Question 1

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

Accepted Answer

A) price and quantity would rise 
B) price would rise and quantity would fall. 
C) quantity would rise and price would fall. 
D) quantity and price would fall. 
A) price and quantity would rise 
B) price would rise and quantity would fall. 
C) quantity would rise and price would fall. 
D) quantity and price would fall.

Question 2

An oligopoly would tend to restrict output and drive up price if

Accepted Answer

A) barriers to entering the industry are negligible. 
B) firms engage in informative advertising. 
C) firms produce a standardized product. 
D) firms collude and behave like a monopoly. 
A) barriers to entering the industry are negligible. 
B) firms engage in informative advertising. 
C) firms produce a standardized product. 
D) firms collude and behave like a monopoly.

Question 3

Assume oligopoly firms are profit maximizers, they do not form a cartel, and they take other firms' production levels as given. Then in equilibrium the output effect

Accepted Answer

A) must dominate the price effect. 
B) must be smaller than the price effect. 
C) must balance with the price effect. 
D) can be larger or smaller than the price effect. 
A) must dominate the price effect. 
B) must be smaller than the price effect. 
C) must balance with the price effect. 
D) can be larger or smaller than the price effect.

Question 4

The theory of oligopoly provides another reason that free trade can benefit all countries because

Accepted Answer

A) increased competition leads to larger deadweight losses. 
B) as the number of firms within a given market increases, the price of the good decreases. 
C) as the number of firms within a given market increases, the profit of each firm increases. 
D) All of the above are correct. 
A) increased competition leads to larger deadweight losses. 
B) as the number of firms within a given market increases, the price of the good decreases. 
C) as the number of firms within a given market increases, the profit of each firm increases. 
D) All of the above are correct.

Question 5

A group of firms that act in unison to maximize collective profits is called a

Accepted Answer

A) monopolistically competitive industry. 
B) monopoly. 
C) cartel. 
D) Nash equilibrium market. 
A) monopolistically competitive industry. 
B) monopoly. 
C) cartel. 
D) Nash equilibrium market.

Question 6

Table 17-26
Two prescription drug manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the healthcare related expenses associated with side-effects from its drugs. Each drug manufacturer has evidence that indicates that taking its prescription drug causes liver failure. State prosecutors do not have access to the same data used by drug manufacturers and thus will have difficulty recovering full costs without the help of at least one of the drug manufacturer's studies. Each firm has been presented with an opportunity to lower its liability in the suit if it cooperates with attorneys representing the states.  
-Refer to Table 17-26. Pursuing its own best interests, Firm B will concede that taking its drug causes liver failure

Accepted Answer

A) only if Firm A concedes that taking its drug causes liver failure. 
B) only if Firm A does not concede that taking its drug causes liver failure. 
C) regardless of whether Firm A concedes that taking its drug causes liver failure. 
D) None of the above; in pursuing its own best interests, Firm B will in no case concede that taking its drug causes liver failure. 
A) only if Firm A concedes that taking its drug causes liver failure. 
B) only if Firm A does not concede that taking its drug causes liver failure. 
C) regardless of whether Firm A concedes that taking its drug causes liver failure. 
D) None of the above; in pursuing its own best interests, Firm B will in no case concede that taking its drug causes liver failure.

Question 7

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 more frequently this game is played, the more likely it is that

Accepted Answer

A) both firms will produce a good quality product. 
B) both firms will produce a poor quality product. 
C) both firms experience a reduction in profits compared to the Nash equilibrium outcome. 
D) one firm will experience an increase in profits and the other will experience a decrease in profits. 
A) both firms will produce a good quality product. 
B) both firms will produce a poor quality product. 
C) both firms experience a reduction in profits compared to the Nash equilibrium outcome. 
D) one firm will experience an increase in profits and the other will experience a decrease in profits.

Question 8

Table 17-32
Suppose that Angelina and Brad own the only two professional photography stores in town. Each must choose between a low price and a high price for senior photo packages. The annual economic profit from each strategy is indicated in the table below:
Angelina
Low price High price  
-Refer to Table 17-32. Does Angelina have a dominant strategy? If so, describe it.

Accepted Answer

Yes, regardless of Brad's strategy, Ange

Question 9

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. What price will premium digital channel cable TV subscriptions be sold at when this market reaches a Nash equilibrium?

Accepted Answer

A) $30 
B) $60 
C) $90 
D) $120 
A) $30 
B) $60 
C) $90 
D) $120

Question 10

Table 17-13
Two home-improvement stores (Lopes and HomeMax) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Increases in annual profits of the two home-improvement stores are shown in the table below.  
-Refer to Table 17-13. Suppose the owners of Lopes and HomeMax meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit. They should both agree to

Accepted Answer

A) increase their store and parking lot sizes. 
B) refrain from increasing their store and parking lot sizes. 
C) be more competitive in capturing market share. 
D) share the context of their conversation with the Federal Trade Commission. 
A) increase their store and parking lot sizes. 
B) refrain from increasing their store and parking lot sizes. 
C) be more competitive in capturing market share. 
D) share the context of their conversation with the Federal Trade Commission.

