Exam 14: Oligopoly

Use the following to answer questions: Figure: Pricing Strategy in Cable TV Market II -(Figure: Pricing Strategy in Cable TV Market II) Look at the figure Pricing Strategy in Cable TV Market II. The Nash equilibrium in the cable TV market occurs when:

Advertising is an example of price leadership.

If Delta offers free drinks and snacks on its flights, and Southwest follows, they are engaging in nonprice competition.

In the classic prisoners' dilemma with two accomplices in crime, the dominant strategy for each individual is to:

_____ occurs when the only two firms in an industry agree to fix the price at a given level.

A player's best action regardless of the action taken by the other player in a game is called a _____ strategy.

Use the following to answer questions: Figure: Monopoly Profits in Duopoly -(Figure: Monopoly Profits in Duopoly) Look at the figure Monopoly Profits in Duopoly. Two firms could engage in _____ and reap monopoly profits.

The pattern of behavior in which one company tacitly sets prices for the industry as a whole is known as product differentiation.

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. Suppose they agree to produce only 25 water heaters each. If Rheem cheats on the agreement and produces 30 water heaters, what is the quantity effect for Rheem?

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 of producing crude oil is 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, the price of crude oil will be:

The purpose of antitrust policy is to prevent the exercise of monopoly power.

Airlines are prone to price wars because:

The purpose of the Sherman Antitrust Act was to encourage the establishment of monopolies to replace trusts.

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, the price of crude oil will be:

Use the following to answer questions: -(Table: Two Rival Gas Stations) Look at the table Two Rival Gas Stations, which shows a payoff matrix for two gas stations in a small town. Each firm can set either a high price or a low price, and customers view these two firms as nearly perfect substitutes. Profits in each cell of the payoff matrix are given as (Swifty, Speedy). Which of the following choices describes a dominant strategy?

Which of the following does NOT describe OPEC?

In an oligopoly market, collusion between firms usually leads to higher profits than noncooperative behavior. However, formal, overt collusion doesn't usually occur in the United States because: I. it is illegal. II) there is an incentive for each firm to cheat on a collusive agreement. III) an oligopolistic firm will typically prefer lower profits if the only way to make higher profits is to improve the profit position of its rivals.

Use the following to answer questions: Figure: Monopoly Profits in Duopoly -(Figure: Monopoly Profits in Oligopoly) Firms in the duopoly industry illustrated in the figure Monopoly Profits in Duopoly have zero fixed costs. The market demand curve is D₂. If the two firms colluded to maximize their combined economic profits, they would set the market price at _____, and combined economic profits of the firms would be _____.

The purpose of the nineteenth-century cartels was to increase production and encourage price competition.

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 with no marginal cost or fixed cost. If these two producers formed a cartel and acted to maximize total industry profits, total industry output would be _____ and the price would be _____.