ECO 550 MIDTERM EXAM

    1.    Evidence from empirical studies of long-run cost-output relationships lends support to the:
a.    existence of a non-linear cubic total cost function
b.    hypothesis that marginal costs first decrease, then gradually increase over the normal operating range of the firm
c.    hypothesis that total costs increase quadratically over the ranges of output examined
d.    hypothesis that total costs increase linearly over some considerable range of output examined
e.    none of the above

    2.    The short-run cost function is:
a.    where all inputs to the production process are variable
b.    relevant to decisions in which one or more inputs to the production process are fixed
c.    not relevant to optimal pricing and production output decisions
d.    crucial in making optimal investment decisions in new production facilities
e.    none of the above

    3.    Theoretically, in a long-run cost function:
a.    all inputs are fixed
b.    all inputs are considered variable
c.    some inputs are always fixed
d.    capital and labor are always combined in fixed proportions
e.    b and d

4.    Break-even analysis usually assumes all of the following except:
a.    in the short run, there is no distinction between variable and fixed costs. 
b.    revenue and cost curves are straight-lines throughout the analysis.
c.    there appears to be perfect competition since the price is considered to remain the same regardless of quantity.
d.    the straight-line cost curve implies that marginal cost is constant.
e.    both c and d

    
5.    What is another term meaning the degree of operating leverage?
a.    The measure of the importance of fixed cost.
b.    The operating profit elasticity.
c.    The measure of business risk.
d.    D.O.L.
e.    All of the above.

6.    In a study of banking by asset size over time, we can find which asset sizes are tending to become more prominent.  The size that is becoming more predominant is presumed to be least cost. This is called:
a.    regression to the mean analysis.
b.    breakeven analysis.
c.    survivorship analysis.
d.    engineering cost analysis.
e.    a Willie Sutton analysis.

7.    George Webb Restaurant collects on the average $5 per customer at its breakfast & lunch diner. Its variable cost per customer averages $3, and its annual fixed cost is $40,000.  If George Webb wants to make a profit of $20,000 per year at the diner, it will have to serve__________ customers per year.
a.    10,000 customers
b.    20,000 customers
c.    30,000 customers
d.    40,000 customers
e.    50,000 customers

    8.    Which of the following is not a limitation of the survivor technique for measuring the optimum size of firms within an industry?
a.    since the technique does not employ actual cost data in the analysis, there is no way to assess the magnitude of the cost differentials between firms of varying size and efficiency.
b.    the managerial and entrepreneurial aspects of the production process are not included in the analysis
c.    because of legal factors, the long-run cost curve derived by this technique may be distorted and may not measure the cost curve postulated in economic theory
d.    a and b
e.    b and c

    9.    The primary disadvantage of engineering methods for measuring cost functions is that they deal with the managerial and entrepreneurial aspects of the production process or plant.
a.    True
b.    False

    10.    A linear total cost function implies that:
a.    marginal costs are constant as output increases
b.    average total costs are continually decreasing as output increases
c.    a and b
d.    none of the above

    11.    A ____ total cost function implies that marginal costs ____ as output is increased.
a.    linear; increase linearly
b.    quadratic; increase linearly
c.    cubic; increase linearly
d.    a and b
e.    none of the above

    12.    A ____ total cost function implies that marginal costs ____ as output is increased.
a.    linear; increase linearly
b.    quadratic; are constant
c.    cubic; increase linearly
d.    linear; are constant
e.    none of the above

 13.    A ____ total cost function yields a U-shaped average total cost function.
a.    Cubic
b.    Quadratic
c.    Linear
d.    a and b only
e.    a, b, and c

    14.    In the linear breakeven model, the difference between selling price per unit and variable cost per unit is referred to as:
a.    variable margin per unit
b.    variable cost ratio
c.    contribution margin per unit
d.    target margin per unit
e.    none of the above

    15.    Which of the following is not an assumption of the linear breakeven model:
a.    constant selling price per unit
b.    decreasing variable cost per unit
c.    fixed costs are independent of the output level
d.    a single product (or a constant mix of products) is being produced and sold
e.    all costs can be classified as fixed or variable

