1. The concepts of mutual interdependence and game theory illustrate the fact th
ID: 1250804 • Letter: 1
Question
1.
The concepts of mutual interdependence and game theory illustrate the fact that firms competing in oligopoly
A) engage in frequent price changes
B) never change prices
C) ignore the actions of rivals before changing the price of their products.
D) consider the actions of rivals before changing the price of their products.
2.
Which of the following statements is correct?
A) If duopolists only look at their own self-interest in deciding the output they should produce, the total market output will exceed that of a monopoly
B) A firm in oligopoly will charge a price that is lower than price charged in perfect competition
C) because many producers join to form a cartel, the market becomes monopolistic competitive
D) If one duopolist reduces the price of its product, its demand curve shifts leftwards
3.
Suppose Nigeria and Saudi Arabia are duopolists in oil production and they have both agreed to maintain certain production levels in order to maximize profits. In the world market for oil, the demand curve is downward sloping. As long as production levels are less than the Nash equilibrium levels, both countries have the individual incentive to
A) increase price.
B) hold production levels constant.
C) increase production.
D) decrease production.
4.
Firms in an oligopoly
A) can each influence the market price
B) charge a price greater than marginal cost
C) are interdependent
D) all given answers are correct
5.
The following matrix shows the strategies of At & T and Verizon for charges for long distance calls. The payoff matrix shows the profits each makes in millions of dollars. Read the table for Verizons' strategies column-wise and A T & T's strategies row-wise. Suppose Verizon and AT&T can each charge 40 cents and 30 cents a minute for long distance calls. Verizon's dominant strategy is to charge ----- and AT&T's dominant strategy is to charge -----.
Verizon's pricing strategies
A T & T 40 cents 30 cents
Pricing 40 cents
V: $450
A: $450
V: 500
A: $200
Strategies 30 cents
V: 200
A: $500
V: $300
A: $300
A) 30c, 30c
B) 40c, 30c
C) 40c, 40c
D) 30c, 40c
6.
A Nash equilibrium occurs when each player in the game takes the ---- possible action given the action of the other player
A) most mutually beneficial
B) best
C) worst
D) most predictable
7.
The following matrix shows the strategies of At & T and Verizon for charges for long distance calls. The payoff matrix shows the profits each makes in millions of dollars. Read the table for Verizons' strategies column-wise and A T & T's strategies row-wise. Suppose Verizon and AT &T can each charge 40 cents and 30 cents a minute for long distance calls. Nash Equilbrium in this game would mean a profit for Verizon of ----- and a profit for AT&T of ------.
Verizon's pricing strategies
A T & T 40 cents 30 cents
Pricing 40 cents
V: $450
A: $450
V: 500
A: $200
Strategies 30 cents
V: 200
A: $500
V: $300
A: $300
A) $200, $500
B) $450, $450
C) $300, $300
D) $500, $200
8.
Oligopolists'
A) all given answers are correct
B) output will be closer to that produced by monopolies, rather than to output produced by perfect competition
C) price will be higher than the price charged by a perfectly competitive firm
D) output will increase as the number of oligopolistic firms increase
9.
Game theory is a tool that economists use to analyze strategic behavior, which is behavior that takes into account the ---- behavior of others and mutual recognition of ---
A) unexpected, independence
B) expected, interdependence
C) unexpected, interdependence
D) expected, independence
10.
The following matrix shows the strategies of At & T and Verizon for charges for long distance calls. The payoff matrix shows the profits each makes in millions of dollars. Read the table for Verizons' strategies column-wise and A T & T's strategies row-wise. Suppose Verizon and AT &T can each charge 40 cents and 30 cents a minute for long distance calls. If both firms could collude Verizon would charge ----- and AT&T would charge -----
Verizon's pricing strategies
A T & T 40 cents 30 cents
Pricing 40 cents
V: $450
A: $450
V: 500
A: $200
Strategies 30 cents
V: 200
A: $500
V: $300
A: $300
A) 30c,40c
B) 40c, 40c
C) 40c, 30c
D) 30c, 30c
Explanation / Answer
1. D) consider the actions of rivals before changing the price of their products. 2. A) If duopolists only look at their own self-interest in deciding the output they should produce, the total market output will exceed that of a monopoly 3. C) increase production. 4. D) all given answers are correct 5. A) 30c, 30c 6. B) best 7. C) $300, $300 8. C) price will be higher than the price charged by a perfectly competitive firm 9. B) expected, interdependence 10. B) 40c, 40c
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