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Exam 17: Oligopoly

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Question 201

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In which of the following markets are strategic interactions among firms most likely to occur?

A) markets to which patent and copyright laws apply
B) the market for piano lessons
C) the market for tennis balls
D) the market for corn

E) B) and C)
F) C) and D)

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Question 202

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Table 17-20 Nadia and Maddie are two college roommates who both prefer a clean common space in their dorm room, but neither enjoys cleaning. The roommates must each make a decision to either clean or not clean the dorm room's common space. The payoff table for this situation is provided below, where the higher a player's payoff number, the better off that player is. The payoffs in each cell are shown as (payoff for Nadia, payoff for Maddie) . -Refer to Table 17-20. If Nadia chooses to clean, then Maddie will

A) clean, and Maddie's payoff will be 30.
B) not clean, and Maddie's payoff will be 50.
C) clean, and Maddie's payoff will be 7.
D) not clean, and Maddie's payoff will be 10.

E) C) and D)
F) All of the above

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Question 203

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Table 17-9 The table shows the demand schedule for a particular product. -Refer to Table 17-9. If the marginal cost of production in this market is $4, what is the socially efficient quantity of output?

What are the three examples of controversial business practices that antitrust laws often prohibit?

As the number of sellers in an oligopoly becomes very large,

Which of the following statements is true?

Table 17-8 For a certain small town, the table shows the demand schedule for water. Assume the marginal cost of supplying water is constant at $4 per bottle. -Refer to Table 17-8. If there are two suppliers of water, Victor and Sami, and if they have successfully formed a cartel, then what would be the price and the market quantity?

Table 17-18 This table shows a game played between two firms, Firm A and Firm B. In this game each firm must decide how much output (Q) to produce: 10 units or 12 units. The profit for each firm is given in the table as (Profit for Firm A, Profit for Firm B) . -Refer to Table 17-18. If these two firms agree to cooperate to maximize their joint profit, the outcome of the game will be

Table 17-22 Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for repair work and a high price. The annual economic profit from each strategy is indicated in the table. The profits are shown as (Matt, Brian) in each cell. -Refer to Table 17-22. Which of the following statements is correct if Brian and Matt will play this game only once?

Like monopolists, oligopolists are aware that an increase in the quantity of output always

The notion of a tit-for-tat strategy applies to a prisoners' dilemma game that is played repeatedly, but it does not apply if the game is played only once.

Cartels in the United States are

If one firm left a duopoly market where the firms did not cooperate then

Table 17-11 Only two firms, ABC and XYZ, sell a particular product. The table below shows the demand curve for their product. Each firm has the same constant marginal cost of $8 and zero fixed cost. -Refer to Table 17-11. ABC and XYZ agree to jointly maximize profits. If ABC and XYZ each break the agreement and each produce 5 more than agreed upon, how much less profit does each make?

Briefly describe the practice of predatory pricing.

Table 17-19 Consider a small town that has two grocery stores from which residents can choose to buy a loaf of bread. The store owners each must make a decision to set a high bread price or a low bread price. The payoff table, showing profit per week, is provided below. The profit in each cell is shown as (Store 1, Store 2) . -Refer to Table 17-19. If grocery store 2 sets a low price, what price should grocery store 1 set? And what will grocery store 1's payoff equal?

Nike and Reebok (athletic shoe companies) are considering whether to advertise during the Super Bowl. Devise a simple prisoners' dilemma game to demonstrate the strategic considerations that are relevant to this decision. Does the repeated game scenario differ from a single period game? Is it possible that a repeated game (without collusive agreements) could lead to an outcome that is better than a single-period game? Explain the circumstances in which this may be true.

The manufacturer of South Face sells jackets to retail stores for $120 each, and it requires the retail stores to charge customers $150 per jacket. Any retailer that charges less than $150 would violate its contract with South Face. What do economists call this business practice?

Oligopolies produce more when they collude then when they do not.

Table 17-18 This table shows a game played between two firms, Firm A and Firm B. In this game each firm must decide how much output (Q) to produce: 10 units or 12 units. The profit for each firm is given in the table as (Profit for Firm A, Profit for Firm B) . -Refer to Table 17-18. If these two firms play this game repeatedly, the likely outcome will be