Question 1

Which of the following best describes an oligopoly market structure?

Accepted Answer

A few firms selling identical or differentiated products with some barriers to entry.

Question 2

What is the main reason oligopolistic firms engage in strategic behavior?

Accepted Answer

Because the actions of one firm directly affect the outcomes of other firms.

Question 3

Which of the following is NOT a typical barrier to entry in an oligopoly?

Accepted Answer

Perfect competition.

Question 4

Suppose Wal-Mart and Target are deciding whether to price PlayStation 4 at $$600 or 400. $$According to the payoff matrix, both firms earn $$7,500 if they both choose 400. $$What type of equilibrium is this?

Accepted Answer

Dominant strategy equilibrium.

Question 5

In the advertising game between Coca-Cola and Pepsi, what is the Nash Equilibrium?

Accepted Answer

Both firms choose to advertise.

Question 6

Which formula represents the profit ($$\pi) $$for a firm in an oligopoly?

Accepted Answer

$$\pi = TR - TC$$

Question 7

In the Prisoner's Dilemma, what outcome results when both prisoners pursue their dominant strategy?

Accepted Answer

Both prisoners receive the lowest possible payoff.

Question 8

Which of the following is an example of a government-imposed barrier to entry?

Accepted Answer

Patents and copyrights.

Question 9

In the Battle of the Sexes game, what is the main challenge for the players?

Accepted Answer

Both players want to choose the same activity but have different preferences.

Question 10

If a firm in an oligopoly has a dominant strategy, what does this mean?

Accepted Answer

The firm has a strategy that is best regardless of what other firms do.

Question 11

Consider the following payoff matrix for two firms, HP and Apple, choosing between $$1,200 and 1$$,000 pricing. If both choose $$1,000, HP earns 7.5 $$million and Apple earns $7.5 million. What is the Nash Equilibrium?

Accepted Answer

Both HP and Apple choose $1,000.

Question 12

Which of the following best describes a cooperative equilibrium?

Accepted Answer

An equilibrium where players cooperate to increase their mutual payoff.

Question 13

In the OPEC cartel example, what is the incentive for Saudi Arabia and Nigeria to cheat on their production quotas?

Accepted Answer

Cheating increases their individual profits in the short run.

Question 14

Which equation represents the long-run average cost (LRAC) for a firm experiencing economies of scale?

Accepted Answer

$$LRAC = \frac{TC}{Q}$$

Question 15

What is the main difference between a strategic form game and a sequential game?

Accepted Answer

Strategic form games are played simultaneously, while sequential games are played in order.

Question 16

If a firm in an oligopoly sets a price above marginal cost ($$MC$$), what is the likely outcome?

Accepted Answer

The firm can earn positive economic profit ($$\pi \u003e 0) if $$barriers to entry exist.

Question 17

Which of the following is a real-world example of an oligopoly?

Accepted Answer

The market for home centers (Home Depot and Lowe's).

Question 18

In game theory, what is a payoff?

Accepted Answer

The outcome or reward a player receives for a particular strategy.

Question 19

Which of the following statements about collusion in oligopoly is correct?

Accepted Answer

Explicit collusion is illegal, but implicit price fixing can occur.

Question 20

Suppose two firms repeatedly play a price competition game. What strategy might allow them to achieve a better outcome than the dominant strategy equilibrium?

Accepted Answer

Engaging in price leadership or matching each other's prices over time.

Oligopoly and Game Theory: Strategic Behavior in Microeconomics

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