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Exam 15: Oligopoly and Game Theory

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Question 1

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OPEC is a:

A) group of oligopolistic producers that try to behave like a monopoly.
B) monopoly that tries to behave oligopolistically.
C) group of perfectly competitive producers that try to behave in a monopolistically competitive manner.
D) group of monopolistically competitive producers that try to behave in a perfectly competitive manner.

E) A) and B)
F) None of the above

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Question 2

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Which of the following statements is TRUE? I. A cartel is a single firm with competitive market power. II. A cartel is a group of firms that practice price discrimination in competitive markets. III. A cartel is a group of firms that attempt to reduce market output. IV. A cartel acts as if it were a monopolist in that market.

A) I only
B) II, III, and IV only
C) II only
D) III and IV only

E) B) and D)
F) A) and D)

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Question 3

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Game theory studies:

It is easier to prosecute collusion when the colluding firms never meet.

Major league basketball, the NBA, is cartelized to:

The basic tendency of cartels is to increase output and reduce prices.

Cartels do not last because their members find them difficult to maintain since:

Figure: Demand 2 Two firms in an industry act as a cartel, with each firm agreeing to charge a price of $16 and sell two units of output. If one of them cheats and produces two more units of output, the cheating firm's total revenue increases by ______ and the other firm's total revenue decreases by ______.

Use the following to answer questions: Table: Ozzie's, Manny's Payoff Table $\begin{array} { | l | l | c | c | } \hline & & \begin{array} { c } \text { Ozzie's Cement } \\\text { (profit in 1,000s) }\end{array} &{ } \\\hline & & \text { Low Price } & \text { High Price } \\\hline \text { Manny's Cement } & \text { Low Price } & \$ 60 , \$ 60 & \$ 130 , \$ 20 \\\hline \text { (profit in 1,000s) } & \text { High Price } & \$ 20 , \$ 130 & \$ 80 , \$ 80 \\\hline\end{array}$ -(Table: Ozzie's, Manny's Payoff Table) Refer to the table. The equilibrium outcome is:

All cartels and cartel-like behavior are illegal in the United States.

Cartels are not always successful because:

Cartels are more successful when:

If your economics class was graded on a curve and everyone agrees to study only half as much, everyone would get the same grade that they otherwise would earn. You, however, will earn an A if you study more than the others, a C if you study the same amount as others, and an F if everyone else studies more than you. You don't like studying, but you'd rather study and get an A than get a C without studying, or study and get a C than get an F without studying. If everyone else cuts back their studying, what is it in your best interest to do?

Game theory is the study of:

If women conspired together and demanded that any man wishing to take them on a date must take them to a nice restaurant, why would this be unsustainable?

OPEC is a cartel that:

In a cartel, the most profitable outcome is achieved by:

Use the following to answer questions: Table: Russia, Saudi Payoff Table Suppose that the oil market is dominated by two large firms, Saudi Arabia and Russia. Both Saudi Arabia and Russia have two choices or strategies: cooperate by cutting back production or cheat by increasing production. The payoff table below shows the potential revenues associated with each firm's strategies. For instance, if Saudi Arabia cheats and Russia cooperates, the payoff to Saudi Arabia is $1,000 and the payoff to Russia is $400. $\begin{array} { | l | l | c | c | } \hline & & \text { Russia's Strategies } & { \text { Cheat } } \\\hline & & \text { Cooperate } & ( \$ 400 , \$ 1,000 ) \\\hline \text { Saudi Arabia's } & \text { Cooperate } & ( \$ 800 , \$ 800 ) & ( \$ 600 , \$ 600 ) \\\hline \text { Strategies } & \text { Cheat } & ( \$ 1,000 , \$ 400 ) & ( \$ 5 ) \\\hline\end{array}$ -(Table: Russia, Saudi Payoff Table) Refer to the table. What is Saudi Arabia's best strategy and associated payoff if Russia cheats?

Cartels tend to lose their power due to the cheating by the cartel members.

Oligopolies are large dominant firms that can influence the industry output but not the industry price.