Q&A Hero

Q: Suppose a monopoly is producing its profit-maximizing output level. Now suppose the government imposes a lump-sum tax on the monopoly, independent of its output. As a result the monopolist will increase the price of its product to cover its higher cost.

Q: If the market for a product begins as perfectly competitive and then becomes a monopoly, there will be a reduction in economic efficiency and a deadweight loss.

Q: A profit-maximizing monopoly produces a lower output level than would be produced if the industry was perfectly competitive.

Q: Market power in the United States causes a huge loss of economic efficiency.

Q: In reality, because few markets are perfectly competitive, some loss of economic efficiency occurs in the market for nearly every good or service.

Q: Suppose a monopoly is producing its profit-maximizing output level. Now suppose the government imposes a lump-sum tax on the monopoly, independent of its output. As a result the monopoly's profit will fall.

Q: If a per-unit tax on output sold is imposed on a monopoly's product, the monopolist will increase its market price by the full amount of the tax.

Q: Some economists believe that the economy benefits from firms having market power. Which of the following is an argument that has been made to support this position? A) Large firms are better able than small firms to spend funds on research and development required to develop new products. B) Competition is very rare in the U.S. economy and few new products are produced by smaller, competitive firms. C) Research has shown that the deadweight loss from monopolies is a small percentage of the value of production in the United States. D) Large firms can afford to lobby the U.S. government in order to impose restrictions on imports and reduce the outsourcing of jobs to other countries.

Q: The possibility that the economy may benefit from having market power, rather than being very competitive, is closely identified with which famous economist? A) Arnold Harberger B) Joseph Schumpeter C) Sergey Brin D) Donald Turner

Q: In evaluating the degree of economic efficiency in a market, we can state that the size of the deadweight loss in a market will be smaller A) the greater the difference between marginal cost and price. B) the smaller the difference between marginal cost and average total cost. C) the smaller the difference between marginal cost and price. D) the greater the difference between marginal cost and average revenue.

Q: Arnold Harberger was the first economist to estimate the loss of economic efficiency due to market power. Since Harberger's findings were published, other researchers have studied this same issue. How do the results of these researchers compare to Harberger's results? A) The other researchers reached conclusions similar to Harberger's; namely, the loss of economic efficiency due to market power is about 10 percent of the value of production in the United States. B) The other researchers reached conclusions different from Harberger's; namely, they found that the loss of economic efficiency due to market power is only about 1 percent of the value of production in the United States, much less than Harberger's estimate. C) The other researchers reached conclusions different from Harberger's; namely, the loss of economic efficiency due to market power is about 10 percent of the value of production in the United States, significantly greater than Harberger's estimate. D) The other researchers reached conclusions similar to Harberger's; namely, the loss of economic efficiency due to market power is about 1 percent of the value of production in the United States.

Q: Arnold Harberger was the first economist to estimate the loss of economic efficiency due to market power. Harberger found that A) the loss of economic efficiency in the U.S. economy due to market power was less than 1 percent of the value of production. B) because of the increase in the average size of firms since World War II, the loss of economic efficiency has been relatively large, about 10 percent of the value of total production in the United States. C) although the number of monopolies was small, the large number of other non-competitive firms in the United States resulted in a large loss of economic efficiency, about 20 percent of the value of total production. D) the loss of economic efficiency in the U.S. economy due to market power was small around 1973, about 1 percent of the value of production, but has since grown to about 10 percent.

Q: The only firms that do not have market power are A) firms in industries with low barriers to entry. B) firms that do not advertise their products. C) firms in perfectly competitive markets. D) firms that sell identical products.

Q: Whenever a firm can charge a price greater than marginal cost A) the firm must be a monopolist. B) there is some loss of economic efficiency. C) consumers have the ability to choose a close substitute. D) the firm will earn economic profits.

Q: The ability of a firm to charge a price greater than marginal cost is called A) monopoly power. B) price-making power. C) cost-plus pricing. D) market power.

