Oligopoly 4353
98. Refer to Figure 17-3. The dominant strategy for Hector is to
a. clean, and the dominant strategy for Bart is to clean.
b. clean, and the dominant strategy for Bart is to refrain from cleaning.
c. refrain from cleaning, and the dominant strategy for Bart is to clean.
d. refrain from cleaning, and the dominant strategy for Bart is to refrain from cleaning.
99. Refer to Figure 17-3. In pursuing his own self-interest, Bart will
a. refrain from cleaning whether or not Hector cleans.
b. clean only if Hector cleans.
c. clean only if Hector refrains from cleaning.
d. clean whether or not Hector cleans.
4354 Oligopoly
100. Refer to Figure 17-3. If this game is played only once, then the most likely outcome is that
a. Hector and Bart both clean.
b. Hector cleans and Bart does not clean.
c. Bart cleans and Hector does not clean.
d. neither Hector nor Bart cleans.
101. Refer to Figure 17-3. In pursuing his own self-interest, Hector will
a. refrain from cleaning whether or not Bart cleans.
b. clean only if Bart cleans.
c. clean only if Bart refrains from cleaning.
d. clean whether or not Bart cleans.
Oligopoly 4355
102. Refer to Figure 17-3. The possible outcome in which both Hector and Bart clean is analogous
to which of the following outcomes of the duopoly game?
a. The duopolists collude to achieve the monopoly outcome.
b. The duopolists collude to achieve the monopolistically-competitive outcome.
c. The outcome is the one that is most preferable for consumers of the duopolists’ product.
d. The outcome is the one that is least preferable for both the duopolists and for the consumers
of their product.
Figure 17-4. Aaron and Ed are roommates. After a big snowstorm, their driveway needs to be
shoveled. Each person has to decide whether to take part in shoveling the driveway. At the end
of the day, either the driveway will be shoveled (if one or both roommates take part in shoveling),
or it will remain unshoveled (if neither roommate shovels). With happiness measured on a scale
of 1 (very unhappy) to 10 (very happy), the possible outcomes are as follows:
4356 Oligopoly
103. Refer to Figure 17-4. The dominant strategy for Ed is to
a. shovel, and the dominant strategy for Aaron is to shovel.
b. shovel, and the dominant strategy for Aaron is to refrain from shoveling.
c. refrain from shoveling, and the dominant strategy for Aaron is to shovel.
d. refrain from shoveling, and there is no dominant strategy for Aaron.
104. Refer to Figure 17-4. If this game is played only once, then which of the following outcomes is
the most likely one?
a. Aaron and Ed both shovel.
b. Aaron shovels and Ed does not shovel.
c. Ed shovels and Aaron does not shovel.
d. All of the above outcomes are equally likely.
Oligopoly 4357
105. Refer to Figure 17-4. In pursuing his own self–interest, Ed will
a. refrain from shoveling whether or not Aaron shovels.
b. shovel only if Aaron shovels.
c. shovel only if Aaron refrains from shoveling.
d. shovel whether or not Aaron shovels.
106. Refer to Figure 17-4. In pursuing his own self–interest, Aaron will
a. refrain from shoveling whether or not Ed shovels.
b. shovel only if Ed shovels.
c. shovel only if Ed refrains from shoveling.
d. shovel whether or not Ed shovels.
4358 Oligopoly
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).
Paul
Turn
Drive Straight
John
Turn
(10, 10)
(5, 20)
Drive Straight
(20, 5)
(0, 0)
107. Refer to Table 17-21. If Paul chooses Turn, what will John choose to do and what will John’s
payoff equal?
a. Turn, 10
b. Drive Straight, 20
c. Turn, 5
d. Drive Straight, 0
108. Refer to Table 17-21. If Paul chooses Drive Straight, what will John choose to do and what
will John’s payoff equal?
a. Turn, 5
b. Drive Straight, 0
c. Turn, 20
d. Drive Straight, 5
Oligopoly 4359
109. Refer to Table 17-21. If John chooses Turn, what will Paul choose to do and what will Paul‘s
payoff equal?
a. Turn, 10
b. Drive Straight, 20
c. Turn, 5
d. Drive Straight, 0
110. Refer to Table 17-21. If John chooses Drive Straight, what will Paul choose to do and what
will Paul’s payoff equal?
a. Turn, 5
b. Drive Straight, 0
c. Turn, 10
d. Drive Straight, 200
4360 Oligopoly
111. Refer to Table 17-21. What is Paul’s dominant strategy?
a. Paul has no dominant strategy.
b. Paul should always choose Turn.
c. Paul should always choose Drive Straight.
d. Paul has more than one dominant strategy.
112. 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.
113. Refer to Table 17-21. How many Nash equilibria are there in this Chicken game?
a. 0
b. 1
c. 2
d. 3
Oligopoly 4361
114. Refer to Table 17-21. What is (are) the Nash equilibrium (equilibria) in this Chicken game?
a. John: Turn Paul: Turn
b. John: Turn
Paul: Drive Straight
c. John: Drive Straight Paul: Turn
d. Both b and c are Nash equilibria
115. In the prisoners’ dilemma,
a. the prisoners easily collude in order to achieve the best possible payoff for both.
b. only one player has a dominant strategy.
c. when each player chooses his dominant strategy the players achieve the best joint outcome.
d. when each player chooses his dominant strategy the players reach a Nash equilibrium.
