D, pick the matching oligopoly models that lead to these comparative outcomes.

A)A = Bertrand: B = Cournot: C = Stackelberg: D = Shared Monopoly
B)A = Cournot: B = Bertrand: C = Stackelberg: D = Shared Monopoly
C)A = Shared Monopoly: B = Cournot: C = Bertrand: D = Stackelberg
D)A = Shared Monopoly: B = Cournot: C = Stackelberg: D = Bertrand

Accepted Answer

The answer of The demand curve shown below has four...

Question 26

In the above graph the profit maximization level of output for a monopolistically competitive firm is&#10;A)OA&#10;B)OB&#10;C)OC&#10;D)OD

Accepted Answer

The answer of In the above graph the profit maximization...

Question 27

Which of the duopoly models has the lowest overall combined profit level?&#10;A)The Cournot model&#10;B)The Bertrand model&#10;C)The Stackelberg Leader-Follower model&#10;D)The shared monopoly model

Accepted Answer

The answer of Which of the duopoly models has the...

Question 28

Which of the duopoly models has the highest overall combined profit level?&#10;A)The Cournot model&#10;B)The Bertrand model&#10;C)The Stackelberg Leader-Follower model&#10;D)The shared monopoly model

Accepted Answer

The answer of Which of the duopoly models has the...

Question 29

The basic idea of the theory of contestable markets is that when the cost of entry and exit is very low, the threat of entry can be sufficient to produce an allocation similar to the one we see under&#10;A)Monopoly&#10;B)Monopolistic competition&#10;C)Perfect competition&#10;D)Oligopoly

Accepted Answer

The answer of The basic idea of the theory of...

Question 30

The basic problem of a shared monopoly from the point of view of those involved is that&#10;A)Profits are lower than in the other oligopoly models&#10;B)The shared output is too high for the high price to be maintained&#10;C)Collusive agreements are difficult to sustain&#10;D)Revenue is lower than in the other oligopoly models

Accepted Answer

The answer of The basic problem of a shared monopoly...

Question 31

In the graph above if additional firms enter the market we would expect&#10;A)The DD curve to shift right&#10;B)Each individual firm to be worse off&#10;C)The dd curve to become steeper&#10;D)The MC and ATC curves to shift downward

Accepted Answer

The answer of In the graph above if additional firms...

Question 32

The oligopoly model in which each firm assumes that rivals will continue to produce at their current output levels is called the:&#10;A)Cournot model&#10;B)Bertrand model&#10;C)Stackelberg model&#10;D)Chamberlin model

Accepted Answer

The answer of The oligopoly model in which each firm...

Question 33

Prices in the Bertrand model are&#10;A)The same as prices under a shared monopoly&#10;B)Slightly higher than prices would be under a shared monopoly&#10;C)The same as prices would be in the perfectly competitive case&#10;D)Slightly higher than prices would be in the perfectly competitive case

Accepted Answer

The answer of Prices in the Bertrand model are&#10;A)The same...

Question 34

In the graph above at the profit maximizing price and output the firm is making&#10;A)Positive economic profit&#10;B)Negative economic profit&#10;C)Zero economic profit&#10;D)It is impossible to tell from the information given

Accepted Answer

The answer of In the graph above at the profit...

Question 35

The strategy for the Bertrand model is&#10;A)To sell a marginally higher quantity of goods than the rival&#10;B)To sell at a marginally lower price than the rival but not below marginal cost&#10;C)Collusion&#10;D)To take account of the effect of its own behavior on the rival firm's quantity choice

Accepted Answer

The answer of The strategy for the Bertrand model is&#10;A)To...

Question 36

In the Stackelberg model&#10;A)Each firm takes the quantities produced by its rivals as given&#10;B)Each firm takes the prices charged by its rivals as given&#10;C)One firm plays a leadership role and its rivals merely react to the leader's quantity&#10;D)Prices are higher and quantities are slightly less than we would see if the firms colluded to achieve the monopoly outcome

Accepted Answer

The answer of In the Stackelberg model&#10;A)Each firm takes the...

