Micro Economics 2
NOTE: Question serial numbers may be changed.
SECTION: A
1) Relate the concepts total utility and marginal utility to each other.
2) Present an explanation for the water-diamond paradox. How can the water-diamond paradox be resolved by using the concept of marginal utility?
3) Give examples of consumer surplus and producer surplus.
4) Account for the law of demand using marginal-utility-to-price ratios.
5) Typically, people pay less for goods and services than they are willing and able to pay. What is the concept that economists have developed to explain this phenomenon?
6) Economists try to avoid making interpersonal comparisons of utility. However, such comparisons may seem reasonable and useful to make, especially from the standpoint of social policies like taxation and programs to aid the poor. Explain.
7) Game theory is highly approved but still there is a assumption that Don't game theorists make a lot of silly assumptions. List out the factors supporting this?
8) Why is there always an odd number of solutions for a nash equilibrium?
SECTION: B
1) How does the A.T. Kearney practice helped an oil and company?
2) Give few examples to quote that different energy-production technologies can be quite different.
3) List out the different approaches of A.T. Kearney.
SECTION:C
Question No. 1 Marks - 10
A firm that considers the potential reactions of its competitors when it makes a decision:
Options
a) is referred to as a price leader.
b) is engaged in strategic behavior.
c) is engaged in collusion.
d) is referred to as a barometric firm.
Question No. 2 Marks - 10
Which of the following is an example of strategic behavior?
Options
a) A firm builds excess capacity to discourage the entry of competitors.
b) A firm adopts the pricing behavior of a dominant firm under the assumption that other firms will do likewise.
c) Firms in an industry increase advertising expenditures to avoid losing market share.
d) All of the above are examples of strategic behavior
Question No. 3 Marks - 10
Which one of the following is a part of every game theory model?
Options
a) Players
b) Payoffs
c) Probabilities
d) Strategies
Question No. 4 Marks - 10
In game theory, a choice that is optimal for a firm no matter what its competitors do is referred to as
Options
a) the dominant strategy.
b) the game-winning choice.
c) super optimal.
d) a gonzo selection.
Question No. 5 Marks - 10
Which of the following circumstances in an industry will result in a Nash equilibrium?
Options
a) All firms have a dominant strategy and each firm chooses its dominant strategy.
b) All firms have a dominant strategy, but only some choose to follow it.
c) All firms have a dominant strategy, and none choose it.
d) None of the above is correct.
Question No. 6 Marks - 10
Which of the following describes a Nash equilibrium?
Options
a) A firm chooses its dominant strategy, if one exists.
b) Every competing firm in an industry chooses a strategy that is optimal given the choices of every other firm.
c) Market price results in neither a surplus nor a shortage.
d) All firms in an industry are earning zero economic profits.
Question No. 7 Marks - 10
A prisoners' dilemma is a game with all of the following characteristics except one. Which one is present in a prisoners' dilemma?
Options
a) Players cooperate in arriving at their strategies.
b) Both players have a dominant strategy.
c) Both players would be better off if neither chose their dominant strategy.
d) The payoff from a strategy depends on the choice made by the other player.
Question No. 8 Marks - 10
Which of the following legal restrictions, if enforced effectively, would be likely to solve a prisoners' dilemma type of problem for the firms involved?
Options
a) A law that prevents a cartel from enforcing rules against cheating.
b) A law that makes it illegal for oligopolists to engage in collusion.
c) A law that prohibits firms in an industry from advertising their services.
d) All of the above would be likely to solve a prisoners' dilemma for the firms.
Question No. 9 Marks - 10
Until recently, medical doctors and lawyers have been prohibited from engaging in competitive advertising. If the prisoners' dilemma applies to this situation, then the presence of this restriction would be likely to
Options
a) increase profits earned by individuals in these professions.
b) reduce profits earned by individuals in these professions.
c) have no effect on the profits earned by individuals in these professions.
d) increase the profits of some and reduce the profits of other individuals in these professions.
