ECN 212 COMPREHENSIVE 2026 EXAM QUESTIONS AND
ANSWERS GRADED A+
✔✔Nash equilibrium - ✔✔- economic actors interacting with one another
- each choose their best strategy
- given the strategies that all other actors have chosen
✔✔oligopolists - ✔✔-better off cooperating and reaching the monopoly outcome
- they pursue their own self interest
- do not end up reaching the monopoly outcome and maximizing their joint profit
- each is tempted to raise production and capture a larger share of the market
- total production rises and price falls
✔✔equilibrium for an oligopoly - ✔✔- when firms in oligopoly individually choose
production to maximize profit
- produce a quantity of output
- greater than the level produced by monopoly
- less than the level produced by competition
- the price is
- less than the monopoly price
- greater than the competitive price (MC)
✔✔if oligopolists form a cartel - ✔✔- maximize total profit
-produce monopoly quantity
- charge monopoly price
difficult to reach and enforce an agreement as the size of the group increases
✔✔If oligopolists do not form a cartel, each firm has to take into account: - ✔✔- the
output effect
- because P > MC, selling one more unit increases profit
- the price effect
- increasing production increases total amount sold
- decrease in price and lower the profit
✔✔The size of an oligopoly affects the market outcome - ✔✔- As the number of sellers
in an oligopoly grows larger
- oligopolistic market looks more like a competitive market
- price approaches marginal cost
- quantity produced approaches socially efficient level
✔✔The prisoners dilemma - ✔✔- particular game between two captured prisoners
-illustrates why cooperation is difficult to maintain even when it is mutually beneficial
- because each pursues his or her own interests
- the two prisoners together reach on outcome that is worse for each of them
- cooperation between the two prisoners is difficult to maintain
, - because cooperation is individually irrational
✔✔Dominant strategy - ✔✔strategy that is best for a player in a game
- regardless of the strategies chosen by other players
✔✔game oligopolists play - ✔✔in trying to reach the monopoly outcome
similar to the game that the two prisoners play in the prisoners dilemma
✔✔firms are self interested - ✔✔and do not cooperate
- even though cooperation (cartel) would increase profits
- each firm has incentive to cheat
✔✔Dominant strategy - ✔✔- noncooperative equilibrium may be bad for society and the
players
ex; arms race game, common resource game
- noncooperative equilibrium may be good for society
oligopolists trying to obtain monopoly profits
quantity and price - closer to optimal level
✔✔Game of the repeated prisoners' dilemma - ✔✔-repeat the game
-agree on penalties if one cheats
- both have incentive to cooperate
- as long as the players care enough about future profits, they will choose to forgo the
one-time gain from defection
✔✔Factors of production - ✔✔inputs used to produce goods and services
labor, land and capital
✔✔demand for a factor pf production - ✔✔derived demand
from firms decision to supply a good in another market
✔✔Production function - ✔✔-relationship between the quantity of inputs used to make a
good
- and the quantity of output of that good
- becomes flatter as the quantity of input increases
✔✔marginal product of labor (MPL) - ✔✔increase in the amount of output
from an additional unit of labor
✔✔Diminishing marginal product - ✔✔- The marginal product of an input declines as the
quantity of the input increase
- explains the shape of the production function
ANSWERS GRADED A+
✔✔Nash equilibrium - ✔✔- economic actors interacting with one another
- each choose their best strategy
- given the strategies that all other actors have chosen
✔✔oligopolists - ✔✔-better off cooperating and reaching the monopoly outcome
- they pursue their own self interest
- do not end up reaching the monopoly outcome and maximizing their joint profit
- each is tempted to raise production and capture a larger share of the market
- total production rises and price falls
✔✔equilibrium for an oligopoly - ✔✔- when firms in oligopoly individually choose
production to maximize profit
- produce a quantity of output
- greater than the level produced by monopoly
- less than the level produced by competition
- the price is
- less than the monopoly price
- greater than the competitive price (MC)
✔✔if oligopolists form a cartel - ✔✔- maximize total profit
-produce monopoly quantity
- charge monopoly price
difficult to reach and enforce an agreement as the size of the group increases
✔✔If oligopolists do not form a cartel, each firm has to take into account: - ✔✔- the
output effect
- because P > MC, selling one more unit increases profit
- the price effect
- increasing production increases total amount sold
- decrease in price and lower the profit
✔✔The size of an oligopoly affects the market outcome - ✔✔- As the number of sellers
in an oligopoly grows larger
- oligopolistic market looks more like a competitive market
- price approaches marginal cost
- quantity produced approaches socially efficient level
✔✔The prisoners dilemma - ✔✔- particular game between two captured prisoners
-illustrates why cooperation is difficult to maintain even when it is mutually beneficial
- because each pursues his or her own interests
- the two prisoners together reach on outcome that is worse for each of them
- cooperation between the two prisoners is difficult to maintain
, - because cooperation is individually irrational
✔✔Dominant strategy - ✔✔strategy that is best for a player in a game
- regardless of the strategies chosen by other players
✔✔game oligopolists play - ✔✔in trying to reach the monopoly outcome
similar to the game that the two prisoners play in the prisoners dilemma
✔✔firms are self interested - ✔✔and do not cooperate
- even though cooperation (cartel) would increase profits
- each firm has incentive to cheat
✔✔Dominant strategy - ✔✔- noncooperative equilibrium may be bad for society and the
players
ex; arms race game, common resource game
- noncooperative equilibrium may be good for society
oligopolists trying to obtain monopoly profits
quantity and price - closer to optimal level
✔✔Game of the repeated prisoners' dilemma - ✔✔-repeat the game
-agree on penalties if one cheats
- both have incentive to cooperate
- as long as the players care enough about future profits, they will choose to forgo the
one-time gain from defection
✔✔Factors of production - ✔✔inputs used to produce goods and services
labor, land and capital
✔✔demand for a factor pf production - ✔✔derived demand
from firms decision to supply a good in another market
✔✔Production function - ✔✔-relationship between the quantity of inputs used to make a
good
- and the quantity of output of that good
- becomes flatter as the quantity of input increases
✔✔marginal product of labor (MPL) - ✔✔increase in the amount of output
from an additional unit of labor
✔✔Diminishing marginal product - ✔✔- The marginal product of an input declines as the
quantity of the input increase
- explains the shape of the production function