Q: Figure 15-12 Figure 15-12 shows the cost and demand curves for a monopolist. Refer to Figure 15-12. If the firm maximizes its profits, the deadweight loss to society due to this monopoly is equal to the area A) ABF. B) ABEG. C) ACE. D) EFG.

Q: Figure 15-12 Figure 15-12 shows the cost and demand curves for a monopolist. Refer to Figure 15-12. If this industry was organized as a perfectly competitive industry, the market output and market price would be A) output = 62; price = $24. B) output = 83; price = $22. C) output = 62; price = $18. D) output = 104; price = $20.80.

Q: Figure 15-12 Figure 15-12 shows the cost and demand curves for a monopolist. Refer to Figure 15-12. What is the amount of consumer surplus if, instead of monopoly, the industry was organized as a perfectly competitive industry? A) $21 B) $124 C) $186 D) $332

Q: Figure 15-12 Figure 15-12 shows the cost and demand curves for a monopolist. Refer to Figure 15-12. Assume the firm maximizes its profits. What is the amount of consumer surplus? A) $21 B) $124 C) $186 D) $332

Q: Which of the following statements is true? A) If a tax is imposed on a product sold by a monopolist, the monopolist will maximize its profits by producing where marginal revenue equals marginal cost. B) A monopolist will always charge the highest possible price. C) If a tax is imposed on a product sold by a monopolist, the monopolist can increase its price to pass along the entire tax to consumers. D) Because a monopolist faces no competition, the demand for its product is perfectly inelastic.

Q: The most profitable price for a monopolist is A) the highest price a consumer is willing to pay for the monopolist's product. B) the price at which demand is unit-elastic. C) a price that maximizes the quantity sold. D) the price for which marginal revenue equals marginal cost.

Q: Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. As a result of this change A) Price will be higher, output will be lower and the deadweight loss will be eliminated. B) Consumer surplus will be smaller, producer surplus will be greater and there will be a reduction in economic efficiency. C) Price will be higher, consumer surplus will be greater and output will be greater. D) Consumer surplus will be smaller and producer surplus will be greater. There will be a net increase in economic surplus.

Q: Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements comparing the conditions in the industry under both market structures is true? A) A monopoly will produce more and charge a higher price than would a perfectly competitive industry producing the same good. B) A monopoly will produce more and advertise more than would a perfectly competitive industry producing the same good. C) A monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good. D) A monopoly will produce less and charge a lower price than would a perfectly competitive industry producing the same good.

Q: Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements regarding economic surplus in each market structure is true? A) Under perfectly competitive conditions, economic surplus in this industry equals consumer surplus plus producer surplus. Under monopoly conditions, some consumer surplus is transferred to producer surplus, but economic surplus is the same as it was under perfectly competitive conditions. B) Under perfectly competitive conditions, economic surplus in this industry is maximized. Under monopoly conditions economic surplus is minimized. C) Under perfectly competitive conditions, economic surplus is equal to consumer surplus; there is no producer surplus because firms are price-takers. Under monopoly conditions, economic surplus is equal to producer surplus. D) Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions economic surplus is less than under perfect competition and there is a deadweight loss.

Q: Which of the following statements is consistent with the views of Joseph Schumpeter? A) Research and development by competitive firms is responsible for most technological changes. B) An economy benefits from firms having market power because these firms are more likely to be able to commit funds for research and development. C) Enforcement of antitrust laws is necessary to promote competition among firms. D) A lack of competition discourages firms from developing new technologies.

Q: A market economy benefits from market power A) if the majority of the population are entrepreneurs. B) if firms with market power do research and development with the profits earned. C) if market power gets so bad the government creates public enterprises. D) under no circumstances.

Q: The size of a deadweight loss in a market is reduced by A) government legislating a ceiling price. B) government legislating a price floor. C) market price being close to marginal cost. D) creative destruction.

