Question 1

Which of the following is correct? When oligopolies collude

Accepted Answer

A) they make higher profits and consumers of the product are better off. 
B) they make higher profits but consumers of the product are worse off. 
C) they make lower profits and consumers of the product are better off. 
D) they make lower profits and consumers of the product are worse off. 
A) they make higher profits and consumers of the product are better off. 
B) they make higher profits but consumers of the product are worse off. 
C) they make lower profits and consumers of the product are better off. 
D) they make lower profits and consumers of the product are worse off.

Question 2

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 that Abby and Brad work together to operate as a profit-maximizing monopolist. What price will they charge for water?

Accepted Answer

A) $8 
B) $7 
C) $6 
D) $4 
A) $8 
B) $7 
C) $6 
D) $4

Question 3

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. What price will the cartel charge in this market if the marginal cost of production is $4?

Accepted Answer

A) $6 
B) $8 
C) $10 
D) $12 
A) $6 
B) $8 
C) $10 
D) $12

Question 4

In the game in which two oil companies own adjacent oil fields, the companies will not use the oil efficiently because

Accepted Answer

A) neither company has a dominant strategy in the game. 
B) the companies collude and produce a quantity of oil that is less than the socially-efficient quantity. 
C) the pool from which they recover the oil is a common resource. 
D) the pool from which they recover the oil is not large enough to allow both companies to earn a positive profit. 
A) neither company has a dominant strategy in the game. 
B) the companies collude and produce a quantity of oil that is less than the socially-efficient quantity. 
C) the pool from which they recover the oil is a common resource. 
D) the pool from which they recover the oil is not large enough to allow both companies to earn a positive profit.

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

As the number of firms in an oligopoly increases, the price approaches

Accepted Answer

A) zero. 
B) marginal cost. 
C) infinity. 
D) the monopoly price. 
A) zero. 
B) marginal cost. 
C) infinity. 
D) the monopoly price.

Question 7

In a prisoner's dilemma situation where firms are setting prices, the dominant strategy is always to charge the price that leads to maximum profits for all firms.
​

Accepted Answer

A) True 
 B)False

Question 8

​Cartels are difficult to maintain because

Accepted Answer

A) ​the monopoly output is very difficult to determine. 
B) ​the number of firms is always large. 
C) ​costs to the firms in a cartel are continually rising. 
D) ​each firm has an incentive to deviate from its agreed output level. 
A) ​the monopoly output is very difficult to determine. 
B) ​the number of firms is always large. 
C) ​costs to the firms in a cartel are continually rising. 
D) ​each firm has an incentive to deviate from its agreed output level.

Question 9

Table 17-17
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: 2 units or 3 units. The profit for each firm is given in the table as (Profit for Firm A, Profit for Firm B).  
-Refer to Table 17-17. Which of the following outcomes represent the Nash equilibrium in this game?

Accepted Answer

A) Q=2 for Firm A and Q=3 for Firm B. 
B) Q=3 for Firm A and Q=2 for Firm B. 
C) There is no Nash equilibrium in this game since neither player has a dominant strategy. 
D) Both a and b are correct. 
A) Q=2 for Firm A and Q=3 for Firm B. 
B) Q=3 for Firm A and Q=2 for Firm B. 
C) There is no Nash equilibrium in this game since neither player has a dominant strategy. 
D) Both a and b are correct.

Question 10

How does free trade relate to the theory of oligopoly?

Accepted Answer

Free trade increases the number of produ

Question 11

Which of the following statements is correct?

Accepted Answer

A) If duopolists successfully collude, then their combined output will be equal to the output that would be observed if the market were a monopoly. 
B) Although the logic of self-interest decreases a duopoly's price below the monopoly price, it does not push the duopolists to reach the competitive price. 
C) Although the logic of self-interest increases a duopoly's level of output above the monopoly level, it does not push the duopolists to reach the competitive level. 
D) All of the above are correct. 
A) If duopolists successfully collude, then their combined output will be equal to the output that would be observed if the market were a monopoly. 
B) Although the logic of self-interest decreases a duopoly's price below the monopoly price, it does not push the duopolists to reach the competitive price. 
C) Although the logic of self-interest increases a duopoly's level of output above the monopoly level, it does not push the duopolists to reach the competitive level. 
D) All of the above are correct.

