Exam 17: Oligopoly

Cooperation is easier to achieve in __________.

Figure 17-1 -Refer to Figure 17-1. Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram and have zero fixed cost. The marginal revenue curve that a monopolist would face in this market is also shown. If the firms are able to collude successfully, each firm should earn a profit equal to

Government regulators might suspect a firm of engaging in predatory pricing if it charges prices that seem to be too __________.

Some business practices that appear to reduce competition, such as resale price maintenance, may have legitimate economic purposes.

Table 17-1 Imagine a small town in which only two residents, Sydney and Matthew, own wells that produce safe drinking water. Each week Sydney and Matthew 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 Sydney and Matthew 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 following table: ​ ​ Quantity (Gallons) Price (Dollars per gallon) Total Revenue and Total Profit (Dollars) 0 48 0 90 44 3,960 180 40 7,200 270 36 9,720 360 32 11,520 450 28 12,600 540 24 12,960 630 20 12,600 720 16 11,520 810 12 9,720 900 8 7,200 990 4 3,960 1,080 0 0 ​ -Refer to Table 17-1. If Sydney and Matthew operate as a profit-maximizing monopoly in the market for water, what price will they charge?

Table 17-9 Hanna and Alicia are two college roommates who both prefer a clean common space in their dorm room, but neither enjoys cleaning. The roommates must each make a decision to either clean or not clean the dorm room's common space. The following table shows the payoffs for this situation, where the higher a player's payoff number, the better off that player is. ​ ​ -Refer to Table 17-9. If Alicia chooses to clean, then Hanna will

Table 17-14 Suppose that two oil companies - BP and Exxon - own adjacent natural gas fields. The profits that each firm earns depends on both the number of wells it drills and the number of wells drilled by the other firm. The table below lists each firm's individual profits: Exxon Drill one well Drill two wells -Refer to Table 17-14. Is there a Nash equilibrium? If so, describe it.

A tit-for-tat strategy, in a repeated game, is one in which a player starts by cooperating and then does whatever the other player did last time.

Which of the following statements about oligopolies is not correct?

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.

The Sherman Antitrust Act

Table 17-2 The information in the following table shows the total demand for internet radio subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year) and that the marginal cost of providing an additional subscription is always $16. ​ ​ Quantity Demanded (Internet radio sub scriptions) Price (Dollars per subscription per year) 0 64 500 60 1,000 56 1,500 52 2,000 48 2,500 44 3,000 40 3,500 36 4,000 32 4,500 28 5,000 24 5,500 20 6,000 16 6,500 12 7,000 8 7,500 4 8,000 0 ​ -Refer to Table 17-2. Assume there are two profit-maximizing internet radio providers operating in this market. Further assume that they are not able to collude on the price and quantity of subscriptions to sell. What price will they charge for a subscription when this market reaches a Nash equilibrium?

As the number of firms in an oligopoly industry increases, the market moves closer to a __________ market.

Table 17-4 Only two firms, JKL and XYZ, sell a particular product. The following table shows the demand curve for their product. Each firm has the same constant marginal cost of $8 and zero fixed cost. ​ ​ Price (Dollars per unit) Quantity Demanded (Units) Total Revenue (Dollars) 28 0 0 26 5 130 24 10 240 22 15 330 20 20 400 18 25 450 16 30 480 14 35 490 12 40 480 10 45 450 8 50 400 6 55 330 4 60 240 2 65 130 0 70 0 ​ -Refer to Table 17-4. If JKL and XYZ operate to jointly maximize profits and agree to share the profit equally, then how much profit will each of them earn?

Which of the following groups or entities has the authority to initiate legal suits to enforce antitrust laws?

Table 17-3 The table shows the demand schedule for a particular product. ​ ​ Quantity Demanded (Units) Price (Dollars per unit) 0 16 1 14 2 12 3 10 4 8 5 6 6 4 7 2 8 0 ​ ​ -Refer to Table 17-3. If the marginal cost of production in this market is $4, what is the socially efficient quantity of output?

Scenario 17-2 ​ 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 17-2. If the telecommunications provider is able to use tying to price high speed internet access and cable television, what is the profit-maximizing price to charge for the "tied" good?

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

Consider a market served by a monopolist, Firm A. A new firm, Firm B, enters the market and, as a result, Firm A lowers its price to try to drive Firm B out of the market. This practice is known as

Table 17-6 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 (in millions of dollars) of the two home-improvement stores are shown in the following figure. ​ -Refer to Table 17-6. 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