A) there are many sellers. B) there are no barriers to entry. C) firms recognize their interdependence. D) total surplus is maximized. A) there are many sellers. B) there are no barriers to entry. C) firms recognize their interdependence. D) total surplus is maximized.

Exam 14: Oligopoly

There are only two gas stations, Swifty Gas and Speedy Gas, in a small town. Each firm can set either a high price or a low price; customers view these two firms as nearly perfect substitutes. The table shows the payoff matrix. Profits in each cell of the payoff matrix are given as (Swifty, Speedy). If this game is played only once and each firm sets the price of gas independently, what is the Nash equilibrium? Is this game an example of a prisoners' dilemma? Explain your conclusions.

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Question 1

Correct Answer:

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Each gas station will set a low price. Setting a low price is a dominant strategy for each firm. If Swifty sets a high price, Speedy earns more money by setting a low price, because earning $150 is preferred to earning $100. If Swifty sets a low price, Speedy earns more money by setting a low price, because earning $50 is preferred to earning $25. Yes, it is an example of a prisoners' dilemma, because in hindsight each firm can see that there is an outcome (both setting a high price) that is mutually beneficial. Had they been able to cooperate, they might have escaped the dilemma.

Both monopolists and cartel members will find that a drop in price leads to:

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Question 2

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An attempt by a firm to convince buyers that its product is different from the products of other firms in the industry is:

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Question 3

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A trust is a government agency that enforces laws limiting the power of oligopolies.

(True/False)

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Question 4

Use the following to answer questions: Figure: Monopoly Profits in Duopoly -(Figure: Monopoly Profits in Duopoly) The efficient solution in the figure Monopoly Profits in Duopoly is found where price is _ and quantity is _.

(Multiple Choice)

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Question 5

Unwritten or unspoken understandings through which firms restrict competition are called:

(Multiple Choice)

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Question 6

Use the following to answer questions: -(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. If these two producers formed a cartel, agreed to split production of output evenly, and acted to maximize total industry profits, total industry output would be _ and the price would be _.

(Multiple Choice)

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Question 7

Firms will choose a tit-for-tat strategy if they:

(Multiple Choice)

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Question 8

Use the following to answer questions: Scenario: Two Identical Firms Two identical firms make up an industry in which the market demand curve is represented by Q = 5,000 - 4P, where Q is the quantity demanded and P is price per unit. The marginal cost of producing the good in this industry is constant and equal to $650. Fixed cost is zero. -(Scenario: Two Identical Firms) When the firms in the scenario Two Identical Firms collude and produce the profit-maximizing output, what is the profit earned by each firm?

(Multiple Choice)

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Question 9

Given the large amount of interdependence among them, cooperation with one's competitors is the most profitable strategy for:

(Multiple Choice)

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Question 10

Price leadership is an attempt by a firm to convince buyers that its product is different from the products of other firms in the industry.

(True/False)

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Question 11

A formal agreement to limit production and raise prices leads to:

(Multiple Choice)

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Question 12

In the classic prisoners' dilemma with two accomplices in crime, the Nash equilibrium is for:

(Multiple Choice)

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Question 13

The largest Herfindahl-Hirschman index possible is _, and the industry is a(n) _.

(Multiple Choice)

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Question 14

Use the following to answer questions: -(Table: Demand for Solar Water Heaters) Look at the table Demand for Solar Water Heaters. The marginal cost of producing solar water heaters is zero, and only two firms, Rheem and Calefi, produce them. If Rheem and Calefi get into a price war, the equilibrium price in the market will be:

(Multiple Choice)

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Question 15

In an oligopoly:

(Multiple Choice)

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Question 16

Each firm in a cartel has an incentive to break its word and produce more than the agreed quantity.

(True/False)

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Question 17

Use the following to answer questions: -(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that the crude oil industry is a duopoly and the marginal and fixed cost of producing crude oil equals zero. Suppose that the two firms are maximizing industry profit and splitting the profit evenly. If firm 1 decides to cheat and increase production by 10 more barrels, it will earn profits of:

(Multiple Choice)

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Question 18

Use the following to answer questions: -(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. If the industry were perfectly competitive, the output would be _ gadgets, and the price would be _.

(Multiple Choice)

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Question 19

Use the following to answer questions: -(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that the crude oil industry is a duopoly and the marginal cost and fixed cost of producing crude oil equal zero. Suppose that the two firms are maximizing industry profit and splitting the profit evenly. If both firms decide to cheat and produce 10 more barrels each, industry output will be _____ barrels.

(Multiple Choice)

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Question 20

Showing 1 - 20 of 294

Both monopolists and cartel members will find that a drop in price leads to:

An attempt by a firm to convince buyers that its product is different from the products of other firms in the industry is:

A trust is a government agency that enforces laws limiting the power of oligopolies.

Use the following to answer questions: Figure: Monopoly Profits in Duopoly -(Figure: Monopoly Profits in Duopoly) The efficient solution in the figure Monopoly Profits in Duopoly is found where price is _ and quantity is _.

Unwritten or unspoken understandings through which firms restrict competition are called:

Firms will choose a tit-for-tat strategy if they:

Given the large amount of interdependence among them, cooperation with one's competitors is the most profitable strategy for:

Price leadership is an attempt by a firm to convince buyers that its product is different from the products of other firms in the industry.

A formal agreement to limit production and raise prices leads to:

In the classic prisoners' dilemma with two accomplices in crime, the Nash equilibrium is for:

The largest Herfindahl-Hirschman index possible is _, and the industry is a(n) _.

In an oligopoly:

Each firm in a cartel has an incentive to break its word and produce more than the agreed quantity.

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

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Exam 14: Oligopoly

Both monopolists and cartel members will find that a drop in price leads to:

An attempt by a firm to convince buyers that its product is different from the products of other firms in the industry is:

A trust is a government agency that enforces laws limiting the power of oligopolies.

Use the following to answer questions: Figure: Monopoly Profits in Duopoly -(Figure: Monopoly Profits in Duopoly) The efficient solution in the figure Monopoly Profits in Duopoly is found where price is _____ and quantity is _____.

Unwritten or unspoken understandings through which firms restrict competition are called:

Firms will choose a tit-for-tat strategy if they:

Given the large amount of interdependence among them, cooperation with one's competitors is the most profitable strategy for:

Price leadership is an attempt by a firm to convince buyers that its product is different from the products of other firms in the industry.

A formal agreement to limit production and raise prices leads to:

In the classic prisoners' dilemma with two accomplices in crime, the Nash equilibrium is for:

The largest Herfindahl-Hirschman index possible is _____, and the industry is a(n) _____.

In an oligopoly:

Each firm in a cartel has an incentive to break its word and produce more than the agreed quantity.

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Use the following to answer questions: Figure: Monopoly Profits in Duopoly -(Figure: Monopoly Profits in Duopoly) The efficient solution in the figure Monopoly Profits in Duopoly is found where price is _ and quantity is _.

The largest Herfindahl-Hirschman index possible is _, and the industry is a(n) _.