4362 Oligopoly
116. In the game in which two oil companies own adjacent oil fields, the companies will not use the oil
efficiently because
a. neither company has a dominant strategy in the game.
b. the companies collude and produce a quantity of oil that is less than the socially-efficient
quantity.
c. the pool from which they recover the oil is a common resource.
d. the pool from which they recover the oil is not large enough to allow both companies to earn a
positive profit.
117. An equilibrium occurs in a game when
a. price equals marginal cost.
b. quantity supplied equals quantity demanded.
c. all independent strategies counterbalance all dominant strategies.
d. all players follow a strategy that they have no incentive to change.
Oligopoly 4363
118. The players in a two-person game are choosing between Strategy X and Strategy Y. If the
second player chooses Strategy X, the first player’s best outcome is to select X. If the second
player chooses Strategy Y, the first player’s best outcome is to select X. For the first player,
Strategy X is called a
a. dominant strategy.
b. collusive strategy.
c. repeated-trial strategy.
d. cartel strategy.
119. Suppose that two poker players believe that they are superior players to the rest of the people at
their table. Further suppose that the two players make an agreement to concede hands to each
other in order to drive the other players from the game first. Economists would model such
behavior as
a. monopolistic competition.
b. game theory.
c. predatory pricing.
d. a dominant strategy.
4364 Oligopoly
120. After initial success, the OPEC cartel saw the price of oil and the revenues of its members
decline due, in part, to
a. the low elasticity of demand for oil in the short run.
b. the large number of buyers from each member nation.
c. surging demand for oil in the early 1980s.
d. OPEC members failing to produce their agreed-upon production levels.
Table 17–22
Brian and Matt own the only two bicycle repair shops in town. Each must choose between a
low price for repair work and a high price. The annual economic profit from each strategy is
indicated in the table. The profits are shown as (Matt, Brian) in each cell.
Brian
High Price
Matt
Low Price
(1500, 1500)
(5000, 200)
High Price
(200, 3000)
(4000, 4000)
121. Refer to Table 17-22. Which of the following statements is correct?
a. Matt’s dominant strategy is to charge a low price.
b. Brian’s dominant strategy is to charge a high price.
c. The dominant strategy for both Brian and Matt is to charge a low price.
d. Matt’s dominant strategy is to charge a high price.
Oligopoly 4365
122. Refer to Table 17-22. Which of the following statements is correct if Brian and Matt will play
this game only once?
a. The Nash equilibrium is the high price.
b. A Nash equilibrium cannot be established unless Brian and Matt collude.
c. A Nash equilibrium cannot be established without the players repeating the game.
d. The Nash equilibrium price is the low price.
Table 17–23
Two bottled beverage manufacturers (Firm A and Firm B) determine that they could lower their
costs, and thus increase their profits, if they reduced their advertising budgets. But for the plan to
work, each firm must agree to refrain from advertising. Each firm believes that advertising
works by increasing the demand for the firm’s product, but each firm also believes that if neither
firm advertises, the costs savings will outweigh the lost sales. Listed in the table below are the
individual profits for each firm.
Firm A
Breaks the agreement
and advertises
Maintains the agreement and
does not advertise
Firm B
Breaks the agreement
and advertises
Firm A profit = $9,000
Firm B profit = $4,000
Firm A profit = $8,000
Firm B profit = $6,000
Maintains the agreement
and does not advertise
Firm A profit =
$11,000
Firm B profit = $3,500
Firm A profit = $10,000
Firm B profit = $5,000
4366 Oligopoly
123. Refer to Table 17-23. Suppose that the two firms, A and B, make an agreement to withhold
any advertising for one month to lower each firm’s costs and raise each firm’s profits. If the
firms reach the Nash equilibrium,
a. both firms will choose not to advertise.
b. firm A will choose not to advertise, but firm B will break the agreement and choose to
advertise.
c. firm B will choose not to advertise, but firm A will break the agreement and choose to
advertise.
d. both firms will break the agreement and choose to advertise.
124. Refer to Table 17–23. At the Nash equilibrium, how much profit will Firm A earn?
a. $8,000 because firm A will maintain the agreement not to advertise, but firm B will break the
agreement and choose to advertise.
b. $9,000 because each firm will break the agreement and choose to advertise.
c. $10,000 because each firm will maintain the agreement and choose not to advertise.
d. $11,000 because firm B will maintain the agreement not to advertise, but firm A will break the
agreement and choose to advertise.
Oligopoly 4367
125. Refer to Table 17–23. At the Nash equilibrium, how much profit will Firm B earn?
a. $3,500 because firm B will maintain the agreement not to advertise, but firm A will break the
agreement and choose to advertise.
b. $4,000 because each firm will break the agreement and choose to advertise.
c. $5,000 because each firm will maintain the agreement and choose not to advertise.
d. $6,000 because firm A will maintain the agreement not to advertise, but firm B will break the
agreement and choose to advertise.
126. In which of the following games is it clearly the case that the cooperative outcome of the game is
good for the two players and good for society?
a. Two guilty criminals have been captured by the police, and each prisoner decides whether to
confess or to remain silent.
b. Two airlines dominate air travel between City A and City B, and each airline decides whether
to charge a
“high” airfare or a “low” airfare.
c. Two duopoly firms account for all of the production in a market, and each firm decides
whether to produce a
“high” amount of output or a “low” amount of output.
d. Two oil companies own adjacent oil fields over a common pool of oil, and each company
decides whether to drill one well or two wells.
4368 Oligopoly
127. In which of the following games is it clearly the case that the cooperative outcome of the game is
good for the two players and bad for society?
a. Two oil companies own adjacent oil fields over a common pool of oil, and each company
decides whether to drill one well or two wells.
b. Two airlines dominate air travel between City A and City B, and each airline decides whether
to charge “high” airfare or a “low” airfare on flights between those two cities.
c. Two superpowers decide whether to build new weapons or to disarm.
d. In all of the above cases, the cooperative outcome of the game is good for the two players
and bad for society
Table 17–24
Two firms are considering going out of business and selling their assets. Each considers what
happens if the other goes out of business. The payoff matrix below shows the net gain or loss to
each firm.
Firm A
Stays in business
Sells business
Firm B
Stays in business
A gains $9 million
B gains $7million
A gains $7 million
B gains $15 million
Sells business
A gains $15 million
B gains $8 million
A gains $1 million
B gains $3 million
128. Refer to Table 17-24. Which firm’s dominant strategy is to sell?
a. firm A’s and firm B’s
b. firm A’s but not firm B’s
c. firm B’s but not firm A’s
d. neither firm A’s nor firm B’s
Oligopoly 4369
129. Refer to Table 17–24. Which firms have a dominant strategy?
a. A and B
b. Neither A nor B
c. A but not B
d. B but not A
130. Refer to Table 17–24. What is the Nash equilibrium?
a. A and B both stay in business
b. A stays in business, B sells
c. B stays in business, A sells
d. Both A and B sell
Table 17–25
There are just two producers of a certain product. Each is considering offering promotional
discounts.
Firm A
Does not offer discount
Offers discount
Firm B
Does not offer discount
Firm A profit = $90,000
Firm B profit = $90,000
Firm A profit = $120,000
Firm B profit = $70,000
Offers discount
Firm A profit = $70,000
Firm B profit = $120,000
Firm A profit = $80,000
Firm B profit = $80,000
4370 Oligopoly
131. Refer to Table 17–25. The dominant strategy
a. for both firms is to offer the discount.
b. for both firms is to not offer the discount.
c. for firm A is to offer the discount. The dominant strategy for firm B is to not offer the
discount.
d. for firm A is to not offer the discount. The dominant strategy for firm B is to offer the
discount.
132. 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
Oligopoly 4371
133. Which of the following is correct? When oligopolies collude
a. they make higher profits and consumers of the product are better off.
b. they make higher profits but consumers of the product are worse off.
c. they make lower profits and consumers of the product are better off.
d. they make lower profits and consumers of the product are worse off.
Table 17–26
Two prescription drug manufacturers (Firm A and Firm B) are faced with lawsuits from states
to recover the healthcare related expenses associated with side-effects from its drugs. Each drug
manufacturer has evidence that indicates that taking its prescription drug causes liver failure.
State prosecutors do not have access to the same data used by drug manufacturers and thus will
have difficulty recovering full costs without the help of at least one of the drug manufacturer’s
studies. Each firm has been presented with an opportunity to lower its liability in the suit if it
cooperates with attorneys representing the states.
Firm B
Concede that taking the
drug causes liver failure
Argue that there is no evidence
that taking the drug causes
liver failure
Firm A
Concede that taking the drug
causes liver failure
Firm A profit = $–60m
Firm B profit = $–40m
Firm A profit = $–100m
Firm B profit = $–12m
Argue that there is no
evidence that taking the drug
causes liver failure
Firm A profit = $–12m
Firm B profit = $–100m
Firm A profit = $–24m
Firm B profit = $–24m
4372 Oligopoly
Refer to Table 17-26. Pursuing its own best interests, Firm A will concede that taking their
prescription drug
causes liver failure
e. only if Firm B concedes that taking its drug causes liver failure.
f. only if Firm B does not concede that taking its drug causes liver failure.
g. regardless of whether Firm B concedes that taking its drug causes liver failure.
h. None of the above. In pursuing its own best interests, Firm A will in no case concede that
taking its prescription drug causes liver failure.
134. Refer to Table 17-26. Pursuing its own best interests, Firm B will concede that taking its drug
causes liver failure
a. only if Firm A concedes that taking its drug causes liver failure.
b. only if Firm A does not concede that taking its drug causes liver failure.
c. regardless of whether Firm A concedes that taking its drug causes liver failure.
d. None of the above; in pursuing its own best interests, Firm B will in no case concede that
taking its drug causes liver failure.