Q: Figure 15-11 In 2011, Verizon was granted permission to enter the market for cable TV in Upstate New York, ending the virtual monopoly that Time Warner Cable had in most local communities in the region. Figure 15-11 shows the cable television market in Upstate New York. Refer to Figure 15-11. What is the size of the deadweight loss prior to Verizon entering the market and what happens to this deadweight loss after Verizon does enter the market? A) The deadweight loss of area D is converted to consumer surplus. B) The deadweight loss of area C+D is converted to consumer surplus C) The deadweight loss of area D is converted to producer surplus. D) The total deadweight loss is the area D+F; D is converted to consumer surplus and F to producer surplus.

Q: Because many business situations are repeated games, firms may be able to avoid the prisoner's dilemma and implicitly collude to keep prices high.

Q: Natural resource cartels such as OPEC are inherently unstable because their members operate with excess capacity and have an incentive to cheat on their output quotas.

Q: Collusion would be common in an oligopoly and a monopolistically competitive industry.

Q: A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

Q: A prisoner's dilemma leads to a noncooperative equilibrium.

Q: The equilibrium in the prisoner's dilemma is a dominant strategy Nash equilibrium.

Q: An equilibrium in which each player chooses its best strategy given the strategies chosen by the other players is called a Nash equilibrium.

Q: Table 14-8 Two rival oligopolists in the athletic supplements industry, the Power Fuel Company and the Brawny Juice Company, have to decide on their pricing strategy. Each can choose either a high price or a low price. Table 14-8 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts. Refer to Table 14-8. If the two firms collude, is there an incentive for either to cheat on the collusion agreement? A) No, neither firm can gain by cheating. B) Yes, but only Brawny Juice is in a position to gain by cheating. C) Yes, but only Power Fuel is in a position to gain by cheating. D) Yes, either firm can gain if it alone cheats.

Q: Table 14-8 Two rival oligopolists in the athletic supplements industry, the Power Fuel Company and the Brawny Juice Company, have to decide on their pricing strategy. Each can choose either a high price or a low price. Table 14-8 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts. Refer to Table 14-8. If the firms cooperate, what prices will they select? A) Both firms will select a low price. B) Brawny Juice will select a high price, Power Fuel a low price. C) Both firms will select a high price. D) Brawny Juice will select a low price, Power Fuel a high price.

Q: Table 14-8 Two rival oligopolists in the athletic supplements industry, the Power Fuel Company and the Brawny Juice Company, have to decide on their pricing strategy. Each can choose either a high price or a low price. Table 14-8 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts. Refer to Table 14-8. If Brawny Juice selects a high price, what is Power Fuel's best strategy and what will Power Fuel earn as a result of this strategy? A) Power Fuel will select a low price and earn $8 million. B) Power Fuel will select a low price and earn $16 million. C) Power Fuel will select a high price and earn $12 million. D) Power Fuel will select a high price and earn $16 million.

Q: Table 14-8 Two rival oligopolists in the athletic supplements industry, the Power Fuel Company and the Brawny Juice Company, have to decide on their pricing strategy. Each can choose either a high price or a low price. Table 14-8 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts. Refer to Table 14-8. Which of the following is true? A) Power Fuel's dominant strategy is to select a low price. B) Brawny Juice's dominant strategy is to select a high price. C) Power Fuel does not have a dominant strategy. D) Brawny Juice does not have a dominant strategy.

Q: Table 14-8 Two rival oligopolists in the athletic supplements industry, the Power Fuel Company and the Brawny Juice Company, have to decide on their pricing strategy. Each can choose either a high price or a low price. Table 14-8 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts. Refer to Table 14-8. If the firms act out of individual self-interest, which prices will they select? A) Both firms will select a high price. B) Brawny Juice will select a high price, Power Fuel will select a low price. C) Brawny Juice will select a low price, Power Fuel will select a high price. D) Both firms will select a low price.

Q: Collusion makes firms better off because if they act as a single entity (a cartel) they can reduce output and increase their prices and profits. But some cartels have failed and others are unstable. Which of the following is a reason why cartels often break down? A) Most cartels do not have a dominant strategy. B) When a cartel is profitable the amount of competition it faces increases. C) Members of a cartel may resent having to share their profits equally. D) Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement.

Q: Since 1972, the world price of oil has been largely determined by OPEC, which controls about 75 percent of the world's proven oil reserves. Since 1972 the price of oil has A) fluctuated. OPEC's situation is an example of a prisoner's dilemma. B) risen slowly, but steadily. Members of OPEC fear that if they raise the price of oil too quickly this will lead oil-buying nations to accuse OPEC of price gouging, which is illegal under international law. C) steadily fallen through the 1970s, then risen continually in the years since then. OPEC's actions are an example of implicit collusion. D) been tied by OPEC to the rate of inflation in the United States. If, for example, the rate of inflation is 5 percent in one year, OPEC will raise the price of oil by 5 percent the next year.

Q: The Organization of Petroleum Exporting Countries (OPEC) controls about 75 percent of the world's proven oil reserves. Economists refer to OPEC as a cartel because A) OPEC is a monopoly, but it is located outside of the boundaries of any one country. This is the definition of a cartel. B) this is the term used for an oligopoly that is controlled by national governments rather than private firms. C) it is a group of firms that collude to restrict output to increase prices and profits. D) this is the term economists use to describe an oligopoly that sells a standardized product, such as oil, rather than a differentiated product, such as automobiles.

Q: A study conducted by economists at the University of Chicago found that when Southwest Airlines begins flying a new route, ticket prices on other airlines for that route ________, indicating that airlines ________. A) stay relatively unchanged; may begin practicing implicit price collusion when Southwest enters a market B) drop by an average of 29 percent; may have been practicing implicit price collusion before Southwest's entry into the market C) rise by an average of 65 percent; know they can practice implicit price collusion once Southwest announces it is entering a market. D) first drop and then rise back to their original levels; temporarily stop practicing implicit price collusion until Southwest becomes established, then return to their collusive pricing strategies

Q: Which of the following best explains why airlines often cut their ticket prices at the last-minute in order to fill the remaining empty seats on their flights? A) Fixed costs in the airline industry are very large, but the marginal cost of flying one more passenger is very low. B) Airlines receive a subsidy from the government for each flight that is fully booked and departs on time. C) The Federal Aviation Administration ranks each airline based on the percentage of flights that are fully booked. These rankings affect the decisions of firms to use a particular airline to fly their employees to business meetings. D) Cutting prices makes the airlines more popular with their customers, who may fly with the same airline in the future as the result of buying low-price tickets.

Q: A form of implicit collusion where one firm in an oligopoly announces a price change which is matched by other firms in the same industry is A) "follow the leader" pricing. B) price leadership. C) retaliation pricing. D) "tit-for-tat" pricing.

Q: Which of the following is an example of implicit collusion? A) product differentiation B) a retaliation strategy C) a second-price auction D) price leadership

Q: Which of the following explains why two firms, Apex and Bongo, would engage in implicit collusion, rather than explicit collusion? A) Implicit collusion allows Apex to increase its profits at the expense of Bongo without Bongo knowing that collusion has occurred; if Apex engages in explicit collusion, Bongo will realize collusion has taken place and retaliate against Apex. B) Implicit collusion is less costly to both firms than explicit collusion; therefore, profits will be greater for both firms if they engage in implicit collusion. C) explicit collusion is illegal; if the managers of Apex and Bongo engage in implicit collusion they may be within the law. D) Implicit collusion always has an enforcement mechanism that forces both firms to collude; explicit collusion does not have an enforcement mechanism.

Q: Table 14-7Perfect PlantsPerfect PlantsDon't offer same-day deliveryOffer same-day deliveryFlorabunda FloristDon't offer same-day deliveryFlorabunda earns $1,500 million profit/Perfect earns $1,500 million profitFlorabunda earns $800 million profit/Perfect earns $1,800 million profitFlorabunda FloristOffer same-day deliveryFlorabunda earns $1,800 profit/Perfect earns $800 million profitFlorabunda earns $1,000 million profit/Perfect earns $1,000 million profitThe payoff matrix shown above assumes that Perfect Plants and Florabunda Florist must decide whether to offer same-day delivery for their products. The matrix shows how much profit each firm will earn if it does or does not offer same-day delivery. The amount of profit for one firm depends on whether the other firm offers same-day delivery.Refer to Table 14-7. Which of the following statements is true?A) Given that Florabunda offers same-day delivery, Perfect's best strategy is to not offer same-day delivery.B) Given that Perfect offers same-day delivery, Florabunda's best strategy is to offer same-day delivery.C) Perfect and Florabunda will agree to collude in order to maximize their profits.D) Neither Perfect nor Florabunda will offer same-day delivery; this decision will decrease their costs and allow each firm to earn more than $1,800 million in profits.

