Question 1

As a group,oligopolists earn the highest profit when they

Accepted Answer

A) achieve a Nash equilibrium. 
B) produce a total quantity of output that falls short of the Nash-equilibrium total quantity. 
C) produce a total quantity of output that exceeds the Nash-equilibrium total quantity. 
D) charge a price that falls short of the Nash-equilibrium price. 
A) achieve a Nash equilibrium. 
B) produce a total quantity of output that falls short of the Nash-equilibrium total quantity. 
C) produce a total quantity of output that exceeds the Nash-equilibrium total quantity. 
D) charge a price that falls short of the Nash-equilibrium price.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

A perfectly competitive market has many firms offering an essentially identical product.

Accepted Answer

A) True 
 B)False

Question 4

In the prisoners' dilemma game,self-interest leads

Accepted Answer

A) each prisoner to confess. 
B) to a breakdown of any agreement that the prisoners might have made before being questioned. 
C) to an outcome that is not particularly good for either prisoner. 
D) All of the above are correct. 
A) each prisoner to confess. 
B) to a breakdown of any agreement that the prisoners might have made before being questioned. 
C) to an outcome that is not particularly good for either prisoner. 
D) All of the above are correct.

Question 5

When oligopolistic firms interacting with one another each choose their best strategy given the strategies chosen by other firms in the market,we have

Accepted Answer

A) a cartel. 
B) a group of oligopolists behaving as a monopoly. 
C) a Nash equilibrium. 
D) the perfectly competitive outcome. 
A) a cartel. 
B) a group of oligopolists behaving as a monopoly. 
C) a Nash equilibrium. 
D) the perfectly competitive outcome.

Question 6

Scenario 16-3
Consider two countries, Eudora and Inhabii, that are engaged in an arms race. Each country must decide whether to build new weapons or to disarm existing weapons. Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs. But each country also prefers to live in a world safe from the other country's weapons. The following table shows the possible outcomes for each decision combination. The numbers in each cell represent the country's ranking of the outcome.
  
-Refer to Scenario 16-3.If Inhabii chooses to build new weapons,the country of Eudora will

Accepted Answer

A) disarm in order to prevent the loss of influence in world affairs. 
B) disarm in order to promote world peace. 
C) build new weapons in order to promote world peace. 
D) build new weapons in order to prevent the loss of influence in world affairs. 
A) disarm in order to prevent the loss of influence in world affairs. 
B) disarm in order to promote world peace. 
C) build new weapons in order to promote world peace. 
D) build new weapons in order to prevent the loss of influence in world affairs.

Question 7

Oligopolies would like to act like a

Accepted Answer

A) duopoly, but self-interest often drives them closer to the perfectly competitive outcome. 
B) competitive firm, but self-interest often drives them closer to the duopoly outcome. 
C) monopoly, but self-interest often drives them closer to the duopoly outcome. 
D) monopoly, but self-interest often drives them closer to the perfectly competitive outcome. 
A) duopoly, but self-interest often drives them closer to the perfectly competitive outcome. 
B) competitive firm, but self-interest often drives them closer to the duopoly outcome. 
C) monopoly, but self-interest often drives them closer to the duopoly outcome. 
D) monopoly, but self-interest often drives them closer to the perfectly competitive outcome.

Question 8

Games that are played more than once generally

Accepted Answer

A) lead to outcomes dominated purely by self-interest. 
B) lead to outcomes that do not reflect joint rationality. 
C) encourage cheating on cartel production quotas. 
D) make collusive arrangements easier to enforce. 
A) lead to outcomes dominated purely by self-interest. 
B) lead to outcomes that do not reflect joint rationality. 
C) encourage cheating on cartel production quotas. 
D) make collusive arrangements easier to enforce.

Question 9

Individual profit earned by Dave,the oligopolist,depends on which of the following? (i)	The quantity of output that Dave produces
(ii)	The quantities of output that the other firms in the market produce
(iii)	The extent of collusion between Dave and the other firms in the market

Accepted Answer

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

Question 10

Table 16-4
Imagine a small town in which only two residents, Tony and Jill, own wells that produce safe drinking water. Each week Tony and Jill 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. To keep things simple, suppose that Tony and Jill 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 is shown in the table below.
  
-Refer to Table 16-4.As long as Tony and Jill operate as a profit-maximizing monopoly,what will their weekly revenue equal?

Accepted Answer

A) $200 
B) $270 
C) $350 
D) $360 
A) $200 
B) $270 
C) $350 
D) $360

Question 11

There is no magic number of firms that defines whether a market is an oligopoly or not.

Accepted Answer

A) True 
 B)False

Question 12

Table 16-9
Each year the United States considers renewal of Most Favored Nation (MFN) trading status with China. Historically, legislators have made threats of not renewing MFN status because of human rights abuses in China. The non renewal of MFN trading status is likely to involve some retaliatory measures by China. The payoff table below shows the potential economic gains associated with a game in which China may impose trade sanctions against U.S. firms and the United States may not renew MFN status with China. The table contains the dollar value of all trade-flow benefits to the United States and China.
  
