Question 1

Briefly contrast the difference between equilibrium market outcomes in a monopoly, oligopoly and perfect competition.

Accepted Answer

Let: PC = perfect co

Question 2

In the case of oligopolists trying to maintain monopoly profits, the profit-maximising level of production is:

Accepted Answer

A) good for consumers and bad for the oligopolists 
B) good for consumers and good for the oligopolists 
C) bad for consumers and good for the oligopolists 
D) bad for the consumers and bad for the oligopolists 
A) good for consumers and bad for the oligopolists 
B) good for consumers and good for the oligopolists 
C) bad for consumers and good for the oligopolists 
D) bad for the consumers and bad for the oligopolists

Question 3

In a competitive market, strategic interactions among the firms are not important.

Accepted Answer

A) True 
 B)False

Question 4

The story of the prisoners' dilemma contains a general lesson that applies to any group trying to maintain cooperation among its members.

Accepted Answer

A) True 
 B)False

Question 5

Table 16-1
The table below shows the total demand for viewing a rare penguin species at a local reserve.Ecotour companies have to build discreet viewing hides for tourists to view the penguins.Each ecotour company has to pay a fixed fee of $5000 for the right to build on the reserve.Assume that hides can be supplied to tourists at zero marginal cost.Tickets are sold to tourists to use the viewing hides. $\begin{array}{|c|c|}
\hline \text { Quantity (Visits) } & \text { Price(\$ ticket) } \
\hline 0 & 48 \
\hline 2000 & 36 \
\hline 4000 & 24 \
\hline 6000 & 12 \
\hline 8000 & 8 \
\hline 10000 & 4 \
\hline 12000 & 0 \
\hline
\end{array}$ $\begin{array}{|c|c|c|}
\hline \text { Quantity (Visits) } & \text { Price(\$ ticket) } & \text { Revenue } \
\hline 0 & 12 & 0 \
\hline 1000 & 10 & 10 \mathrm{k} \
\hline 2000 & 8 & 16 \mathrm{k} \
\hline 3000 & 6 & 18 \mathrm{k} \
\hline 4000 & 4 & 16 \mathrm{k} \
\hline 5000 & 2 & 10 \mathrm{k} \
\hline 6000 & 0 & 0 \
\hline
\end{array}$ Any firm can change tickets by steps of 500 only.Any 500 step of quantity is assumed to be sold at the midpoint of the two prices (eg.3500 tickets would be sold for $5)
-Refer to Table 16-1.Assume that there are two ecotourist companies operating in this market.If they are able to collude on the price of tickets to sell, what price will they charge, and how many tickets will they collectively sell?

Accepted Answer

A) $2 and 5000 tickets 
B) $4 and 4000 tickets 
C) $6 and 3000 tickets 
D) $8 and 2000 tickets 
A) $2 and 5000 tickets 
B) $4 and 4000 tickets 
C) $6 and 3000 tickets 
D) $8 and 2000 tickets

Question 6

One economic example of prisoner's dilemma is overuse of a common resource like an oil-deposit.

Accepted Answer

A) True 
 B)False

Question 7

In a prisoners' dilemma, cooperation between the prisoners is easy to maintain and is individually rational.

Accepted Answer

A) True 
 B)False

Question 8

In Berserkistan, two political parties vie for control of the country.Each political party, when it is not in power, has a tendency to call general strikes to influence the policy of the ruling party.Evaluate this strategy in the context of a multiple-period game.Is it possible, in this situation, that a multiple-period game reduces, rather than enhances, social wellbeing? What would have to happen in this game in order to improve social welfare if a tit-for-tat strategy is used?

Accepted Answer

The multi-period game is likely to follo

Question 9

A situation in which economic actors interacting with one another each choose their best strategy, given the strategies the others have chosen is called a(n):

Accepted Answer

A) socially optimal solution 
B) Nash equilibrium 
C) competitive equilibrium 
D) open market solution 
A) socially optimal solution 
B) Nash equilibrium 
C) competitive equilibrium 
D) open market solution

