MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Q 1. The major dilemma facing Boeing and Airbus is the

A) fact that when they collude to maximize their profit, the other firm's profit might be larger than its profit.
B) fact that neither will respond to the behavior of the other.
C) fact that if each firm separately tries to maximize its profit, it might wind up with less profit that otherwise.
D) certainty surrounding the reaction of each firm to the behavior of the other firm.
E) competition from other firms that drives their economic profit to zero.

Q 2. The concepts of mutual interdependence and game theory illustrate the fact that firms competing in oligopoly

A) consider the actions of the rivals before changing the price of their product.
B) engage in frequent price changes.
C) will mutually determine the combined best outcome for all players.
D) ignore the actions of their rivals when considering price changes.
E) never change prices.

Q 3. The possible alternatives for an oligopoly range from the monopoly case with ____ to the perfectly competitive case with ____.

A) low prices; high prices
B) no cooperation among the firms; much cooperation among the firms
C) low profits; high profits
D) low output; high output
E) high output; low output

Q 4. All games have which features?

A) rules, markets, and prices
B) equilibrium, prices, and quantities
C) rules, strategies, and payoffs
D) prices, rules, and payoffs
E) rules, strategies, and costs

Q 5. A firm faces a small number of competitors. This firm is competing in

A) an oligopoly.
B) monopolistic competition.
C) perfect competition.
D) a monopoly.
E) a perfect multi-firm monopoly.

Q 6. The prisoners' dilemma is an example of

A) an oligopoly.
B) a cartel.
C) a game played only once.
D) a repeated game.
E) equilibrium in monopolistic competition.

Q 7. A group of firms acting together to limit output, raise price, and increase economic profit is a called a

A) cartel.
B) monopolistic oligopoly.
C) multi-firm competitive monopoly.
D) duopoly.
E) competitive oligopoly.

Q 8. Game theory is the tool that economists use to analyze strategic behavior, which is behavior that takes into account the ____ behavior of others and the mutual recognition of ____.

A) unexpected; independence
B) random; profit
C) unexpected; interdependence
D) expected; independence
E) expected; interdependence

Q 9. A Nash equilibrium occurs when each player in a game takes the ____ given the action of the other player.

A) most mutually beneficial possible action
B) most unpredictable possible action
C) best possible action for himself or herself
D) worst possible action for himself or herself
E) best possible action for the other player

Q 10. The figure above shows the market demand curve and the ATC curve for a firm. Each firm in the market has the same ATC curve. If the firms in the industry agree to form a cartel, the firms in the industry earn an economic profit if there are ____ firms, each producing ____ units per hour.

A) 2; 4,000
B) 2; 12,000
C) 4; 3,000
D) 3; 4,000
E) 2; 6,000

Q 11. The range in which a duopoly's output falls is less than or equal to the output level in ____ and more than or equal to the output level in ____.

A) monopoly; monopolistic competition
B) monopolistic competition; perfect competition
C) perfect competition; monopoly
D) monopoly; perfect competition
E) monopolistic competition; monopoly

Q 12. If a legal oligopoly exists,

A) there is the possibility that the market is large enough for more firms.
B) the firms always engage in a "tit for tat" strategy.
C) the firms may legally merge and become a monopoly.
D) the firms never collude.
E) monopoly profits cannot be earned.

A) monopoly and oligopoly.
B) perfect competition and monopoly.
C) perfect competition and monopolistic competition.
D) oligopoly and monopolistic competition.
E) perfect competition and oligopoly.

Q 14. Which of the following is true? In the above figure, if the market is

A) perfect competition, output will be Q1 and price will be P1.
B) perfect competition, output will be Q2 and price will be P2.
C) a monopoly, output will be Q1 and price will be P3.
D) a monopoly, output will be Q3 and price will be P3.
E) perfect competition, output will be Q3 and price will be P3.

Q 15. Suppose MCI and AT&T can each charge either 3¢ or 4¢ a minute for a long distance call. The above table illustrates the payoffs, in millions of dollars, from each of the four possible outcomes that could occur in their duopoly setting. If MCI charges 3¢ a minute and AT&T charges 4¢ a minute, then MCI's profit will be ____ million and AT&T's profit will be ____ million.

A) $320; $450
B) $320; $320
C) $450; $450
D) $500; $200
E) $200; $500

Q 16. Suppose MCI and AT&T can each charge either 3¢ or 4¢ a minute for a long distance call. The above table illustrates the payoffs, in millions of dollars, from each of the four possible outcomes that could occur in their duopoly setting. If MCI charges 4¢ a minute and AT&T charges 4¢ a minute, then MCI's profit will be ____ million and AT&T's profit will be ____ million.

A) $450; $450
B) $200; $500
C) $320; $320
D) $320; $500
E) $500; $200

Q 17. What is the conclusion in the prisoners' dilemma?

A) Duopolies almost always reach their best outcome.
B) Firms should not enter a legal duopoly.
C) Two prisoners acting in their own best interest harm their joint interest.
D) There is no Nash equilibrium available to the prisoners.
E) Prisoners do not act interdependently.

Q 18. The only two firms in a market are trying to decide what price to charge. The payoff matrix for this duopoly game is shown above. The payoffs are thousands of dollars of economic profit. In the above game, in the Nash equilibrium,

A) Firm A and Firm B are both making $55,000 in economic profit.
B) Firm A is making $60,000 and Firm B is making $55,000 in economic profit.
C) Firm A and Firm B are both making $60,000 in economic profit.
D) Firm A and Firm B are both making $40,000 in economic profit.
E) Firm A and Firm B are both making $35,000 in economic profit.

Q 19. How is a firm in an oligopoly similar to a monopoly?

A) Both types of firms produce a standardized product.
B) Both types of firms must make a decision whether or not to collude to push their price higher.
C) The behavior of both types of firms can be analyzed using game theory.
D) Both types of firms are price takers.
E) Both types of firms operate behind natural or legal barriers to entry.

Q 20. Game theory is used to analyze the interactions among firms in ____.

A) oligopoly.
B) perfect competition.
C) monopoly.
D) monopolistic competition.
E) Both answers A and D are correct.