CLEP Microeconomics chapter practice4 questions

24 Oligopoly and Game Theory

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

In a prisoner's-dilemma setting, a dominant strategy is one that

A dominant strategy is best for a player under every action available to the rival.
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E. is optimal regardless of the rival's choice

A dominant strategy is best for a player under every action available to the rival.

Question 2

Question 2 of 4

A Nash equilibrium is an outcome in which

At a Nash equilibrium, each strategy is a best response to the other; no player benefits from a unilateral deviation.
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C. no player gains by changing strategy alone

At a Nash equilibrium, each strategy is a best response to the other; no player benefits from a unilateral deviation.

Question 3

Question 3 of 4

Why is a cartel often unstable?

Once rivals maintain the high cartel price, one member can often increase its own profit by selling extra units, undermining the agreement.
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D. A member can profit by cheating while others comply.

Once rivals maintain the high cartel price, one member can often increase its own profit by selling extra units, undermining the agreement.

Question 4

Question 4 of 4

Three airlines dominate a route and monitor one another's fare changes before setting their own. Which feature makes this market an oligopoly?

With few major firms, one firm's decisions materially affect rivals, so strategy must anticipate their responses.
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B. mutual dependence among a few firms

With few major firms, one firm's decisions materially affect rivals, so strategy must anticipate their responses.

Quiz complete