AP Micro Game Theory and Strategic Behavior 2

Question 1

What is a cartel in the context of oligopoly markets?

Accepted Answer

A formal agreement among independent firms to coordinate output levels and prices

Answer

A cartel is a cooperative arrangement in which competing firms formally agree to restrict output and raise prices, collectively acting like a monopoly to earn higher profits.

Question 2

In sequential games, what does 'first-mover advantage' refer to?

Accepted Answer

The strategic benefit a player gains by being the first to commit to an action in a sequential game

Answer

In a sequential game, the first mover can commit to a strategy that shapes the choices available to later movers, often resulting in a favorable strategic position.

Question 3

In a repeated prisoner's dilemma, which strategy can sustain cooperation over many rounds?

Accepted Answer

Tit-for-tat: cooperate in the first round, then mirror the opponent's previous move each subsequent round

Answer

Tit-for-tat rewards cooperation with cooperation and punishes defection immediately, creating an incentive for both players to sustain mutual cooperation across repeated interactions.

Question 4

What is price leadership in an oligopoly?

Accepted Answer

A practice where the dominant firm sets a price that rival firms tacitly follow

Answer

Price leadership is an informal coordination mechanism where one firm (often the largest or lowest-cost producer) sets a price and other firms follow, achieving a coordinated outcome without explicit collusion.

Question 5

Which of the following best describes a zero-sum game?

Accepted Answer

A game in which one player's gain is exactly equal to another player's loss, so total payoffs sum to zero

Answer

In a zero-sum game, the total amount of value is fixed, so any gain by one player comes at an equal cost to another — unlike most economic games where cooperation can create mutual gains.

AP Practice Test

AP Practice Test

AP Micro Game Theory and Strategic Behavior 2