Question 11

Table 17-9
The table shows the demand schedule for a particular product.  
-Refer to Table 17-9. Suppose the market for this product is served by two firms that have formed a cartel. If the marginal cost of production is $0 and there is no fixed cost, the combined profit of the cartel will be

Accepted Answer

A) $16 
B) $24 
C) $30 
D) $32 
A) $16 
B) $24 
C) $30 
D) $32

Question 12

Very often, the reason that players can solve the prisoners' dilemma and reach the most profitable outcome is that

Accepted Answer

A) each player tries to capture a large portion of the market share. 
B) the players play the game not once but many times. 
C) the game becomes more competitive. 
D) self interest results in the Nash equilibrium which is the best outcome for the players. 
A) each player tries to capture a large portion of the market share. 
B) the players play the game not once but many times. 
C) the game becomes more competitive. 
D) self interest results in the Nash equilibrium which is the best outcome for the players.

Question 13

A dominant strategy is a strategy that is best for a player in a game regardless of the strategies chosen by the other players.

Accepted Answer

A) True 
 B)False

Question 14

Figure 17-3. Hector and Bart are roommates. On a particular day, their apartment needs to be cleaned. Each person has to decide whether to take part in cleaning. At the end of the day, either the apartment will be completely clean (if one or both roommates take part in cleaning), or it will remain dirty (if neither roommate cleans). With happiness measured on a scale of 1 (very unhappy) to 10 (very happy), the possible outcomes are as follows:  
-Refer to Figure 17-3. In pursuing his own self-interest, Bart will

Accepted Answer

A) refrain from cleaning whether or not Hector cleans. 
B) clean only if Hector cleans. 
C) clean only if Hector refrains from cleaning. 
D) clean whether or not Hector cleans. 
A) refrain from cleaning whether or not Hector cleans. 
B) clean only if Hector cleans. 
C) clean only if Hector refrains from cleaning. 
D) clean whether or not Hector cleans.

Question 15

If duopolists colluded but then stopped colluding,

Accepted Answer

A) price and quantity would rise. 
B) price would rise and quantity would fall. 
C) price would fall and quantity would rise 
D) price and quantity would fall. 
A) price and quantity would rise. 
B) price would rise and quantity would fall. 
C) price would fall and quantity would rise 
D) price and quantity would fall.

Question 16

Cartels with a small number of firms have a greater probability of reaching the monopoly outcome than do cartels with a larger number of firms.

Accepted Answer

A) True 
 B)False

Question 17

Define collusion.

Accepted Answer

Collusion is an agre

Question 18

In a duopoly situation, the logic of self-interest results in a total output level that

Accepted Answer

A) equals the output level that would prevail in a competitive market. 
B) equals the output level that would prevail in a monopoly. 
C) exceeds the monopoly level of output, but falls short of the competitive level of output. 
D) falls short of the monopoly level of output. 
A) equals the output level that would prevail in a competitive market. 
B) equals the output level that would prevail in a monopoly. 
C) exceeds the monopoly level of output, but falls short of the competitive level of output. 
D) falls short of the monopoly level of output.

Question 19

Table 17-21
The Chicken Game is named for a contest in which drivers test their courage by driving straight at each other. John and Paul have a common interest to avoid crashing into each other, but they also have a personal, competing interest to not turn first to demonstrate their courage to those observing the contest. The payoff table for this situation is provided below. The payoffs are shown as (John, Paul).  
-Refer to Table 17-21. If John chooses Drive Straight, what will Paul choose to do and what will Paul's payoff equal?

Accepted Answer

A) Turn, 5 
B) Drive Straight, 0 
C) Turn, 10 
D) Drive Straight, 200 
A) Turn, 5 
B) Drive Straight, 0 
C) Turn, 10 
D) Drive Straight, 200

Question 20

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 that 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 much profit will each firm earn when this market reaches a Nash equilibrium?

Accepted Answer

A) $25,000 
B) $90,000 
C) $160,000 
D) $215,000 
A) $25,000 
B) $90,000 
C) $160,000 
D) $215,000

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

An oligopoly would tend to restrict output and drive up price if

Assume oligopoly firms are profit maximizers, they do not form a cartel, and they take other firms' production levels as given. Then in equilibrium the output effect

The theory of oligopoly provides another reason that free trade can benefit all countries because

A group of firms that act in unison to maximize collective profits is called a

Table 17-9 The table shows the demand schedule for a particular product. -Refer to Table 17-9. Suppose the market for this product is served by two firms that have formed a cartel. If the marginal cost of production is $0 and there is no fixed cost, the combined profit of the cartel will be

Very often, the reason that players can solve the prisoners' dilemma and reach the most profitable outcome is that

A dominant strategy is a strategy that is best for a player in a game regardless of the strategies chosen by the other players.

If duopolists colluded but then stopped colluding,

Cartels with a small number of firms have a greater probability of reaching the monopoly outcome than do cartels with a larger number of firms.

Define collusion.

In a duopoly situation, the logic of self-interest results in a total output level that

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

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

An oligopoly would tend to restrict output and drive up price if

Assume oligopoly firms are profit maximizers, they do not form a cartel, and they take other firms' production levels as given. Then in equilibrium the output effect

The theory of oligopoly provides another reason that free trade can benefit all countries because

A group of firms that act in unison to maximize collective profits is called a

Table 17-9 The table shows the demand schedule for a particular product. -Refer to Table 17-9. Suppose the market for this product is served by two firms that have formed a cartel. If the marginal cost of production is $0 and there is no fixed cost, the combined profit of the cartel will be

Very often, the reason that players can solve the prisoners' dilemma and reach the most profitable outcome is that

A dominant strategy is a strategy that is best for a player in a game regardless of the strategies chosen by the other players.

If duopolists colluded but then stopped colluding,

Cartels with a small number of firms have a greater probability of reaching the monopoly outcome than do cartels with a larger number of firms.

Define collusion.

In a duopoly situation, the logic of self-interest results in a total output level that

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