Question 1

Game theory is necessary for understanding

Accepted Answer

A) all market structures. 
B) competition and oligopoly, but it is not necessary for understanding monopoly. 
C) monopoly and oligopoly, but it is not necessary for understanding competition. 
D) oligopoly, but it is not necessary for understanding monopoly or competition. 
A) all market structures. 
B) competition and oligopoly, but it is not necessary for understanding monopoly. 
C) monopoly and oligopoly, but it is not necessary for understanding competition. 
D) oligopoly, but it is not necessary for understanding monopoly or competition.

Question 2

Table 17-3
Imagine a small town in a remote area where only two residents, Maria and Miguel, own dairies that produce milk that is safe to drink. Each week Maria and Miguel work together to decide how many gallons of milk to produce. They bring milk to town and sell it at whatever price the market will bear. To keep things simple, suppose that Maria and Miguel can produce as much milk as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for milk is shown in the table below:  
-Refer to Table 17-3. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel from operating as a monopoly. How much profit will Miguel and Maria each earn once they reach a Nash equilibrium?

Accepted Answer

A) $40 
B) $36 
C) $32 
D) $30 
A) $40 
B) $36 
C) $32 
D) $30

Question 3

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 and there are no other costs.  
-Refer to Table 17-8. If there were many suppliers of bottled water, what would be the price and quantity?

Accepted Answer

A) The price would be $6 per gallon and the quantity would be 800 gallons. 
B) The price would be $5 per gallon and the quantity would be 1000 gallons. 
C) The price would be $4 per gallon and the quantity would be 1200 gallons. 
D) The price would be $3 per gallon and the quantity would be 1400 gallons. 
A) The price would be $6 per gallon and the quantity would be 800 gallons. 
B) The price would be $5 per gallon and the quantity would be 1000 gallons. 
C) The price would be $4 per gallon and the quantity would be 1200 gallons. 
D) The price would be $3 per gallon and the quantity would be 1400 gallons.

Question 4

As the number of firms in a cartel increases, the easier it is to enforce the cartel agreement.
​

Accepted Answer

A) True 
 B)False

Question 5

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.

Accepted Answer

The answer should show that if both shoe

Question 6

For a firm, strategic interactions with other firms in the market become more important as the number of firms in the market becomes larger.

Accepted Answer

A) True 
 B)False

Question 7

Suppose that Barack and Michelle are duopolists. Barack is producing 300 units of output, and Michelle is producing 400 units of output. When Michelle produces 400 units, Barack maximizes profit by producing 300 units. When Barack produces 300 units of output, Michelle maximizes profit by producing 400 units. Barack and Michelle are

Accepted Answer

A) in a competitive market. 
B) at a Nash equilibrium. 
C) producing with no deadweight loss. 
D) selling at a price higher than the monopoly price. 
A) in a competitive market. 
B) at a Nash equilibrium. 
C) producing with no deadweight loss. 
D) selling at a price higher than the monopoly price.

Question 8

As the number of firms in an oligopoly increases, the

Accepted Answer

A) price approaches marginal cost, and the quantity approaches the socially efficient level. 
B) price and quantity approach the monopoly levels. 
C) price effect exceeds the output effect. 
D) individual firms' profits increase. 
A) price approaches marginal cost, and the quantity approaches the socially efficient level. 
B) price and quantity approach the monopoly levels. 
C) price effect exceeds the output effect. 
D) individual firms' profits increase.

Question 9

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. If the market for gasoline in Driveaway is a monopoly, then the monopolist's maximum profit is

Accepted Answer

A) $350. 
B) $400. 
C) $450. 
D) $500. 
A) $350. 
B) $400. 
C) $450. 
D) $500.

Question 10

Assume that Bart's Batteries has entered into a resale price maintenance agreement with Radio Shanty but not with Prime Purchase. In this case,

Accepted Answer

A) the wholesale price of Bart's Batteries will be different for Radio Shanty than it is for Prime Purchase. 
B) Bart's Batteries will never increase profits by having a resale price maintenance agreement with all retail outlets that sell its products. 
C) Prime Purchase might benefit from customers who go to Radio Shanty for information about different batteries. 
D) Radio Shanty will sell Bart's Batteries at a lower price than Prime Purchase. 
A) the wholesale price of Bart's Batteries will be different for Radio Shanty than it is for Prime Purchase. 
B) Bart's Batteries will never increase profits by having a resale price maintenance agreement with all retail outlets that sell its products. 
C) Prime Purchase might benefit from customers who go to Radio Shanty for information about different batteries. 
D) Radio Shanty will sell Bart's Batteries at a lower price than Prime Purchase.

