Question 1

Other things the same, in which case is the quantity produced the highest?

Accepted Answer

A) There is one firm. 
B) There are two firms that successfully collude. 
C) There are two firms in Nash equilibrium. 
D) There are a very large number of firms. 
A) There is one firm. 
B) There are two firms that successfully collude. 
C) There are two firms in Nash equilibrium. 
D) There are a very large number of firms.

Question 2

Game theory is important for the understanding of

Accepted Answer

A) competitive markets. 
B) monopolies. 
C) oligopolies. 
D) all market structures. 
A) competitive markets. 
B) monopolies. 
C) oligopolies. 
D) all market structures.

Question 3

Explain the practice of resale price maintenance and discuss why it is controversial.

Accepted Answer

Resale price maintenance is a requiremen

Question 4

In an oligopoly, each firm knows that its profits

Accepted Answer

A) depend only on how much output it produces. 
B) depend only on how much output its rival firms produce. 
C) depend on both how much output it produces and how much output its rival firms produce. 
D) will be zero in the long run because of free entry. 
A) depend only on how much output it produces. 
B) depend only on how much output its rival firms produce. 
C) depend on both how much output it produces and how much output its rival firms produce. 
D) will be zero in the long run because of free entry.

Question 5

Scenario 17-6
Assume that a local telecommunications company sells high speed internet access and cable television. The company's only two customers are Taylor and Tim. Taylor is willing to pay $50 per month for high speed internet access and $50 per month for cable television. Tim is willing to pay only $20 per month for high speed internet access, but is willing to pay $70 per month for cable television. Assume that the telecommunications company can provide each of these products at zero marginal cost.
-Refer to Scenario 17-6. How much additional profit can the telecommunications company earn by switching to the use of a tying strategy to price high speed internet access and cable television rather than pricing these goods separately?

Accepted Answer

The answer of Scenario 17-6
Assume that a local telecommunications company...

Question 6

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. How many gallons of water will be produced and sold?

Accepted Answer

A) 4 gallons 
B) 5 gallons 
C) 6 gallons 
D) 8 gallons 
A) 4 gallons 
B) 5 gallons 
C) 6 gallons 
D) 8 gallons

Question 7

In a prisoners' dilemma game,

Accepted Answer

A) the solution when playing the game once will be the same as the solution when the players play the game repeatedly, since agreements cannot be maintained in a prisoners' dilemma. 
B) if the players play the game repeatedly, the players can achieve a higher payoff, on average, than when they play the game only once. 
C) repeated play will always result in a better outcome for both players than when the game is played only once. 
D) the tit-for-tat strategy in repeated play requires players to always select the opposite strategy as their opponent. 
A) the solution when playing the game once will be the same as the solution when the players play the game repeatedly, since agreements cannot be maintained in a prisoners' dilemma. 
B) if the players play the game repeatedly, the players can achieve a higher payoff, on average, than when they play the game only once. 
C) repeated play will always result in a better outcome for both players than when the game is played only once. 
D) the tit-for-tat strategy in repeated play requires players to always select the opposite strategy as their opponent.

Question 8

Game theory is just as necessary for understanding competitive or monopoly markets as it is for understanding oligopolistic markets.

Accepted Answer

A) True 
 B)False

Question 9

In studying oligopolistic markets, economists assume that

Accepted Answer

A) there is no conflict or tension between cooperation and self-interest. 
B) it is easy for a group of firms to cooperate and thereby establish and maintain a monopoly outcome. 
C) each oligopolist cares only about its own profit. 
D) strategic decisions do not play a role in such markets. 
A) there is no conflict or tension between cooperation and self-interest. 
B) it is easy for a group of firms to cooperate and thereby establish and maintain a monopoly outcome. 
C) each oligopolist cares only about its own profit. 
D) strategic decisions do not play a role in such markets.

Question 10

The Clayton Act of 1914 allowed a person who successfully sued a company for damages caused by an illegal arrangement to restrain trade to recover __________ damages.

Accepted Answer

The answer of The Clayton Act of 1914 allowed a...

Question 11

Which of the following prohibits executives of competing firms from even talking about fixing prices?

Accepted Answer

A) Sherman Act 
B) Clayton Act 
C) Federal Trade Commission 
D) U.S. Justice Department 
A) Sherman Act 
B) Clayton Act 
C) Federal Trade Commission 
D) U.S. Justice Department

Question 12

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, what price will they charge?

Accepted Answer

A) $25 
B) $30 
C) $35 
D) $40 
A) $25 
B) $30 
C) $35 
D) $40

Question 13

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. If this market were perfectly competitive instead of oligopolistic, what would the price be?

