Question 1

Which of the controversial business practices, resale price maintenance, predatory pricing, or tying, was a part of a long-running antitrust lawsuit against Microsoft and why?

Accepted Answer

The government accused Microsoft of tyin

Question 2

Briefly describe the business practice of tying.

Accepted Answer

Tying is the practice of bundl

Question 3

Ford and General Motors are considering expanding into the Vietnamese automobile market. Devise a simple prisoners' dilemma game to demonstrate the strategic considerations that are relevant to this decision.

Accepted Answer

The answer should present two strategies

Question 4

Resale price maintenance prevents retailers from competing on price.

Accepted Answer

A) True 
 B)False

Question 5

Table 17-13
Suppose that Robert and Howard own the only two movie studios in California. Each producer must choose between a low budget and a high budget strategy for his next film. The economic profit from each strategy is indicated in the table below:
Howard
Low budget High budget
  
-Refer to Table 17-13. Does Howard have a dominant strategy? If so, describe it.

Accepted Answer

Yes, regardless of Robert's strategy, Ho

Question 6

As the number of firms in a cartel increases, the easier it is to enforce the cartel agreement.
​

Accepted Answer

A) True 
 B)False

Question 7

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. Pursuing its own best interest, HomeMax will

Accepted Answer

A) increase the size of its store and parking lot only if Lopes also increases the size of its store and parking lot. 
B) increase the size of its store and parking lot only if Lopes does not increase the size of its store and parking lot. 
C) increase the size of its store and parking lot regardless of the decision made by Lopes. 
D) not increase the size of its store and parking lot regardless of the decision made by Lopes. 
A) increase the size of its store and parking lot only if Lopes also increases the size of its store and parking lot. 
B) increase the size of its store and parking lot only if Lopes does not increase the size of its store and parking lot. 
C) increase the size of its store and parking lot regardless of the decision made by Lopes. 
D) not increase the size of its store and parking lot regardless of the decision made by Lopes.

Question 8

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.
​
​
 $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Price } \
\text { (Dollars per unit) }
\end{array} & \begin{array} { c } 
\text { Quantity Demanded } \
\text { (Units) }
\end{array} & \begin{array} { c } 
\text { Total Revenue } \
\text { (Dollars) }
\end{array} \
\hline 28 & 0 & 0 \
\hline 26 & 5 & 130 \
\hline 24 & 10 & 240 \
\hline 22 & 15 & 330 \
\hline 20 & 20 & 400 \
\hline 18 & 25 & 450 \
\hline 16 & 30 & 480 \
\hline 14 & 35 & 490 \
\hline 12 & 40 & 480 \
\hline 10 & 45 & 450 \
\hline 8 & 50 & 400 \
\hline 6 & 55 & 330 \
\hline 4 & 60 & 240 \
\hline 2 & 65 & 130 \
\hline 0 & 70 & 0 \
\hline
\end{array}$$ ​
-Refer to Table 17-4. What is the socially efficient quantity of the product?

Accepted Answer

A) 35 
B) 25 
C) 50 
D) 60 
A) 35 
B) 25 
C) 50 
D) 60

Question 9

In the prisoners' dilemma game, self-interest leads

Accepted Answer

A) each prisoner to stay silent. 
B) to the follow-through of any agreement that the prisoners might have made before being questioned. 
C) to an outcome that is better for both prisoners. 
D) each prisoner to confess. 
A) each prisoner to stay silent. 
B) to the follow-through of any agreement that the prisoners might have made before being questioned. 
C) to an outcome that is better for both prisoners. 
D) each prisoner to confess.

Question 10

Suppose the market for home-grown peppers in the town of Smallville is comprised of two farmers. Explain why they might try to collude.

Accepted Answer

The two farmers might try to collude abo

Question 11

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. What is the Nash Equilibrium in this dorm room cleaning game?

Accepted Answer

A) Hanna: Clean Alicia: Clean 
B) Hanna: Don't Clean Alicia: Clean 
C) Hanna: Clean Alicia: Don't Clean 
D) Hanna: Don't Clean Alicia: Don't Clean 
A) Hanna: Clean Alicia: Clean 
B) Hanna: Don't Clean Alicia: Clean 
C) Hanna: Clean Alicia: Don't Clean 
D) Hanna: Don't Clean Alicia: Don't Clean

Question 12

Compare the equilibrium output in a duopoly to the monopoly output.

