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Homework answers / question archive / University of Waterloo MICROECONO AFM101 CHAPTER 14 A 1)In the prisoners' dilemma, when each player takes the best possible action given the action of the other player,
University of Waterloo
MICROECONO AFM101
CHAPTER 14 A
1)In the prisoners' dilemma, when each player takes the best possible action given the action of the other player, .
A. both players deny
B. one player denies and one player confesses
C. each player receives the best outcome possible
D. a Nash equilibrium is reached
2) Amy and Ben are racing to develop a new brand of artificial sweetener that they both believe will be better tasting than all others.
The payoff matrix shows the economic profit in millions of dollars for the game that Amy and Ben play.
What is the Nash equilibrium? The Nash equilibrium is that .
A. both Amy and Ben develop the new product
B. neither Amy nor Ben develops the product
C. only Amy develops the new product
D. only Ben develops the new product
3) Oscar and Felix are the only firms that clean offices in a large city. They agree to operate as a cartel.
The payoff matrix shows the economic profit that each firm can make in millions of dollars. If the game is played repeatedly and Felix and Oscar both use a tit-for-tat strategy so that a cooperative equilibrium occurs each time they play the game, how much profit do Felix and Oscar make?
If the game is played repeatedly and Felix and Oscar both use a tit-for-tat strategy so that a cooperative equilibrium occurs, then each time they play the game, .
A. Felix will make $7 million and Oscar will comply
B. each firm will make $6 million profit
C. each firm will make $4 million profit
D. Felix will make $3 million and Oscar will cheat
4) Which of the following is a criminal offence under Canada's anti-combine law?
A. refusal to deal
B. bid−rigging
C. abuse of a dominant market position
D. exclusive dealing
5) Jay and Boyd are racing to develop a new brandof
coconut milk that they both believe will be the next big soft drinkthe next big soft drink. The payoff matrix shows the economic profit in millions of dollars for the game that Jay and Boyd play.Choose the correct statement.
A. Jay and Boyd will never cooperate in this research.
B. Jay and Boyd will cooperate in this research every time they play the game.
C. Jay and Boyd will cooperate in this research only if a threat exists that a third firm will enter the coconut milk market.
D. It is possible for cooperation in this research and development game if the game is played repeatedly and cheating on the agreement is punished using a tit-for-tat strategy.
6) The law that regulates oligopolies and prevents them from becoming monopolies or behaving like monopolies is .
A. combine law
B. anti-combine law
C. merger and monopoly law
D. antitrust law
7) Hidden Valley has two dance studios, one owned by Pat and the other owned by Danny. Suppose that Pat and Danny have two strategies: collude, fix the monopoly price, and limit the number of dance lessons, or break the collusion, cut the price, and produce more dance lessons.
The payoff matrix gives the economic profit in dollars for the game that Pat and Danny play.
If this game is played just once, what is the Nash equilibrium?
If this game is played just once, the Nash equilibrium is .
A. both Pat and Danny collude
B. Pat colludes and Danny breaks the collusion
C. Pat breaks the collusion and Danny colludes
D. both Pat and Danny break the collusion8)
8) Choose the statement that is incorrect.
A. Resale price maintenance is an offence that is included in a section of Canada's legal code other than the anti-combine law.
B. Resale price maintenance occurs if a manufacturer sets the price at which a retailer must sell its products.
C. Resale price maintenance is a criminal offence.
D. An allegation of resale price maintenance is handled by the courts and the standard level of proof beyond a reasonable doubt must be established.
9) Complete the following sentences.
In a duopoly with a collusive agreement, a firm's best strategy is to , and to .
A. comply if the other firm cheats; cheat if the other firm complies
B. comply if the other firm complies; comply if the other firm cheats
C. cheat if the other firm complies; cheat if the other firm cheats
D. comply if the other firm complies; cheat if the other firm cheats
Firms in a collusive agreement have an incentive to cheat because .
A. the profit received by a cheating firm when all other firms comply is greater than the profit received when all firms comply
B. when the total collusive agreement breaks down, consumers will remember the one firm that gave them a better deal and will remain loyal in the long run
C. cheating decreases costs and increases economic profit
D. the chances of being caught by the other firms is small
10) Choose the statement that is correct.
A. All firms in an oligopoly produce a differentiated product and compete on price, product quality, and marketing.
B. All firms in an oligopoly produce an identical product and compete only on price.
C. An oligopoly is a market with a natural barrier preventing the entry of new firms.
D. The market structure oligopoly lies between perfect competition and monopoly.
11) Novo and Pharm, the only two producers of cold medication, play a research and development (R&D) game
The table shows their economic profit in a payoff matrix for the game they play.