-Refer to Table 16-9.Pursuing its own best interests,China will impose trade sanctions against U.S.firms

Accepted Answer

A) only if the U.S.does not renew MFN status with China. 
B) only if the U.S.renews MFN status with China. 
C) regardless of whether the U.S.renews MFN status with China. 
D) None of the above is correct.In pursuing its own best interests, Chine will in no case impose trade sanctions against U.S.firms. 
A) only if the U.S.does not renew MFN status with China. 
B) only if the U.S.renews MFN status with China. 
C) regardless of whether the U.S.renews MFN status with China. 
D) None of the above is correct.In pursuing its own best interests, Chine will in no case impose trade sanctions against U.S.firms.

Question 13

The theory of oligopoly provides another reason that free trade can benefit all countries because (i)	as the number of firms within a given market increases,the price of the good falls.
(ii)	increased competition leads to smaller deadweight losses.
(iii)	profit increases with the level of competition for oligopoly firms.

Accepted Answer

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

Question 14

Cartels in the United States are

Accepted Answer

A) legal if price is competitively determined. 
B) legal if all firms in the industry agree to the terms of the cartel. 
C) legal if all conditions of the cartel are made public. 
D) illegal. 
A) legal if price is competitively determined. 
B) legal if all firms in the industry agree to the terms of the cartel. 
C) legal if all conditions of the cartel are made public. 
D) illegal.

Question 15

Table 16-3
The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $100,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero.
  
-Refer to Table 16-3.Assume that there are two digital cable TV companies operating in this market.If they are able to collude on the price and quantity of subscriptions to sell,what price (P)will they charge,and how many subscriptions (Q)will they sell collectively?

Accepted Answer

A) P = $40, Q = 12,000 
B) P = $60, Q = 9,000 
C) P = $80, Q = 6,000 
D) P = $100, Q = 3,000 
A) P = $40, Q = 12,000 
B) P = $60, Q = 9,000 
C) P = $80, Q = 6,000 
D) P = $100, Q = 3,000

Question 16

When price is above marginal cost,selling one more unit at the current price will increase profit.This concept is known as the

Accepted Answer

A) income effect. 
B) price effect. 
C) output effect. 
D) cartel effect. 
A) income effect. 
B) price effect. 
C) output effect. 
D) cartel effect.

Question 17

The Sherman Antitrust Act

Accepted Answer

A) was passed to encourage judicial leniency in the review of cooperative agreements. 
B) was concerned with self-interest dominated Nash equilibriums in prisoners' dilemma games. 
C) enhanced the ability to enforce cartel agreements. 
D) restricted the ability of competitors to engage in cooperative agreements. 
A) was passed to encourage judicial leniency in the review of cooperative agreements. 
B) was concerned with self-interest dominated Nash equilibriums in prisoners' dilemma games. 
C) enhanced the ability to enforce cartel agreements. 
D) restricted the ability of competitors to engage in cooperative agreements.

Question 18

A lack of cooperation by oligopolists trying to maintain monopoly profits

Accepted Answer

A) is desirable for society as a whole. 
B) is not desirable for society as a whole. 
C) may or may not be desirable for society as a whole. 
D) is not a concern due to antitrust laws. 
A) is desirable for society as a whole. 
B) is not desirable for society as a whole. 
C) may or may not be desirable for society as a whole. 
D) is not a concern due to antitrust laws.

Question 19

Table 16-18
The Chicken Game is named for a contest in which drivers test their courage by driving straight at each other. John and Paul have a common interest to avoid crashing into each other, but they also have a personal, competing interest to not turn first to demonstrate their courage to those observing the contest. The payoff table for this situation is provided below. The payoffs are shown as (John, Paul).
  
-Refer to Table 16-18.What is John's dominant strategy?

Accepted Answer

A) John has no dominant strategy. 
B) John should always choose Turn. 
C) John should always choose Drive Straight. 
D) John has two dominant strategies. 
A) John has no dominant strategy. 
B) John should always choose Turn. 
C) John should always choose Drive Straight. 
D) John has two dominant strategies.

Question 20

Table 16-16
Consider a small town that has two grocery stores from which residents can choose to buy a gallon of milk. The store owners each must make a decision to set a high milk price or a low milk price. The payoff table, showing profit per week, is provided below. The profit in each cell is shown as (Store 1, Store 2).
  
-Refer to Table 16-16.If grocery store 1 sets a low price,what price should grocery store 2 set? And what will grocery store 2's payoff equal?

Accepted Answer

A) Low price, $500 
B) High price, $800 
C) Low price, $100 
D) High price, $650 
A) Low price, $500 
B) High price, $800 
C) Low price, $100 
D) High price, $650

Exam 16: Oligopoly

As a group,oligopolists earn the highest profit when they

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

A perfectly competitive market has many firms offering an essentially identical product.

In the prisoners' dilemma game,self-interest leads

When oligopolistic firms interacting with one another each choose their best strategy given the strategies chosen by other firms in the market,we have

Oligopolies would like to act like a

Games that are played more than once generally

Individual profit earned by Dave,the oligopolist,depends on which of the following? (i) The quantity of output that Dave produces (ii) The quantities of output that the other firms in the market produce (iii) The extent of collusion between Dave and the other firms in the market

There is no magic number of firms that defines whether a market is an oligopoly or not.

Cartels in the United States are

When price is above marginal cost,selling one more unit at the current price will increase profit.This concept is known as the

The Sherman Antitrust Act

A lack of cooperation by oligopolists trying to maintain monopoly profits

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

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 Markets for the Factors of Production

Earnings and Discrimination

Income Inequality 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 Basic Tools of Finance

Unemployment

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 Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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