    16.    In the linear breakeven model, the breakeven sales volume (in dollars) is equal to fixed costs divided by:
a.    unit selling price less unit variable cost
b.    contribution margin per unit
c.    one minus the variable cost ratio
d.    a and b only
e.    a, b, and c

    17. The degree of operating leverage is equal to the ____ change in ____ divided by the ____ change in ____.
a.    percentage; sales; percentage; EBIT
b.    unit; sales; unit; EBIT
c.    percentage; EBIT; percentage; sales
d.    unit; EBIT; unit; sales
e.    none of the above

    18. The linear breakeven model excludes ____ from the analysis.
a.    financing costs
b.    Taxes
c.    contribution margin
d.    a and b only
e.    a, b, and c

    19.In the linear breakeven model, the relevant range of output is that range where the linearity assumptions of the model are assumed to hold.
a.    True
b.    False

  20.    In the linear breakeven model, the breakeven sales volume (in dollars) can be found by multiplying the breakeven sales volume (in units) by:
a.    one minus the variable cost ratio
b.    contribution margin per unit
c.    selling price per unit
d.    standard deviation of unit sales
e.    none of the above

  21.    In the linear breakeven model, a firm incurs operating losses whenever output is less than the breakeven level.
a.    True
b.    False

1.    The main difference between perfect competition and monopolistic competition is:
a.    The number of sellers in the market
b.    The ease of entry and exit in the industry
c.    The degree of information about market price
d.    The degree of product differentiation
e.    Whether it is the short run or the long run

2.    Long distance telephone service has become a competitive market. The average cost per call is $0.05 a minute, and it’s declining.  The likely reason for the declining price for long distance service is:
a.    Governmental pressure to lower the price
b.    Reduced demand for long distance service
c.    Entry into this industry pushes prices down
d.    Lower price for a barrel of crude oil
e.    Increased cost of providing long distance service

3. What is the profit maximization point for a firm in a purely competitive environment?
a.    The output where P = MC
b.    The output where P < MC
c.    The output where P > MC
d.    The output where MR = MC
e.    The output where AVC < P

4. All of the following are true for both competition and monopolistic competition in the long run, except one of them.  Which is it? 
a.    P = MC
b.    P = AC
c.    Economic profits become zero in the long-run
d.    The barriers to entry and exit are relatively easy
e.    None of the above is an exception

5.    Which of the following statements is (are) true concerning a pure competition situation?
a.    Its demand curve is represented by a vertical line.
b.    Firms must sell at or below market price.
c.    Marginal revenue is equal to price.
d.    both b and c
e.    both a and b

    6.    In pure competition:
a.    the optimal price-output solution occurs at the point where marginal revenue is equal to price
b.    a firm's demand curve is represented by a horizontal line
c.    a firm is a price-taker since the products of every producer are perfect substitutes for the products of every other producer
d.    a and b only
e.    a, b, and c

    7.    In the short-run for a purely competitive market, a manufacturer will stop production when:
a.    the total revenue is less than total costs
b.    the contribution to fixed costs is zero or less
c.    the price is greater than AVC
d.    operating at a loss
e.    a and b

    8.    In the purely competitive case, marginal revenue (MR) is equal to:
a.    cost
b.    profit
c.    price
d.    total revenue
e.    none of the above
    9.    In long-run equilibrium, all firms in a pure competition market situation operating under a condition of certainty will have identical costs even though they may use different production and operation techniques.
a.    true
b.    false
10.    If price exceeds average costs under pure competition, ____ firms will enter the industry, supply will ____, and price will be driven ____.
a.    more; decrease; down
b.    more; decrease; up
c.    more; increase; down
d.    more; increase; up
e.    none of the above

    11.    A firm in pure competition would shut down when:
a.    price is less than average total cost
b.    price is less than average fixed cost
c.    price is less than marginal cost
d.    price is less than average variable cost

    12.    In the long-run, firms in a monopolistically competitive industry will
a.    earn substantial economic profits
b.    tend to just cover costs, including normal profits
c.    seek to increase the scale of operations
d.    seek to reduce the scale of operations

    13.    Uncertainty includes all of the following except ____.
a.    unknown effects of deliberate actions
b.    incomplete information as to the type of competitor
c.    random disturbances
d.    unverifiable claims
e.    accidents due to weather hazards