Question 37

Cournot duopolists face a market demand curve given by P = 90 - Q where Q is total market demand.Each firm can produce output at a constant marginal cost of 30 per unit.The equilibrium price and quantity for the total market will be

A)Q = 30, P = 60
B)Q = 60, P = 30
C)Q = 40, P = 50
D)Q = 45, P = 45

Accepted Answer

The answer of Cournot duopolists face a market demand curve...

Question 38

If the duopolists in Problem 17 behave according to the Stackelberg Leader-Follower model, the equilibrium price and total quantity for the market will be&#10;A)Q = 30, P = 60&#10;B)Q = 60, P = 30&#10;C)Q = 40, P = 50&#10;D)Q = 45, P = 45

Accepted Answer

The answer of If the duopolists in Problem 17 behave...

Question 39

If the duopolists in Problem 17 behave as a shared monopoly, the equilibrium price and total quantity of output will be&#10;A)Q = 30, P = 60&#10;B)Q = 60, P = 30&#10;C)Q = 40, P = 50&#10;D)Q = 45, P = 45

Accepted Answer

The answer of If the duopolists in Problem 17 behave...

Question 40

If the duopolists in problem 17 behave, instead, according to the Bertrand model, the equilibrium price and quantity for the total market will be&#10;A)Q = 30, P = 60&#10;B)Q = 60, P = 30&#10;C)Q = 40, P = 50&#10;D)Q = 45, P = 45

Accepted Answer

The answer of If the duopolists in problem 17 behave,...

Question 41

In an example of restaurant location on an island, if the number of people on the island doubled, the number of restaurants&#10;A)Would stay the same&#10;B)Would double&#10;C)Would halve&#10;D)Would increase by a factor of $\sqrt { 2 }$

Accepted Answer

The answer of In an example of restaurant location on...

Question 42

If the distance around the island is 50 miles and there are two restaurants equally spaced on the island and each of 100 people are equally spaced around the island and eat a meal a day at a restaurant, what will be the average distance traveled to and from restaurants in a day's time.

A)25 miles
B)50 miles
C)12.5 miles
D)125 miles

Accepted Answer

The answer of If the distance around the island is...

Question 43

What will industry output be at equilibrium in this model?

Accepted Answer

The answer of What will industry output be at equilibrium...

Question 44

If the Bertrand model is assumed to be the appropriate one for analysis, what will the price of the product and the quantity sold be in this duopoly market?

Accepted Answer

The answer of If the Bertrand model is assumed to...

Question 45

In game theory, a dominant strategy is one&#10;A)In which the firm gains the greatest competitive advantage&#10;B)In which the same strategy is chosen by one firm regardless of the anticipated action&#10;C)of the other firm&#10;D)That produces the greatest comparative advantage&#10;E)That both firms agree on independently

Accepted Answer

The answer of In game theory, a dominant strategy is...

Question 46

Suppose that two firms are producers of spring water, which can be obtained at zero cost.The market demand curve for their combined output is p = 100 - Q where p is the price and Q is the amount of spring water sold by both together.If the two producers act in accord with the Cournot model, their combined output will be

A)33.33
B)66.66
C)50
D)0

Accepted Answer

The answer of Suppose that two firms are producers of...

Question 47

Suppose there are two firms in a market: firm A and firm&#10;A)Greater than firm B&#10;B)Further, assume that they produce a homogenous product at a constant marginal cost of $10.In the Bertrand model solution, firm A will charge a price:&#10;B)Smaller than firm B&#10;C)Equal to $10&#10;D)Greater than $10

Accepted Answer

The answer of Suppose there are two firms in a...

Question 48

As the firm's fixed costs increase&#10;A)The number of firms will rise in the long run&#10;B)The number of firms will fall in the long run&#10;C)The number of firms will stay the same in the long run&#10;D)It is impossible to tell from the information given

Accepted Answer

The answer of As the firm's fixed costs increase&#10;A)The number...

Question 49

In the graph above the dd curve is based on the assumption&#10;A)That firms all follow each other when any one of them changes price&#10;B)That market demand is more elastic than the demand for any one firm&#10;C)That firms can gain market share by lowering their price below the price of the competition&#10;D)That firms will follow any price increases of their competitors

Accepted Answer

The answer of In the graph above the dd curve...