Question 10

Table 16-1
The table below shows the total demand for viewing a rare penguin species at a local reserve.Ecotour companies have to build discreet viewing hides for tourists to view the penguins.Each ecotour company has to pay a fixed fee of $5000 for the right to build on the reserve.Assume that hides can be supplied to tourists at zero marginal cost.Tickets are sold to tourists to use the viewing hides. $\begin{array}{|c|c|}
\hline \text { Quantity (Visits) } & \text { Price(\$ ticket) } \
\hline 0 & 48 \
\hline 2000 & 36 \
\hline 4000 & 24 \
\hline 6000 & 12 \
\hline 8000 & 8 \
\hline 10000 & 4 \
\hline 12000 & 0 \
\hline
\end{array}$ $\begin{array}{|c|c|c|}
\hline \text { Quantity (Visits) } & \text { Price(\$ ticket) } & \text { Revenue } \
\hline 0 & 12 & 0 \
\hline 1000 & 10 & 10 \mathrm{k} \
\hline 2000 & 8 & 16 \mathrm{k} \
\hline 3000 & 6 & 18 \mathrm{k} \
\hline 4000 & 4 & 16 \mathrm{k} \
\hline 5000 & 2 & 10 \mathrm{k} \
\hline 6000 & 0 & 0 \
\hline
\end{array}$ Any firm can change tickets by steps of 500 only.Any 500 step of quantity is assumed to be sold at the midpoint of the two prices (eg.3500 tickets would be sold for $5)
-Refer to Table 16-1.Assume that there are two profit-maximising ecotourist companies operating in this market.Further assume that they are not able to collude on price and quantity of the tickets they sell.How many tickets will be sold by each firm when this market reaches a Nash equilibrium?

Accepted Answer

A) 1000 
B) 2000 
C) 3000 
D) 4000 
A) 1000 
B) 2000 
C) 3000 
D) 4000

Question 11

An oligopoly is a market with a few sellers, each offering a similar or identical product.

Accepted Answer

A) True 
 B)False

Question 12

Suppose a cartel collapses.The firms resume individual rather than collusive production.This outcome:

Accepted Answer

A) may or may not be desirable for society as a whole 
B) is not a concern because collusion is not a dominant strategy 
C) is worse for society because profits for the firms will be lower 
D) is desirable for society as a whole 
A) may or may not be desirable for society as a whole 
B) is not a concern because collusion is not a dominant strategy 
C) is worse for society because profits for the firms will be lower 
D) is desirable for society as a whole

Question 13

Identify the market in the following list where economic profit is driven to zero in the long run:

Accepted Answer

A) oligopoly 
B) monopoly 
C) common resource 
D) perfect competition 
A) oligopoly 
B) monopoly 
C) common resource 
D) perfect competition

Question 14

The Nash equilibrium for a game can be a sub-optimal outcome for players when:

Accepted Answer

A) defection is likely to be individually rational 
B) self-interest is likely to be individually irrational 
C) defection is likely to be collectively rational 
D) self-interest is likely to be collectively irrational 
A) defection is likely to be individually rational 
B) self-interest is likely to be individually irrational 
C) defection is likely to be collectively rational 
D) self-interest is likely to be collectively irrational

Question 15

Which of the following markets is most likely to be an oligopoly?

Accepted Answer

A) the distribution of electricity across the power grid 
B) air travel between two cities on Australia's east coast 
C) lunchtime take-away coffee service in Melbourne's CBD 
D) pizza restaurants in Sydney's CBD, where each restaurant has its own signature pizza 
A) the distribution of electricity across the power grid 
B) air travel between two cities on Australia's east coast 
C) lunchtime take-away coffee service in Melbourne's CBD 
D) pizza restaurants in Sydney's CBD, where each restaurant has its own signature pizza

Question 16

Suppose a group of four opal-mining firms operate as an oligopoly.If there is an increase in output from one of the firms, then:

Accepted Answer

A) its price will increase and the other firms' prices will decrease 
B) its price will decrease and the other firm's prices will be unchanged 
C) its price will decrease and the other firm's prices will decrease 
D) its price will increase and the other firms' prices will be unchanged 
A) its price will increase and the other firms' prices will decrease 
B) its price will decrease and the other firm's prices will be unchanged 
C) its price will decrease and the other firm's prices will decrease 
D) its price will increase and the other firms' prices will be unchanged

