Question 1

-Firms in oligopoly can achieve an economic profit

Accepted Answer

Firms in an oligopoly can achieve economic profit if they cooperate, often through forms of collusion like cartels, where they can control prices or output to maximize their collective profits.

Question 2

-The mobile-phone market can be considered a(n) ________ because ________.

Accepted Answer

The mobile-phone market is considered an oligopoly because it is dominated by a few firms that are able to maintain large profits, indicating significant barriers to entry and market power.

Question 3

-Suppose Intel and AMD can each charge either $300 or $200 for a CPU (the computing unit of a computer). The above table illustrates the payoffs, in millions of dollars, from each of the four possible outcomes that could occur in their duopoly setting. If Intel charges $200 and AMD charges $300, then Intel's profit will be ________ million and AMD's profit will be ________ million.

Accepted Answer

If Intel charges $200 and AMD charges $300, Intel's profit will be $500 million and AMD's profit will be $100 million.

Question 4

Which of the following does trade practices law prohibit if it substantially lessens competition or creates a monopoly? i. Acquiring a competitor's shares or assets
Ii) Territorial confinement
Iii) Becoming a director of a competing firm

Accepted Answer

Trade practices law typically prohibits actions that substantially lessen competition or create a monopoly, including acquiring a competitor's shares or assets, territorial confinement, and becoming a director of a competing firm. These actions can restrict competition and potentially lead to monopolistic market control.

Question 5

-One of the main tools economists use to analyse strategic behaviour is

Accepted Answer

Game theory is a fundamental tool used by economists to analyze strategic behavior, including decision-making in competitive environments, negotiations, and conflict resolution.

Question 6

Which of the following is an example of an exclusive dealing arrangement?

Accepted Answer

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

Question 7

-When duopoly games are repeated and a 'tit-for-tat' strategy is used,

Accepted Answer

In repeated games, a 'tit-for-tat' strategy can lead to cooperation between firms, making the monopoly outcome more likely as firms learn to trust each other and avoid competitive pricing.

Question 8

-The only two firms in a market are trying to decide what price to charge. The payoff matrix for this duopoly game is shown above. The payoffs are thousands of dollars of economic profit. In the Nash equilibrium, Firm A will set a price of ________ and Firm B will set a price of ________.

Accepted Answer

In a Nash equilibrium, each firm chooses the best strategy given the strategy chosen by the other firm. Both firms setting a price of $10 is the Nash equilibrium because neither firm can increase its payoff by unilaterally changing its price.

Question 9

-The table above shows the payoff matrix offered to two suspected criminals, Bonnie and Clyde. The payoffs are the years they will spend in prison. The suspected criminals are not allowed to communicate. Which of the following statements correctly describes the equilibrium choices made by Bonnie and Clyde?

Accepted Answer

The Nash equilibrium occurs when each player's strategy is optimal given the other player's strategy. In many games, including typical prisoner's dilemma scenarios like the one implied here, if the players could communicate and trust each other, they could often agree on a strategy that would result in a better outcome for both (e.g., both denying the crime) compared to the Nash equilibrium (often both confessing). However, without communication and the ability to enforce agreements, each player's fear that the other will betray them leads to both choosing the strategy that is individually rational given the strategies available to the other, which is typically not the best collective outcome.

Question 10

-The prisoners' dilemma game

Accepted Answer

The prisoners' dilemma illustrates that while individual rational choices lead to a worse collective outcome, cooperation would make both parties better off.

Question 11

-The table above shows the payoff matrix offered to two suspected criminals, Bonnie and Clyde. The payoffs are the years they will spend in prison. The suspected criminals are not allowed to communicate. Given the information in the payoff matrix, the Nash equilibrium is that Bonnie ________ and Clyde ________.

Accepted Answer

In a Nash equilibrium, each player's strategy is optimal given the other player's strategy. In this scenario, if one confesses and the other denies, the confessor gets a better deal (fewer years in prison), making confession the dominant strategy for both. Thus, both confessing is the Nash equilibrium, as neither can unilaterally change their strategy to improve their outcome.

