Oligopoly 4333
58. 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.
59. Two suspected drug dealers are stopped by the highway patrol for speeding. The officer searches
the car and finds a small bag of marijuana and arrests the two. During the interrogation, each is
separately offered the following: “If you confess to dealing drugs and testify against your partner,
you will be given immunity and released while your partner will get 10 years in prison. If you
both confess, you will each get 5 years.” If neither confesses, there is no evidence of drug dealing,
and the most they could get is one year each for possession of marijuana. If each suspected drug
dealer follows a dominant strategy, what should he/she do?
a. Confess regardless of the partner‘s decision
b. Confess only if the partner confesses
c. Don’t confess regardless of the partner’s decision
d. Don’t confess only if the partner doesn’t confess
4334 Oligopoly
60. A lack of cooperation by oligopolists trying to maintain monopoly profits
a. is desirable for society as a whole.
b. is not desirable for society as a whole.
c. may or may not be desirable for society as a whole.
d. is not a concern due to antitrust laws.
61. Oligopolists may well be able to reach their preferred, cooperative outcome if
a. the number of oligopolists is large.
b. they learn that a Nash equilibrium is in their best long-term interests.
c. a sufficient number of firms can be persuaded to lower their prices.
d. the game they play is repeated a sufficient number of times.
Oligopoly 4335
62. Chrissy and Marvin are competitors in a local market and each is trying to decide if it is
worthwhile to advertise. If both of them advertise, each will earn a profit of $10,000. If neither of
them advertise, each will earn a profit of $20,000. If one advertises and the other doesn’t, then the
one who advertises will earn a profit of $30,000 and the other will earn $14,000. To earn the
highest profit, Chrissy
a. should advertise, and she will earn $10,000.
b. should advertise, and she will earn $30,000.
c. should not advertise, and she will earn 20,000.
d. has no dominant strategy.
63. Lori and Maya are competitors in a local market. Each is trying to decide if it is better to advertise
on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of $10,000. If
they both advertise on radio, each will earn a profit of $14,000. If neither advertises at all, each
will earn a profit of $20,000. If one advertises on TV and other advertises on radio, then the one
advertising on TV will earn $16,000 and the other will earn $6,000. If one advertises on TV and
the other does not advertise, then the one advertising on TV will earn $30,000 and the other will
earn $4,000. If one advertises on radio and the other does not advertise, then the one advertising
on radio will earn $24,000 and the other will earn $8,000. If both follow their dominant strategy,
then Lori will
a. advertise on TV and earn $10,000.
b. advertise on radio and earn $14,000.
c. not advertise at all and earn $20,000.
d. None of the above is correct. Lori and Maya do not have dominant strategies.
4336 Oligopoly
64. Juan Pablo and Zak are competitors in a local market. Each is trying to decide if it is better to
advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of
$8,000. If they both advertise on radio, each will earn a profit of $14,000. If neither advertises at
all, each will earn a profit of $20,000. If one advertises on TV and other advertises on radio, then
the one advertising on TV will earn $12,000 and the other will earn $10,000. If one advertises on
TV and the other does not advertise, then the one advertising on TV will earn $22,000 and the
other will earn $4,000. If one advertises on radio and the other does not advertise, then the one
advertising on radio will earn $24,000 and the other will earn $8,000. If both follow their dominant
strategy, then Juan Pablo will
a. advertise on TV and earn $8,000.
b. advertise on radio and earn $14,000.
c. advertise on TV and earn $22,000.
d. not advertise and earn $20,000.
65. George and Jerry are competitors in a local market. Each is trying to decide if it is better to
advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of
$3,000. If they both advertise on radio, each will earn a profit of $5,000. If neither advertises at
all, each will earn a profit of $10,000. If one advertises on TV and the other advertises on radio,
then the one advertising on TV will earn $4,000 and the other will earn $2,000. If one advertises
on TV and the other does not advertise, then the one advertising on TV will earn $8,000 and the
other will earn $5,000. If one advertises on radio and the other does not advertise, then the one
advertising on radio will earn $9,000 and the other will earn $6,000. If both follow their dominant
strategy, then George will
a. advertise on TV and earn $3,000.
b. advertise on radio and earn $5,000.
c. advertise on TV and earn $8,000.
d. not advertise and earn $10,000.