Question 50

In the long run, a monopolistically competitive firm acting according to the Chamberlin model&#10;A)Will operate at the minimum point of the average cost curve&#10;B)Will not operate at the minimum point of the average cost curve&#10;C)Will earn positive economic profits&#10;D)Will operate at the minimum point of the marginal cost curve

Accepted Answer

The answer of In the long run, a monopolistically competitive...

Question 51

In sequential games&#10;A)Players move at the same time&#10;B)The order of moves matter&#10;C)The order of the moves is irrelevant&#10;D)There is always two Nash equilibriums

Accepted Answer

The answer of In sequential games&#10;A)Players move at the same...

Question 52

As the number of customers increase&#10;A)The number of firms will rise in the long run&#10;B)The number of firms will fall in the long run&#10;C)The number of firms will stay the same in the long run&#10;D)It is impossible to tell from the information given

Accepted Answer

The answer of As the number of customers increase&#10;A)The number...

Question 53

If a monopolistically competitive firm is making positive economic profits we would expect&#10;A)Entry of other firms&#10;B)The firm to continue making the positive economic profits&#10;C)The firm to expand market share and the industry to move toward an oligopoly structure&#10;D)The firm to hire more labor

Accepted Answer

The answer of If a monopolistically competitive firm is making...

Question 54

Given the payoff table above, in Nash Equilibrium Player's 2 payoff is:&#10;A)3&#10;B)-3&#10;C)0&#10;D)There is no Nash equilibrium in this game

Accepted Answer

The answer of Given the payoff table above, in Nash...

Question 55

Which of the following is an application of the Hoteling model of monopolistic competition.&#10;A)Politicians tend toward positions more extreme than what they actually believe&#10;B)Stores of similar types tend to cluster&#10;C)Efficiency requires that stores are spread equidistant from each other in a given space&#10;D)As space increases between firms, each firm produces less

Accepted Answer

The answer of Which of the following is an application...

Question 56

The variety that monopolistic competition provides is paid primarily by&#10;A)The producer whose ability to pass on costs is limited by his demand curve&#10;B)All consumers whether they desire variety or not&#10;C)Those customers who desire the variety&#10;D)No one because variety costs no more to produce than uniform products cost to produce

Accepted Answer

The answer of The variety that monopolistic competition provides is...

Question 57

Derive the reaction curve for a Cournot duopolist where the industry demand curve is as stated above and the MC of production is zero.

Accepted Answer

The answer of Derive the reaction curve for a Cournot...

Question 58

As the firm's variable costs rise,&#10;A)The number of firms will rise in the long run&#10;B)The number of firms will fall in the long run&#10;C)The number of firms will stay the same in the long run&#10;D)It is impossible to tell from the information given

Accepted Answer

The answer of As the firm's variable costs rise,&#10;A)The number...

Question 59

In the graph above one would expect the demand curve facing a monopolistically competitive firm to be&#10;A)More elastic than a monopoly in the same industry&#10;B)Less elastic than a monopoly in the same industry&#10;C)More elastic than a perfectly competitive firm in the same industry&#10;D)As elastic as a monopoly in the same industry

Accepted Answer

The answer of In the graph above one would expect...

Question 60

As transportation costs on the island rise,&#10;A)The number of firms will rise in the long run&#10;B)The number of firms will fall in the long run&#10;C)The number of firms will stay the same in the long run&#10;D)It is impossible to tell from the information given

Accepted Answer

The answer of As transportation costs on the island rise,&#10;A)The...

Question 61

Compare the models analyzed here with reference to the consumer and economic efficiency.

Accepted Answer

The answer of Compare the models analyzed here with reference...

Question 62

If the town was one restaurant below its optimal number when you are brought in as a consultant to help decide some planning issues, and the city fathers want to know how much the town could save overall if it built another restaurant, what would you tell them?

Accepted Answer

The answer of If the town was one restaurant below...

Question 63

What is the rate at which transportation costs are falling when the optimal number of restaurants is reached?

Accepted Answer

The answer of What is the rate at which transportation...

Question 64

If the town projected a total population of 180 by the end of the decade, how many restaurants would the city planners project as optimal for the end of the decade?

Accepted Answer

The answer of If the town projected a total population...

Deck 13: Imperfect Competition: a Game-Theoretic Approach