Exam 17: Oligopoly

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. What is the outcome of this game?

Table 17-5 The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $200,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero. -Refer to Table 17-5. Assume that there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell. How much profit will each firm earn when this market reaches a Nash equilibrium?

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 Angelina have a dominant strategy? If so, describe it.

​Table 17-36 The information in the table shows the total demand for water service in Takoma. Assume that there are two companies operating in Takoma. Each company that provides these services incurs an annual fixed cost of $400 and that the marginal cost of providing the service to each customer is exactly $2.00. Figures listed are for an annual service contract. ​ -Refer to Table 17-36. Assume there are two profit-maximizing water service providers in this market who had formed a successful cartel. Now assume that the cartel breaks down, so that they are not able to collude on the price and quantity of service contracts to sell. How much profit will each firm earn when this market reaches a Nash equilibrium?

Firms do not need to be concerned about striking a balance between the price effect and the output effect when making production decisions in which of the following types of markets?

Predatory pricing involves a firm

When all firms choose their best strategy given the strategies that all the other firms have chosen, the result is a Nash equilibrium.

Table 17-31 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 17-31. Discuss the difference between the monopoly outcome and the Nash equilibrium.

Table 17-16 This table shows a game played between two players, A and B. The payoffs are given in the table as (Payoff to A, Payoff to B). -Refer to Table 17-16. Which of the following outcomes represents a Nash equilibrium in the game?

Which of the following statements is correct?

Figure 17-2. Two companies, Acme and Pinnacle, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-2. Acme and Pinnacle agree to cooperate so as to maximize total profit. If this game is played repeatedly and Acme uses a tit-for-tat strategy, it will choose a

When prisoners' dilemma games are repeated over and over, sometimes the threat of penalty causes both parties to cooperate.

Scenario 17-1. ​ Assume that the countries of Irun and Urun are the only two producers of crude oil. Further assume that both countries have entered into an agreement to maintain certain production levels in order to maximize profits. In the world market for oil, the demand curve is downward sloping. -Refer to Scenario 17-1. If Irun fails to live up to the production agreement and overproduces, which of the following statements will be true of Urun's condition?

Cartels are difficult to maintain because

In the prisoners' dilemma game, confessing is a dominant strategy for each of the two prisoners.

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. Suppose the owners of Lopes and HomeMax meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit. If they both agree to cooperate on a strategy that maximizes their joint profits, annual profit will grow by

Some people consider the NCAA (National Collegiate Athletic Association) to be a __________ in the market for college athletics.

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. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist. What will the new price of water be once the Nash equilibrium is reached?

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 this market for water were perfectly competitive instead of monopolistic, what price would be charged?

In which of the following games is it clearly the case that the cooperative outcome of the game is good for the two players and good for society?