Question 1

Compare the equilibrium output in a duopoly to the monopoly output.

Accepted Answer

The duopoly output will be higher than t

Question 2

OPEC is able to raise the price of its product by

Accepted Answer

A) tying. 
B) setting production levels for each of its members. 
C) increasing the supply of oil above the competitive level. 
D) imposing resale price maintenance agreements on members. 
A) tying. 
B) setting production levels for each of its members. 
C) increasing the supply of oil above the competitive level. 
D) imposing resale price maintenance agreements on members.

Question 3

Table 17-31
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 17-31. Briefly explain why each duopolist earns a lower profit at the Nash equilibrium than if they cooperated to produce the monopoly output.

Accepted Answer

The monopoly outcome occurs at the highe

Question 4

A firm that practices resale price maintenance

Accepted Answer

A) has incentive to reduce competition between its retailers. Resale price maintenance can lead to more service. 
B) has incentive to reduce competition between its retailers. Resale price maintenance cannot lead to more service. 
C) has no incentive to reduce competition between its retailers. Resale price maintenance can lead to more service. 
D) has no incentive to reduce competition between its retailers. Resale price maintenance cannot lead to more service. 
A) has incentive to reduce competition between its retailers. Resale price maintenance can lead to more service. 
B) has incentive to reduce competition between its retailers. Resale price maintenance cannot lead to more service. 
C) has no incentive to reduce competition between its retailers. Resale price maintenance can lead to more service. 
D) has no incentive to reduce competition between its retailers. Resale price maintenance cannot lead to more service.

Question 5

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. What is grocery store 2's dominant strategy?

Accepted Answer

A) Grocery store 2 does not have a dominant strategy. 
B) Grocery store 2 should always set a low price. 
C) Grocery store 2 should always set a high price. 
D) Grocery store 2 should set a low price when grocery store 1 sets a low price, and grocery store 2 should set a high price when grocery store 1 sets a high price. 
A) Grocery store 2 does not have a dominant strategy. 
B) Grocery store 2 should always set a low price. 
C) Grocery store 2 should always set a high price. 
D) Grocery store 2 should set a low price when grocery store 1 sets a low price, and grocery store 2 should set a high price when grocery store 1 sets a high price.

Question 6

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. The dominant strategy for Acme is to

Accepted Answer

A) produce a good quality product, and the dominant strategy for Pinnacle is to produce a good quality product. 
B) produce a good quality product, and the dominant strategy for Pinnacle is to produce a poor quality product. 
C) produce a poor quality product, and the dominant strategy for Pinnacle is to produce a good quality product. 
D) produce a poor quality product, and the dominant strategy for Pinnacle is to produce a poor quality product. 
A) produce a good quality product, and the dominant strategy for Pinnacle is to produce a good quality product. 
B) produce a good quality product, and the dominant strategy for Pinnacle is to produce a poor quality product. 
C) produce a poor quality product, and the dominant strategy for Pinnacle is to produce a good quality product. 
D) produce a poor quality product, and the dominant strategy for Pinnacle is to produce a poor quality product.

Question 7

Tying can be thought of as a form of price discrimination.

Accepted Answer

A) True 
 B)False

Question 8

Figure 17-1  
-Refer to Figure 17-1. Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram. The marginal revenue curve that a monopolist would face in this market is also shown. If the firms are able to collude successfully,

Accepted Answer

A) the total output will be 2 units and the price will be $6.00 per unit. 
B) the total output will be 2 units and the price will be $8.00 per unit. 
C) the total output will be 4 units and the price will be $6.00 per unit. 
D) there will be no deadweight loss. 
A) the total output will be 2 units and the price will be $6.00 per unit. 
B) the total output will be 2 units and the price will be $8.00 per unit. 
C) the total output will be 4 units and the price will be $6.00 per unit. 
D) there will be no deadweight loss.

Question 9

Table 17-2
Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below:  
-Refer to Table 17-2. Suppose the town enacts new antitrust laws that prohibit Abby and Brad from operating as a monopoly. What will be the price of water once Abby and Brad reach a Nash equilibrium?

Accepted Answer

A) $12 
B) $8 
C) $6 
D) $4 
A) $12 
B) $8 
C) $6 
D) $4

Question 10

Table 17-23
Two bottled beverage manufacturers (Firm A and Firm B) determine that they could lower their costs, and thus increase their profits, if they reduced their advertising budgets. But for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's product, but each firm also believes that if neither firm advertises, the costs savings will outweigh the lost sales. Listed in the table below are the individual profits for each firm.  
-Refer to Table 17-23. Suppose that the two firms, A and B, make an agreement to withhold any advertising for one month to lower each firm's costs and raise each firm's profits. If the firms reach the Nash equilibrium,

Accepted Answer

A) both firms will choose not to advertise. 
B) firm A will choose not to advertise, but firm B will break the agreement and choose to advertise. 
C) firm B will choose not to advertise, but firm A will break the agreement and choose to advertise. 
D) both firms will break the agreement and choose to advertise. 
A) both firms will choose not to advertise. 
B) firm A will choose not to advertise, but firm B will break the agreement and choose to advertise. 
C) firm B will choose not to advertise, but firm A will break the agreement and choose to advertise. 
D) both firms will break the agreement and choose to advertise.

Question 11

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. If this game is played only once, then the most likely outcome is that

Accepted Answer

A) both firms charge a low price. 
B) ABC charges a low price and QRS charges a high price. 
C) ABC charges a high price and QRS charges a low price. 
D) both firms charge a high price. 
A) both firms charge a low price. 
B) ABC charges a low price and QRS charges a high price. 
C) ABC charges a high price and QRS charges a low price. 
D) both firms charge a high price.

