AP Microeconomics Practice Quiz: Oligopoly and Game Theory
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Test your understanding with short quizzes. This quiz has 15 questions to check your progress.
Question 1 of 15
All Questions (15)
A) A large number of firms selling identical products.
B) Low barriers to entry, allowing for easy market access.
C) A few firms acting interdependently.
D) Firms that are price takers with no market power.
Correct Answer: C
Based on the provided content, 'An oligopoly is an inefficient market structure with high barriers to entry, where there are few firms acting interdependently.' The other options describe perfect competition (A, D) or are the opposite of an oligopoly characteristic (B).
A) each player chooses the action that maximizes their joint payoff with other players.
B) no player can increase their payoff by unilaterally changing their action.
C) at least one player has a dominant strategy they are currently playing.
D) both players receive the exact same payoff.
Correct Answer: B
The content defines a Nash equilibrium as 'a condition describing the set of actions in which no player can increase his or her payoff by unilaterally taking another action, given the other players' actions.' This matches option B directly.
A) Firm A has a dominant strategy to advertise.
B) Firm B has a dominant strategy to advertise.
C) The game has no dominant strategies.
D) Firm A has a dominant strategy to not advertise.
Correct Answer: A
A player has a dominant strategy if one action is always better regardless of the other player's choice. For Firm A: If B advertises, A gets 10 from advertising vs. 6 from not. If B doesn't advertise, A gets 15 from advertising vs. 12 from not. In both cases, advertising is better for Firm A. Therefore, advertising is Firm A's dominant strategy.
A) (Don't Advertise, Don't Advertise)
B) (Advertise, Don't Advertise)
C) (Don't Advertise, Advertise)
D) (Advertise, Advertise)
Correct Answer: D
First, find each player's best response. As established, Firm A has a dominant strategy to Advertise. Given that Firm A will advertise, Firm B's best response is to Advertise (payoff of 5) rather than not advertise (payoff of 0). Since neither player can unilaterally improve their payoff from the (Advertise, Advertise) outcome, it is the Nash equilibrium.
A) increase competition and lower prices for consumers.
B) achieve a monopoly outcome with higher prices and lower quantities.
C) eliminate all barriers to entry for new firms.
D) ensure each firm acts independently of the others.
Correct Answer: B
The content states that firms 'have an incentive to collude and form cartels.' It also notes that oligopolists have difficulty achieving the 'monopoly outcome,' which implies this is their goal. The monopoly outcome involves higher prices and lower quantities than competitive markets.
A) the payoff to a particular action is always higher, independent of the other player's action.
B) they can force the other player into a specific, less-favorable action.
C) their chosen action results in the highest possible joint payoff for both players.
D) no other player can improve their payoff by changing their own strategy.
Correct Answer: A
This is the direct definition provided in the content: 'A player has a dominant strategy when the payoff to a particular action is always higher independent of the action taken by the other player.'
A) Prices are lower and quantities are higher.
B) Prices are higher and quantities are lower.
C) Prices and quantities are identical.
D) Prices are lower and quantities are lower.
Correct Answer: B
The content explicitly states that 'prices are generally higher and quantities lower with oligopoly... than with perfect competition.'
A) The Nash Equilibrium Game
B) The Dominant Strategy Game
C) The Prisoner's Dilemma
D) The Perfect Competition Game
Correct Answer: C
The content makes a direct comparison: 'Oligopolists have difficulty achieving the monopoly outcome for reasons similar to those that prevent players from achieving a cooperative outcome in the Prisoner's Dilemma.'
A) 19
B) 21
C) 51
D) 71
Correct Answer: B
If Firm X commits to a High Price, Firm Y's payoff for choosing Low is 120 and for choosing High is 100. To alter this choice, Firm X must offer an incentive that makes the payoff for High Price greater than 120. The difference is 120 - 100 = 20. An incentive must be greater than 20 to be sufficient. The smallest integer value greater than 20 is 21.
A) individuals act randomly and outcomes are determined by chance.
B) a single firm makes a decision without considering the actions of others.
C) an individual's payoff depends on their own choice and the choices of others.
D) the goal is always to achieve a cooperative outcome that benefits everyone equally.
Correct Answer: C
The content defines a game as 'a situation in which a number of individuals take actions, and the payoff for each individual depends directly on both the individual's own choice and the choices of others.'
A) A sequential list of every possible move in the game.
B) The payoffs that result from each collection of strategies.
C) The probability of each player choosing a particular strategy.
D) The historical performance of the players in previous games.
Correct Answer: B
The content states that 'the normal form model of a game shows the payoffs that result from each collection of strategies (one for each player).'
A) Player 1 has a dominant strategy to choose Up.
B) Player 2 has a dominant strategy to choose Right.
C) The only Nash equilibrium is (Up, Left).
D) There are two Nash equilibria: (Up, Left) and (Down, Right).
Correct Answer: D
Neither player has a dominant strategy. At (Up, Left), neither player can unilaterally improve their payoff, so it is a Nash equilibrium. At (Down, Right), neither player can unilaterally improve their payoff, so it is also a Nash equilibrium. Therefore, the game has two Nash equilibria.
A) firms are completely independent and do not affect each other's profits.
B) each firm's actions and profits are influenced by the actions of the other few firms.
C) all firms have agreed to produce the same quantity of output.
D) the market has no significant barriers to entry or exit.
Correct Answer: B
The definition of an oligopoly includes that 'there are few firms acting interdependently.' This is directly related to the definition of a game, where a player's payoff 'depends directly on both the individual's own choice and the choices of others.' Therefore, each firm's decisions impact the others.
A) lower total profits for the firms and a lower price for consumers.
B) higher total profits for the firms, but each firm has an incentive to cheat.
C) the same total profits for the firms, but distributed differently.
D) a less efficient market outcome for the firms involved.
Correct Answer: B
The content explains that oligopolists have difficulty achieving the cooperative 'monopoly outcome' for reasons similar to the Prisoner's Dilemma. The monopoly outcome would yield the highest joint profits. However, the Nash equilibrium is typically a non-cooperative outcome where individual incentives lead firms to a less profitable result. Thus, the cooperative outcome has higher total profits, but the incentive to unilaterally cheat leads to the Nash equilibrium.
A) Dominant Strategy: High Price; Nash Equilibrium: (High Price, High Price)
B) Dominant Strategy: Low Price; Nash Equilibrium: (Low Price, Low Price)
C) Dominant Strategy: High Price; Nash Equilibrium: (Low Price, Low Price)
D) Dominant Strategy: Low Price; Nash Equilibrium: (High Price, Low Price)
Correct Answer: B
First, find Beta's dominant strategy. If Alpha chooses High Price, Beta gets 250 from Low Price vs. 200 from High Price. If Alpha chooses Low Price, Beta gets 80 from Low Price vs. 50 from High Price. In both cases, Low Price is better for Beta, so it is Beta's dominant strategy. Since this is a symmetric game, Alpha also has a dominant strategy of Low Price. When both players play their dominant strategy, the outcome is (Low Price, Low Price), which is the Nash Equilibrium.