Question No. 10 Marks - 10
Which one of the following conditions is required for the success of a tit-for-tat strategy?
Options
a) Demand and cost conditions must change frequently and unpredictably.
b) The number of oligopolists in the industry must be relatively small.
c) The game can be repeated only a small number of times.
d) Firms must be unable to detect the behavior of their competitors.
Question No. 11 Marks - 10
An oligopolist may engage in short-run behavior that results in lower profits if
Options
a) it leads to a Nash equilibrium.
b) it is a dominant strategy.
c) it is not involved in a repeated game.
d) it lends credibility to the firm's threats.
Question No. 12 Marks - 10
A firm may decide to increase its scale so that it has excess production capacity because, by doing so, it is able to
Options
a) minimize its average cost of production.
b) establish a credible deterrent to the entry of competing firms.
c) take advantage of a dominant strategy in a prisoners' dilemma.
d) attain a Nash equilibrium and avoid repeated games.
Question No. 13 Marks - 10
Game theory is concerned with:
Options
a) predicting the results of bets placed on games like roulette.
b) the choice of an optimal strategy in conflict situations.
c) utility maximization by firms in perfectly competitive markets.
d) the migration patterns of caribou in Alaska.
Question No. 14 Marks - 10
Which of the following is an example of a game theory strategy?
Options
a) You scratch my back and I’ll scratch yours.
b) If the shoe fits, wear it.
c) Monkey see, monkey do
d) None of the above.
Question No. 15 Marks - 10
In game theory, a situation in which one firm can gain only what another firm loses is called a
Options
a) nonzero-sum game.
b) prisoners’ dilemma.
c) zero-sum game.
d) cartel temptation.
Question No. 16 Marks - 10
Which of the following is a nonzero-sum game?
Options
a) Prisoners’ dilemma
b) Chess
c) Competition among duopolists when market share is the payoff
d) All of the above.
Question No. 17 Marks - 10
Which of the following is a zero-sum game?
Options
a) Prisoners’ dilemma
b) Chess
c) A cartel member’s decision regarding whether or not to cheat
d) All of the above.
Question No. 18 Marks - 10
A plan of action that considers the reactions of rivals is an example of
Options
a) accounting liability.
b) strategic behavior.
c) accommodating behavior.
d) risk management.
Question No. 19 Marks - 10
In game theory, the outcome or consequence of a strategy is referred to as the
Options
a) payoff.
b) penalty.
c) reward
d) end-game strategy
Question No. 20 Marks - 10
A strategy that is best regardless of what rival players do is called
Options
a) first-mover advantage.
b) a Nash equilibrium strategy.
c) tit-for-tat.
d) a dominant strategy.
Question No. 21 Marks - 10
A game that involves interrelated decisions that are made over time is a
Options
a) sequential game.
b) repeated game.
c) zero-sum game.
d) nonzero-sum game.
Question No. 22 Marks - 10
A game that involves multiple moves in a series of identical situations is called a
Options
a) sequential game.
b) repeated game.
c) zero-sum game.
d) nonzero-sum game
Question No. 23 Marks - 10
Sequential games can be solved using
Options
a) tit-for-tat.
b) dominated strategies.
c) backward induction.
d) risk averaging.
Question No. 24 Marks - 10
Industrial policy:
Options
a) is strategic behavior that takes place at the national level.
b) may be accomplished by protecting and subsidizing selected industries.
c) is intended to provide competitive advantage to selected firms.
d) All of the above.
Question No. 25 Marks - 10
A firm that is threatened by the potential entry of competitors into a market builds excess production capacity. This is an example of:
Options
a) a prisoners’ dilemma.
b) collusion.
c) a credible threat.
d) tit-for-tat.
Question No. 26 Marks - 10
The word monopolistic in monopolistic competition refers to the fact that:
Options
a) There are many firms in the market.
b) There are high barriers to entry.
c) Firms have some control over price.
d) There is only one firm in the market.
