Econ Exam 3 - ch. 14

If individual countries that are members of OPEC exceed their production quotas, the amount of oil supplied to the world____, and the price of oil_____.

a. increases; decreases

b. increases; increases

c. decreases; increases

d. decreases; decreases

a. increases; decreases

Domino's and Little Caesars are competing over the price of pizza. What is the dominant Strategy? Note: There will be a problem like this one the final.

a. Both firms charge $10

b. Both firms charge $5

c. Domino's will charge $10 and Little Caesars will charge $5

d. Domino's will charge $5 and Little Caesars will charge $10

b. Both firms charge $5

What is the dominant strategy of eBay auction participants?

a. to place a bid well below the subjective value you place on the item

b. to place a bid equal to the maximum value you place on the item

c. to place a bid well above the subjective value you place on the item

d. There is no dominant strategy on eBay auctions.

b. to place a bid equal to the maximum value you place on the item

Refer to the payoff matrix below. Suppose that Wal-Mart and Target are selling Sony flat-screen computer monitors for a price of either $150 or $200 each. Based on the information on the payoff matrix, what is the dominant strategy?

a. Both firms will charge $150.

b. Both firms will charge $200.

c. Wal-Mart will charge $150, and Target will charge $200.

d. Wal-Mart will charge $200, and Target will charge $150.

a. Both firms will charge $150.

Which of the following is the definition of business strategy?

a. A business strategy refers to the rules that determine what actions are allowable.

b. A business strategy refers to actions taken by firms to attain their objectives.

c. A business strategy is a study of how people make decisions.

d. A business strategy is an agreement among firms to charge the same price.

b. A business strategy refers to actions taken by firms to attain their objectives.

Fill in the blanks with the word and phrase that best describe the history of OPEC: Sustaining high prices has been_______because members often________their output quotas.

a. easy; produce less than

b. easy; produce more than

c. difficult; produce less than

d. difficult; produce more than

d. difficult; produce more than

REI and Level 9 sports are competing over the price of gloves. What is the dominant strategy? Note: there will be a problem like this on the final.

a. Both firms will charge $100

b. Both Firms will charge $50

c. REI will charge $100 and Level 9 will charge $50

d. REI will charge $50 and Level 9 will charge $100

b. Both Firms will charge $50

Which of the terms below is defined as “Anything that keeps new firms from entering an industry in which firms are earning economic profits?”

a. game theory

b. barriers to entry

c. oligopoly

d. economies of scale

b. barriers to entry

Refer to the graph below. Fill in the blanks. When the level of output produced is Q1, economies of scale in the industry are relatively______and the industry will have a_____number of firms.

a. important; small

b. important; large

c. unimportant; small

d. unimportant; large

d. unimportant; large

Refer to the graph below. Which quantity is more likely to be the quantity produced by the typical firm in an oligopoly?

a. Q1

b. Q2

c. the sum of Q1 and Q2

d. the difference between Q2 and Q1

b. Q2

A patent typically gives the holder exclusive rights to a product for a period of:

a. 10 years.

b. 20 years.

c. 30 years.

d. 40 years.

b. 20 years.

An agreement among firms to charge the same price or to otherwise not compete is:

a. a payoff matrix.

b. collusion.

c. a dominant strategy.

d. a Nash equilibrium.

b. collusion.

Suppose Autozone and O'Reilly Auto are competing over the price of car batteries. What is the dominant strategy? Note: There will be a problem like this on the final.

a. Both firms will charge $100

b. Both firms will charge $50

c. Autozone will charge $100 and O'Reilly will charge $50

d. Autozone will charge $50 and O'Reilly will charge $100

b. Both firms will charge $50

In the broadest sense, game theory studies the decisions of firms in industries where the profits of each firm depend on:

a. the ability of a firm to set up barriers to entry.

b. the firm’s interactions with other firms.

c. agreements among firms to charge the same price.

d. the ability to achieve a dominant position in the industry.

b. the firm's interactions with other firms.

Which of the terms below is defined as “A market structure in which a small number of interdependent firms compete?”

a. game theory

b. barriers to entry

c. oligopoly

d. economies of scale

c. oligopoly

A strategy that is the best for a firm, no matter what strategies other firms use is:

a. a payoff matrix.

b. collusion.

c. a dominant strategy.

d. a Nash equilibrium.

c. a dominant strategy.

Every game has these characteristics:

a. winners, losers, and payoffs.

b. rules, an intermediary, and payouts.

c. rules, strategies, and payoffs.

d. strategies and defeats.

c. rules, strategies, and payoffs.

Economies of scale help determine the extent of:

a. market failure in an industry.

b. competition in an industry.

c. product differentiation in an industry.

d. product innovation in an industry.

b. competition in an industry.

If automobile companies have significant bargaining power when buying tires, you would expect that:

a. tire prices will be low.

b. tire prices will be high.

c. the profitability of tire manufacturers is unlimited.

d. tire suppliers also have significant bargaining power.

a. tire prices will be low.

Which of the following is a barrier to entry?

a. economies of scale

b. ownership of a key input

c. patents

d. all of the above

d. all of the above

Fill in the blanks. Suppliers have more bargaining power when____firms can supply the input and the input____specialized.

a. many; is

b. many; is not

c. few; is

d. few; is not

c. few; is

Economies of scale exist when a firm’s_____average costs fall as it_____output.

a. short-run; increases

b. short-run; decreases

c. long-run; increases

d. long-run; decreases

c. long-run; increases

Match the following definition with one of the terms below: “A situation where each firm chooses the best strategy, given the strategies chosen by other firms.”

a. payoff matrix

b. collusion

c. dominant strategy

d. Nash equilibrium

d. Nash equilibrium

A group of firms that colludes by agreeing to restrict output to increase prices and profits is called:

a. a duopoly.

b. an oligopoly.

c. a cartel.

d. a conglomerate.

c. a cartel.

Refer to the payoff matrix below. The payoff matrix describes the payoffs to two members of the OPEC cartel. The Nash equilibrium of this game will occur with Saudi Arabia producing a _____ output and Nigeria producing a ______output.

a. low; low

b. high; high

c. low; high

d. high; low

c. low; high