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What happens when the prisoners' dilemma game is repeated numerous times in an oligopoly market? (i) The firms may well reach the monopoly outcome. (ii) The firms may well reach the competitive outcome. (iii) Buyers of the oligopolists' product will likely be worse off as a result.


A) (i) and (ii)
B) (ii) and (iii)
C) (i) and (iii)
D) (i) , (ii) , and (iii)

E) A) and B)
F) B) and C)

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A dominant strategy is a strategy that is best for a player in a game regardless of the strategies chosen by the other players.

A) True
B) False

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Table 17-15 This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B) . Table 17-15 This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B) . -Refer to Table 17-15.If player B chooses Right,player A should choose A) Up and earn a payoff of 1. B) Middle and earn a payoff of 5. C) Middle and earn a payoff of 7. D) Down and earn a payoff of 4. -Refer to Table 17-15.If player B chooses Right,player A should choose


A) Up and earn a payoff of 1.
B) Middle and earn a payoff of 5.
C) Middle and earn a payoff of 7.
D) Down and earn a payoff of 4.

E) A) and B)
F) A) and D)

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Assume that Peach Computers has entered into a resale price maintenance agreement with Computer Super Stores Inc.(CSS Inc.) but not with CompuMart.In this case,


A) the wholesale price of Peach computers will be different for CSS Inc. than it is for CompuMart.
B) Peach computers will never increase profits by having a resale price maintenance agreement with all retail outlets that sell its products.
C) CompuMart might benefit from customers who go to CSS Inc. for information about different computers.
D) CSS Inc. will sell Peach computers at a lower price than CompuMart.

E) A) and D)
F) A) and C)

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Scenario 17-4. Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market and earn $50 million each. If they both advertise, they again split the market, but profits are lower by $10 million since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $60 million while the company that does not advertise earns only $30 million. -Refer to Scenario 17-4.In 1971,Congress passed a law that banned cigarette advertising on television.If cigarette companies are profit maximizers,it is likely that


A) neither company opposed the ban on advertising.
B) Brown Inc. sued the federal government on grounds that the ban constitutes a civil rights violation.
C) both companies sued the federal government on grounds that the ban constitutes a civil rights violation.
D) both companies retaliated with black-market operations.

E) A) and B)
F) B) and C)

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As the number of firms in an oligopoly increases,the magnitude of the price effect increases.

A) True
B) False

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Consider a game of the "Jack and Jill" type in which a market is a duopoly and each firm decides to produce either a "high" quantity of output or a "low" quantity of output.If the two firms successfully reach and maintain the cooperative outcome of the game,then


A) both the combined profit of the firms and total surplus are maximized.
B) the combined profit of the firms is maximized but total surplus is not maximized.
C) the combined profit of the firms is not maximized but total surplus is maximized.
D) neither the combined profit of the firms nor total surplus is maximized.

E) None of the above
F) C) and D)

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As a group,oligopolists earn the highest profit when they


A) achieve a Nash equilibrium.
B) produce a total quantity of output that falls short of the Nash-equilibrium total quantity.
C) produce a total quantity of output that exceeds the Nash-equilibrium total quantity.
D) charge a price that falls short of the Nash-equilibrium price.

E) C) and D)
F) None of the above

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Figure 17-4. Two companies, Acme and Bilco, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. Figure 17-4. Two companies, Acme and Bilco, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-4.If this game is played only once,then the most likely outcome is that A) both firms charge a low price. B) Acme charges a low price and Bilco charges a high price. C) Acme charges a high price and Bilco charges a low price. D) both firms charge a high price. -Refer to Figure 17-4.If this game is played only once,then the most likely outcome is that


A) both firms charge a low price.
B) Acme charges a low price and Bilco charges a high price.
C) Acme charges a high price and Bilco charges a low price.
D) both firms charge a high price.

E) None of the above
F) B) and C)

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The more firms an oligopoly has,


A) the more market power the oligopoly has. This results in higher prices and lower quantities of output than an oligopoly with fewer firms would have.
B) the more important the price effect is, resulting in the market price being higher than when there are fewer firms in the oligopoly.
C) the farther market price will be from marginal cost.
D) the more likely the firms will charge a price closer to the perfectly competitive price.

E) A) and D)
F) B) and D)

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In order to be successful,a cartel must


A) find a way to encourage members to produce more than they would otherwise produce.
B) agree on the total level of production for the cartel, but they need not agree on the amount produced by each member.
C) agree on the total level of production and on the amount produced by each member.
D) agree on the prices charged by each member, but they need not agree on amounts produced.

E) B) and C)
F) All of the above

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Table 17-12 Each year the United States considers renewal of Most Favored Nation (MFN) trading status with Farland (a mythical nation) . Historically, legislators have made threats of not renewing MFN status because of human rights abuses in Farland. The non-renewal of MFN trading status is likely to involve some retaliatory measures by Farland. The payoff table below shows the potential economic gains associated with a game in which Farland may impose trade sanctions against U.S. firms and the United States may not renew MFN status with Farland. The table contains the dollar value of all trade-flow benefits to the United States and Farland. Table 17-12 Each year the United States considers renewal of Most Favored Nation (MFN) trading status with Farland (a mythical nation) . Historically, legislators have made threats of not renewing MFN status because of human rights abuses in Farland. The non-renewal of MFN trading status is likely to involve some retaliatory measures by Farland. The payoff table below shows the potential economic gains associated with a game in which Farland may impose trade sanctions against U.S. firms and the United States may not renew MFN status with Farland. The table contains the dollar value of all trade-flow benefits to the United States and Farland. -Refer to Table 17-12.Pursuing its own best interests,Farland will impose trade sanctions against U.S.firms A) only if the U.S. does not renew MFN status with Farland. B) only if the U.S. renews MFN status with Farland. C) regardless of whether the U.S. renews MFN status with Farland. D) None of the above is correct. In pursuing its own best interests, Farland will in no case impose trade sanctions against U.S. firms. -Refer to Table 17-12.Pursuing its own best interests,Farland will impose trade sanctions against U.S.firms