Oligopoly 4337
66. Laurel and Janet are competitors in a local market and each is trying to decide if it is worthwhile
to advertise. If both of them advertise, each will earn a profit of $5,000. If neither of them
advertise, each will earn a profit of $10,000. If one advertises and the other doesn‘t, then the one
who advertises will earn a profit of $12,000 and the other will earn $2,000. In this version of the
prisoners‘ dilemma, if the game is played only once, Laurel should
a. advertise, but if the game is to be repeated many times she should probably not advertise.
b. advertise, and if the game is to be repeated many times she should still probably advertise.
c. not advertise, but if the game is to be repeated many times she should probably advertise.
d. not advertise, and if the game is to be repeated many times she should still not advertise.
Table 17–14
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).
B
Right
Left
A
Up
(2, 2)
(3, 1)
Down
(1, 3)
(0, 0)
67. Refer to Table 17-14. If player A chooses his/her best strategy, player B should
a. choose left and earn a payoff of 4.
b. choose left and earn a payoff of 6.
c. choose right and earn a payoff of 2.
d. choose right and earn a payoff of 0.
4338 Oligopoly
68. Refer to Table 17–14. If both players choose their best strategies, player A will earn a payoff of
a. 0.
b. 2.
c. 4.
d. 6.
69. Refer to Table 17-14. Which of the following statements about this game is true?
a. Up is a dominant strategy for A and Right is a dominant strategy for B.
b. Up is a dominant strategy for A and Left is a dominant strategy for B.
c. Down is a dominant strategy for A and Right is a dominant strategy for B.
d. Down is a dominant strategy for A and Left is a dominant strategy for B.
Oligopoly 4339
70. Refer to Table 17–14. Which outcome is the Nash equilibrium in this game?
a. Up–Right
b. Up-Left
c. Down-Right
d. Down-Left
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).
B
Left
Center
Right
Up
(1, 4)
(6, 2)
A
Middle
(2, 2)
(4, 6)
Down
(3, 2)
(5, 5)
71. 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.
4340 Oligopoly
72. Refer to Table 17–15. Which of the following statements regarding this game is true?
a. Both players have a dominant strategy.
b. Player A has a dominant strategy, but player B does not have a dominant strategy.
c. Player A does not have a dominant strategy, but player B does have a dominant strategy.
d. Neither player has a dominant strategy.
73. Refer to Table 17–15. Which of the following outcomes represents a Nash equilibrium in the
game?
a. Up-Center
b. Middle-Right
c. Down-Left
d. Down-Center
Oligopoly 4341
Table 17–16
This table shows a game played between two players, A and B. The payoffs are given in the
table as (Payoff to A, Payoff to B).
B
Left
Center
Right
Up
(8, 4)
(4, 10)
A
Middle
(6, 2)
(10, 6)
Down
(2, 6)
(8, 8)
74. Refer to Table 17–16. Which of the following statements is true regarding this game?
a. Both players have a dominant strategy.
b. Neither player has a dominant strategy.
c. A has a dominant strategy, but B does not have a dominant strategy.
d. B has a dominant strategy, but A does not have a dominant strategy.
75. Refer to Table 17–16. Which of the following outcomes represents a Nash equilibrium in the
game?
a. Middle–Center
b. Down-Center
c. Up-Left
d. More than one of the above is a Nash equilibrium in this game.
4342 Oligopoly
Table 17–17
This table shows a game played between two firms, Firm A and Firm B. In this game each firm
must decide how much output (Q) to produce: 2 units or 3 units. The profit for each firm is given
in the table as (Profit for Firm A, Profit for Firm B).
Firm B
Q=2
Q=3
Firm A
Q=2
(10, 10)
(8, 12)
Q=3
(12, 8)
(6, 6)
76. Refer to Table 17-17. In this game,
a. neither player has a dominant strategy.
b. both players have a dominant strategy.
c. Firm A has a dominant strategy, but Firm B does not have a dominant strategy.
d. Firm B has a dominant strategy, but Firm A does not have a dominant strategy.