Question 11

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. Assume there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell. How many premium digital channel cable TV subscriptions will be sold altogether when this market reaches a Nash equilibrium?

Accepted Answer

A) 6,000 
B) 9,000 
C) 12,000 
D) 15,000 
A) 6,000 
B) 9,000 
C) 12,000 
D) 15,000

Question 12

Scenario 17-2.
​
Imagine that two oil companies, BQ and Exxoff, own adjacent oil fields. Under the fields is a common pool of oil worth $144 million. Drilling a well to recover oil costs $5 million per well. If each company drills one well, each will get half of the oil and earn a $67 million profit ($72 million in revenue - $5 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 17-2. If BQ and Exxoff are able to successfully cooperate to maximize their joint profits, BQ will earn

Accepted Answer

A) $43 million and Exxoff will earn $86 million. 
B) $62 million and Exxoff will earn $62 million. 
C) $67 million and Exxoff will earn $67 million. 
D) $86 million and Exxoff will earn $43 million. 
A) $43 million and Exxoff will earn $86 million. 
B) $62 million and Exxoff will earn $62 million. 
C) $67 million and Exxoff will earn $67 million. 
D) $86 million and Exxoff will earn $43 million.

Question 13

Chrissy and Marvin are competitors in a local market and each is trying to decide if it is worthwhile to advertise. If both of them advertise, each will earn a profit of $10,000. If neither of them advertise, each will earn a profit of $20,000. If one advertises and the other doesn't, then the one who advertises will earn a profit of $30,000 and the other will earn $14,000. To earn the highest profit, Chrissy

Accepted Answer

A) should advertise, and she will earn $10,000. 
B) should advertise, and she will earn $30,000. 
C) should not advertise, and she will earn 20,000. 
D) has no dominant strategy. 
A) should advertise, and she will earn $10,000. 
B) should advertise, and she will earn $30,000. 
C) should not advertise, and she will earn 20,000. 
D) has no dominant strategy.

Question 14

In the prisoners' dilemma,

Accepted Answer

A) the prisoners easily collude in order to achieve the best possible payoff for both. 
B) only one player has a dominant strategy. 
C) when each player chooses his dominant strategy the players achieve the best joint outcome. 
D) when each player chooses his dominant strategy the players reach a Nash equilibrium. 
A) the prisoners easily collude in order to achieve the best possible payoff for both. 
B) only one player has a dominant strategy. 
C) when each player chooses his dominant strategy the players achieve the best joint outcome. 
D) when each player chooses his dominant strategy the players reach a Nash equilibrium.

Question 15

​Table 17-36
The information in the table shows the total demand for water service in Takoma. Assume that there are two companies operating in Takoma. Each company that provides these services incurs an annual fixed cost of $400 and that the marginal cost of providing the service to each customer is exactly $2.00. Figures listed are for an annual service contract.
​  
-​Refer to Table 17-36. If there were only one water service provide in this market, and this single firm maximizes profits, the company will

Accepted Answer

A) ​sell 500 service contracts and charge a price of $35 for each contract. 
B) ​sell 600 service contracts and charge a price of $30 for each contract. 
C) ​sell 700 service contracts and charge a price of $25 for each contract. 
D) ​sell 800 service contracts and charge a price of $20 for each contract. 
A) ​sell 500 service contracts and charge a price of $35 for each contract. 
B) ​sell 600 service contracts and charge a price of $30 for each contract. 
C) ​sell 700 service contracts and charge a price of $25 for each contract. 
D) ​sell 800 service contracts and charge a price of $20 for each contract.