A) only if the U.S. does not renew MFN status with Farland.
B) only if the U.S. renews MFN status with Farland.
C) regardless of whether the U.S. renews MFN status with Farland.
D) None of the above is correct. In pursuing its own best interests, Farland will in no case impose trade sanctions against U.S. firms.

E) All of the above
F) A) and B)

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A situation in which firms choose their best strategy given the strategies chosen by the other firms in the market is called


A) a competitive equilibrium.
B) an open-market solution.
C) a socially-optimal solution.
D) a Nash equilibrium.

E) B) and C)
F) A) and B)

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Table 17-25 There are just two producers of a certain product. Each is considering offering promotional discounts. Table 17-25 There are just two producers of a certain product. Each is considering offering promotional discounts. -Refer to Table 17-25.At the Nash equilibrium,how much profit will Firm A earn? A) $120,000 B) $90,000 C) $80,000 D) $70,000 -Refer to Table 17-25.At the Nash equilibrium,how much profit will Firm A earn?


A) $120,000
B) $90,000
C) $80,000
D) $70,000

E) B) and C)
F) A) and D)

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Game theory is important for the understanding of


A) competitive markets.
B) monopolies.
C) oligopolies.
D) all market structures.

E) B) and D)
F) A) and B)

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In the prisoners' dilemma game with Bonnie and Clyde as the players,the likely outcome is one


A) in which neither Bonnie nor Clyde confesses.
B) in which both Bonnie and Clyde confess.
C) that involves neither Bonnie nor Clyde pursuing a dominant strategy.
D) that is ideal in terms of Bonnie's self-interest and in terms of Clyde's self-interest.

E) None of the above
F) B) and C)

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Table 17-21 The Chicken Game is named for a contest in which drivers test their courage by driving straight at each other. John and Paul have a common interest to avoid crashing into each other, but they also have a personal, competing interest to not turn first to demonstrate their courage to those observing the contest. The payoff table for this situation is provided below. The payoffs are shown as (John, Paul) . Table 17-21 The Chicken Game is named for a contest in which drivers test their courage by driving straight at each other. John and Paul have a common interest to avoid crashing into each other, but they also have a personal, competing interest to not turn first to demonstrate their courage to those observing the contest. The payoff table for this situation is provided below. The payoffs are shown as (John, Paul) . -Refer to Table 17-21.What is John's dominant strategy? A) John has no dominant strategy. B) John should always choose Turn. C) John should always choose Drive Straight. D) John has two dominant strategies. -Refer to Table 17-21.What is John's dominant strategy?


A) John has no dominant strategy.
B) John should always choose Turn.
C) John should always choose Drive Straight.
D) John has two dominant strategies.

E) C) and D)
F) A) and C)

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The prisoners' dilemma game


A) provides insight into why cooperation is individually rational.
B) provides insight into why cooperation is difficult.
C) is a game in which neither player has a dominant strategy.
D) is a game in which exactly one of the two players has a dominant strategy.

E) A) and B)
F) A) and D)

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Table 17-6. The table shows the demand schedule for a particular product. Table 17-6. The table shows the demand schedule for a particular product. -Refer to Table 17-6.Suppose the market for this product is served by two firms that have formed a cartel.If the marginal cost of production is $0 and there is no fixed cost,the combined profit of the cartel will be A) $16 B) $24 C) $30 D) $32 -Refer to Table 17-6.Suppose the market for this product is served by two firms that have formed a cartel.If the marginal cost of production is $0 and there is no fixed cost,the combined profit of the cartel will be


A) $16
B) $24
C) $30
D) $32

E) None of the above
F) B) and C)

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Table 17-20 Nadia and Maddie are two college roommates who both prefer a clean common space in their dorm room, but neither enjoys cleaning. The roommates must each make a decision to either clean or not clean the dorm room's common space. The payoff table for this situation is provided below, where the higher a player's payoff number, the better off that player is. The payoffs in each cell are shown as (payoff for Nadia, payoff for Maddie) . Table 17-20 Nadia and Maddie are two college roommates who both prefer a clean common space in their dorm room, but neither enjoys cleaning. The roommates must each make a decision to either clean or not clean the dorm room's common space. The payoff table for this situation is provided below, where the higher a player's payoff number, the better off that player is. The payoffs in each cell are shown as (payoff for Nadia, payoff for Maddie) . -Refer to Table 17-20.If Maddie chooses to clean,then Nadia will A) clean and Maddie's payoff will be 30. B) not clean and Maddie's payoff will be 7. C) clean and Maddie's payoff will be 50. D) not clean and Maddie's payoff will be 10. -Refer to Table 17-20.If Maddie chooses to clean,then Nadia will


A) clean and Maddie's payoff will be 30.
B) not clean and Maddie's payoff will be 7.
C) clean and Maddie's payoff will be 50.
D) not clean and Maddie's payoff will be 10.

E) A) and B)
F) None of the above

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