Micro Economics Question
| 1. | Non-price competition is more prevalent in an oligopoly when there is (are): | |
| A) | a Nash equilibrium. | |
| B) | complex products. | |
| C) | tacit collusion. | |
| D) | no product differentiations. | |
| 2. | An analytical framework used in the analysis of strategic choices is: | |
| A) | the tacit supply curve model. | |
| B) | game theory. | |
| C) | perfect competition. | |
| D) | risk assessment. | |
Use the following to answer question 3:
| 3. | (Table: Demand for Crude Oil) The table Demand for Crude Oil shows the demand schedule for crude oil. Assume that the crude oil industry is a duopoly and the marginal cost of producing crude oil equals zero. If the two firms collude to share the market equally, the price of crude oil will be ________, firm 1 will produce ________ barrels, firm 2 will produce ________barrels, and each firm will earn revenue equal to ________. | |
| A) | $80; 80; 80; $6,400 | |
| B) | $80; 40; 40; $3,200 | |
| C) | $60; 50; 50; $3,000 | |
| D) | $40; 60; 60; $2,400 | |
| 4. | An industry with only two firms is generally called: | |
| A) | a monopoly. | |
| B) | monopolistic competition. | |
| C) | a duopoly. | |
| D) | perfect competition. | |
| 5. | An unwritten, unspoken agreement through which firms limit competition among themselves is called: | |
| A) | satisfying. | |
| B) | tacit collusion. | |
| C) | overt collusion. | |
| D) | a cartel. | |
| 6. | A strategy that is the same regardless of the action of the other player in a game is said to be a: | |
| A) | competitive strategy. | |
| B) | trigger strategy. | |
| C) | dominant strategy. | |
| D) | tit-for-tat strategy. | |
Use the following to answer question 7:
| 7. | (Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets is dominated by two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $0. The table shows the market demand schedule for gadgets. Suppose that these two producers have formed a cartel and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, Margaret’s profit will be _______ and Ray’s profit will be _______. | |
| A) | $1,250; $1,250 | |
| B) | $500; $500 | |
| C) | $1,400; $1,000 | |
| D) | $1,000; $1,400 | |
Use the following to answer question 8:
Figure: Prisoners’ Dilemma for Thelma and Louise
| 8. | (Figure: Prisoners’ Dilemma for Thelma and Louise) Look at the Figure Prisoners’ Dilemma for Thelma and Louise. Thelma and Louise are arrested and put in jail for murder. Given the payoff matrix in the figure, the optimal behavior for Thelma and Louise is for: | |
| A) | Thelma to confess and for Louise not to confess. | |
| B) | both Thelma and Louise to confess. | |
| C) | Louise to confess and for Thelma not to confess. | |
| D) | neither Thelma nor Louise to confess. | |
Use the following to answer question 9:
Scenario: Payoff Matrix for Two Firms
The following table provides the payoff matrix for two firms, firm A and firm B. They are the only two firms in the industry and can either compete or cooperate with each other, with the following profit results reflecting their actions.
| 9. | (Scenario: Payoff Matrix for Two Firms) In the scenario Payoff Matrix for Two Firms, which of the following is the dominant strategy for firm A? | |
| A) | Firm A is to compete. | |
| B) | Firm A is to cooperate. | |
| C) | Firm A has two dominant strategies. | |
| D) | Firm A has no dominant strategies. | |
| 10. | Cartels made up of a large number of firms are unstable because each firm in the cartel: | |
| A) | has an incentive to cheat. | |
| B) | is producing a relatively homogeneous product in which entry barriers are also low. | |
| C) | does not have to worry about losses. | |
| D) | recognizes that the market is relatively stable in size. | |
| 11. | A field of law that attempts to limit the ability of oligopolists to collude and restrict competition is called: | |
| A) | antitrust policy. | |
| B) | product safety policy. | |
| C) | fuel efficiency standards. | |
| D) | excise tax policy. | |
| 12. | When firms in a particular industry informally agree to charge the same price as the largest firm in that industry, it is called: | |
| A) | satisfying. | |
| B) | price extortion. | |
| C) | overt collusion. | |
| D) | tacit collusion. | |
| 13. | The market structure characterized by a few interdependent firms and barriers to entry is called: | |
| A) | monopolistic competition. | |
| B) | perfect competition. | |
| C) | oligopoly. | |
| D) | monopoly. | |
| 14. | A duopoly is an industry that consists of: | |
| A) | a single firm. | |
| B) | two firms. | |
| C) | three or more firms. | |
| D) | a large number of small firms. | |
| 15. | A cartel is an example of: | |
| A) | price extortion. | |
| B) | price leadership. | |
| C) | overt collusion. | |
| D) | tacit collusion. | |
| 16. | Overt collusion exists if: | |
| A) | firms agree openly on price and output and they jointly make other decisions aimed at achieving monopoly profits. | |
| B) | smaller firms in an industry tacitly agree to charge the same price as the largest firm. | |
| C) | competition among a large number of small firms generates a stable market price. | |
| D) | competition among a large number of small firms generates similar but slightly different prices. | |
| 17. | In the classic prisoners’ dilemma with two accomplices in crime, the dominant strategy for each individual is to: | |
| A) | not confess. | |
| B) | confess. | |
| C) | confess only if the other confesses. | |
| D) | This game does not have a dominant strategy. | |
| 18. | The outcome of a strategic choice is called a: | |
| A) | payoff. | |
| B) | game. | |
| C) | product. | |
| D) | dilemma. | |
| 19. | OPEC is: | |
| A) | the Organization of Petroleum Exporting Countries. | |
| B) | an international cartel made up of oil-producing countries. | |
| C) | the cartel that was responsible for the large increases in crude oil prices in the 1970s. | |
| D) | described by all of these answer choices. | |
| 20. | A situation in which one firm sets the price and other firms in the industry match it is known as: | |
| A) | a Nash equilibrium. | |
| B) | price leadership. | |
| C) | Cournot competition. | |
| D) | price competition. | |
