Practice Questions
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In Cournot competition, firms decide on the quantity of output to produce independently and simultaneously. What is the primary assumption about how these firms behave regarding their competitors' output?
In Cournot competition, firms pay attention to what their competitors produce. Other options are incorrect because Some might think firms ignore what ...
In an oligopoly market characterized by a kinked demand curve, how does the prisoner's dilemma affect firms' pricing strategies when one firm considers lowering its price?
Firms will keep their prices the same to avoid losing money. Other options are incorrect because It's a common mistake to think all firms will drop pr...
In a payoff matrix representing two competing firms in an oligopoly, what is the most likely outcome if both firms decide to collude?
When firms work together, they can set higher prices. Other options are incorrect because Some might think one firm can win big while the other loses;...
In a Bertrand competition scenario, firms may engage in collusion to stabilize prices. However, if one firm lowers its price, what is the expected outcome in terms of demand according to the kinked demand curve model?
When one firm lowers its price, customers will switch to that firm for a better deal. Other options are incorrect because Some might think that demand...
In a Cournot competition scenario with two firms, if both firms set their quantities based on the kinked demand curve, what is the likely outcome regarding their pricing strategy relative to the Nash Equilibrium?
Firms will keep their prices higher than the Nash Equilibrium level. Other options are incorrect because Some might think prices will settle at the Na...
In a market with two competing firms, Firm A and Firm B, both firms decide to set their prices simultaneously. If both firms choose a price that maximizes their individual profits given the price of the other firm, they are said to be in which state?
In a Nash Equilibrium, each firm picks the best price, knowing what the other firm will do. Other options are incorrect because This term means many f...
In a game involving two firms in an oligopoly, if both firms have a dominant strategy to set a low price regardless of the competitor's action, what can we conclude about their pricing behavior?
Both firms will choose to set low prices. Other options are incorrect because Some might think both firms will set high prices to maximize profits; Th...
In a market with two firms competing on price, using a payoff matrix can help visualize their potential profits. If Firm A and Firm B both choose to lower their prices, what is the likely outcome for both firms?
When both firms lower their prices, they attract more customers, but their profits drop. Other options are incorrect because Some might think that low...
In a duopoly, if both firms choose their dominant strategies, what is the likely outcome in terms of market pricing and profits?
When both firms in a duopoly act in their best interest, they lower prices to compete. Other options are incorrect because Some might think that both ...
If a firm in an oligopoly chooses to lower its prices, leading to a price war among competitors, which of the following best explains the underlying cause of this behavior?
Firms in an oligopoly want to attract more customers. Other options are incorrect because This suggests that customers control prices completely; This...
Which of the following statements accurately reflect concepts of game theory in oligopolistic markets? Select all that apply.
In oligopolies, firms do not have a dominant strategy that works best no matter what others do. Other options are incorrect because Some think firms a...
Arrange the following concepts in the correct sequence that represents the process of strategic decision-making in oligopolistic markets according to game theory: A) Identifying competitor actions B) Evaluating potential outcomes C) Formulating a response strategy D) Implementing the chosen strategy
First, you identify what your competitors might do. Other options are incorrect because This option suggests you create a response strategy before eva...
Dominant Strategy : Nash Equilibrium :: Oligopoly : ?
In an oligopoly, firms often work together, or collude, to set prices. Other options are incorrect because A monopoly means one company controls the w...
Two major soft drink companies, ColaCo and FizzCorp, are deciding whether to launch a new advertising campaign to increase market share. If both companies choose to advertise, they will split the market but incur high costs. If neither advertises, they maintain current market shares with no additional costs. If one advertises while the other does not, the advertising company gains a significant market share. How should each company strategize according to game theory principles, particularly considering the concept of Nash equilibrium?
Each company should think about what the other might do. Other options are incorrect because This option suggests that both companies should spend mon...
A firm in an oligopoly is considering whether to lower its prices to gain market share. Which of the following categories best describes this strategic decision, and why?
This choice is right because it looks at different outcomes based on price changes. Other options are incorrect because Some might think a dominant st...
In an oligopolistic market, firms often face a strategic decision-making process characterized by the concept of _____. This involves anticipating the actions of competitors and adjusting their own strategies accordingly. Which term best fits this description?
Nash equilibrium is when each firm makes the best decision, knowing what others will do. Other options are incorrect because A dominant strategy is a ...
In an oligopoly, why might firms choose to follow a competitor's price change instead of setting their own price independently?
Firms in an oligopoly often watch each other closely. Other options are incorrect because Some might think that having the lowest price is always best...
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