Exam 17: Oligopoly

Figure 17-2. Two companies, Acme and Pinnacle, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-2. If this game is played only once, then the most likely outcome is that

Figure 17-5. Two companies, ABC and QRS, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-5. The dominant strategy for ABC is to

In cartels, the reason that the monopoly output is unstable is due to the factors that are present in a prisoner's dilemma.​

The equilibrium quantity in markets characterized by oligopoly is

Oligopolies would like to act like a

Briefly describe the practice of predatory pricing.

When prisoners' dilemma games are repeated over and over, sometimes the threat of penalty causes both parties to cooperate.

Scenario 17-4. ​ 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 17-4. PM Inc.'s dominant strategy is to

An agreement between two duopolists to function as a monopolist usually breaks down because

Suppose that Makemoney Movies produces two new films - The Hulk and The Piano. Makemoney offers theaters the two films together at a single price but will not supply the movies separately. What do economists call this business practice?

If an oligopolist is part of a cartel that is collectively producing the monopoly level of output, then that oligopolist has the incentive to increase production with the aim of

If Levi Strauss & Co. were to require every retailer that carried its clothing to charge customers $42 for each pair of jeans, Levi Strauss & Co. would be practicing

Table 17-5 The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $200,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero. -Refer to Table 17-5. If there is only one digital cable TV company in this market, what price would it charge for a premium digital channel subscription to maximize its profit?

In an oligopoly, each firm knows that its profits

A cooperative agreement among oligopolists is more likely to be maintained,

Table 17-12 The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost. -Refer to Table 17-12. Suppose we observe that the price of a gallon of gasoline in Driveaway is $2. Given this observation, which of the following scenarios is most likely?

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

The practice of selling a product to retailers and requiring the retailers to charge a specific price for the product is called

Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together,

Cartels are difficult to maintain because