AP Micro Oligopoly Practice

Front

Options: A, B, C, D, E

Back

D

Front

Options: A, B, C, D, E

Back

A

Front

Options: A, B, C, D, E

Back

D

Front

Options: A, B, C, D, E

Back

A

Front

Options: A, B, C, D, E

Back

E

Front

Options: A, B, C, D, E

Back

B

Front

Options: A, B, C, D, E

Back

C

Front

Options: A, B, C, D, E

Back

E

Front

Options: A, B, C, D, E

Back

E

Front

Given that each firm is aware of the information in the payoff matrix, which of the following is true? Neither Alpha no Beta has a dominant strategy, Both Alpha and Beta have a dominant strategy to price high, Both Alpha and Beta have a dominant strategy to price low, Alpha has a dominant strategy to price low, whereas Beta has a dominant strategy to price high, Alpha has a dominant strategy to price high, whereas Beta has no dominant strategy

Back

Both Alpha and Beta have a dominant strategy to price low

Answer explanation

Each firm has a dominant strategy to price low. If Beta priced high, Alpha would earn $150 if it priced high but would earn more, $180, if it priced low. So, Alpha would price low when Beta prices high. If Beta priced low, Alpha would earn $120 if it priced high and $125 if it priced low. So, Alpha would price low when Beta prices low. Therefore, Alpha would price low regardless of what Beta charges. Beta also has a dominant strategy to price low. Beta would earn more profits charging a low price regardless of the price Alpha charges.