Question No. 27 Marks - 10
Monopolistic competition results in:
Options
a) Allocative efficiency.
b) Production efficiency.
c) Some production inefficiency.
d) Marginal cost pricing.
Question No. 28 Marks - 10
Firms in monopolistic competition:
Options
a) Engage in price fixing.
b) Act independently from one another.
c) Attempt to form cartels.
d) Are interdependent.
Question No. 29 Marks - 10
A difference between monopoly and monopolistic competition is
Options
a) In monopolistic competition firms have brand loyalty but must still compete with firms that sell close substitutes; a monopoly has the market to itself.
b) A monopoly faces a downward-sloping demand curve, but a monopolistically competitive firm does not.
c) A monopoly has some control over price, and a monopolistically competitive firm does not.
d) All of the answers are correct.
Question No. 30 Marks - 10
The extent of market power of a monopolistically competitive firm depends on the
Options
a) Size of the firms in the industry.
b) Amount of fixed costs a firm has.
c) Degree to which the firm can successfully differentiate its product.
d) Extent to which each firm has economies of scale.
Question No. 31 Marks - 10
Brand loyalty:
Options
a) Makes the demand curve less price-elastic.
b) Shifts the supply curve to the left.
c) Makes the demand curve more price-elastic.
d) Shifts the demand curve to the left.
Question No. 32 Marks - 10
A monopolistically competitive firm:
Options
a) Chooses an output level at which price equals marginal cost.
b) Produces as much output as it can.
c) Chooses an output level at which marginal revenue is equal to marginal cost.
d) Makes output decisions very differently from a monopolist.
Question No. 33 Marks - 10
As firms enter a monopolistically competitive industry, the
Options
a) Demand curves of the existing firms shift right.
b) Demand curves of the existing firms become steeper.
c) Marginal cost curves of the existing firms shift up.
d) Demand curves of the existing firms shift left.
Question No. 34 Marks - 10
In the long run, after the entry of new monopolistically competitive firms:
Options
a) Each still earns an economic profit.
b) Price is equal to minimum average total cost.
c) Price is equal to marginal cost.
d) Economic profits are zero.
Question No. 35 Marks - 10
A monopolistically competitive firm in long-run equilibrium:
Options
a) Charges a price equal to minimum average total cost.
b) Produces an output level at which price equals marginal cost.
c) Charges a price equal to average total cost.
d) Charges a price above average total cost.
Question No. 36 Marks - 10
Which of the following is not a characteristic of an oligopolistic market?
Options
a) Entry is relatively easy
b) There are a few sellers of a good or service
c) Firms consider the possible reactions of rivals
d) Prices can become 'sticky' or rigid
Question No. 37 Marks - 10
Both firms in a Cournot duopoly would enjoy higher profits if:
Options
a) the firms simultaneously reduced output below the Nash equilibrium level.
b) each firm simultaneously increased output above the Nash equilibrium level.
c) one firm reduced output below the Cournot Nash equilibrium level, while the other firm continued to produce its Cournot Nash equilibrium output.
d) a. and c.
Question No. 38 Marks - 10
The Cournot theory of oligopoly assumes:
Options
a) rivals will keep their output constant.
b) rivals will increase their output whenever a firm increases its output.
c) rivals will decrease output whenever a firm increases its output .
d) rivals will follow the learning curve.
Question No. 39 Marks - 10
There are many different models of oligopoly because:
Options
a) beliefs play an important role in oligopolistic competition.
b) firms do not maximize profits in oligopolistic competition
c) oligopoly is the most complicated type of market structure.
d) both a and c.
Question No. 40 Marks - 10
Economists use game theory to predict the behavior of oligopolists. Which of the following is crucial for the success of the analysis?
Options
a) Make sure the payoffs reflect the true payoffs of the oligopolists.
b) Make sure whether the oligopolists move simultaneously or sequentially.
c) Make sure the problem considered is of a one-shot or repeated nature.
d) All of the above.