Question 17

Table 16-1
The table below shows the total demand for viewing a rare penguin species at a local reserve.Ecotour companies have to build discreet viewing hides for tourists to view the penguins.Each ecotour company has to pay a fixed fee of $5000 for the right to build on the reserve.Assume that hides can be supplied to tourists at zero marginal cost.Tickets are sold to tourists to use the viewing hides. $\begin{array}{|c|c|}
\hline \text { Quantity (Visits) } & \text { Price(\$ ticket) } \
\hline 0 & 48 \
\hline 2000 & 36 \
\hline 4000 & 24 \
\hline 6000 & 12 \
\hline 8000 & 8 \
\hline 10000 & 4 \
\hline 12000 & 0 \
\hline
\end{array}$ $\begin{array}{|c|c|c|}
\hline \text { Quantity (Visits) } & \text { Price(\$ ticket) } & \text { Revenue } \
\hline 0 & 12 & 0 \
\hline 1000 & 10 & 10 \mathrm{k} \
\hline 2000 & 8 & 16 \mathrm{k} \
\hline 3000 & 6 & 18 \mathrm{k} \
\hline 4000 & 4 & 16 \mathrm{k} \
\hline 5000 & 2 & 10 \mathrm{k} \
\hline 6000 & 0 & 0 \
\hline
\end{array}$ Any firm can change tickets by steps of 500 only.Any 500 step of quantity is assumed to be sold at the midpoint of the two prices (eg.3500 tickets would be sold for $5)
-Refer to Table 16-1.If there is only one ecotourist company in this market, what ticket price would it charge for its hides to maximise its profit?

Accepted Answer

A) $2 
B) $4 
C) $6 
D) $8 
A) $2 
B) $4 
C) $6 
D) $8

Question 18

According to the information provided, if Big Petro Inc.were to drill a second well, what would its profit be if Gargantuan Gas did not drill a second well?

Accepted Answer

A) $90 million 
B) $60 million 
C) $40 million 
D) $20 million 
A) $90 million 
B) $60 million 
C) $40 million 
D) $20 million

Question 19

The theory of oligopoly provides another reason that free-trade can benefit all countries for which of the following reasons?
(i) as the number of firms within a given market increases, the price of the good falls
(ii) increased competition leads to lower deadweight losses
(iii) profit increases directly with competition for oligopoly firms

Accepted Answer

A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) (ii) only 
A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) (ii) only

Question 20

Table 16-3
Imagine a small town in which only two residents, Robert and John, own wells that produce water for safe drinking.Each Saturday, Robert and John work together to decide how many litres of water to pump, bring the water to town, and sell it at whatever price the market will bear.To keep things simple, suppose that Robert and John can pump as much water as they want without cost; therefore, the marginal cost of water equals zero.The weekly town demand schedule and total revenue schedule for water are shown in the table. $\begin{array}{|c|c|c|}
\hline \text { Weekly quantity (in litres) } & \text { Price (\$)per litre } & \begin{array}{c}
\text { Weekly total revenue (and } \
\text { total profit) (\$) }
\end{array} \
\hline 0 & 12 & \$ 0 \
\hline 5 & 11 & 55 \\hline 10 & 10 & 100 \
\hline 15 & 9 & 135 \
\hline 20 & 8 & 160 \
\hline 25 & 7 & 175 \
\hline 30 & 6 & 180 \
\hline 35 & 5 & 175 \
\hline 40 & 4 & 160 \
\hline 45 & 3 & 135 \
\hline 50 & 2 & 100 \
\hline 55 & 1 & 55 \
\hline 60 & 0 & 0 \
\hline
\end{array}$
-Refer to Table 16-3.If the market for water was perfectly competitive instead of monopolistic, how many litres of water would be produced and sold?

Accepted Answer

A) 30 
B) 35 
C) 50 
D) 60 
A) 30 
B) 35 
C) 50 
D) 60

Exam 17: Business Strategy and Oligopoly

Briefly contrast the difference between equilibrium market outcomes in a monopoly, oligopoly and perfect competition.

In the case of oligopolists trying to maintain monopoly profits, the profit-maximising level of production is:

In a competitive market, strategic interactions among the firms are not important.

The story of the prisoners' dilemma contains a general lesson that applies to any group trying to maintain cooperation among its members.

One economic example of prisoner's dilemma is overuse of a common resource like an oil-deposit.

In a prisoners' dilemma, cooperation between the prisoners is easy to maintain and is individually rational.

A situation in which economic actors interacting with one another each choose their best strategy, given the strategies the others have chosen is called a(n):

An oligopoly is a market with a few sellers, each offering a similar or identical product.

Suppose a cartel collapses.The firms resume individual rather than collusive production.This outcome:

Identify the market in the following list where economic profit is driven to zero in the long run:

The Nash equilibrium for a game can be a sub-optimal outcome for players when:

Which of the following markets is most likely to be an oligopoly?

Suppose a group of four opal-mining firms operate as an oligopoly.If there is an increase in output from one of the firms, then:

According to the information provided, if Big Petro Inc.were to drill a second well, what would its profit be if Gargantuan Gas did not drill a second well?

Ten Lessons From 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

Application: 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

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

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