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1. "An oligopoly is an oligopoly. Firms behave the same no matter what type of
oligopoly it is." This statement is:
a) true.
b) false.
c) true of homogeneous product industries.
d) none of the above.
8. Suppose that the duopolists competing in Cournot fashion agree to produce the
collusive output. Given that firm two commits to this collusive output, it pays firm
one to
a) cheat by producing a higher level of output.
b) cheat by producing a lower level of output.
c) cheat by raising prices.
d) none of the above.
11. Sue and Jane own two local petrol stations. They have identical constant
marginal costs, but earn zero economic profits. Sue and Jane constitute
a) a Sweezy oligopoly.
b) a Cournot oligopoly.
c) a Bertrand oligopoly.
d) none of the above.
13. "Tom and Jack are two local petrol stations. Although they have different
constant marginal costs, they both survive continued competition." Tom and Jack do
not constitute:
a) a monopolistically competitive industry.
b) a Cournot oligopoly.
c) a Stackelberg oligopoly.
d) a Bertrand oligopoly.
15. Consider the following information for a simultaneous move game: If you
advertise and your rival advertises, you each will earn $5 million in profits. If neither
of you advertise, you will each earn $10 million in profits. However, if one of you
advertises and the other does not, the firm that advertises will earn $15 million and the
non advertising firm will earn $1 million. If you and your rival plan to be in business
for only one year, the Nash equilibrium is
a) For each firm to advertise.
b) For neither firm to advertise.
c) For your firm to advertise and the other not to advertise.
d) None of the above.
16. Which of the following is true for a Nash equilibrium of a two-player game?
a) The joint payoffs of the two players are highest compared to other strategy pairs.
b) Given another player's strategy stipulated in that Nash equilibrium, a player cannot
improve his welfare by changing his strategy.
c) A Nash equilibrium is always unique in real world problems.
d) b and c
19. Economists use game theory to predict the behavior of oligopolists. Which of the
following is crucial for the success of the analysis?
a) Make sure the payoffs reflect the true payoffs of the oligopolists.
b) Make sure whether the oligopolists move simultaneously or sequentially.
c) Make sure the problem considered is of a one-shot or repeated nature.
d) All of the above.
21. A finitely repeated game differs from an infinitely repeated game in that:
a) The former needs a lower interest rate to support collusion than the latter needs.
b) There is an "end-of-period" problem for the former.
c) A collusive outcome can usually be sustained in the former but not the latter.
d) All of the above.
23. Which of the following is a valid critique of the use of game theory in
economics?
a) Payoffs to players may be difficult to measure.
b) Players may not have complete information about each other's payoffs.
c) Game theory assumes rational players.
d) All of the above.
24. When analyzing the behavior of oligopolists, which of the following is crucial for
the success of game theoretic analysis?
a) Payoffs do not need to reflect the true payoffs of the oligopolists, they just need to
be greater than or equal to zero.
b) Assume that oligopolists always move simultaneously.
c) Do not construct the payoffs of the oligopolists to be interdependent, as the payoff
of one player usually does not affect the payoff of the other players.
d) Make sure the problem you are considering is of a one-shot or repeated nature, and
you model it accordingly because the order in which players make decisions is
important.
25. You are the manager of a Mom and Pop store that can buy milk from a supplier at
$3.00 per gallon. If you believe the elasticity of demand for milk by customers at your
store is -4, then your profit-maximizing price is
a) 2.00.
b) 2.50.
c) 4.00.
d) 5.00.
27. Cinemas sometimes give senior citizens discounts. What is the possible privately
motivated purpose for them to do so?
a) Purely because entrepreneurs are benevolent.
b) Senior citizens have a more elastic demand for movies than ordinary citizens.
c) Senior citizens lack recreational activities.
d) None of the above.
28. Which of the following pricing strategies does not usually enhance the profits of
firms with market power?
a) price matching.
b) cross-subsidies.
c) two-part pricing.
d) marginal cost pricing.
32. Which of the following statements about a price matching strategy is incorrect?
a) It may be applied in situations besides Bertrand oligopoly.
b) It requires that the firms can monitor their rival's prices.
c) It reduces the incentive for a rival firm to initiate a price war.
d) It only guarantees to match prices that are advertised publicly.
33. Suppose two types of consumers buy suits. Consumers of type A will pay $100
for a coat, and $50 for pants. Consumers of type B will pay $75 for a coat, and $75
for pants. The firm selling suits faces no competition and has a marginal cost of zero.
If the firm sells coats and pants for $25 each, but offers a bundle containing both a
coat and pants for $150, how many bundles will the firm sell?
a) 0.
b) 1.
c) 2.
d) insufficient information.
34. Suppose two types of consumers buy suits. Consumers of type A will pay $100
for a coat, and $50 for pants. Consumers of type B will pay $75 for a coat, and $75
for pants. The firm selling suits faces no competition and has a marginal cost of zero.
The optimal commodity bundling strategy is:
a) Charge $150 for a suit.
b) Charge $75 for a suit.
c) Charge $100 for a suit.
d) Charge $125 for a suit.