Question 1

Predatory pricing occurs when a firm

Accepted Answer

A) exercises its oligopoly power by raising its price through the formation of a cartel. 
B) exercises its monopoly power by raising its price. 
C) cuts its prices in order make itself more competitive. 
D) cuts its prices temporarily in order to drive out any competition. 
A) exercises its oligopoly power by raising its price through the formation of a cartel. 
B) exercises its monopoly power by raising its price. 
C) cuts its prices in order make itself more competitive. 
D) cuts its prices temporarily in order to drive out any competition.

Question 2

Scenario 17-3.
​
Consider two countries, Kinglandia and Rovinastan, that are engaged in an arms race. Each country must decide whether to build new weapons or to disarm existing weapons. Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs. But each country also prefers to live in a world safe from the other country's weapons. The following table shows the possible outcomes for each decision combination. The numbers in each cell represent the country's ranking of the outcome (10 = best outcome, 1 = worst outcome).  
-Refer to Scenario 17-3. If each country only makes a choice of whether to build or disarm one time and Rovinastan chooses to build new weapons, then Kinglandia will

Accepted Answer

A) disarm to signal its willingness to cooperate. 
B) disarm to promote world peace. 
C) build new weapons to prevent the loss of influence in world affairs. 
D) None of the above are correct. 
A) disarm to signal its willingness to cooperate. 
B) disarm to promote world peace. 
C) build new weapons to prevent the loss of influence in world affairs. 
D) None of the above are correct.

Question 3

If two firms comprise the entire soft drink market, the market would be a(n)

Accepted Answer

A) Nash equilibrium. 
B) monopolistically competitive market. 
C) oligopolistically competitive market. 
D) duopoly. 
A) Nash equilibrium. 
B) monopolistically competitive market. 
C) oligopolistically competitive market. 
D) duopoly.

Question 4

Once a cartel is formed, the market is in effect served by

Accepted Answer

A) a monopoly. 
B) an oligopoly. 
C) imperfect competition. 
D) monopolistic competition. 
A) a monopoly. 
B) an oligopoly. 
C) imperfect competition. 
D) monopolistic competition.

Question 5

Why are the actions of the firms in an oligopoly interdependent?

Accepted Answer

because there are on

Question 6

How does the prisoners' dilemma game apply to real-life situations?

Accepted Answer

It illustrates how cooperation

Question 7

Oligopolies would like to act like a

Accepted Answer

A) duopoly, but self-interest often drives them closer to the perfectly competitive outcome. 
B) competitive firm, but self-interest often drives them closer to the duopoly outcome. 
C) monopoly, but self-interest often drives them to charge a higher price than would be charged by a monopoly. 
D) monopoly, but self-interest often drives them closer to the perfectly competitive outcome. 
A) duopoly, but self-interest often drives them closer to the perfectly competitive outcome. 
B) competitive firm, but self-interest often drives them closer to the duopoly outcome. 
C) monopoly, but self-interest often drives them to charge a higher price than would be charged by a monopoly. 
D) monopoly, but self-interest often drives them closer to the perfectly competitive outcome.

Question 8

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

Accepted Answer

A) resale price maintenance 
B) tying 
C) predatory pricing 
D) free-riding 
A) resale price maintenance 
B) tying 
C) predatory pricing 
D) free-riding

Question 9

The prisoners' dilemma is an important game to study because

Accepted Answer

A) most games present zero-sum alternatives. 
B) it identifies the fundamental difficulty in maintaining cooperative agreements. 
C) strategic decisions faced by prisoners are identical to those faced by firms engaged in competitive agreements. 
D) all interactions among firms are represented by this game. 
A) most games present zero-sum alternatives. 
B) it identifies the fundamental difficulty in maintaining cooperative agreements. 
C) strategic decisions faced by prisoners are identical to those faced by firms engaged in competitive agreements. 
D) all interactions among firms are represented by this game.

Question 10

We know that people tend to overuse common resources. This problem can be viewed as an example of

Accepted Answer

A) a game in which the players succeed in reaching the cooperative outcome. 
B) the prisoners' dilemma. 
C) a situation to which game theory does not apply because of a lack of strategic thinking. 
D) a situation to which game theory does not apply because of too many decision-makers. 
A) a game in which the players succeed in reaching the cooperative outcome. 
B) the prisoners' dilemma. 
C) a situation to which game theory does not apply because of a lack of strategic thinking. 
D) a situation to which game theory does not apply because of too many decision-makers.

