1. Characteristics of an Oligopoly, Which Can Be Demonstrated by Game Theory, Include Which of the Following? I

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1. Characteristics of an oligopoly, which can be demonstrated by game theory, include which of the following? I. Collusion can increase oligopolists’ profits. II. Oligopolistic firms are interdependent. III. Few barriers to entry exist. a. I only b. II only c. III only d. I and II only e. I, II, and III 2. Which of the following is true of a cartel? a. Customers substitute away from the good when the price increases. b. Individual cartel members are tempted to cheat on the agreement. c. Although the total gain to cartel members is positive, all members lose when everyone sticks to the agreement. d. Some firms will reduce output in an effort to lower costs of production. e. Oligopolistic behavior is generally predictable as production occurs where MC=MR. Questions 3 and 4 refer to Royal’s Fast Food this payoff matrix: High price Low price High price 120, 85 150, 120 Brewer’s Fast Food Low price 65, 100 50, 80 3. Based on the payoff matrix above, which of the following statements is true? a. Brewer’s has a dominant strategy to choose high prices. b. Brewer’s has a dominant strategy to choose low prices. c. Royal’s has a dominant strategy to choose high prices. d. Royal’s has a dominant strategy to choose low prices. e. Neither restaurant has a dominant strategy. 4. What is the Nash equilibrium in the game above? a. Both fast food restaurants choose high prices. b. Both fast food restaurants choose low prices. c. Brewer’s chooses high and Royal’s chooses low. d. Brewer’s chooses low and Royal’s chooses high. e. There is no Nash equilibrium in the game above. Question 5 uses the following payoff matrix, in which two companies decide whether to promote fries or shakes. Company Y Fries Shakes Fries 9, 7 5, 2 Company X Shakes 3, 8 6, 12 5. What is the Nash equilibrium or equilibria in the game above? a. X plays Fries and Y plays Fries b. X plays Shakes and Y plays Shakes c. X plays Fries and Y plays Shakes d. X plays Fries and Y plays Fries; and X plays Shakes and Y plays Shakes e. No Nash equilibrium/a exist. 6. 2013 AP Micro FRQ #2 7. 2009 AP Micro FRQ #3 Bonus: Pirate game! Pirates A, B, C have 100 coins to split. Pirate A is slightly stronger than Pirate B, who is slightly stronger than Pirate C. Only two of the three pirates must agree on the split (majority rule). Pirate A proposes first. If other pirates don’t agree, he walks the plank and dies. Then Pirate B may propose a split and Pirate C may or may not accept the split. How are the coins split? What happens to the pirates? .

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