Quiz 9

Question 1

Prisoners’ dilemma

Answer 1

a game based on two premises: 1) Each player has an incentive to choose an action that benefits itself at the other player’s expense; and 2) When both players act in this way, both are worse off than if they had acted cooperatively.

Question 2

Noncooperative equilibrium

Answer 2

Also known as Nash equilibrium - in game theory, each player takes action that is best for her, given the actions taken by other players; however, players do not take into account the effect of their actions on others.

Question 3

Tacit collusion

Answer 3

cooperation among producers, without a formal agreement, to limit production and raise prices so as to raise one another’s profits.

Question 4

Product differentiation

Answer 4

the attempt by firms to convince buyers that their products are different from those of other firms in the industry. If firms can so convince buyers, they can charge a higher price.

Question 5

Zero-profit equilibrium

Answer 5

an economic balance in which each firm makes zero profit at its profit-maximizing quantity.

Question 6

Physical capital

Answer 6

human-made goods such as buildings and machines used to produce other goods and services.

Question 7

Factor distribution of income

Answer 7

the division of total income among labor, land, and capital.

Question 8

Rental rate

Answer 8

the cost, explicit or implicit, of using a unit of either land or capital for a given period of time.

Question 9

Dominant strategy

Answer 9

in game theory, an action that is a player’s best action regardless of the action taken by the other player.

Question 10

Strategic behavior

Answer 10

actions taken by a firm that attempt to influence the future behavior of other firms.

Question 11

Antitrust policy

Answer 11

legislative and regulatory efforts undertaken by the government to prevent oligopolistic industries from becoming or behaving like monopolies.

Question 12

Price leadership

Answer 12

a pattern of behavior in which one firm sets its price and other firms in the industry follow.

Question 13

Excess capacity

Answer 13

when firms produce less than the output at which average total cost is minimized; characteristic of monopolistically competitive firms.

Question 14

Human capital

Answer 14

the improvement in labor created by the education and knowledge embodied in the workforce.

Question 15

Value of the marginal product

Answer 15

the value of the additional output generated by employing one more unit of a given factor, such as labor.

Question 16

Marginal productivity theory of income distribution

Answer 16

every factor of production is paid its equilibrium value of the marginal product.

Question 17

Nash equilibrium

Answer 17

in game theory, the equilibrium that results when all players choose the action that maximizes their payoffs given the actions of other players, ignoring the effect of that action on the payoffs of other players; also known as noncooperative equilibrium.

Question 18

Tit for tat

Answer 18

in game theory, a strategy that involves playing cooperatively at first, then doing whatever the other player did in the previous period.

Question 19

Price war

Answer 19

a collapse of prices when tacit collusion breaks down.

Question 20

Non-price competition

Answer 20

competition in areas other than price to increase sales, such as new product features and advertising; especially engaged in by firms that have a tacit understanding not to compete on price.

Question 21

Brand name

Answer 21

a name owned by a particular firm that distinguishes its products from those of other firms.

Question 22

Derived demand

Answer 22

for a factor results from (or is derived from) the demand for the output being produced.

Question 23

Value of the marginal product curve

Answer 23

a graphical representation showing how the value of the marginal product of a factor depends on the quantity of the factor employed.

Question 24

Time allocation

Answer 24

the decision about how many hours to spend on different activities, which leads to a decision about how much labor to supply.