Question 1

Scenario 17-5
Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost.
-Refer to Scenario 17-5. If the restaurant is able to use tying to price salads and steaks, what is the profit-maximizing price to charge for the "tied" good?
A)$27
B)$20
C)$19
D)$15

Accepted Answer

The answer of Scenario 17-5
Assume that a local restaurant sells...

Question 2

Scenario 17-5
Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost.
-Refer to Scenario 17-5. If the restaurant is unable to use tying, what is the profit-maximizing price to charge for a salad?
A)$16
B)$14
C)$12
D)$7

Accepted Answer

The answer of Scenario 17-5
Assume that a local restaurant sells...

Question 3

The prisoners' dilemma game
A)provides insight into why cooperation is individually rational.
B)provides insight into why cooperation is difficult.
C)is a game in which neither player has a dominant strategy.
D)is a game in which exactly one of the two players has a dominant strategy.

Accepted Answer

The prisoners' dilemma game provides insight into why cooperation is difficult. In this game, both players have a dominant strategy of not cooperating, even though cooperation would lead to a better outcome for both. This highlights the challenge of achieving cooperation in situations where individual incentives do not align with the collective interest.

Question 4

The prisoners' dilemma provides insights into the
A)difficulty of maintaining cooperation.
B)benefits of avoiding cooperation.
C)benefits of government ownership of monopoly.
D)ease with which oligopoly firms maintain high prices.

Accepted Answer

The prisoners' dilemma is a classic game theory example that illustrates the challenges of maintaining cooperation between two rational individuals, even when it is in their mutual best interest to do so. The dilemma shows that even though both individuals would benefit from cooperating, self-interest often leads to both players defecting instead, resulting in a suboptimal outcome for both. This has implications for many real-world scenarios, including international relations, business strategy, and environmental policy.

Question 5

The prisoners' dilemma is an important game to study because
A)most games present zero-sum alternatives.
B)it identifies the fundamental difficulty in maintaining cooperative agreements.
C)strategic decisions faced by prisoners are identical to those faced by firms engaged in competitive agreements.
D)all interactions among firms are represented by this game.

Accepted Answer

The prisoners' dilemma is an important game to study because it identifies the fundamental difficulty in maintaining cooperative agreements. It demonstrates how individual self-interest can lead to suboptimal outcomes for both parties and highlights the importance of trust and communication in achieving mutually beneficial outcomes.

Question 6

When strategic interactions are important to pricing and production decisions, a typical firm will
A)set the price of its product equal to marginal cost.
B)consider how competing firms might respond to its actions.
C)generally operate as if it is a monopolist.
D)consider exiting the market.

Accepted Answer

When strategic interactions are important to pricing and production decisions, a typical firm will consider how competing firms might respond to its actions in order to make informed decisions and remain competitive in the market. Simply setting the price equal to marginal cost or operating as a monopolist may not be effective strategies in a competitive marketplace. Exiting the market may also be an option, but it is not a typical response to strategic interactions.

Question 7

In the U.S. government's 1998 suit against the Microsoft Corporation, a central issue was whether Microsoft should be allowed to integrate its Internet browser into its Windows operating system. Microsoft responded that
A)this integration of products is an example of tying, and the U.S. Supreme Court has consistently ruled that tying is a perfectly acceptable and legal business practice.
B)this integration of products is an example of resale price maintenance, and the U.S. Supreme Court has consistently ruled that fair trade is a perfectly acceptable and legal business practice.
C)putting new features into old products is a natural part of technological practice.
D)it would discontinue this integration of products, provided a speedy resolution of the government's case could be reached.

Accepted Answer

Microsoft's response was that putting new features into old products is a natural part of technological practice, which suggests that they thought this was a common business practice and not necessarily illegal. The other answer choices are incorrect because they refer to legal precedents that do not apply to the specific case at hand.

Question 8

Scenario 17-5
Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost.
-Refer to Scenario 17-5. If the restaurant is unable to use tying, what is the profit-maximizing price to charge for a steak?
A)$20
B)$16
C)$12
D)$8

Accepted Answer

The answer of Scenario 17-5
Assume that a local restaurant sells...

Question 9

The likely outcome of the standard prisoners' dilemma game is that
A)neither prisoner confesses.
B)exactly one prisoner confesses.
C)both prisoners confess.
D)Not enough information is given to answer this question.

Accepted Answer

In the standard prisoners' dilemma game, the dominant strategy for each player is to confess, which leads to the outcome where both prisoners confess. This outcome is known as the Nash equilibrium. While it may seem rational for each prisoner to stay silent in order to receive a lower sentence, the risk of the other prisoner confessing and receiving a more lenient sentence is too high. Therefore, both prisoners end up confessing, regardless of their personal interests.

Question 10

In the prisoners' dilemma game with Bonnie and Clyde as the players, the likely outcome is one
A)in which neither Bonnie nor Clyde confesses.
B)in which both Bonnie and Clyde confess.
C)that involves neither Bonnie nor Clyde pursuing a dominant strategy.
D)that is ideal in terms of Bonnie's self-interest and in terms of Clyde's self-interest.

Accepted Answer

In the prisoners' dilemma game, the most likely outcome is one in which both players confess. This is because each player has a dominant strategy of confessing, regardless of what the other player does. However, this outcome is not ideal for either player, as both will serve a longer sentence if they both confess than if they both stay silent. Nonetheless, since each player is incentivized to confess regardless of what the other player does, the equilibrium outcome is for both players to confess.

Question 11

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?
A)resale price maintenance
B)tying
C)predatory pricing
D)free-riding

Accepted Answer

This argument is used to justify the legality of tying. Tying is the practice of requiring a consumer to purchase one product in order to purchase another product. The argument suggests that if the price of the tied products is higher than the separate products, consumers will not be willing to pay the higher price and therefore tying does not harm competition.

Question 12

When firms are faced with making strategic choices to maximize profit, economists typically use
A)the theory of monopoly to model their behavior.
B)the theory of aggressive competition to model their behavior.
C)game theory to model their behavior.
D)cartel theory to model their behavior.

Accepted Answer

Game theory is particularly useful in modeling the strategic choices of firms as it allows for the analysis of interdependent decision-making in situations where the outcome of one player's decision depends on the decisions of other players. It can help firms determine the best course of action taking into account the actions of their competitors, the potential for collaboration, and the impact of external factors such as market demand and price elasticity. The use of game theory can assist firms in making optimal decisions in complex strategic situations.

Question 13

Suppose that Makemoney Movies produces two new films - The Hulk and The Piano. Makemoney offers theaters the two films together at a single price but will not supply the movies separately. What do economists call this business practice?
A)predatory pricing
B)resale price maintenance
C)tying
D)leverage

Accepted Answer

The business practice described is known as tying. Makemoney is forcing theaters to purchase both movies together, known as a tie-in sale, instead of allowing the theaters to choose which movies they would like to purchase separately.

Question 14

The practice of tying is used to
A)enhance the enforcement of antitrust laws.
B)encourage the enforcement of collusive agreements.
C)control the retail price of a collection of related products.
D)package products to sell at a combined price closer to a buyer's total willingness to pay.

Accepted Answer

The practice of tying involves selling multiple products together as a package deal, often at a combined price that is closer to a buyer's total willingness to pay than if the products were sold separately. This can be a way to increase overall sales and capture more value from customers. It is not related to enforcing antitrust laws or collusive agreements, and while it can control the retail price of a collection of products, that is not the primary reason for tying products together.

Question 15

Game theory is important for the understanding of
A)competitive markets.
B)monopolies.
C)oligopolies.
D)all market structures.

Accepted Answer

The answer of Game theory is important for the understanding...

Question 16

Game theory is necessary for understanding
A)all market structures.
B)competition and oligopoly, but it is not necessary for understanding monopoly.
C)monopoly and oligopoly, but it is not necessary for understanding competition.
D)oligopoly, but it is not necessary for understanding monopoly or competition.

Accepted Answer

The answer of Game theory is necessary for understanding
A)all market...

Question 17

A particular cable TV company requires a household to subscribe to its high-speed Internet service if it subscribes to cable TV, and vice versa. This practice
A)is referred to as tying.
B)is regarded by some economists as a form of price discrimination.
C)is controversial among economists because they disagree on whether it has adverse effects for society as a whole.
D)All of the above are correct.

Accepted Answer

The answer of A particular cable TV company requires a...

Question 18

Scenario 17-5
Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost.
-Refer to Scenario 17-5. How much additional profit can the restaurant earn by switching to the use of a tying strategy to price salads and steaks rather than pricing these goods separately?
A)$20
B)$12
C)$7
D)$6

Accepted Answer

The answer of Scenario 17-5
Assume that a local restaurant sells...

Question 19

In the prisoners' dilemma game, self-interest leads
A)each prisoner to confess.
B)to a breakdown of any agreement that the prisoners might have made before being questioned.
C)to an outcome that is not particularly good for either prisoner.
D)All of the above are correct.

Accepted Answer

All of the options given are correct. In the prisoner's dilemma game, the dominant strategy for each player is to confess, which leads to a suboptimal outcome for both players. Even if the players make an agreement to cooperate, the temptation to defect for personal gain is high, leading to a breakdown of the agreement. Therefore, self-interest ultimately leads to an unfavorable outcome for both players.

Question 20

A central issue in the Microsoft antitrust lawsuit involved Microsoft's integration of its Internet browser into its Windows operating system, to be sold as one unit. This practice is known as
A)tying.
B)predation.
C)wholesale maintenance.
D)retail maintenance.

Accepted Answer

The practice of integrating one product into another and selling them as a single unit, as Microsoft did with its Internet browser and Windows operating system, is called tying.

Quiz 17: Oligopoly

The prisoners' dilemma game

The prisoners' dilemma provides insights into the

The prisoners' dilemma is an important game to study because

When strategic interactions are important to pricing and production decisions, a typical firm will

In the U.S. government's 1998 suit against the Microsoft Corporation, a central issue was whether Microsoft should be allowed to integrate its Internet browser into its Windows operating system. Microsoft responded that

The likely outcome of the standard prisoners' dilemma game is that

In the prisoners' dilemma game with Bonnie and Clyde as the players, the likely outcome is one

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

When firms are faced with making strategic choices to maximize profit, economists typically use

Suppose that Makemoney Movies produces two new films - The Hulk and The Piano. Makemoney offers theaters the two films together at a single price but will not supply the movies separately. What do economists call this business practice?

The practice of tying is used to

Game theory is important for the understanding of

Game theory is necessary for understanding

A particular cable TV company requires a household to subscribe to its high-speed Internet service if it subscribes to cable TV, and vice versa. This practice

In the prisoners' dilemma game, self-interest leads

A central issue in the Microsoft antitrust lawsuit involved Microsoft's integration of its Internet browser into its Windows operating system, to be sold as one unit. This practice is known as