Question 1

Which of the following best describes an oligopoly market structure?

Accepted Answer

A market with a small number of firms, where each firm's decisions affect the others.

Question 2

In the context of game theory, what is a dominant strategy?

Accepted Answer

A strategy that is optimal regardless of the opponent's actions.

Question 3

Suppose four firms form a cartel and agree to produce a total of $Q_M = 48$ units. What is the production quota for each firm?

Accepted Answer

$12$ units

Question 4

If a firm in a cartel cheats by producing more than its quota, what is the likely effect on the market price?

Accepted Answer

The market price will decrease.

Question 5

Consider the following payoff matrix for two firms in a cartel:

$\begin{array}{c|cc}
 & 	ext{Cooperate} & 	ext{Cheat} \
\hline
	ext{Cooperate} & (10,10) & (3,15) \
	ext{Cheat} & (15,3) & (6,6) \
\end{array}$

What is the Nash Equilibrium of this game?

Accepted Answer

(Cheat, Cheat)

Question 6

Which of the following is a reason why cartels tend to break down in the long run?

Accepted Answer

Firms have an incentive to cheat and new firms can enter the market.

Question 7

Suppose a coffee shop cartel sets a price of $P = $3 per cup and each shop sells $4$ cups. If one shop cheats and sells $8$ cups at a new price of $P = $2, what is the increase in that shop's revenue?

Accepted Answer

$4$

Question 8

Which of the following conditions makes a cartel more likely to succeed?

Accepted Answer

Government support and enforcement.

Question 9

In the Prisoner's Dilemma, why do both players often choose to 'cheat' even though cooperation would yield a better outcome?

Accepted Answer

Because each player has a dominant strategy to cheat.

Question 10

Which anti-trust law was enacted in 1890 to prevent the formation of cartels in the United States?

Accepted Answer

Sherman Act

Question 11

If a cartel sets the industry output at the monopolist quantity $Q_M$ and divides it equally among $n$ firms, what is the quota for each firm?

Accepted Answer

$Q_M / n$

Question 12

Which of the following is NOT a typical feature of an oligopoly?

Accepted Answer

Firms act independently without regard to competitors

Question 13

Why might oligopolies be more innovative than perfectly competitive industries?

Accepted Answer

Because the pursuit of market power encourages product differentiation and innovation.

Question 14

Which of the following is an example of a successful cartel supported by government enforcement?

Accepted Answer

The milk industry in the United States

Question 15

In the context of the payoff matrix below, what is the dominant strategy for the row player?

$\begin{array}{c|cc}
 & 	ext{Clean} & 	ext{Don't Clean} \
\hline
	ext{Clean} & (10,10) & (0,15) \
	ext{Don't Clean} & (15,0) & (2,2) \
\end{array}$

Accepted Answer

Don't Clean

Question 16

Which of the following statements about oligopolies is correct?

Accepted Answer

All of the above.

Question 17

If a cartel sets a price above marginal cost ($P > MC$), what is the likely effect on consumer surplus compared to a competitive market?

Accepted Answer

Consumer surplus decreases.

Question 18

Which of the following is a real-world example of a cartel that has experienced significant cheating among its members?

Accepted Answer

OPEC (Organization of Petroleum Exporting Countries)

Question 19

Which government agencies are responsible for enforcing anti-trust laws in the United States?

Accepted Answer

Anti-trust division of the Department of Justice and the Federal Trade Commission (FTC)

Question 20

Which of the following best explains why tacit collusion may become easier with artificial intelligence (AI) algorithms?

Accepted Answer

AI can facilitate coordinated pricing strategies without explicit communication.

Oligopoly and Game Theory: Structured Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards