Question 1

The solution in the prisoner's dilemma is called the

Accepted Answer

The dominant-strategy equilibrium is the best choice in a prisoner's dilemma because it results in the highest payoff for both players, regardless of what the other player does. Choosing any other strategy could result in a lower payoff if the other player chooses the opposite strategy.

Question 2

Which of the following is not a threat to bricks-and-mortar video rental stores?

Accepted Answer

The answer of Which of the following is not a...

Question 3

If oligopolists engaged in some sort of collusion, industry output would be __________ and the price would be __________ than under perfect competition.

Accepted Answer

In an oligopoly, firms have market power and can affect prices. If they collude, they can jointly reduce output and raise prices, resulting in smaller industry output and higher prices than under perfect competition.

Question 4

In regards to monopolistic competition, some economists argue that consumers are willing to pay a higher price in order to enjoy a wider selection of goods and services.

Accepted Answer

This is because in monopolistic competition, firms differentiate their products to appeal to different subsets of consumers. Therefore, consumers may be willing to pay a higher price for a product that meets their specific needs or preferences, even if there are other similar products available in the market.

Question 5

Exhibit 10-15
 
-Exhibit 10-15 depicts the payoff matrix facing Eagle Tobacco and Dan'l Boone Tobacco with respect to their decisions to advertise or not. Eagle Tobacco's dominant strategy is not to advertise.

Accepted Answer

A dominant strategy is one that results in a higher payoff for a player, regardless of the opponent's action. Without the specific payoff matrix, we cannot determine if "not to advertise" is a dominant strategy for Eagle Tobacco.

Question 6

The tit-for-tat strategy implies that the firms

Accepted Answer

The tit-for-tat strategy involves cooperating on the first round and then following your competitor's reactions on subsequent rounds. It is commonly used in game theory to analyze the behavior of firms in oligopolistic industries where they must constantly adjust their pricing strategies to match or counteract their competitors' moves. Therefore, option D is the best choice.

Question 7

As a real estate agent, Krista Otavi prides herself on her good training, availability to clients, and hard work to make a sale. Which one of the basic ways of product differentiation does Krista emphasize?

Accepted Answer

Krista emphasizes her availability and hard work, which are both aspects of customer service, making it the most likely answer.

Question 8

Exhibit 10-15
 
-Exhibit 10-15 depicts the payoff matrix facing Eagle Tobacco and Dan'l Boone Tobacco with respect to their decisions to advertise or not. What strategies will most likely result?

Accepted Answer

Both Eagle and Dan'l Boone will benefit from advertising, as both have a positive payoff when they advertise and a negative payoff when they don't advertise. Therefore, the best choice is for both companies to advertise. This results in a Nash equilibrium where neither company has an incentive to deviate from their strategy.

Question 9

Exhibit 10-15
 
-Exhibit 10-15 depicts the payoff matrix facing Eagle Tobacco and Dan'l Boone Tobacco with respect to their decisions to advertise or not. What strategies will maximize their joint profit?

Accepted Answer

If neither company advertises, they avoid the costs associated with advertising, potentially maximizing their joint profit by maintaining higher margins.

Question 10

In a coordination game, a Nash equilibrium occurs when

Accepted Answer

In a coordination game, players have an incentive to coordinate their choices in order to achieve a better outcome. A Nash equilibrium occurs when both players choose the same strategy and neither player has an incentive to deviate from that strategy, as changing strategy would result in a worse outcome. Therefore, choice C, where each player chooses the same strategy, is the best choice.

Question 11

The dominant-strategy solution implies that each firm

Accepted Answer

In a dominant-strategy solution, each firm ignores the decisions of the other firms and selects the optimal solution for itself based on its own dominant strategy. Therefore, choice C is the best answer.

Question 12

To maximize cartel profit, the members must allocate output so that the marginal cost for the final unit produced by each firm is

Accepted Answer

In a cartel, the members work together to maximize their joint profits. To do so, they need to coordinate their production levels and prices. If the cartel members allocate output so that the marginal cost for the final unit produced by each firm is identical, they can maximize their joint profits. This is because, in this case, each firm will be producing at the same efficiency level and the total output will be optimized. Therefore, in order to maximize profits, the cartel members should choose option A.

Question 13

If the leading canned soup company introduces dozens of new flavors in order to dominate shelf space, the company is most likely trying to create a barrier to entry by

Accepted Answer

By introducing dozens of new flavors and dominating the shelf space, the leading canned soup company is making it difficult for potential competitors to enter the market and gain a foothold. This is because the company is crowding out the competition and reducing their ability to access the same customers and shelf space. Creating this barrier to entry can help the leading company maintain its dominant position and discourage new entrants from entering the market. Therefore, the best choice is D.

Question 14

In the prisoner's dilemma game, the sentence that each player receives depends on

Accepted Answer

In the prisoner's dilemma game, the sentence that each player receives depends on both the strategy the player chooses and the strategy the other player chooses. Therefore, the best choice is D.

Question 15

A greater supply of video rental outlets along with the increased availability of substitutes like cable channels made rental rates

Accepted Answer

The answer of A greater supply of video rental outlets...

Question 16

Consensus becomes easier to achieve as the number of firms in a cartel grows

Accepted Answer

Consensus becomes more difficult to achieve as the number of firms in a cartel grows because there are more parties involved with potentially conflicting interests and motivations.

Question 17

In a game that can be repeated, the optimal solution is

Accepted Answer

The answer of In a game that can be repeated,...

Question 18

Which oligopoly model was developed to explain price wars in an industry?

Accepted Answer

Game theory is the oligopoly model that was developed to explain price wars in an industry. This model focuses on the strategic interaction between firms, and the decisions that they make based on their expectations of how other firms will respond. It is particularly useful in explaining situations where firms may engage in aggressive price competition in order to gain market share or increase profits.

Question 19

The prisoner's dilemma provides an explanation for

Accepted Answer

The answer of The prisoner's dilemma provides an explanation for
...

Question 20

Exhibit 10-15
 
-Exhibit 10-15 depicts the payoff matrix facing Eagle Tobacco and Dan'l Boone Tobacco with respect to their decisions to advertise or not. Eagle Tobacco has a dominant strategy.

Accepted Answer

Eagle Tobacco's dominant strategy is to advertise, regardless of Dan'l Boone Tobacco's decision.

Quiz 10: Monopolistic Competition and Oligopoly