Intel and AMD are a duopoly that produce CPU chips. Intel and AMD can conduct R&D or they can not conduct R&D. The table above shows the payoff matrix for the two firms. The numbers are millions of dollars of profit. The Nash equilibrium is for Intel to ________ and for AMD to ________ .
A) conduct R&D; conduct R&D
B) conduct R&D; not conduct R&D
C) not conduct R&D; conduct R&D
D) not conduct R&D; not conduct R&D
E) conduct R&D; either conduct R&D or not conduct R&D, the equilibrium could be either choice for AMD
32) Intel and AMD are a duopoly that produce CPU chips. Intel and AMD can conduct R&D or they can not conduct R&D. The table above shows the payoff matrix for the two firms. If AMD is playing a tit-for-tat strategy, then if Intel conducted R&D last period, AMD
A) definitely conducts R&D this period.
B) definitely does not conduct R&D this period.
C) might conduct R&D or might not conduct R&D, depending on Intel's profit.
D) might conduct R&D or might not conduct R&D, depending on its profit.
E) might conduct R&D or might not conduct R&D, but more information is needed to determine its action.
33) Intel and AMD are a duopoly that produce CPU chips. Intel and AMD can conduct R&D or they can not conduct R&D. The table above shows the payoff matrix for the two firms. AMD is playing a tit-for-tat strategy and Intel did not conduct R&D last period. Then, of the following answers, Intel's total profit for the next two periods is the highest if Intel ________ R&D this period and ________ R&D next period.
A) conducts; conducts
B) does not conduct; conducts
C) conducts; does not conduct
D) does not conduct; does not conduct
E) conducts; either conducts or does not conduct because the profit is the same in either case
34) One of the main tools economists use to analyze strategic behavior is
A) the Herfindahl-Hirschman Index.
B) game theory.
C) cartel theory.
D) the collusion index.
E) dual theory, which is used to study duopolies.
35) Game theory reveals that
A) the equilibrium might not be the best solution for the parties involved.
B) firms in oligopoly are not interdependent.
C) each player looks after what is best for the industry.
D) if all firms in an oligopoly take the action that maximizes their profit, then the equilibrium will have the largest possible combined profit of all the firms.
E) firms in an oligopoly choose their actions without regard for what the other firms might do.
36) A Nash equilibrium occurs
A) when each player acts without considering the actions of the other player.
B) when each player takes the best possible action given the action of the other player.
C) only when players use the tit-for-tat strategy.
D) only when the game is played in Nashville, TN.
E) when each player takes the action that makes the combined payoff for all players as large as possible.
37) The prisoners' dilemma game
A) shows that prisoners are better off if they cooperate.
B) shows it is easy to cooperate.
C) has an equilibrium in which both prisoners are made as well off as possible.
D) would have the same outcome even if the prisoners can communicate and cooperate.
E) has an equilibrium in which one prisoner is made as well off as possible and the other prisoner is made as worse off as possible.
38) A collusive agreement to form a cartel is difficult to maintain because
A) each member firm can increase its own profits by cutting its price and selling more.
B) forming a cartel is legal but frowned upon throughout the world.
C) supply will decrease because of the high cartel price.
D) demanders will rebel once they realize a cartel has been formed.
E) each firm can increase its profit if it decreases its production even more than the decrease set by the cartel.
39) Firms in oligopoly can achieve an economic profit
A) always in the long run.
B) if they cooperate.
C) only if the demand for their products is inelastic.
D) only if the demand for their products is elastic.
E) if they reach the non-cooperative equilibrium.
40) When duopoly games are repeated and a "tit for tat" strategy is used,
A) the competitive outcome is more likely to be reached than when the game is played once.
B) the monopoly outcome is more likely to be reached than when the game is played once.
C) both firms begin to incur economic losses.
D) one firm goes out of business.
E) because the game is repeated it is impossible to predict whether the competitive or the monopoly outcome is more likely.
41) Oligopoly is
A) always efficient.
B) efficient only if the firms cooperate.
C) efficient only if the firms play non-repeated games.
D) generally not efficient.
E) efficient only if the firms innovate.
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