    14.    Experience goods are products or services
a.    that the customer already knows
b.    whose performance is highly unusual
c.    whose quality is undetectable when purchased
d.    not likely to cause repeat purchases
e.    all of the above

    15.    Buyers anticipate that the temporary warehouse seller of unbranded computer equipment will
a.    deliver high quality products consistent with expectations
b.    not attempt to establish any warranty enforcement mechanisms
c.    offer several prices and qualities
d.    produce only one quality
e.    none of the above

    16.    All of the following are mechanisms which reduce the adverse selection problem except ____.
a.    warranties from established enterprises with non-redeployable assets
b.    high interest rates
c.    large collateral requirements
d.    brand names and product-specific promotions and retail displays
e.    higher prices in repeat customer transactions

    17.    Asset specificity is largest when
a.    value in first best use is large
b.    value in second best use is large
c.    customers choose their supplier at random
d.    very valuable assets are non-redeployable
e.    customers are loyal to a particular seller

    18.    Under asymmetric information,
a.    you never get what you pay for
b.    you sometimes get cheated
c.    you always get cheated
d.    at best you get what you pay for
e.    sellers make profits in excess of competitive returns

    19.    To escape adverse selection and elicit high quality experience goods buyers can
a.    offer price premiums to new firms in the market
b.    seek out unbranded goods
c.    buy from generic storefronts that have leased temporary space
d.    secure warranties from warehouse retailers
e.    none of the above

    20.    The problems of asymmetric information exchange arise ultimately because
a.    one party to the exchange possesses different information than another
b.    one party has more information than another
c.    one party knows nothing
d.    one party cannot independently verify the information of another
e.    information is scarce

    21.    The market for "lemons" is one in which
a.    the rational buyer discounts
b.    the seller's product claims are unverifiable at the point of purchase
c.    "the bad apples drive out the good"
d.    the problem of adverse selection is rampant
e.    all of the above

    22.    The fraudulent delivery of low quality experience goods at high prices is more likely if
a.    interest rates decline
b.    information about notorious firms is speedily disseminated
c.    price premiums for allegedly high quality increase
d.    sellers invest in non-transferable reputation
e.    none of the above

23.    An "experience good" is one that:
a.    Only an expert can use
b.    Has undetectable quality when purchased
c.    Can be readily experienced simply by touching or tasting
d.    Improves with age, like a fine wine
e.    All of the above

24.    A "search good" is:
a.    One that depends on how the product behaves over time
b.    A product whose quality is only found out over time by finding how durable it is
c.    Like a peach that can be examined for flaws
d.    Like a used car, since it is easy to determine its inherent quality
e.    None of the above

25.    The price for used cars is well below the price of new cars of the same general quality.  This is an example of:
a.    The Degree of Operating Leverage
b.    A Lemon's Market
c.    Redeployment Assets
d.    Cyclical Competition
e.    The Unemployment Rate

1.    Unique Creations has a monopoly position in magnometers.  If the marginal cost for a magnometer is $50 and the price elasticity for magnometers is -4, what is the optimal monopoly price? 
    Hint:  P (1 +1/E) = MC.
a.    $37.50
b.    $41.25
c.    $66.67
d.    $75.00
e.    $82.50

2.    Land’s End estimates a demand curve for turtleneck sweaters to be:
Log Q = .41 + 2.3 Log Y - 3 Log P     
where Q is quantity, P is price, and Y is a measure on national income.  If the marginal cost of imported turtleneck sweaters is $9.00.  (HINT:  P (1 +1/E) = MC).  The optimal monopoly price would be:
a.    P = $13.50
b.    P = $26.50
c.    P = $27.50
d.    P = $34.50
e.    P = $56.22
        
3.    Declining cost industries
a.    have upward rising AC curves.
b.    have upward rising demand curves.
c.    have-shaped total costs.
d.    have diseconomies of scale.
e.    have marginal cost curves below their average cost curve.