Q: Table 14-7Perfect PlantsPerfect PlantsDon't offer same-day deliveryOffer same-day deliveryFlorabunda FloristDon't offer same-day deliveryFlorabunda earns $1,500 million profit/Perfect earns $1,500 million profitFlorabunda earns $800 million profit/Perfect earns $1,800 million profitFlorabunda FloristOffer same-day deliveryFlorabunda earns $1,800 profit/Perfect earns $800 million profitFlorabunda earns $1,000 million profit/Perfect earns $1,000 million profitThe payoff matrix shown above assumes that Perfect Plants and Florabunda Florist must decide whether to offer same-day delivery for their products. The matrix shows how much profit each firm will earn if it does or does not offer same-day delivery. The amount of profit for one firm depends on whether the other firm offers same-day delivery.Refer to Table 14-7. Which of the following statements is true?A) Neither Perfect nor Florabunda have a dominant strategy.B) Perfect's dominant strategy is to offer same-day delivery; Florabunda's dominant strategy is to not offer same-day delivery.C) Florabunda's dominant strategy is to offer same-day delivery; Perfect's dominant strategy is to not offer same-day delivery.D) The dominant strategy for both firms is to offer same-day delivery.

Q: Table 14-6 There are two mobile home manufacturers in Nevada, Sturdy Homes (S) and My Haven (M). Sturdy Homes has been in the market for a long time and must now compete with newcomer, My Haven. Suppose that Sturdy Homes believes that My Haven will match any price it sets. Use Table 14-6 to answer the following question and assume throughout that Sturdy Homes believes that My Haven will match any price it sets. Refer to Table 14-6. What price will Sturdy Homes charge and what profit does Sturdy Homes expect to make? A) Price = $8,000; expected profit = $7 million B) Price = $8,000; expected profit = $4 million C) Price = $10,000; expected profit = $5 million D) Price = $12,000; expected profit = $3 million

Q: A cooperative equilibrium results when firms A) choose the best strategy regardless of what other players do. B) choose the strategy that maximizes the total game payoff. C) choose the strategy that minimizes the payoff to other players. D) choose a strategy by random chance.

Q: An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a A) cartel equilibrium. B) noncooperative equilibrium. C) prisoner's dilemma equilibrium. D) dominant strategy equilibrium.

Q: Table 14-5 Ming and Henri each run one of the two dry cleaning facilities in the town of Scaraby. Both consider offering free pickup and delivery services. Table 14-5 shows the payoff matrix containing the expected quarterly profits for each firm. Refer to Table 14-5. What is the Nash equilibrium in this game? A) There is no Nash equilibrium. B) Ming offers free pickup and delivery, but Henri does not. C) Henri offers free pickup and delivery, but Ming does not. D) Both Ming and Henri offer free pickup and delivery.

Q: Table 14-5 Ming and Henri each run one of the two dry cleaning facilities in the town of Scaraby. Both consider offering free pickup and delivery services. Table 14-5 shows the payoff matrix containing the expected quarterly profits for each firm. Refer to Table 14-5. Does Henri have a dominant strategy? If yes, what is it? A) Yes, Henri's dominant strategy is to not offer free pickup and delivery. B) Yes, Henri's dominant strategy is to offer free pickup and delivery. C) No, Henri does not have a dominant strategy - his best outcome depends on what Ming does. D) Yes, Henri's dominant strategy is to wait and see what Ming does first.

