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Exam 16: Oligopoly

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Question 51

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If duopolists individually pursue their own self-interest when deciding how much to produce,the profit-maximizing price they will charge for their product will be

A) less than the monopoly price.
B) equal to the perfectly competitive market price.
C) greater than the monopoly price.
D) possibly less than or greater than the monopoly price.

E) C) and D)
F) None of the above

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Question 52

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Which of the following statements is false?

A) The Clayton Act allows triple damages in civil lawsuits in order to encourage lawsuits against conspiring oligopolists.
B) Many economists defend the practice of resale price maintenance on the grounds that it may help solve a free-rider problem.
C) Most economists agree that predatory pricing is a profitable business strategy that usually preserves market power.
D) The U.S.Supreme Court's view that the practice of tying usually allows a firm to extend its market power is not generally supported by economic theory.

E) C) and D)
F) A) and C)

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Question 53

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Which government entity is charged with investigating and enforcing antitrust laws?

Explain how the output effect and the price effect influence the production decision of the individual oligopolist.

Which of the following would be most likely to contribute to the breakdown of a cartel in a natural resource (e.g.,bauxite) market?

The cigarette industry consists of large firms that compete vigorously through advertising which is directed at creating fantasy and image.Economists would characterize this industry as

Table 16-10 Two discount superstores (Ultimate Saver and SuperDuper Saver) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Growth-related profits of the two discount superstores are shown in the table below. -Refer to Table 16-10.Suppose the owners of SuperDuper Saver and Ultimate Saver meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit.They should both agree to

In a typical cartel agreement,the cartel maximizes profit when it

Which of the following prohibits executives of competing firms from even talking about fixing prices?

The primary purpose of antitrust legislation is to

Scenario 16-2 Imagine that two oil companies, Big Petro Inc. and Gargantuan Gas, own adjacent oil fields. Under the fields is a common pool of oil worth $48 million. Drilling a well to recover oil costs $2 million per well. If each company drills one well, each will get half of the oil and earn a $22 million profit ($24 million in revenue - $2 million in costs) . Assume that having X percent of the total wells means that a company will collect X percent of the total revenue. -Refer to Scenario 16-2.If Big Petro Inc.were to drill a second well,what would its profit be if Gargantuan Gas did not drill a second well?

Scenario 16-4 Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market and earn $50 million each. If they both advertise, they again split the market, but profits are lower by $10 million since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $60 million while the company that does not advertise earns only $30 million. -Refer to Scenario 16-4.What is PM Inc.'s dominant strategy?

There are two types of markets in which firms face some competition yet are still able to have some control over the prices of their products.The names given to these market structures are

In an oligopoly,

Table 16-7 Suppose the countries of Xania and Pluntia share the world supply of water. Suppose that the marginal cost of bottling water is a constant $4 per gallon, and the demand for water is described by the following schedule: -Refer to Table 16-7.Suppose Xania and Pluntia form a cartel and decide to split the market evenly.What level of production should Pluntia choose to maximize profit assuming Xania will stick to the agreement?

The likely outcome of the standard prisoners' dilemma is that

There are two types of imperfectly competitive markets:

Table 16-1 The following table shows the percentage of output supplied by the top eight firms in four different industries. -Refer to Table 16-1.Which industry has the highest concentration ratio?

The story of the prisoners' dilemma contains a general lesson that applies to any group trying to maintain cooperation among its members.

What happens when the prisoners' dilemma game is repeated numerous times in an oligopoly market? (i) The firms may well reach the monopoly outcome. (ii) The firms may well reach the competitive outcome. (iii) Buyers of the oligopolists' product will likely be worse off as a result.