4.    A monopolist seller of Irish ceramics faces the following demand function for its product: P = 62 - 3Q.  The fixed cost is $10 and the variable cost per unit is $2.  What is the maximizing QUANTITY for this monopoly?  Hint:  MR is twice as steep as the inverse demand curve:  MR = 62 – 6 Q. (Pick closest answer)  
a.    Q = 10
b.    Q = 15
c.    Q = 22
d.    Q = 37
e.    Q = 41

5.    Globo Public Supply has $1,000,000 in assets.  Its demand curve is: P = 206 - .20•Q and its total cost function is: TC = 20,000 + 6•Q where TC excludes the cost of capital.  If Globo Public Supply is UNREGULATED, find Globo's optimal price.
a.    $206
b.    $106
c.    $56
d.    $6
e.    $3

6.    A monopolist faces the following demand curve: P = 12 - .3Q with marginal costs of $3.  What is the monopolistic PRICE?
a.    P = $5.50
b.    P = $6.50
c.    P = $7.50
d.    P = $8.50
e.    P = $9.50

7.    In natural monopoly, AC continuously declines due to economies in distribution or in production, which tends to found in industries which face increasing returns to scale.  If price were set equal to marginal cost, then:
a.    price would equal average cost.
b.    price would exceed average cost.
c.    price would be below average cost.
d.    price would be at the profit maximizing level for natural monopoly
e.    all of the above

8.        The profit-maximizing monopolist, faced with a negative-sloping demand curve, will always produce:
a.    at an output greater than the output where average costs are minimized
b.    at an output short of that output where average costs are minimized
c.    at an output equal to industry output under pure competition
d.    a and c
e.    none of the above

    9.    In the case of pure monopoly:
a.    one firm is the sole producer of a good or service which has no close substitutes
b.    the firm's profit is maximized at the price and output combination where marginal cost equals marginal revenue
c.    the demand curve is always elastic
d.    a and b only
e.    a, b, and c

    10.    A monopoly will always produce less than a purely competitive industry, ceteris paribus.
a.    true
b.    false

    11.    The demand curve facing the firm in ____ is the same as the industry demand curve.
a.    pure competition
b.    monopolistic competition
c.    oligopoly
d.    pure monopoly
e.    none of the above

    12.    When the cross elasticity of demand between one product and all other products is low, one is generally referring to a(n) ____ situation.
a.    oligopoly
b.    monopoly
c.    pure competition
d.    substitution
e.    monopolistic competition

    14.    Of the following, which is not an economic rationale for public utility regulation?
a.    production process exhibiting increasing returns to scale
b.    constant cost industry
c.    avoidance of duplication of facilities
d.    protection of consumers from price discrimination
e.    none of the above

    15.    The practice by telephone companies of charging lower long-distance rates at night than during the day is an example of:
a.    inverted block pricing
b.    second-degree price discrimination
c.    peak-load pricing
d.    first-degree price discrimination
e.    none of the above
    16.    In the electric power industry, residential customers have relatively ____ demand for electricity compared with large industrial users.  But contrary to price discrimination, large industrial users generally are charged ____ rates.
a.    similar, similar
b.    elastic, lower
c.    elastic, higher
d.    inelastic, lower
e.    inelastic, higher

    17.    ____ as practiced by public utilities is designed to encourage greater usage and therefore spread the fixed costs of the utility's plant over a larger number of units of output.
a.    Peak load pricing
b.    Inverted block pricing
c.    Block pricing
d.    First degree price discrimination
e.    none of the above

    18.    Regulatory agencies engage in all of the following activities except _______.
a.    controlling entry into the regulated industries
b.    overseeing the quality of service provided by the firms
c.    setting federal and state income tax rates on regulated firms
d.    setting prices that consumers will pay
e.    none of the above

    1.    "Conscious parallelism of action" among oligopolistic firms is an example of ____.
a.    intense rivalry
b.    a formal collusive agreement
c.    informal, or tacit, cooperation
d.    a cartel
e.    none of the above

    2.    The kinked demand curve model was developed to help explain:
a.    fluctuations of prices in pure competition
b.    rigidities observed in prices in oligopolistic industries
c.    fluctuations observed in prices in oligopolistic industries
d.    all of the above
e.    none of the above

    3.    An oligopoly is characterized by:
a.    a relatively small number of firms
b.    either differentiated or undifferentiated products
c.    actions of any individual firm will affect sales of other firms in the industry
d.    a and b
e.    a, b, and c