Q: Table 14-5 Ming and Henri each run one of the two dry cleaning facilities in the town of Scaraby. Both consider offering free pickup and delivery services. Table 14-5 shows the payoff matrix containing the expected quarterly profits for each firm. Refer to Table 14-5. Does Ming have a dominant strategy? If yes, what is it? A) Yes, Ming's dominant strategy is to offer free pickup and delivery. B) No, Ming does not a dominant strategy - his best outcome depends on what Henri does. C) Yes, Ming's dominant strategy is to not to offer free pickup and delivery. D) Yes, Ming's dominant strategy is to wait to see what Henri does first.

Q: Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down. But reality teaches us that people and firms often cooperate successfully to achieve their goals. Why do the results from prisoner's dilemma games fail to predict real world results? A) Prisoner's dilemma games do not permit people or firms from reneging on agreements, which often occurs in real word situations. B) The prisoner's dilemma does not apply to most business situations that are repeated over and over. C) Prisoner's dilemma games predict the behavior of people and firms that engage in illegal activity; most people and firms do not resort to illegal activity. D) Most real world situations involve more than two people or firms; the prisoner's dilemma is only applicable to situations that involve two parties.

Q: Why does a prisoner's dilemma lead to a noncooperative equilibrium? A) because each player had agreed before the game started to minimize the harm that he can inflict on the other players B) because each player is uncertain how other players will play the game C) because players must choose from a limited number of non-dominant strategies D) because each rational player has a dominant strategy to play a certain way regardless of what other players do

Q: A game in which pursuing dominant strategies results in noncooperation that leaves all parties worse off is a A) prisoner's dilemma. B) cooperative equilibrium. C) first-price auction. D) zero-sum game.

Q: A baseball hat worn by the Boston Red Sox Hall of Fame outfielder Ted Williams was auctioned on eBay. The three highest bidders and their bids were: Roger Bulava $5,000 Tony Millasiti $4,900 Joe Albano $4,200 What price did Roger have to pay for the Ted Williams hat? A) $4,200 B) $4,700 (the average of the three highest bids) C) $4,900 D) $5,000

Q: eBay is an online auction site where more than 200 million items are auctioned annually. What type of auctions are run on eBay? A) noncooperative auctions B) second-price auctions C) cooperative auctions D) double-blind auctions

Q: The Brooks Appliance Store and the Lefingwell Appliance Store (both are located in the same city) each sell an identical washer-dryer. The owner of each store considered offering the washer-dryer for $700, but decided on a price of $500. If this is a Nash equilibrium we can conclude that A) each store owner feared charging the higher price would result in being undercut by the other store charging the lower price. B) the owners of the stores feared that charging $700 could be used as evidence of collusion. C) charging $500 was the most profitable strategy for each store, regardless of what price was charged by the other store. D) the stores were less concerned about making a profit from the washer-dryers than they were with attracting customers who would also buy other appliances.

Q: When an oligopoly market is in Nash equilibrium A) firms have colluded to set their prices. B) firms will not behave as profit maximizers. C) a firm will not take into account the strategies of its rivals. D) a firm will choose its best pricing strategy, given the strategies that it observes other firms have taken.

Q: An equilibrium in a game in which players pursue their own self-interest is called A) a Nash equilibrium. B) a cooperative equilibrium. C) a noncooperative equilibrium. D) a prisoner's dilemma.

Q: Two firms would sometimes be better off if they got together and agreed to charge a high price, rather than to compete and risk having to charge a lower, competitive price. What is the greatest deterrent to this strategy? A) The firms may find that the price they charge is greater than the price that would maximize their profits. B) An agreement by firms to charge high prices is illegal. The government can fine the firms and send their managers to jail. C) Consumers may resent having to pay high prices and not buy from either of the firms. D) One of the firms may decide to lower its price and take business away from the firm that charged the high price.

