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Industrial Economics and Game Theory

Description: This quiz is designed to evaluate your understanding of Industrial Economics and Game Theory. It covers concepts such as market structure, pricing strategies, and strategic decision-making in competitive markets.
Number of Questions: 14
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Tags: industrial economics game theory market structure pricing strategies strategic decision-making
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In a perfectly competitive market, firms are price takers, meaning they:

  1. Can set their own prices independently of other firms.

  2. Must sell their products at the prevailing market price.

  3. Have the power to influence the market price through their production decisions.

  4. Can negotiate prices with individual buyers.


Correct Option: B
Explanation:

In a perfectly competitive market, firms are small relative to the overall market and have no control over the market price. They must accept the price determined by the forces of supply and demand.

Which of the following is a characteristic of a natural monopoly?

  1. High economies of scale.

  2. Low barriers to entry.

  3. Perfect competition.

  4. Homogeneous products.


Correct Option: A
Explanation:

A natural monopoly exists when a single firm can produce a good or service at a lower cost than multiple firms. This is often due to high economies of scale, where the average cost of production decreases as output increases.

In a game theory context, a Nash equilibrium is a situation where:

  1. Each player's strategy is a best response to the strategies of the other players.

  2. All players cooperate to maximize their collective payoff.

  3. One player has a dominant strategy that guarantees a higher payoff than any other strategy.

  4. The outcome is Pareto efficient, meaning no player can be made better off without making another player worse off.


Correct Option: A
Explanation:

A Nash equilibrium is a set of strategies, one for each player, such that no player can unilaterally improve their payoff by changing their strategy while the other players keep their strategies unchanged.

Which pricing strategy involves setting a price below the marginal cost?

  1. Cost-plus pricing.

  2. Penetration pricing.

  3. Price skimming.

  4. Target pricing.


Correct Option: B
Explanation:

Penetration pricing is a strategy where a firm sets a price below the marginal cost to quickly gain market share and establish a dominant position in the market.

In a Cournot duopoly model, firms compete by:

  1. Setting their prices simultaneously.

  2. Setting their quantities simultaneously.

  3. Setting their prices sequentially.

  4. Setting their quantities sequentially.


Correct Option: B
Explanation:

In a Cournot duopoly model, firms compete by setting their quantities simultaneously and independently, taking the output of the other firm as given.

Which of the following is a type of market failure?

  1. Externalities.

  2. Public goods.

  3. Natural monopolies.

  4. Perfect competition.


Correct Option: A
Explanation:

Externalities are a type of market failure that occurs when the actions of one economic agent affect the well-being of another economic agent without compensation.

The Herfindahl-Hirschman Index (HHI) is used to measure:

  1. Market concentration.

  2. Market power.

  3. Market efficiency.

  4. Market size.


Correct Option: A
Explanation:

The Herfindahl-Hirschman Index (HHI) is a measure of market concentration that is calculated by summing the squared market shares of all firms in the market.

In a Bertrand duopoly model, firms compete by:

  1. Setting their prices simultaneously.

  2. Setting their quantities simultaneously.

  3. Setting their prices sequentially.

  4. Setting their quantities sequentially.


Correct Option: A
Explanation:

In a Bertrand duopoly model, firms compete by setting their prices simultaneously and independently, taking the price of the other firm as given.

Which pricing strategy involves setting a price above the marginal cost?

  1. Cost-plus pricing.

  2. Penetration pricing.

  3. Price skimming.

  4. Target pricing.


Correct Option: C
Explanation:

Price skimming is a strategy where a firm sets a price above the marginal cost to capture the willingness to pay of early adopters and generate high profits.

In a game theory context, a dominant strategy is a strategy that:

  1. Guarantees a higher payoff than any other strategy, regardless of the strategies of the other players.

  2. Is a best response to the strategies of the other players.

  3. Leads to a Nash equilibrium.

  4. Maximizes the collective payoff of all players.


Correct Option: A
Explanation:

A dominant strategy is a strategy that guarantees a higher payoff than any other strategy, regardless of the strategies of the other players.

Which of the following is a type of oligopoly?

  1. Duopoly.

  2. Monopoly.

  3. Perfect competition.

  4. Monopolistic competition.


Correct Option: A
Explanation:

A duopoly is a type of oligopoly where there are only two firms in the market.

The kinked demand curve model is used to explain:

  1. Price rigidity in oligopolistic markets.

  2. Price wars in oligopolistic markets.

  3. Entry and exit in oligopolistic markets.

  4. Collusion in oligopolistic markets.


Correct Option: A
Explanation:

The kinked demand curve model is used to explain price rigidity in oligopolistic markets, where firms are reluctant to change their prices due to the fear of retaliation from their competitors.

Which of the following is a type of game theory equilibrium?

  1. Nash equilibrium.

  2. Pareto efficiency.

  3. Social optimum.

  4. Subgame perfect equilibrium.


Correct Option: A
Explanation:

A Nash equilibrium is a type of game theory equilibrium where each player's strategy is a best response to the strategies of the other players.

In a game theory context, a Pareto efficient outcome is one where:

  1. No player can be made better off without making another player worse off.

  2. All players cooperate to maximize their collective payoff.

  3. One player has a dominant strategy that guarantees a higher payoff than any other strategy.

  4. The outcome is a Nash equilibrium.


Correct Option: A
Explanation:

A Pareto efficient outcome is one where no player can be made better off without making another player worse off.

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