    4.    Which of the following is an example of an oligopolistic market structure?
a.    public utilities
b.    air transport industry
c.    liquor retailers
d.    wheat farmers
e.    none of the above

    5.    In the Cournot duopoly model, each of the two firms, in determining its profit-maximizing price-output level, assumes that the other firm's ____ will not change.
a.    price
b.    output
c.    marketing strategy
d.    inventory
e.    none of the above

    6.    If a cartel seeks to maximize profits, the market share (or quota) for each firm should be set at a level such that the ____ of all firms is identical.
a.    average total cost
b.    average profit
c.    marginal profit
d.    marginal cost
e.    marginal revenue

    7.    In the absence of any legally binding enforcement mechanism, individual cartel producers may find it advantageous to cheat on the agreements and engage in secret price concessions.
a.    true
b.    false

    8.    A(n) ____ is characterized by a relatively small number of firms producing a product.
a.    monopoly
b.    syndicate
c.    cooperative
d.    oligopoly
e.    none of the above

    9.    The distinctive characteristic of an oligopolistic market structure is that there are recognizable interdependencies among the decisions of the firms.
a.    true
b.    false

    10.    Factors that affect the ability of oligopolistic firms to successfully engage in cooperation include ____.
a.    number and size distribution of sellers
b.    size and frequency of orders
c.    product heterogeneity
d.    a and b only
e.    a, b, and c

    11.    Effective oligopolistic collusion is more likely to occur when customer orders are small, frequent, and received on a regular basis as compared with large orders that are received infrequently at irregular intervals.
a.    true
b.    false

    12.    Effective collusion generally is more difficult as the number of oligopolistic firms involved increases.
a.    true
b.    false

    13.    The largest problem faced in cartel pricing agreements such as OPEC is:
a.    detecting violations of quota barriers by cartel participants
b.    arriving at a profit maximizing price
c.    attracting participants in the cartel
d.    none of the above

14.    Some market conditions make cartels MORE likely to succeed in collusion.  Which of the following will make collusion more successful?
a.    The products are heterogeneous
b.    The orders are small and frequent
c.    The firms are all about the same size
d.    Costs differ across the firms
e.    Firms are geographically widely scattered

15.    Even ideal cartels tend to be unstable because
a.    firms typically prefer competition to collusion as competition, because it leads to more profits.
b.    collusion leads to lowest possible overall profits in the industry.
c.    oligopolistic managers are extremely risk loving.
d.    firms can benefit by secretly selling more than they promised the other firms
e.    all of the above

    
16.    Suppose that in a perfectly competitive industry the equilibrium industry quantity is 10,000 units. Suppose that the monopoly output is 5,000.  For a2-firm Cournot Oligopoly (N =2) known as a duopoly, what is a likely Cournot QUANTITY for the industry?
a.    3,000 units
b.    5,000 units
c.    6,667 units
d.    10,000 units
e.    15,000 units

17.    A cartel is a situation where firms in the industry
a.    have an agreement to restrict output.
b.    agree to produce identical products.
c.    obey the rules of dominant firm price leadership.
d.    experience the pain of a kinked demand curve.
e.    have a barometric price leader

    18.    In a kinked demand market, whenever one firm decides to lower its price,
a.    other firms will automatically follow.
b.    none of the other firms will follow.
c.    one half of the firms follow and one half of the firms don't follow the price cut.
d.    other firms all decide to exit the industry
e.    all of the other firms raise their prices.

        
19.    The existence of a kinked demand curve under oligopoly conditions may result in
a.    volatile prices
b.    competitive pricing.
c.    prices above the monopoly price.
d.    an increase in the coefficient of variation of prices.
e.    price rigidity

20.    Barometric price leadership exists when
a.    one firm in the industry initiates a price change and the others follow it as a signal of changes in cost or demand in the industry.
b.    one firm imposes its best price on the rest of the industry.
c.    all firms agree to change prices simultaneously.
d.    one company forms a price umbrella for all others.
e.    the firms are all colluding.

    
21.    Some industries that have rigid prices.  In those industries, we tend to
a.    find that output is also rigid over the business cycle
b.    find that output varies greatly over the business cycle
c.    find the employment in these industries is quite stable over the business cycle
d.    find that the rate of return is negative in boom times
e.    all of the above.