Q: Who won a Nobel Prize in economics for his work in the development of game theory? A) John von Neuman B) Oskar Morgenstern C) John Nash D) Howard Schultz

Q: A dominant strategy is A) an equilibrium where each firm chooses the best strategy, given the strategies of other firms. B) a strategy chosen by two firms that decide to charge the same price or otherwise not to compete. C) a strategy that is obviously the best for each firm that is a party to a business decision. D) a strategy that is the best for a firm no matter what strategies other firms use.

Q: A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called A) an earnings table. B) a payoff table. C) a payoff matrix. D) a strategic matrix.

Q: An agreement among firms to charge the same price or otherwise not to compete is called A) a pay-off matrix. B) a subgame-perfect equilibrium. C) a Nash equilibrium. D) collusion.

Q: Collusion occurs when A) a firm chooses a level of output to maximize its own profit. B) two firms' price and output decisions come into conflict. C) there is an agreement among firms to charge the same price or otherwise not to compete. D) firms refuse to follow their price leaders.

Q: A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a A) Nash equilibrium. B) dominant strategy. C) collusion. D) pay-off matrix.

Q: A set of actions that a firm takes to achieve a goal is the definition of a A) business plan. B) business strategy. C) business prospectus. D) business goal.

Q: Table 14-4 Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers. If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 14-4 shows the payoff matrix for this advertising game. Refer to Table 14-4. How are the firms in this advertising game caught in a prisoner's dilemma? A) They are not in a prisoner's dilemma because there is one clear strategy for each. B) They would be more profitable if they refrained from advertising but each fears that if it does not advertise, it will lose customers. C) Since each firm is uncertain about the other's behavior, each will adopt a wait-and-see attitude which results in no increase in market share and no new customers. D) Only the first mover is caught in a prisoner's dilemma because the second has a chance to observe and respond.

Q: Table 14-4 Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers. If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 14-4 shows the payoff matrix for this advertising game. Refer to Table 14-4. What is the Nash equilibrium in this game? A) There is no Nash equilibrium. B) Baine increases its advertising budget, but Alistair does not. C) Alistair increases its advertising budget, but Baine does not. D) Both Alistair and Baine increase their advertising budgets.

Q: Table 14-4 Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers. If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 14-4 shows the payoff matrix for this advertising game. Refer to Table 14-4. Does Baine have a dominant strategy and if so, what is it? A) Yes, Baine should increase its advertising budget. B) Yes, Baine should keep its advertising budget as is. C) There are two dominant strategies: if Alistair increases its advertising budget, then Baine's best bet is to keep its budget the same but if Alistair does not increase its spending then Baine should raise its advertising budget D) No, there is no dominant strategy.

Q: Table 14-4 Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers. If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 14-4 shows the payoff matrix for this advertising game. Refer to Table 14-4. Does Alistair have a dominant strategy and if so, what is it? A) Yes, Alistair should increase its advertising budget. B) Yes, Alistair should keep its advertising budget as is. C) There are two dominant strategies: if Baine increases its advertising budget, then Alistair's best bet is to keep its budget the same but if Baine does not increase its spending then Alistair should raise its advertising budget D) No, there is no dominant strategy.

Q: Table 14-4 Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers. If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 14-4 shows the payoff matrix for this advertising game. Refer to Table 14-4. If Alistair assumes that Baine would increase its advertising budget, what should it do? A) Alistair should keep its own budget the same and allow Baine to incur the higher cost. B) Alistair should also increase its advertising spending. C) Alistair should reduce its advertising spending. D) Being a duopolist, Alistair is not affected by Baine's choices because it has a secure 50 percent market share.

Q: All games share three characteristics. Two of these characteristics are rule and strategies. What is the third characteristic called? A) competition B) collusion C) results D) payoffs

Q: In game theory, the three key characteristics of a game are A) rules, strategies, and payoffs. B) rules, regulations, and payoffs. C) winners, losers, and rules. D) risks, rewards, and penalties.

Q: Economists use game theory to analyze oligopolies because A) real markets are too complicated to analyze without using games. B) it is more enjoyable for economists and students to learn by playing games. C) game theory helps us to understand why interactions among firms are crucial in determining profitable business strategies. D) game theory is useful in understanding the actions of firms that are price takers.