Question 12

-Suppose Intel and AMD can each charge either $300 or $200 for a CPU (the computing unit of a computer). The above table illustrates the payoffs, in millions of dollars, from each of the four possible outcomes that could occur in their duopoly setting. What must Intel's price be for AMD to earn $220 million in profit?

Accepted Answer

The answer of 
-Suppose Intel and AMD can each charge...

Question 13

-The only two firms in a market are trying to decide what price to charge. The payoff matrix for this duopoly game is shown above. The payoffs are thousands of dollars of economic profit. In the above game, in the Nash equilibrium,

Accepted Answer

The answer of 
-The only two firms in a market...

Question 14

-The only two firms in a market are trying to decide what price to charge. The payoff matrix for this duopoly game is shown above. The payoffs are thousands of dollars of economic profit. Which of the following statements is correct?

Accepted Answer

Without the specific payoff matrix provided, the correct answer can't be determined based on the strategies or outcomes described in the options. However, option C is a general statement that could be true in a duopoly where firms decide to collude instead of competing, leading to higher combined profits. This is a common outcome in theoretical models of oligopolies where firms can increase their profits by cooperating rather than competing.

Question 15

-If two duopolists can stick to a cartel agreement to boost their prices, then both

Accepted Answer

Collusion allows duopolists to act like a monopoly, setting higher prices than in competitive markets, which increases their economic profits.

Question 16

-The table above shows the payoff matrix offered to two suspected criminals, Bonnie and Clyde. The payoffs are the years they will spend in prison. The suspected criminals are not allowed to communicate. Given the information in the payoff matrix, the Nash equilibrium is

Accepted Answer

In a Nash equilibrium, each player's strategy is optimal given the other player's strategy. Here, if one confesses and the other doesn't, the confessor gets a better deal (1 year) while the other gets the worst outcome (20 years). If both deny, they get 2 years each, but if both confess, they each get 5 years. Confessing is a dominant strategy for both, as it minimizes the worst possible outcome. Thus, both confessing is the Nash equilibrium.

Question 17

The equilibrium in the prisoners' dilemma i. minimises the prisoners' combined jail time.
Ii) has one prisoner confessing and the other denying.
Iii) is a Nash equilibrium.

Accepted Answer

In the prisoners' dilemma, the Nash equilibrium occurs when both prisoners confess, which does not minimize their combined jail time.

Question 18

-Suppose Intel and AMD can each charge either $300 or $200 for a CPU (the computing unit of a computer). The above table illustrates the payoffs, in millions of dollars, from each of the four possible outcomes that could occur in their duopoly setting. If Intel charges $300 and AMD charges $300, then Intel's profit will be ________ million and AMD's profit will be ________ million.

Accepted Answer

Explanation: In a duopoly setting where both Intel and AMD decide to charge $300 for a CPU, the payoff for each company would be determined by their respective strategies and the resulting market dynamics. Given the options, the correct answer is C) $320 million for Intel and $160 million for AMD, as this reflects a scenario where both companies are charging a higher price, leading to higher profits for Intel and relatively lower but significant profits for AMD in comparison to other outcomes.

Question 19

-A Nash equilibrium occurs

Accepted Answer

A Nash equilibrium is a concept in game theory where each player in a game chooses the best strategy given the strategies chosen by the other players, assuming the strategies of the other players are fixed. This does not necessarily involve cooperation or aiming for a collective best outcome, nor does it depend on specific strategies like tit-for-tat or the location of the game.

Question 20

In the 1970s, when petrol price ceilings below the equilibrium price of petrol were imposed in America, some petrol stations required that buyers of petrol also purchase other products sold at the station. This policy is an example of which of the following?

Accepted Answer

This is an example of exclusive dealing arrangements, as the petrol stations required buyers to purchase other products in order to purchase petrol.

Quiz 17: Oligopoly

-Firms in oligopoly can achieve an economic profit

-The mobile-phone market can be considered a(n) because .

Which of the following does trade practices law prohibit if it substantially lessens competition or creates a monopoly? i. Acquiring a competitor's shares or assets Ii) Territorial confinement Iii) Becoming a director of a competing firm