Accepted Answer

The duopoly output will be higher than t

Question 13

In cartels, the reason that the monopoly output is unstable is due to the factors that are present in a prisoner's dilemma.
​

Accepted Answer

A) True 
 B)False

Question 14

In a prisoner's dilemma, only one firm has a dominant strategy.
​

Accepted Answer

A) True 
 B)False

Question 15

Table 17-8
This table shows the payoffs for a game played between two players, A and B.
  
-Refer to Table 17-8. If player B chooses Right, player A should choose

Accepted Answer

A) Up and earn a payoff of 1. 
B) Middle and earn a payoff of 5. 
C) Middle and earn a payoff of 7. 
D) Down and earn a payoff of 4. 
A) Up and earn a payoff of 1. 
B) Middle and earn a payoff of 5. 
C) Middle and earn a payoff of 7. 
D) Down and earn a payoff of 4.

Question 16

Table 17-13
Suppose that Robert and Howard own the only two movie studios in California. Each producer must choose between a low budget and a high budget strategy for his next film. The economic profit from each strategy is indicated in the table below:
Howard
Low budget High budget
  
-Refer to Table 17-13. Does Robert have a dominant strategy? If so, describe it.

Accepted Answer

Yes, regardless of Howard's strategy, Ro

Question 17

All examples of the prisoner's dilemma game are characterized by one and only one Nash equilibrium.

Accepted Answer

A) True 
 B)False

Question 18

Table 17-7
Two companies, Wonka and Gekko, 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 (in millions of dollars) for the two companies.
  
-Refer to Table 17-7. Which of the following statements is correct?

Accepted Answer

A) Wonka can potentially earn its highest possible profit if it produces a good quality product, and for that reason it is a dominant strategy for Wonka to produce a good quality product. 
B) The highest possible combined profit for the two firms occurs when both produce a poor quality product, and for that reason producing a poor quality product is a dominant strategy for both firms. 
C) Regardless of the strategy pursued by Wonka, Gekko's best strategy is to produce a good quality product, and for that reason producing a good quality product is a dominant strategy for Gekko. 
D) Our knowledge of game theory suggests that the most likely outcome of the game, if it is played only once, is for one firm to produce a poor quality product and for the other firm to produce a good quality product. 
A) Wonka can potentially earn its highest possible profit if it produces a good quality product, and for that reason it is a dominant strategy for Wonka to produce a good quality product. 
B) The highest possible combined profit for the two firms occurs when both produce a poor quality product, and for that reason producing a poor quality product is a dominant strategy for both firms. 
C) Regardless of the strategy pursued by Wonka, Gekko's best strategy is to produce a good quality product, and for that reason producing a good quality product is a dominant strategy for Gekko. 
D) Our knowledge of game theory suggests that the most likely outcome of the game, if it is played only once, is for one firm to produce a poor quality product and for the other firm to produce a good quality product.

Question 19

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.

Accepted Answer

The two farmers might try to determine t

Question 20

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?

Accepted Answer

the monopoly quantity and price; no beca

Exam 17: Oligopoly

Which of the controversial business practices, resale price maintenance, predatory pricing, or tying, was a part of a long-running antitrust lawsuit against Microsoft and why?

Briefly describe the business practice of tying.

Ford and General Motors are considering expanding into the Vietnamese automobile market. Devise a simple prisoners' dilemma game to demonstrate the strategic considerations that are relevant to this decision.

Resale price maintenance prevents retailers from competing on price.

As the number of firms in a cartel increases, the easier it is to enforce the cartel agreement. ​

In the prisoners' dilemma game, self-interest leads

Suppose the market for home-grown peppers in the town of Smallville is comprised of two farmers. Explain why they might try to collude.

Compare the equilibrium output in a duopoly to the monopoly output.

In cartels, the reason that the monopoly output is unstable is due to the factors that are present in a prisoner's dilemma. ​

In a prisoner's dilemma, only one firm has a dominant strategy. ​

Table 17-8 This table shows the payoffs for a game played between two players, A and B. -Refer to Table 17-8. If player B chooses Right, player A should choose

All examples of the prisoner's dilemma game are characterized by one and only one Nash equilibrium.

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.

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?

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 Nations 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

As the number of firms in a cartel increases, the easier it is to enforce the cartel agreement.

In cartels, the reason that the monopoly output is unstable is due to the factors that are present in a prisoner's dilemma.

In a prisoner's dilemma, only one firm has a dominant strategy.