Question : 31) A member of a cartel like OPEC has an : 1244662

31) A member of a cartel like OPEC has an incentive to

A) argue for larger production quotas for each member of the cartel.

B) agree to a low cartel production level and then produce more than its quota.

C) abide by its individual production quota.

D) support equal production quotas for each member.

32) In which of the following cartels is total cartel profit likely to be the highest?

A) a cartel made up of equal sized firms each producing different quantities of a differentiated product

B) a cartel made up of firms of various sizes each producing different quantities of a homogeneous product

C) a cartel made up of firms of various sizes each producing the same quantity of a differentiated product

D) a cartel made up of identical firms each producing the same quantity of a homogeneous product

33) Each member of OPEC can increase its income by selling more oil than its output quota because

A) by selling more at OPEC’s cartel price, a member will automatically earn more income. 

B) each member’s demand is more elastic than the total demand for oil.

C) the demand for oil is inelastic so total revenue increases.

D) the demand for oil is perfectly elastic.

Table 11-8

Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 11-8 shows the profits earned per day by each country. “Low output” corresponds to producing the OPEC assigned quota and “high output” corresponds to producing the maximum capacity beyond the assigned quota.

34) Refer to Table 11-8. Is there a dominant strategy for Saudi Arabia and, if so, what is it?

A) Yes, the dominant strategy is to produce a high output.

B) Yes, the dominant strategy is to produce a low output.

C) No, there is no dominant strategy.

D) Yes, it has a dominant strategy depending on what Nigeria does.

35) Refer to Table 11-8. Is there a dominant strategy for Nigeria and, if so, what is it?

A) Yes, it has a dominant strategy depending on what Saudi Arabia does.

B) No, there is no dominant strategy.

C) Yes, the dominant strategy is to produce a low output.

D) Yes, the dominant strategy is to produce a high output.

36) Refer to Table 11-8. What is the Nash equilibrium in this game?

A) In the Nash equilibrium both Saudi Arabia and Nigeria produce a low output and earn a profit of $100 million and $20 million respectively.

B) In the Nash equilibrium both Saudi Arabia and Nigeria produce a high output and earn a profit of $60 million and $20 million respectively.

C) In the Nash equilibrium Saudi Arabia produces a low output and earns a profit of $80 million and Nigeria produces a high output and $30 million respectively.

D) There is no Nash equilibrium.

37) Refer to Table 11-8. Which of the following statements is true?

A) The Nash equilibrium is a noncooperative, dominant strategy equilibrium.

B) The Nash equilibrium is a cooperative equilibrium.

C) The Nash equilibrium is a collusive equilibrium.

D) There is no Nash equilibrium in this game because each party pursues its dominant strategy.

38) OPEC periodically meets to agree to restrict the cartel’s oil output, and yet almost every member of OPEC produces more than its own output quota. This suggests that OPEC has

A) a cooperative equilibrium.

B) a noncooperative equilibrium.

C) new potential entrants.

D) a threat of substitute goods.

39) Game theory was developed in the 1940s by John von Neuman, a mathematician, and an economist named

A) John Nash.

B) John Maynard Keynes.

C) Oskar Morgenstern.

D) Milton Friedman.

40) An oligopoly between two firms is called

A) a biopoly.

B) an oligopoly; there are no special terms used for oligopolies with different numbers of firms.

C) a dual-firm oligopoly.

D) a duopoly.