Question 12

Briefly describe the business practice of tying.

Accepted Answer

Tying is the practice of bundl

Question 13

In markets characterized by oligopoly,

Accepted Answer

A) the oligopolists earn the highest profit when they cooperate and behave like a monopolist. 
B) collusive agreements will always prevail. 
C) collective profits are always lower with cartel arrangements than they are without cartel arrangements. 
D) pursuit of self-interest by profit-maximizing firms always maximizes collective profits in the market. 
A) the oligopolists earn the highest profit when they cooperate and behave like a monopolist. 
B) collusive agreements will always prevail. 
C) collective profits are always lower with cartel arrangements than they are without cartel arrangements. 
D) pursuit of self-interest by profit-maximizing firms always maximizes collective profits in the market.

Question 14

If all of the firms in an oligopoly successfully collude and form a cartel, then total profit for the cartel is equal to what it would be if the market were a monopoly.

Accepted Answer

A) True 
 B)False

Question 15

Table 17-1
Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each week Rochelle and Alec work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Rochelle and Alec can pump as much water as they want without cost so that the marginal cost of water equals zero. The town's weekly demand schedule and total revenue schedule for water is shown in the table below:  
-Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, how much profit will each of them earn, assuming that the two producers split the market equally?

Accepted Answer

A) $8,750 
B) $9,000 
C) $12,000 
D) $18,000 
A) $8,750 
B) $9,000 
C) $12,000 
D) $18,000

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

Because oligopoly markets have only a few sellers, the actions of any one seller

Accepted Answer

A) do not affect other sellers in the market. 
B) can have a large impact on the profits of other sellers in the market. 
C) will affect how other firms behave in the market. 
D) Both b and c are correct. 
A) do not affect other sellers in the market. 
B) can have a large impact on the profits of other sellers in the market. 
C) will affect how other firms behave in the market. 
D) Both b and c are correct.

Question 18

The equilibrium price in a market characterized by oligopoly is

Accepted Answer

A) higher than in monopoly markets and higher than in perfectly competitive markets. 
B) higher than in monopoly markets and lower than in perfectly competitive markets. 
C) lower than in monopoly markets and higher than in perfectly competitive markets. 
D) lower than in monopoly markets and lower than in perfectly competitive markets. 
A) higher than in monopoly markets and higher than in perfectly competitive markets. 
B) higher than in monopoly markets and lower than in perfectly competitive markets. 
C) lower than in monopoly markets and higher than in perfectly competitive markets. 
D) lower than in monopoly markets and lower than in perfectly competitive markets.

Question 19

Scenario 17-6
Assume that a local telecommunications company sells high speed internet access and cable television. The company's only two customers are Taylor and Tim. Taylor is willing to pay $50 per month for high speed internet access and $50 per month for cable television. Tim is willing to pay only $20 per month for high speed internet access, but is willing to pay $70 per month for cable television. Assume that the telecommunications company can provide each of these products at zero marginal cost.
-Refer to Scenario 17-6. If the telecommunications company is unable to use tying, what is the profit-maximizing price to charge for high speed internet access?

Accepted Answer

The answer of Scenario 17-6
Assume that a local telecommunications company...

Question 20

Figure 17-4. Aaron and Ed are roommates. After a big snowstorm, their driveway needs to be shoveled. Each person has to decide whether to take part in shoveling the driveway. At the end of the day, either the driveway will be shoveled (if one or both roommates take part in shoveling), or it will remain unshoveled (if neither roommate shovels). With happiness measured on a scale of 1 (very unhappy) to 10 (very happy), the possible outcomes are as follows:  
-Refer to Figure 17-4. In pursuing his own self-interest, Ed will

Accepted Answer

A) refrain from shoveling whether or not Aaron shovels. 
B) shovel only if Aaron shovels. 
C) shovel only if Aaron refrains from shoveling. 
D) shovel whether or not Aaron shovels. 
A) refrain from shoveling whether or not Aaron shovels. 
B) shovel only if Aaron shovels. 
C) shovel only if Aaron refrains from shoveling. 
D) shovel whether or not Aaron shovels.

Compare the equilibrium output in a duopoly to the monopoly output.

OPEC is able to raise the price of its product by

A firm that practices resale price maintenance

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. The dominant strategy for Acme is to

Tying can be thought of as a form of price discrimination.

Figure 17-1 -Refer to Figure 17-1. Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram. The marginal revenue curve that a monopolist would face in this market is also shown. If the firms are able to collude successfully,

Briefly describe the business practice of tying.

In markets characterized by oligopoly,

If all of the firms in an oligopoly successfully collude and form a cartel, then total profit for the cartel is equal to what it would be if the market were a monopoly.

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.

Because oligopoly markets have only a few sellers, the actions of any one seller

The equilibrium price in a market characterized by oligopoly is

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

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Exam 17: Oligopoly

Compare the equilibrium output in a duopoly to the monopoly output.

OPEC is able to raise the price of its product by

A firm that practices resale price maintenance

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. The dominant strategy for Acme is to

Tying can be thought of as a form of price discrimination.

Figure 17-1 -Refer to Figure 17-1. Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram. The marginal revenue curve that a monopolist would face in this market is also shown. If the firms are able to collude successfully,

Briefly describe the business practice of tying.

In markets characterized by oligopoly,

If all of the firms in an oligopoly successfully collude and form a cartel, then total profit for the cartel is equal to what it would be if the market were a monopoly.

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.

Because oligopoly markets have only a few sellers, the actions of any one seller

The equilibrium price in a market characterized by oligopoly is

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