Exam 17: Oligopoly

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 many gallons of water will be produced and sold?

Suppose the market for home-grown peppers in the town of Smallville is comprised of two farmers. Suppose the two farmers try to collude. Explain why their collusion might not be successful.

The Sherman Antitrust Act

Assume that demand for a product that is produced at zero marginal cost is reflected in the table below. a.What is the profit-maximizing level of production for a group of oligopolistic firms that operate as a cartel? b.Assume that this market is characterized by a duopoly in which collusive agreements are illegal. What market price and quantity will be associated with a Nash equilibrium?

Game theory is necessary to understand which kinds of markets? (i)perfectly competitive (ii)monopolistically competitive (iii)oligopoly (iv)duopoly (v)monopoly

Explain how the output effect and the price effect influence the production decision of the individual oligopolist.

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 A earn?

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 the market for water were perfectly competitive instead of monopolistic, how many gallons of water would be produced and sold?

The Clayton Act

If duopolists individually pursue their own self-interest when deciding how much to produce, the amount they will produce collectively will

If the members of an oligopoly could agree on a total quantity to produce and a price to charge, what quantity and price would they choose? Will this choice represent a Nash equilibrium?

When an oligopoly market reaches a Nash equilibrium,

If duopolists individually pursue their own self-interest when deciding how much to produce, the profit-maximizing price they will charge for their product will be

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. Is there a Nash equilibrium? If so, describe it.

Reaching and enforcing an agreement between members of a cartel becomes more difficult as the size of the group __________.

Table 17-37​ Two restaurants with a focus on Mexican dining operate in Texama. Both Mitch's Mexican and Tim's Tacos need to decide whether to add Zesty Queso or Fresh Guacamole to their menus. The circumstances are that each firm wants to add only one of the two choices on their menu. Below you will find the profits for the stores, shown as: (1) the payoff to Mitch; (2) the payoff to Tim. ​ -Refer to Table 17-37. If Mitch's Mexican chooses Zesty Queso then Tim's Tacos will select its best strategy and choose ____ ; if Mitch's Mexican chooses Fresh Guacamole then Tim's Tacos will select its best strategy and choose _____.

In a game, a dominant strategy is

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. If this market for milk were perfectly competitive instead of monopolistic, how many gallons of milk would be produced and sold?

Game theory is necessary to understand which kinds of markets? (i)perfectly competitive (ii)monopolistically competitive (iii)oligopoly (iv)duopoly (v)monopoly

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 low price, what price should grocery store 1 set? And what will grocery store 1's payoff equal?