Exam 17: Oligopoly

Resale price maintenance prevents retailers from competing on price.

Scenario 17-5 Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost. -Refer to Scenario 17-5. If the restaurant is able to use tying to price salads and steaks, what is the profit-maximizing price to charge for the "tied" good?

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. At the Nash equilibrium, how much profit will Firm B earn?

Table 17-20 Nadia and Maddie are two college roommates who both prefer a clean common space in their dorm room, but neither enjoys cleaning. The roommates must each make a decision to either clean or not clean the dorm room's common space. The payoff table for this situation is provided below, where the higher a player's payoff number, the better off that player is. The payoffs in each cell are shown as (payoff for Nadia, payoff for Maddie). -Refer to Table 17-20. If Nadia chooses to clean, then Maddie will

One way that public policy encourages cooperation among oligopolists is through antitrust law.

In a competitive market, strategic interactions among the firms are not important.

Table 17-6 Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week Kunal and Naj work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. Assume Kunal and Naj can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water are shown in the table below. -Refer to Table 17-6. Since Kunal and Naj operate as a profit-maximizing monopoly in the market for water, what price will they charge for water?

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, Hector will

Before the __________, agreements between oligopolists were unenforceable contracts; afterwards, such agreements were criminal conspiracies.

As the number of firms in an oligopoly industry decreases, the market moves closer to a __________ market.

Table 17-24 Two firms are considering going out of business and selling their assets. Each considers what happens if the other goes out of business. The payoff matrix below shows the net gain or loss to each firm. -Refer to Table 17-24. Which firms have a dominant strategy?

When oligopolistic firms interacting with one another each choose their best strategy given the strategies chosen by other firms in the market, we have

The story of the prisoners' dilemma shows why

Suppose a market is initially perfectly competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, we would expect

Table 17-10 The table shows the demand schedule for a particular product. -Refer to Table 17-10. If this market is perfectly competitive and the marginal cost is constant at $40 per unit, then how much output will be produced?

The Sherman Antitrust Act prohibits competing firms from even talking about fixing prices.

Table 17-11 Only two firms, ABC and XYZ, sell a particular product. The table below shows the demand curve for their product. Each firm has the same constant marginal cost of $8 and zero fixed cost. -Refer to Table 17-11. ABC and XYZ agree to maximize joint profits. However, while ABC produces the agreed upon amount, XYZ breaks the agreement and produces 5 more than agreed. How much profit does XYZ make?

Game theory is important for the understanding of

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. If both stores follow a dominant strategy, HomeMax's annual profit will grow by

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. Pursuing its own best interest, HomeMax will