Accepted Answer

A) $18 
B) $14 
C) $8 
D) $0 
A) $18 
B) $14 
C) $8 
D) $0

Question 14

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. What is the Nash equilibrium?

Accepted Answer

A) A and B both stay in business 
B) A stays in business, B sells 
C) B stays in business, A sells 
D) Both A and B sell 
A) A and B both stay in business 
B) A stays in business, B sells 
C) B stays in business, A sells 
D) Both A and B sell

Question 15

Laurel and Janet are competitors in a local market and each is trying to decide if it is worthwhile to advertise. If both of them advertise, each will earn a profit of $5,000. If neither of them advertise, each will earn a profit of $10,000. If one advertises and the other doesn't, then the one who advertises will earn a profit of $12,000 and the other will earn $2,000. In this version of the prisoners' dilemma, if the game is played only once, Laurel should

Accepted Answer

A) advertise, but if the game is to be repeated many times she should probably not advertise. 
B) advertise, and if the game is to be repeated many times she should still probably advertise. 
C) not advertise, but if the game is to be repeated many times she should probably advertise. 
D) not advertise, and if the game is to be repeated many times she should still not advertise. 
A) advertise, but if the game is to be repeated many times she should probably not advertise. 
B) advertise, and if the game is to be repeated many times she should still probably advertise. 
C) not advertise, but if the game is to be repeated many times she should probably advertise. 
D) not advertise, and if the game is to be repeated many times she should still not advertise.

Question 16

Figure 17-5. Two companies, ABC and QRS, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies.  
-Refer to Figure 17-5. If the two companies make their pricing decisions independently, then it is likely that ABC will

Accepted Answer

A) charge a high price only if QRS charges a high price. 
B) charge a high price only if QRS charges a low price. 
C) charge a high price regardless of whether QRS charges a high price or a low price. 
D) None of the above are correct. 
A) charge a high price only if QRS charges a high price. 
B) charge a high price only if QRS charges a low price. 
C) charge a high price regardless of whether QRS charges a high price or a low price. 
D) None of the above are correct.

Question 17

Table 17-18
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: 10 units or 12 units. The profit for each firm is given in the table as (Profit for Firm A, Profit for Firm B).  
-Refer to Table 17-18. If these two firms play this game repeatedly, the likely outcome will be

Accepted Answer

A) 10 units of output for Firm A and 10 units of output for Firm B. 
B) 10 units of output for Firm A and 12 units of output for Firm B. 
C) 12 units of output for Firm A and 10 units of output for Firm B. 
D) 12 units of output for Firm A and 12 units of output for Firm B. 
A) 10 units of output for Firm A and 10 units of output for Firm B. 
B) 10 units of output for Firm A and 12 units of output for Firm B. 
C) 12 units of output for Firm A and 10 units of output for Firm B. 
D) 12 units of output for Firm A and 12 units of output for Firm B.

Question 18

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. How much additional profit can the restaurant earn by switching to the use of a tying strategy to price salads and steaks rather than pricing these goods separately?

Accepted Answer

A) $20 
B) $12 
C) $7 
D) $6 
A) $20 
B) $12 
C) $7 
D) $6

Question 19

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. If these two companies collude and agree upon the best joint strategy,

Accepted Answer

A) neither company will advertise. 
B) both companies will advertise. 
C) PM Inc. will advertise but Brown Inc. will not. 
D) Brown Inc. will advertise but PM Inc. will not. 
A) neither company will advertise. 
B) both companies will advertise. 
C) PM Inc. will advertise but Brown Inc. will not. 
D) Brown Inc. will advertise but PM Inc. will not.

Question 20

In a typical cartel agreement, the cartel maximizes profit when it

Accepted Answer

A) behaves as a monopolist. 
B) behaves as a duopolist. 
C) is flexible in enforcing production targets. 
D) behaves as a perfectly competitive firm. 
A) behaves as a monopolist. 
B) behaves as a duopolist. 
C) is flexible in enforcing production targets. 
D) behaves as a perfectly competitive firm.

Exam 17: Oligopoly

Other things the same, in which case is the quantity produced the highest?

Game theory is important for the understanding of

Explain the practice of resale price maintenance and discuss why it is controversial.

In an oligopoly, each firm knows that its profits

In a prisoners' dilemma game,

Game theory is just as necessary for understanding competitive or monopoly markets as it is for understanding oligopolistic markets.

In studying oligopolistic markets, economists assume that

The Clayton Act of 1914 allowed a person who successfully sued a company for damages caused by an illegal arrangement to restrain trade to recover __________ damages.

Which of the following prohibits executives of competing firms from even talking about fixing prices?

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. What is the Nash equilibrium?

In a typical cartel agreement, the cartel maximizes profit when it

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

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