77. Refer to Table 17-17. Which of the following outcomes represent the Nash equilibrium in this
game?
a. Q=2 for Firm A and Q=3 for Firm B.
b. Q=3 for Firm A and Q=2 for Firm B.
c. There is no Nash equilibrium in this game since neither player has a dominant strategy.
d. Both a and b are correct.
Oligopoly 4343
Table 17–18
This table shows a game played between two firms, Firm A and Firm B. In this game each firm
must decide how much output (Q) to produce: 10 units or 12 units. The profit for each firm is
given in the table as (Profit for Firm A, Profit for Firm B).
Firm B
Q=10
Q=12
Firm A
Q=10
(48, 48)
(20, 60)
Q=12
(60, 20)
(38, 38)
78. Refer to Table 17–18. The dominant strategy For Firm A is to produce
a. 10 units and the dominant strategy for Firm B is to produce 10 units.
b. 10 units and the dominant strategy for Firm B is to produce 12 units.
c. 12 units and the dominant strategy for Firm B is to produce 10 units.
d. 12 units and the dominant strategy for Firm B is to produce 12 units.
79. Refer to Table 17-18. The Nash equilibrium for this game is
a. 10 units of output for Firm A and 10 units of output for Firm B.
b. 10 units of output for Firm A and 12 units of output for Firm B.
c. 12 units of output for Firm A and 10 units of output for Firm B.
d. 12 units of output for Firm A and 12 units of output for Firm B.
4344 Oligopoly
80. Refer to Table 17–18. If these two firms agree to cooperate to maximize their joint profit, the
outcome of the game will be
a. 10 units of output for Firm A and 10 units of output for Firm B.
b. 10 units of output for Firm A and 12 units of output for Firm B.
c. 12 units of output for Firm A and 10 units of output for Firm B.
d. 12 units of output for Firm A and 12 units of output for Firm B.
81. Refer to Table 17–18. If these two firms play this game repeatedly, the likely outcome will be
a. 10 units of output for Firm A and 10 units of output for Firm B.
b. 10 units of output for Firm A and 12 units of output for Firm B.
c. 12 units of output for Firm A and 10 units of output for Firm B.
d. 12 units of output for Firm A and 12 units of output for Firm B.
Oligopoly 4345
82. The prisoners‘ dilemma game
a. is a situation in which two players both have dominant strategies which lead to the highest total
payoff for the two players.
b. has no Nash equilibrium since players, after agreeing to play their dominant strategy, will have
an incentive to switch to another strategy.
c. has a Nash equilibrium, but the Nash equilibrium outcome is not the outcome the players would
agree to if they could cooperate with each other.
d. Both a and c are correct.
83. In a prisoners‘ dilemma game,
a. the solution when playing the game once will be the same as the solution when the players play
the game repeatedly, since agreements cannot be maintained in a prisoners‘ dilemma.
b. if the players play the game repeatedly, the players can achieve a higher payoff, on average,
than when they play the game only once.
c. repeated play will always result in a better outcome for both players than when the game is
played only once.
d. the tit-for-tat strategy in repeated play requires players to always select the opposite strategy
as their opponent.
4346 Oligopoly
Table 17–19
Consider a small town that has two grocery stores from which residents can choose to buy a loaf
of bread. The store owners each must make a decision to set a high bread price or a low bread
price. The payoff table, showing profit per week, is provided below. The profit in each cell is
shown as (Store 1, Store 2).
