Econ 1B - Principles of Microeconomics » Spring 2023 » Chapter 14 Problem Set

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Question #1
In the classic prisoners' dilemma with two accomplices in crime, the dominant strategy for each individual is to:
A.   confess only if the other confesses.
B.   This game does not have a dominant strategy.
C.   confess.
D.   not confess.
Question #2
Two identical firms make up an industry in which the market demand curve is represented by Q = 5,000 – 4P, where Q is the quantity demanded and P is price per unit. The marginal cost of producing the good in this industry is constant and equal to $650. Fixed cost is zero.
A.   find that cheating initially leads to an increase in both firms' profits.
B.   be able to increase its profits initially.
C.   find that the other firm has an increase in its profits alone.
D.   find that cheating leads to a decrease in its profits alone.
Question #3
In which of the following situations does overt collusion take place?
A.   Firms in an industry agree openly on price and output, and they jointly make other decisions aimed at achieving monopoly profits.
B.   Competition among a large number of small firms generates a stable market price.
C.   Competition among a large number of small firms generates similar but slightly different prices.
D.   Smaller firms in an industry have an unspoken agreement to charge the same price as the largest firm.
Question #4
A strategy that is the same regardless of the action of the other player in a game is a _____ strategy.
A.   trigger
B.   dominant
C.   competitive
D.   tit-for-tat
Question #5
If there are two gas stations in a very small town, then the gas station business there is probably best characterized as:
A.   monopolistically competitive.
B.   perfectly competitive.
C.   oligopolistic.
D.   monopolistic.
Question #6
If the several companies in the tobacco industry produce similar products but have very different marginal costs:
A.   prices for tobacco products are more likely to be near the monopoly level than in an industry whose firms have similar costs.
B.   they are less likely to engage in tacit collusion than firms with similar costs.
C.   they are more likely to engage in tacit collusion than firms with similar costs.
D.   output of tobacco products is more likely to be near the monopoly level than in an industry whose firms have similar costs.
Question #7
_____ occurs if Coke hires Michael Jordan to make a commercial and Pepsi follows by hiring Peyton Manning for its commercial.
A.   Tacit collusion
B.   Nonprice competition
C.   Antitrust policy
D.   Price leadership
Question #8
To be called an oligopoly, an industry must have:
A.   relatively easy entry and exit.
B.   a small number of interdependent firms.
C.   a horizontal demand curve.
D.   independence in decision making.
Question #9
If a player has an incentive to cheat no matter what the other player does and if both players act in this manner, both players will be worse off. This is a:
A.   kinked demand curve model.
B.   tit-for-tat strategy.
C.   prisoners' dilemma.
D.   price leadership model.
Question #10
Tacit collusion in an industry is limited by:
A.   a large number of firms and the bargaining power of buyers.
B.   simple products and pricing.
C.   a large number of firms.
D.   the bargaining power of buyers.
Question #11
The purpose of the trusts established in the United States in the late 1800s was to:
A.   promote competition in the transportation industry.
B.   limit the involvement of government in providing health care.
C.   engage in monopoly pricing.
D.   promote international trade.

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