Question 11

Assume that two firms in an olig​opoly market are unable to collude. Once the Nash Equilibrium is reached

Accepted Answer

A) ​it is always possible for one firm to increase its profits by producing more output. 
B) ​the two firms are jointly earning monopoly profit. 
C) ​neither firm is able to improve its outcome on its own. 
D) ​the outcome is equivalent to a competitive equilibrium. 
A) ​it is always possible for one firm to increase its profits by producing more output. 
B) ​the two firms are jointly earning monopoly profit. 
C) ​neither firm is able to improve its outcome on its own. 
D) ​the outcome is equivalent to a competitive equilibrium.

Question 12

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. If grocery store 2 sets a high price, what price should grocery store 1 set? And what will grocery store 1's payoff equal?

Accepted Answer

A) Low price, $400 
B) High price, $325 
C) Low price, $50 
D) High price, $400 
A) Low price, $400 
B) High price, $325 
C) Low price, $50 
D) High price, $400

Question 13

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:  
-Refer to Table 17-32. Does Brad have a dominant strategy? If so, describe it.

Accepted Answer

Yes, regardless of Angelina's strategy,

Question 14

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. What will be the price of milk once Maria and Miguel reach a Nash equilibrium?

Accepted Answer

A) $14 
B) $12 
C) $10 
D) $8 
A) $14 
B) $12 
C) $10 
D) $8

Question 15

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 16

Table 17-28
Suppose that two firms determine that each could lower its costs and increase its profits if both reduced their advertising budgets. But in order 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 cost savings will outweigh the lost sales. The table below lists each firm's individual profits:
Firm A
Breaks agreement Maintains agreement
and advertises and does not advertise  
-Refer to Table 17-28. Which of the following statement(s) correctly characterizes the outcome of this game?

Accepted Answer

A) Both Firm A and Firm B have a dominant strategy to advertise. 
B) There is a Nash equilibrium when both firms advertise. 
C) Although both firms collectively would earn higher profits by maintaining the agreement not to advertise, self-interest will cause each firm to break the agreement. 
D) All of the above are correct. 
A) Both Firm A and Firm B have a dominant strategy to advertise. 
B) There is a Nash equilibrium when both firms advertise. 
C) Although both firms collectively would earn higher profits by maintaining the agreement not to advertise, self-interest will cause each firm to break the agreement. 
D) All of the above are correct.

Question 17

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. When this game reaches a Nash equilibrium, profits for Firm A and Firm B will be

Accepted Answer

A) $-12 and $-100, respectively. 
B) $-24 and $-24, respectively. 
C) $-60 and $-40, respectively. 
D) $-100 and $-12, respectively. 
A) $-12 and $-100, respectively. 
B) $-24 and $-24, respectively. 
C) $-60 and $-40, respectively. 
D) $-100 and $-12, respectively.

Question 18

Suppose that two poker players believe that they are superior players to the rest of the people at their table. Further suppose that the two players make an agreement to concede hands to each other in order to drive the other players from the game first. Economists would model such behavior as

Accepted Answer

A) monopolistic competition. 
B) game theory. 
C) predatory pricing. 
D) a dominant strategy. 
A) monopolistic competition. 
B) game theory. 
C) predatory pricing. 
D) a dominant strategy.

Question 19

If nations such as Germany, Japan, and the United States prohibited international trade in automobiles, a likely effect would be that

Accepted Answer

A) the price effect would become a more significant consideration for each firm that makes automobiles. 
B) the excess of price over marginal cost would become less pronounced in the automobile market. 
C) all countries would become better off. 
D) automobile producers in the U.S. would collude to produce a large number of cars. 
A) the price effect would become a more significant consideration for each firm that makes automobiles. 
B) the excess of price over marginal cost would become less pronounced in the automobile market. 
C) all countries would become better off. 
D) automobile producers in the U.S. would collude to produce a large number of cars.

Question 20

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.

Exam 17: Oligopoly

Predatory pricing occurs when a firm

If two firms comprise the entire soft drink market, the market would be a(n)

Once a cartel is formed, the market is in effect served by

Why are the actions of the firms in an oligopoly interdependent?

How does the prisoners' dilemma game apply to real-life situations?

Oligopolies would like to act like a

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

The prisoners' dilemma is an important game to study because

We know that people tend to overuse common resources. This problem can be viewed as an example of

Assume that two firms in an olig​opoly market are unable to collude. Once the Nash Equilibrium is reached

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

Suppose that two poker players believe that they are superior players to the rest of the people at their table. Further suppose that the two players make an agreement to concede hands to each other in order to drive the other players from the game first. Economists would model such behavior as

If nations such as Germany, Japan, and the United States prohibited international trade in automobiles, a likely effect would be that

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

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

Assume that two firms in an oligopoly market are unable to collude. Once the Nash Equilibrium is reached