    
    1.    In ____ 2-person, nonzero-sum games there is no communication between the participants and no way to enforce agreements.
a.    noncooperative
b.    cooperative
c.    a and b
d.    none of the above

    2.    A strategy game is
a.    any pricing competition among firms
b.    a situation arising from independent decision making among economic participants
c.    interpendent choice behavior by individuals or groups who share a common goal
d.    none of the above

    3.    Essential components of a game include all of the following except:
a.    players
b.    payoffs
c.    actions
d.    an information set
e.    cooperation

    4.    In a zero-sum game
a.    all players receive a $0 payoff
b.    all players can simultaneously win
c.    the gains to the winners equal the losses of the losers
d.    none of the above

    5.    When airlines post prices on an electronic bulletin board at 8:00 a.m. each morning, the decision-makers are engaged in
a.    a single play game
b.    a sequential game
c.    an entry decision
d.    a simultaneous game
e.    an infinite repetition game

    6.    The starting point of many methods for predicting equilibrium strategy in sequential games is
a.    designing proactive reactions to rival actions
b.    information sets
c.    uncertain outcomes
d.    backwards induction based on an explicit order of play
e.    endgame analysis

7.    Consider the game known as the Prisoner's Dilemma.  What's the dilemma?
a.    By both not confessing, both get to the cooperative solution and minimize time in prison.
b.    By both confessing, both get to the noncooperative solution and both serve significant time in prison.
c.    As a group, they are better off cooperating by not confessing, but each player has an incentive to be first to confess in a double cross.
d.    The problem is that the spies should never have been caught; they should move to Rio. 
    
8.    When there is an Equilibrium (or a Nash Equilibrium), we expect that:
a.    once the firm’s get there, no one will change their strategy.
b.    firms will tend to select a randomized strategy.
c.    neither firm will care what it does.
d.    this is always a dominated strategy.

9.    The Prisoner’s Dilemma involves two spies who are held in separate soundproof rooms.  But even if the two spies could communicate, what makes it difficult for them to achieve the cooperative solution (both not confessing)?
a.    The problem is their lack of information.
b.    The problem is that it is a nonzero sum game.
c.    The problem is that both spies have incentives to double cross each other.
d.    The problem is that all the outcomes are not particularly good for either player.

10.    When there is no Equilibrium (or no Nash Equilibrium), we expect that:
a.    the firms end up in the cooperative strategy.
b.    a firm will follow a randomized strategy.
c.    a firm will not care what it does.
d.    a firm will very likely have a dominant strategy.

11.    In a game, a dominated strategy is one where:
a.    It is always the best strategy
b.    It is always the worst strategy
c.    It is the strategy that is the best among the group of worst possible strategies.
d.    Is sometimes the best and sometimes the worst strategy 

12.    If two firms operate in a market that is characterized as being a Prisoner’s Dilemma, and the two strategies given them are to restrict output or expand output, which of the following strategy pairs would represent the cooperative solution in a duopoly for firm 1 and firm 2, and firm 1 given first in each pair?
a.    {expand output, restrict output}
b.    {restrict output, expand output}
c.    {restrict output, restrict output}
d.    {expand output, expand output}

    13.    A key to analyzing subgame perfect equilibrium strategy in sequential games is
a.    predictable behavior
b.    an explicit order of play for at least some participants
c.    information sets that are known with certainty
d.    credible threats clearly communicated
e.    randomness

    14.    Credibility in threats and commitments in sequential games is based on
a.    randomizing one's actions so they are unpredictable
b.    explicit communications with competitors
c.    effective scenario planning
d.    analyzing best reply responses
e.    none of the above

    15.    In making promises that are not guaranteed by third parties and in imposing penalties that are not enforced by third parties, all of the following are credibility-enhancing mechanisms except
a.    establishing a bond forfeited by violating the commitment
b.    investing in a non-redeployable reputational asset tied to the promise or threat
c.    interrupting the communication of negotiated compromises
d.    offering a warranty
e.    delivering a hostage (e.g., a patent license triggered by violating the promise)

    16.    The difference between cooperative and non-cooperative games is
a.    cooperative games allow side payments to support collusion
b.    non-cooperative games encourage communication of sensitive information between arms-length competitors
c.    cooperative games involve randomized behavior
d.    cooperative games necessitate an explicit order of play
e.    inconsequential except when players have contractual relationships

    17.    An illustration of a non-credible commitment is the promise
a.    to not increase capacity in a declining industry
b.    to match a new entrant's discount price
c.    to enter a profitable industry
d.    to restrain output to the quota assigned by a cartel
e.    to exit in the face of projected losses.