At the Nash equilibrium, what is Novo's economic profit and what is Pharm's economic profit? At the Nash equilibrium, Novo's economic profit is million and Pharm's economic profit is million.
A. $50; −$3 B. $10; $10 C. $15; $15
D. −$3; $50
12) Complete the sentence.
In the prisoners' dilemma, the gives the equilibrium as .
A. strategy table; a bad outcome for only one player
B. strategy matrix; a good outcome for both players
C. payoff matrix; jail time of 2 years for both prisoners
D. payoff matrix; a bad outcome for both players
CHAPTER 14 B
1) A market in which firms can enter and leave so easily that firms in the market face competition from potential entrants
is a market.
A. cooperative
B. perfectly competitive
C. potential
D. contestable
2) Canada's anti-combine law dates from . A. 1967
B. 2001
C. 1889
D. 1867
3) Brent and Lyle are the only builders of the golf courses in a popular tourist destination. Brent and Lyle can build either 3 golf courses or 4 golf courses each.
They agree to operate as a cartel.
The table gives the economic profits that Brent and Lyle can make.
What is Brent's economic profit at the Nash equilibrium? Brent's economic profit at the Nash equilibrium is $ 4 million.
4) What are the strategies in game theory? In game theory, strategies include .
A. only the winning action of each player
B. all possible actions and payoffs of each player
C. the payoff matrix
D. all possible actions of each player
5) The graph shows the demand curve for cars in 2017.
Suppose that the least-possible cost of producing a car is $10,000 and that the efficient scale is 10,000 cars a month.
Draw the average total cost curve for a car manufacturer in 2017. Label it. The graph shows that the market for cars is a natural oligopoly with .
A. 1 firm
B. 2 firms
C. 3 firms
D. 4 firms
6)
Criminal offences defined in the Competition Act of 1986 include all of the following except .
A. bid-rigging
B. false advertising
C. price fixing
D. abuse of a dominant position
7) When does a duopoly occur? A duopoly occurs when .
A. one producer of two goods sells the goods in a monopoly market
B. two producers of a particular good compete in the same market
C. two producers of two different goods compete in an oligopoly market
D. several producers of two goods compete in a competitive market
8) Deb loves the movies (payoff of 350) and hates wrestling (payoff of minus−350). Jim loves wrestling (payoff of 350) and hates the movies (payoff of minus−350).
But both Deb and Jim prefer to go out together (bonus payoff of 350 each in addition to the payoff from the activity they choose). If they go out separately, they get no bonus.
What is the Nash equilibrium?
The Nash equilibrium is that .
A. both Deb and Jim watch wrestling
B. Deb goes to the movies and Jim watches wrestling
C. both Deb and Jim go to the movies
D. Deb watches wrestling and Jim goes to the movies
9) Choose the correct statement. In an R&D game of chicken, .
A. the Nash equilibrium is unique
B. an outcome with both firms doing R&D is a Nash equilibrium
C. there are two Nash equilibrium outcomes
D. an outcome with no firm doing R&D is a Nash equilibrium
10) Baird and Paxton are the only major producers of a special pet vaccine. Each company has developed a vaccine and aggressively advertises it.
The two firms are locked in a duopolists' dilemma.What is the duopolists' dilemma facing Baird and Paxton?
The duopolists' dilemma facing Baird and Paxton is .
A. whether they could trust each other to raise the price of a vaccine and decrease advertising to raise economic profit
B. what they can do to protect their control of the vaccine market
C. how to increase advertising but at the same time lower average total cost
D. for each firm to be successful in eliminating the other firm from the vaccine market
11) Canada's anti-combine law today is defined in .
A. the Competition Act of 1986
B. the Trudeau Act of 1967
C. the McDonald-Cartier Act of 1901
D. the Sherman Act of 1880
12) Keshia loves the operathe opera (payoff of 70) and hates golf (payoff of minus−70). Oliver loves golf (payoff of 70) and hates the opera (payoff of minus−70).
But both Keshia and Oliver prefer to go out together (bonus payoff of 70 each in addition to the payoff from the activity they choose).If they go out separately, they get no bonus payoff.
Complete the payoff matrix for Keshia and Oliver.
13) Complete the sentence.
In a repeated game, punishments that result in heavy damages are an incentive for players to adopt the strategies that result in a equilibrium.
A. competitive
B. cooperative
C. Nash
D. strategic