Store 2
Low Price
High Price
Store 1
Low Price
(500, 500)
(800, 100)
High Price
(100, 800)
(650, 650)
84. Refer to Table 17-19. If grocery store 2 sets a low price, what price should grocery store 1 set?
And what will grocery store 1′s payoff equal?
a. Low price, $250
b. High price, $400
c. Low price, $50
d. High price, $50
85. Refer to Table 17-19. If grocery store 2 sets a high price, what price should grocery store 1
set? And what will grocery store 1′s payoff equal?
a. Low price, $400
b. High price, $325
c. Low price, $50
d. High price, $400
Oligopoly 4347
86. Refer to Table 17-19. If grocery store 1 sets a low price, what price should grocery store 2 set?
And what will grocery store 2′s payoff equal?
a. Low price, $250
b. High price, $400
c. Low price, $50
d. High price, $325
87. Refer to Table 17-19. If grocery store 1 sets a high price, what price should grocery store 2
set? And what will grocery store 2′s payoff equal?
a. Low price, $400
b. High price, $50
c. Low price, $250
d. High price, $325
4348 Oligopoly
88. Refer to Table 17–19. What is grocery store 1′s dominant strategy?
a. Grocery store 1 does not have a dominant strategy.
b. Grocery store 1 should always set a low price.
c. Grocery store 1 should always set a high price.
d. Grocery store 1 should set a low price when grocery store 2 sets a low price, and grocery store
1 should set a high price when grocery store 2 sets a high price.
89. Refer to Table 17–19. What is grocery store 2′s dominant strategy?
a. Grocery store 2 does not have a dominant strategy.
b. Grocery store 2 should always set a low price.
c. Grocery store 2 should always set a high price.
d. Grocery store 2 should set a low price when grocery store 1 sets a low price, and grocery store
2 should set a high price when grocery store 1 sets a high price.
Oligopoly 4349
90. Refer to Table 17-19. What is the Nash Equilibrium of this price–setting game?
a. Grocery store 1: Low price Grocery store 2: Low price
b. Grocery store 1: Low price Grocery store 2: High price
c. Grocery store 1: High price Grocery store 2: How price
d. Grocery store 1: High price Grocery store 2: High price
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).
Maddie
Clean
Don’t Clean
Nadia
Clean
(30, 30)
(7, 50)
Don’t Clean
(50, 7)
(10, 10)
91. 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.
4350 Oligopoly
92. Refer to Table 17–20. If Maddie chooses not to clean, then Nadia will
a. clean, and Nadia’s payoff will be 50.
b. not clean, and Nadia’s payoff will be 10.
c. clean, and Nadia’s payoff will be 7.
d. not clean, and Nadia’s payoff will be 30.
93. Refer to Table 17-20. If Nadia chooses to clean, then Maddie will
a. clean, and Maddie’s payoff will be 30.
b. not clean, and Maddie’s payoff will be 50.
c. clean, and Maddie’s payoff will be 7.
d. not clean, and Maddie’s payoff will be 10.
94. Refer to Table 17–20. If Nadia chooses to not clean, then Maddie will
a. clean, and Maddie’s payoff will be 10.
b. not clean, and Maddie’s payoff will be 50.
c. clean, and Maddie’s payoff will be 30.
d. not clean, and Maddie’s payoff will be 10.
Oligopoly 4351
95. Refer to Table 17–20. What is Nadia’s dominant strategy?
a. Nadia has no dominant strategy.
b. Nadia should always choose Clean.
c. Nadia should always choose Don’t Clean.
d. Nadia has two dominant strategies, Clean and Don’t Clean, depending on the choice Maddie
makes.
96. Refer to Table 17-20. What is Maddie’s dominant strategy?
a. Maddie has no dominant strategy.
b. Maddie should always choose Clean.
c. Maddie should always choose Don’t Clean.
d. Maddie has two dominant strategies, Clean and Don’t Clean, depending on the choice Nadia
makes.
4352 Oligopoly
97. Refer to Table 17–20. What is the Nash Equilibrium in this dorm room cleaning game?
a. Nadia: Clean Maddie: Clean
b. Nadia: Don’t Clean Maddie: Clean
c. Nadia: Clean Maddie: Don‘t Clean
d. Nadia: Don’t Clean Maddie: Don‘t Clean
Figure 17-3. Hector and Bart are roommates. On a particular day, their apartment needs to be
cleaned. Each person has to decide whether to take part in cleaning. At the end of the day, either
the apartment will be completely clean (if one or both roommates take part in cleaning), or it will
remain dirty (if neither roommate cleans). With happiness measured on a scale of 1 (very
unhappy) to 10 (very happy), the possible outcomes are as follows: