Exam 14: Oligopoly

Use the following to answer question: -(Table: Demand Schedule of Gadgets)Use Table: Demand Schedule of Gadgets.The market for gadgets consists of two producers,Margaret and Ray.Each firm can produce gadgets with no marginal cost or fixed cost.Suppose that these two producers have formed a cartel,agreed to split production of output evenly,and are maximizing total industry profits.If Margaret decides to cheat on the agreement and sell 100 more gadgets,the market price of gadgets will be:

Use the following to answer question: Figure: Monopoly Profits in Duopoly -(Figure: Monopoly Profits in Duopoly)Use Figure: Monopoly Profits in Duopoly.The figure shows how an industry consisting of two firms that face identical demand curves (D₁)can collude to increase profits.Which assumption is NOT a part of the analysis illustrated by the model?

Use the following to answer question: -(Table: Demand for Crude Oil)Use Table: Demand for Crude Oil.Assume that the crude oil industry is a duopoly and the marginal and fixed cost of producing crude oil equals zero.Suppose that the two firms are maximizing industry profit and splitting the profit evenly.If firm 1 decides to cheat and increase production by 10 more barrels,it will earn profits of:

Use the following to answer question: -(Table: Coke and Pepsi Advertising Game)Use Table: Coke and Pepsi Advertising Game.The soft-drink industry is dominated by Coke and Pepsi,and each firm spends a lot of money on advertising.Suppose each firm is considering a costly television commercial during halftime of the Super Bowl.The table shows the payoff matrix of profits that each firm would receive from its advertising decision,given the advertising decision of their rival.Profits in each cell of the payoff matrix are given as (Coke,Pepsi).If each firm makes the decision whether to advertise on the Super Bowl independently,the Nash equilibrium is for Coke _____ and Pepsi _____ during the Super Bowl.

Use the following to answer question: -(Table: Demand Schedule of Gadgets)Use Table: Demand Schedule of Gadgets.The market for gadgets consists of two producers,Margaret and Ray.Each firm can produce gadgets with no marginal cost or fixed cost.Suppose that these two producers have formed a cartel,agreed to split production of output evenly,and are maximizing total industry profits.Total industry output would be _____ gadgets.

A customer with significant buying power in an industry would:

Use the following to answer question: -(Table: Demand for Crude Oil)Use Table: Demand for Crude Oil.Assume that the crude oil industry is a duopoly and the marginal cost and fixed cost of producing crude oil equals zero.Suppose that the two firms are maximizing industry profit and splitting the profit evenly.If firm 1 decides to cheat and increase production by 10 more barrels and firm 2 continues to produce 40 barrels,firm 2 will earn profits of:

Use the following to answer question: -(Table: Demand Schedule of Gadgets)Use Table: Demand Schedule of Gadgets.The market for gadgets consists of two producers,Margaret and Ray.Each firm can produce gadgets at a marginal cost of $2 and no fixed cost.Suppose that these two producers have formed a cartel,agreed to split production of output evenly,and are maximizing total industry profits.If Margaret decides to cheat on the agreement and sell 100 more gadgets but Ray continues to sell 200 gadgets,Ray's profits will be:

Use the following to answer question: -(Table: Demand Schedule of Gadgets)Use Table: Demand Schedule of Gadgets.The market for gadgets consists of two producers,Margaret and Ray.Each firm can produce gadgets with no marginal cost or fixed cost.If these two producers formed a cartel and acted to maximize total industry profits,total industry output would be _____,and the price would be _____.

Use the following to answer question: Figure: Payoff Matrix for the United States and the European Union -(Figure: Payoff Matrix for the United States and the European Union)Use Figure: Payoff Matrix for the United States and the European Union.Suppose that the United States and the European Union both produce corn,and each region can make more profit if output is limited and the price of corn is high.The joint profit-maximizing combination is for the United States to produce a _____ output and the European Union to produce a _____ output.

Suppose that each of the two firms in a duopoly has the independent choice of advertising or not advertising.If neither advertises,each gets $10 million in profit;if both advertise,their profits will be $5 million each;and if one advertises while the other does not,the advertiser gets profit of $15 million and the other gets profit of $2 million.According to game theory,if the firms collude to maximize joint profits:

A dominant-strategy equilibrium occurs when:

Use the following to answer question: Figure: Payoff Matrix for Jake and Zoe -(Figure: Payoff Matrix for Jake and Zoe)Use Figure: Payoff Matrix for Jake and Zoe.Jake and Zoe are the only producers of slushies in their tourist town.Every week,each decides whether to price high or price low for the following week.The figure shows the profit per week earned by their two firms.Suppose the firms each decide to price high initially and adopt a tit-for-tat strategy for the following weeks.After a few weeks,Jake's weekly profit would be _____ and Zoe's weekly profit would be _____.

Use the following to answer question: -(Table: Demand for Solar Water Heaters)Use Table: Demand for Solar Water Heaters.The marginal cost of producing solar water heaters is zero,and only two firms,Rheem and Calefi,produce them.Suppose they agree to produce only 25 water heaters each.By how much does Rheem's profit rise if it cheats on the agreement and produces 30 water heaters?

When countries spend increasingly large amounts of funds on military production as a means of impressing an equally powerful antagonistic neighbor with possible military superiority,a prisoners' dilemma evolves since both countries would be better off if they did not pursue such a strategy.This is an example of:

Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by:

In a price war,firms in an oligopoly often push prices up to the monopoly level.

In an oligopoly:

Use the following to answer question: Figure: Payoff Matrix II for Blue Spring and Purple Rain -(Figure: Payoff Matrix II for Blue Spring and Purple Rain)Use Figure: Payoff Matrix II for Blue Spring and Purple Rain.The figure describes two producers of bottled water.If both firms follow a tit-for-tat strategy,then:

The sum of the squared market shares of each firm in an industry is the: