Question 1

The practice of requiring someone to buy two or more items together,rather than separately,is called

Accepted Answer

A)  resale maintenance. 
B)  product fixing. 
C)  tying. 
D)  free-riding. 
A)  resale maintenance. 
B)  product fixing. 
C)  tying. 
D)  free-riding.

Question 2

During the 1990s,the members of OPEC operated independently from one another,causing the world market for crude oil to become close to

Accepted Answer

A)  a monopoly market. 
B)  an oligopoly market. 
C)  a duopoly market. 
D)  a competitive market. 
A)  a monopoly market. 
B)  an oligopoly market. 
C)  a duopoly market. 
D)  a competitive market.

Question 3

Whether an oligopoly consists of 3 firms or 10 firms,the level of output likely will be the same.

Accepted Answer

A) True 
 B)False

Question 4

Table 17-23
Two bottled beverage manufacturers (Firm A and Firm B) determine that they could lower their costs, and thus increase their profits, if they reduced their advertising budgets. But in order for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's product, but each firm also believes that if neither firm advertises, the costs savings will outweigh the lost sales. Listed in the table below are the individual profits for each firm.
  
-Refer to Table 17-23.At the Nash equilibrium,how much profit will Firm B earn?

Accepted Answer

A)  $3,500 because firm B will maintain the agreement not to advertise, but firm A will break the agreement and choose to advertise. 
B)  $4,000 because each firm will break the agreement and choose to advertise. 
C)  $5,000 because each firm will maintain the agreement and choose not to advertise. 
D)  $6,000 because firm A will maintain the agreement not to advertise, but firm B will break the agreement and choose to advertise. 
A)  $3,500 because firm B will maintain the agreement not to advertise, but firm A will break the agreement and choose to advertise. 
B)  $4,000 because each firm will break the agreement and choose to advertise. 
C)  $5,000 because each firm will maintain the agreement and choose not to advertise. 
D)  $6,000 because firm A will maintain the agreement not to advertise, but firm B will break the agreement and choose to advertise.

Question 5

Table 17-2. The table shows the town of Pittsville's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline.
  
-Refer to Table 17-2.If the market for gasoline in Pittsville is a monopoly,then the profit-maximizing monopolist will charge a price of

Accepted Answer

A)  $8 and sell 200 gallons. 
B)  $5 and sell 500 gallons. 
C)  $2 and sell 800 gallons. 
D)  $0 and sell 1,000 gallons. 
A)  $8 and sell 200 gallons. 
B)  $5 and sell 500 gallons. 
C)  $2 and sell 800 gallons. 
D)  $0 and sell 1,000 gallons.

Question 6

Table 17-24
Two firms are considering going out of business and selling their assets. Each considers what happens if the other goes out of business. The payoff matrix below shows the net gain or loss to each firm.
  
-Refer to Table 17-24.Which firms have a dominant strategy?

Accepted Answer

A)  A and B 
B)  Neither A nor B 
C)  A but not B 
D)  B but not A 
A)  A and B 
B)  Neither A nor B 
C)  A but not B 
D)  B but not A

Question 7

Table 17-5. Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week Kunal and Naj work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. Assume Kunal and Naj can pump as much water as they want without cost so that the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water are shown in the table below.
  
-Refer to Table 17-5.Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist.What will quantity of water will each of them produce once the Nash equilibrium is reached?

Accepted Answer

A)  Each will produce 50 gallons, for a total of 100 gallons. 
B)  Eacb will produce 75 gallons, for a total of 150 gallons. 
C)  Each will produce 100 gallons, for a total of 200 gallons. 
D)  Each will produce 125 gallons, for a total of 250 gallons. 
A)  Each will produce 50 gallons, for a total of 100 gallons. 
B)  Eacb will produce 75 gallons, for a total of 150 gallons. 
C)  Each will produce 100 gallons, for a total of 200 gallons. 
D)  Each will produce 125 gallons, for a total of 250 gallons.

Question 8

Figure 17-2. Hector and Bart are roommates. On a particular day, their apartment needs to be cleaned. Each person has to decide whether to take part in cleaning. At the end of the day, either the apartment will be completely clean (if one or both roommates take part in cleaning), or it will remain dirty (if neither roommate cleans). With happiness measured on a scale of 1 (very unhappy) to 10 (very happy), the possible outcomes are as follows:
  
-Refer to Figure 17-2.The possible outcome in which both Hector and Bart clean is analogous to which of the following outcomes of the duopoly game?

Accepted Answer

A)  The duopolists collude to achieve the monopoly outcome. 
B)  The duopolists collude to achieve the monopolistically-competitive outcome. 
C)  The outcome is the one that is most preferable for consumers of the duopolists' product. 
D)  The outcome is the one that is least preferable for both the duopolists and for the consumers of their product. 
A)  The duopolists collude to achieve the monopoly outcome. 
B)  The duopolists collude to achieve the monopolistically-competitive outcome. 
C)  The outcome is the one that is most preferable for consumers of the duopolists' product. 
D)  The outcome is the one that is least preferable for both the duopolists and for the consumers of their product.

Question 9

Which of these situations produces the largest profits for oligopolists?

Accepted Answer

A)  The firms reach a Nash equilibrium. 
B)  The firms reach the monopoly outcome. 
C)  The firms reach the competitive outcome. 
D)  The firms produce a quantity of output that lies between the competitive outcome and the monopoly outcome. 
A)  The firms reach a Nash equilibrium. 
B)  The firms reach the monopoly outcome. 
C)  The firms reach the competitive outcome. 
D)  The firms produce a quantity of output that lies between the competitive outcome and the monopoly outcome.

Question 10

Table 17-10
The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost.
  
-Refer to Table 17-10.If there are exactly five sellers of gasoline in Driveaway and if they collude,then which of the following outcomes is most likely?

Accepted Answer

A)  Each seller will sell 20 gallons, charge a price of $6, and earn a profit of $80. 
B)  Each seller will sell 30 gallons, charge a price of $5, and earn a profit of $90. 
C)  Each seller will sell 40 gallons, charge a price of $4, and earn a profit of $120. 
D)  Each seller will sell 50 gallons, charge a price of $3, and earn a profit of $50. 
A)  Each seller will sell 20 gallons, charge a price of $6, and earn a profit of $80. 
B)  Each seller will sell 30 gallons, charge a price of $5, and earn a profit of $90. 
C)  Each seller will sell 40 gallons, charge a price of $4, and earn a profit of $120. 
D)  Each seller will sell 50 gallons, charge a price of $3, and earn a profit of $50.

Question 11

Scenario 17-4. Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market and earn $50 million each. If they both advertise, they again split the market, but profits are lower by $10 million since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $60 million while the company that does not advertise earns only $30 million.
-Refer to Scenario 17-4.The likely outcome of this game is that PM Inc.earns

Accepted Answer

A)  $30 million and Brown Inc. earns $60 million. 
B)  $40 million and Brown Inc. earns $40 million. 
C)  $50 million and Brown Inc. earns $50 million. 
D)  $60 million and Brown Inc. earns $30 million. 
A)  $30 million and Brown Inc. earns $60 million. 
B)  $40 million and Brown Inc. earns $40 million. 
C)  $50 million and Brown Inc. earns $50 million. 
D)  $60 million and Brown Inc. earns $30 million.

Question 12

Figure 17-3. Katie and Taylor are roommates. On a particular day, their lawn needs to be mowed. Each person has to decide whether to take part in mowing the lawn. At the end of the day, either the lawn will be mowed (if one or both roommates take part in mowing), or it will remain unmowed (if neither roommate mows). With happiness measured on a scale of 1 (very unhappy) to 10 (very happy), the possible outcomes are as follows:
  
-Refer to Figure 17-3.In pursuing her own self-interest,Katie will

Accepted Answer

A)  refrain from mowing whether or not Taylor mows. 
B)  mow only if Taylor mows. 
C)  mow only if Taylor refrains from mowing. 
D)  mow whether or not Taylor mows. 
A)  refrain from mowing whether or not Taylor mows. 
B)  mow only if Taylor mows. 
C)  mow only if Taylor refrains from mowing. 
D)  mow whether or not Taylor mows.

Question 13

Table 17-12
Each year the United States considers renewal of Most Favored Nation (MFN) trading status with Farland (a mythical nation). Historically, legislators have made threats of not renewing MFN status because of human rights abuses in Farland. The non-renewal of MFN trading status is likely to involve some retaliatory measures by Farland. The payoff table below shows the potential economic gains associated with a game in which Farland may impose trade sanctions against U.S. firms and the United States may not renew MFN status with Farland. The table contains the dollar value of all trade-flow benefits to the United States and Farland.
  
-Refer to Table 17-12.If both countries follow a dominant strategy,the value of trade flow benefits for Farland will be

Accepted Answer

A)  $5 b. 
B)  $75 b. 
C)  $275 b. 
D)  $285 b. 
A)  $5 b. 
B)  $75 b. 
C)  $275 b. 
D)  $285 b.

Question 14

Scenario 17-4. Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market and earn $50 million each. If they both advertise, they again split the market, but profits are lower by $10 million since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $60 million while the company that does not advertise earns only $30 million.
-Refer to Scenario 17-4.What will these two companies do if they behave as individual profit maximizers?

Accepted Answer

A)  Neither company will advertise. 
B)  Both companies will advertise. 
C)  One company will advertise, the other will not. 
D)  There is no way of knowing without knowing how many customers are stolen through advertising. 
A)  Neither company will advertise. 
B)  Both companies will advertise. 
C)  One company will advertise, the other will not. 
D)  There is no way of knowing without knowing how many customers are stolen through advertising.

Question 15

Which of the following statements is correct?

Accepted Answer

A)  Strategic situations are more likely to arise when the number of decision-makers is very large rather than very small. 
B)  Strategic situations are more likely to arise in monopolistically competitive markets than in oligopolistic markets. 
C)  Game theory is useful in understanding certain business decisions, but it is not really applicable to ordinary games such as chess or tic-tac-toe. 
D)  Game theory is not necessary for understanding competitive or monopoly markets. 
A)  Strategic situations are more likely to arise when the number of decision-makers is very large rather than very small. 
B)  Strategic situations are more likely to arise in monopolistically competitive markets than in oligopolistic markets. 
C)  Game theory is useful in understanding certain business decisions, but it is not really applicable to ordinary games such as chess or tic-tac-toe. 
D)  Game theory is not necessary for understanding competitive or monopoly markets.

Question 16

Table 17-9
Only two firms, Acme and Pinnacle, sell a particular product. The table below shows the demand curve for their product. Each firm has the same constant marginal cost of $10 and zero fixed cost.
  
-Refer to Table 17-9.If this market were perfectly competitive instead of oligopolistic,what quantity would be produced?

Accepted Answer

A)  1400 
B)  1300 
C)  1200 
D)  1100 
A)  1400 
B)  1300 
C)  1200 
D)  1100

Question 17

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

Accepted Answer

A)  resale price maintenance 
B)  tying 
C)  predatory pricing 
D)  free-riding 
A)  resale price maintenance 
B)  tying 
C)  predatory pricing 
D)  free-riding

Question 18

If nations such as Germany,Japan,and the United States prohibited international trade in automobiles,a likely effect would be that

Accepted Answer

A)  the price effect would become a more significant consideration for each firm that makes automobiles. 
B)  the excess of price over marginal cost would become less pronounced in the automobile market. 
C)  all countries would become better off. 
D)  automobile producers in the U.S. would collude to produce a large number of cars. 
A)  the price effect would become a more significant consideration for each firm that makes automobiles. 
B)  the excess of price over marginal cost would become less pronounced in the automobile market. 
C)  all countries would become better off. 
D)  automobile producers in the U.S. would collude to produce a large number of cars.

Question 19

Figure 17-1. Two companies, ABC and XYZ, each decide whether to produce a high level of output or a low level of output. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies.
  
-Refer to Figure 17-1.The dominant strategy for ABC is to

Accepted Answer

A)  produce high output, and the dominant strategy for XYZ is to produce high output. 
B)  produce high output, and the dominant strategy for XYZ is to produce low output. 
C)  produce low output, and the dominant strategy for XYZ is to produce high output. 
D)  produce low output, and the dominant strategy for XYZ is to produce low output. 
A)  produce high output, and the dominant strategy for XYZ is to produce high output. 
B)  produce high output, and the dominant strategy for XYZ is to produce low output. 
C)  produce low output, and the dominant strategy for XYZ is to produce high output. 
D)  produce low output, and the dominant strategy for XYZ is to produce low output.

Question 20

Table 17-16
This table shows a game played between two players, A and B. The payoffs are given in the table as (Payoff to A, Payoff to B).
  
-Refer to Table 17-16.Which of the following statements is true regarding this game?

Accepted Answer

A)  Both players have a dominant strategy. 
B)  Neither player has a dominant strategy. 
C)  A has a dominant strategy, but B does not have a dominant strategy. 
D)  B has a dominant strategy, but A does not have a dominant strategy. 
A)  Both players have a dominant strategy. 
B)  Neither player has a dominant strategy. 
C)  A has a dominant strategy, but B does not have a dominant strategy. 
D)  B has a dominant strategy, but A does not have a dominant strategy.

The practice of requiring someone to buy two or more items together,rather than separately,is called

During the 1990s,the members of OPEC operated independently from one another,causing the world market for crude oil to become close to

Whether an oligopoly consists of 3 firms or 10 firms,the level of output likely will be the same.

Table 17-24 Two firms are considering going out of business and selling their assets. Each considers what happens if the other goes out of business. The payoff matrix below shows the net gain or loss to each firm. -Refer to Table 17-24.Which firms have a dominant strategy?

Which of these situations produces the largest profits for oligopolists?

Which of the following statements is correct?

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

If nations such as Germany,Japan,and the United States prohibited international trade in automobiles,a likely effect would be that

Figure 17-1. Two companies, ABC and XYZ, each decide whether to produce a high level of output or a low level of output. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-1.The dominant strategy for ABC is to

Table 17-16 This table shows a game played between two players, A and B. The payoffs are given in the table as (Payoff to A, Payoff to B). -Refer to Table 17-16.Which of the following statements is true regarding this game?

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.

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.

The Market For the Factors of Production.

Earnings and Discrimination.

Income Inequality and Poverty.

The Theory of Consumer Choice.

Frontiers in Microeconomics.

Filters

Exam 17: Oligopoly.

The practice of requiring someone to buy two or more items together,rather than separately,is called

During the 1990s,the members of OPEC operated independently from one another,causing the world market for crude oil to become close to

Whether an oligopoly consists of 3 firms or 10 firms,the level of output likely will be the same.

Table 17-24 Two firms are considering going out of business and selling their assets. Each considers what happens if the other goes out of business. The payoff matrix below shows the net gain or loss to each firm. -Refer to Table 17-24.Which firms have a dominant strategy?

Which of these situations produces the largest profits for oligopolists?

Which of the following statements is correct?

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

If nations such as Germany,Japan,and the United States prohibited international trade in automobiles,a likely effect would be that

Figure 17-1. Two companies, ABC and XYZ, each decide whether to produce a high level of output or a low level of output. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-1.The dominant strategy for ABC is to

Table 17-16 This table shows a game played between two players, A and B. The payoffs are given in the table as (Payoff to A, Payoff to B). -Refer to Table 17-16.Which of the following statements is true regarding this game?

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.

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.

The Market For the Factors of Production.

Earnings and Discrimination.

Income Inequality and Poverty.

The Theory of Consumer Choice.

Frontiers in Microeconomics.

Filters