Question 12

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 13

Table 17-27
Each year the United States considers renewal of Most Favored Nation (MFN) trading status with Farland (a mythical nation). Historically, legislators have made threats of not renewing MFN status because of human rights abuses in Farland. The non-renewal of MFN trading status is likely to involve some retaliatory measures by Farland. The payoff table below shows the potential economic gains associated with a game in which Farland may impose trade sanctions against U.S. firms and the United States may not renew MFN status with Farland. The table contains the dollar value of all trade-flow benefits to the United States and Farland.  
-Refer to Table 17-27. If both countries follow a dominant strategy, the value of trade flow benefits for Farland will be

Accepted Answer

A)  $5 b. 
B)  $75 b. 
C)  $275 b. 
D)  $285 b. 
A)  $5 b. 
B)  $75 b. 
C)  $275 b. 
D)  $285 b.

Question 14

A tit-for-tat strategy starts out

Accepted Answer

A) conciliatory and then encourages an optimal social outcome among the other players. 
B) unfriendly and then encourages friendly strategies among players. 
C) friendly, then penalizes unfriendly players, and forgives them if warranted. 
D) aggressive, then compensates losing players, and eventually forgives unfriendly players. 
A) conciliatory and then encourages an optimal social outcome among the other players. 
B) unfriendly and then encourages friendly strategies among players. 
C) friendly, then penalizes unfriendly players, and forgives them if warranted. 
D) aggressive, then compensates losing players, and eventually forgives unfriendly players.

Question 15

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. What will these two companies do if they behave as individual profit maximizers?

Accepted Answer

A) Neither company will advertise. 
B) Both companies will advertise. 
C) One company will advertise, the other will not. 
D) There is no way of knowing without knowing how many customers are stolen through advertising. 
A) Neither company will advertise. 
B) Both companies will advertise. 
C) One company will advertise, the other will not. 
D) There is no way of knowing without knowing how many customers are stolen through advertising.

Question 16

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. What is (are) the Nash equilibrium (equilibria) in this Chicken game?

Accepted Answer

A) John: TurnPaul: Turn 
B) John: TurnPaul: Drive Straight 
C) John: Drive StraightPaul: Turn 
D) Both b and c are Nash equilibria 
A) John: TurnPaul: Turn 
B) John: TurnPaul: Drive Straight 
C) John: Drive StraightPaul: Turn 
D) Both b and c are Nash equilibria

Question 17

In a prisoner's dilemma, only one firm has a dominant strategy.
​

Accepted Answer

A) True 
 B)False

Question 18

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 19

When the prisoners' dilemma game is generalized to describe situations other than those that literally involve two prisoners, we see that cooperation between the players of the game

Accepted Answer

A) can be difficult to maintain, but only when cooperation would make at least one of the players of the game worse off. 
B) can be difficult to maintain, even when cooperation would make both players of the game better off. 
C) always works to the benefit of society as a whole. 
D) always works to the detriment of society as a whole. 
A) can be difficult to maintain, but only when cooperation would make at least one of the players of the game worse off. 
B) can be difficult to maintain, even when cooperation would make both players of the game better off. 
C) always works to the benefit of society as a whole. 
D) always works to the detriment of society as a whole.

Question 20

Briefly describe the business practice of tying.

Accepted Answer

Tying is the practice of bundl

Exam 17: Oligopoly

Which of the following is correct? When oligopolies collude

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. What price will the cartel charge in this market if the marginal cost of production is $4?

In the game in which two oil companies own adjacent oil fields, the companies will not use the oil efficiently because

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

As the number of firms in an oligopoly increases, the price approaches

In a prisoner's dilemma situation where firms are setting prices, the dominant strategy is always to charge the price that leads to maximum profits for all firms. ​

​Cartels are difficult to maintain because

How does free trade relate to the theory of oligopoly?

Which of the following statements is correct?

A tit-for-tat strategy starts out

In a prisoner's dilemma, only one firm has a dominant strategy. ​

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

When the prisoners' dilemma game is generalized to describe situations other than those that literally involve two prisoners, we see that cooperation between the players of the game

Briefly describe the business practice of tying.

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

Applications: 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

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

In a prisoner's dilemma situation where firms are setting prices, the dominant strategy is always to charge the price that leads to maximum profits for all firms.

Cartels are difficult to maintain because

In a prisoner's dilemma, only one firm has a dominant strategy.