    18.    A dominant strategy differs from a Nash equilibrium strategy in that
a.    Nash equilibrium strategy does not assume best reply responses
b.    dominant strategy assumes best reply responses
c.    only Nash strategy applies to simultaneous games
d.    one dominant strategy is sufficient to predict behavior in a multi-person game
e.    Nash strategy is often unique

    19.    In adopting mixed Nash equilibrium strategy, a player is attempting to
a.    randomize his or her own behavior
b.    make the opponent favor a course of action preferred by the first player
c.    randomize the outcome of actions
d.    make the opponent indifferent between one action and another
e.    none of the above

    20.    To trust a potential cooperator until the first defection and then never cooperate thereafter is
a.    a dominant strategy
b.    an irrational strategy
c.    a grim trigger strategy
d.    a non-cooperative finite game strategy
e.    a subgame imperfect strategy

    21.    Non-cooperative sequential games can incorporate all the following features except
a.    a single decision-maker in the endgame
b.    no communication
c.    finite or infinite time periods
d.    third-party enforceable agreements
e.    an explicit order of play

22.    If one-time gains from defection are always less than the discounted present value of an infinite time stream of cooperative payoffs at some given discount rate, the decision-makers have escaped
a.    the Folk Theorem
b.    the law of large numbers
c.    the Prisoner's dilemma
d.    the paradox of large numbers
e.    the strategy of recusal
    23.    The chain store paradox of an incumbent who accommodates a finite stream of potential entrants threatening to enter sequentially numerous markets illustrates
a.    backwards induction
b.    the unraveling problem
c.    subgame perfect equilibrium
d.    best reply responses
e.    all of the above

    24.    Cooperation in repeated prisoner's dilemma situations seems to be enhanced by all of the following except
a.    limited punishment schemes
b.    clarity of conditional rewards
c.    grim trigger strategy
d.    provocability--i.e., credible threats of punishment
e.    tit for tat strategy

    25.    Credible promises and hostage mechanisms can support a continuous stream of cooperative exchanges except when
a.    the promisor is better off fulfilling than ignoring his promise
b.    neither party has a prior dominant strategy
c.    the hostage can be revoked for just causes
d.    the hostage is more valuable than any given exchange
e.    the hostage is difficult to replace

    1.    In deciding whether to invest in excess capacity in order to deter entry, incumbents should consider all of the following except
a.    the order of play in pricing and capacity choice decisions
b.    the customer sorting pattern
c.    the sunk cost required to achieve excess capacity
d.    the joint-profit-maximizing cartel output
e.    the potential entrant's projected profitability

    2.    An inverse intensity customer sorting rule is one in which
a.    customers with high willingness to pay secure the discounted goods
b.    customers are rationed randomly between the discounted and full price goods
c.    no customers purchase below their willingness to pay
d.    customers with the lowest willingness to pay secure the discounted goods
e.    brand loyalty allows the incumbent to retain its regular customers

    3.    An efficient customer sorting rule is one in which
a.    customers with high willingness to pay secure the discounted goods
b.    customers are rationed randomly between the discounted and full price goods
c.    no customer purchase below her willingness to pay
d.    customers with the lowest willingness to pay secure the discount goods
e.    brand loyalty allows the incumbent to retain its regular customers

    4.    All of the following are sunk cost investments that precommit an incumbent to aggressively defend market share and the cash flow prior to threatened entry except
a.    reputational investments in company logos (e.g., Beatrice)
b.    automobile showrooms
c.    retail displays which hold only L’eggs egg-shaped hosiery packages
d.    neon signage for an independently owned Krispy Kreme store
e.    excess capacity in a declining industry

MULTIPLE CHOICE

    1.    The segmenting of customers into several small group