Question 16

Table 17-7
The information in the table below shows the total demand for internet radio subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year) and that the marginal cost of providing an additional subscription is always $16.  
-Refer to Table 17-7. Assume there are two internet radio providers that operate in this market. If they are able to collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions, then their agreement will stipulate that

Accepted Answer

A) each firm will charge a price of $40 and each firm will sell 3,000 subscriptions. 
B) each firm will charge a price of $40 and each firm will sell 1,500 subscriptions. 
C) each firm will charge a price of $32 and each firm will sell 2,000 subscriptions. 
D) each firm will charge a price of $20 and each firm will sell 3,000 subscriptions. 
A) each firm will charge a price of $40 and each firm will sell 3,000 subscriptions. 
B) each firm will charge a price of $40 and each firm will sell 1,500 subscriptions. 
C) each firm will charge a price of $32 and each firm will sell 2,000 subscriptions. 
D) each firm will charge a price of $20 and each firm will sell 3,000 subscriptions.

Question 17

If duopolists individually pursue their own self-interest when deciding how much to produce, the amount they will produce collectively will

Accepted Answer

A) be less than the monopoly quantity. 
B) be equal to the monopoly quantity. 
C) be greater than the monopoly quantity. 
D) Any of the above are possible. 
A) be less than the monopoly quantity. 
B) be equal to the monopoly quantity. 
C) be greater than the monopoly quantity. 
D) Any of the above are possible.

Question 18

An agreement among firms regarding price and/or production levels is called

Accepted Answer

A) an antitrust market. 
B) a free-trade arrangement. 
C) collusion. 
D) a Nash agreement. 
A) an antitrust market. 
B) a free-trade arrangement. 
C) collusion. 
D) a Nash agreement.

Question 19

Table 17-34
Suppose that two oil companies - BP and Exxon - own adjacent natural gas fields. The profits that each firm earns depends on both the number of wells it drills and the number of wells drilled by the other firm. The table below lists each firm's individual profits:
Exxon
Drill one well Drill two wells  
-Refer to Table 17-34. Is there a Nash equilibrium? If so, describe it.

Accepted Answer

Yes. Exxon has a dominant strategy to dr

Question 20

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. The Nash equilibrium for this game is

Accepted Answer

A) 10 units of output for Firm A and 10 units of output for Firm B. 
B) 10 units of output for Firm A and 12 units of output for Firm B. 
C) 12 units of output for Firm A and 10 units of output for Firm B. 
D) 12 units of output for Firm A and 12 units of output for Firm B. 
A) 10 units of output for Firm A and 10 units of output for Firm B. 
B) 10 units of output for Firm A and 12 units of output for Firm B. 
C) 12 units of output for Firm A and 10 units of output for Firm B. 
D) 12 units of output for Firm A and 12 units of output for Firm B.

Game theory is necessary for understanding

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 and there are no other costs. -Refer to Table 17-8. If there were many suppliers of bottled water, what would be the price and quantity?

As the number of firms in a cartel increases, the easier it is to enforce the cartel agreement.

For a firm, strategic interactions with other firms in the market become more important as the number of firms in the market becomes larger.

As the number of firms in an oligopoly increases, the

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. If the market for gasoline in Driveaway is a monopoly, then the monopolist's maximum profit is

Assume that Bart's Batteries has entered into a resale price maintenance agreement with Radio Shanty but not with Prime Purchase. In this case,

In the prisoners' dilemma,

If duopolists individually pursue their own self-interest when deciding how much to produce, the amount they will produce collectively will

An agreement among firms regarding price and/or production levels is called

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Filters

Exam 17: Oligopoly

Game theory is necessary for understanding

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 and there are no other costs. -Refer to Table 17-8. If there were many suppliers of bottled water, what would be the price and quantity?

As the number of firms in a cartel increases, the easier it is to enforce the cartel agreement. ​

For a firm, strategic interactions with other firms in the market become more important as the number of firms in the market becomes larger.

As the number of firms in an oligopoly increases, the

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. If the market for gasoline in Driveaway is a monopoly, then the monopolist's maximum profit is

Assume that Bart's Batteries has entered into a resale price maintenance agreement with Radio Shanty but not with Prime Purchase. In this case,

In the prisoners' dilemma,

If duopolists individually pursue their own self-interest when deciding how much to produce, the amount they will produce collectively will

An agreement among firms regarding price and/or production levels is called

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Filters

As the number of firms in a cartel increases, the easier it is to enforce the cartel agreement.