Exam 16: Oligopoly

Which of the following statements is (are)true of the prisoners' dilemma? (i) Rational self-interest leads neither party to confess. (ii) Cooperation between the prisoners is difficult to maintain. (iii) Cooperation between the prisoners is individually rational.

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.Suppose the two countries agreed to disarm existing weapons.In reality these two countries may have a hard time keeping this agreement due to which of the following reasons? (i) Even though Eudora has no incentive to cheat on the agreement,Inhabii has an incentive to cheat on the agreement. (ii) Much like the prisoners' dilemma,both countries are better off reneging on the agreement and building new weapons. (iii) Both countries want to increase their world power by building new weapons.

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 profit-maximizing digital cable TV companies operating in this market.Further assume that they are able to collude on the price and quantity of premium digital channel subscriptions to sell.As part of their collusive agreement they decide to take an equal share of the market.How much profit will each company make?

A central issue in the Microsoft antitrust lawsuit involved Microsoft's integration of its Internet browser into its Windows operating system,to be sold as one unit.This practice is known as

Table 16-1 The following table shows the percentage of output supplied by the top eight firms in four different industries. -Refer to Table 16-1.What is the concentration ratio in Industry A?

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 (are)the Nash equilibrium (equilibria)in this Chicken game?

As a group,oligopolists would always be better off if they would act collectively

Which of the following is a characteristic of oligopoly but NOT perfect competition?

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.If the market for water were perfectly competitive instead of monopolistic,how many gallons of water would be produced and sold?

Table 16-7 Suppose the countries of Xania and Pluntia share the world supply of water. Suppose that the marginal cost of bottling water is a constant $4 per gallon, and the demand for water is described by the following schedule: -Refer to Table 16-7.If there were only one supplier of water,what would be the price and quantity?

Like monopolists,oligopolists are aware that an increase in the quantity of output always

Table 16-7 Suppose the countries of Xania and Pluntia share the world supply of water. Suppose that the marginal cost of bottling water is a constant $4 per gallon, and the demand for water is described by the following schedule: -Refer to Table 16-7.If Xania and Pluntia formed a cartel,what would be the price and quantity?

Tying can be thought of as a form of price discrimination.

A market structure with only a few sellers,offering similar or identical products,is known as

Scenario 16-4 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 16-4.In 1971,Congress passed a law that banned cigarette advertising on television.If cigarette companies are profit maximizers,it is likely that

What effect does the number of firms in an oligopoly have on the characteristics of the market?

Table 16-10 Two discount superstores (Ultimate Saver and SuperDuper Saver) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Growth-related profits of the two discount superstores are shown in the table below. -Refer to Table 16-10.The dominant strategy is to increase the size of its store and parking lot for

In a prisoners' dilemma game,

Consider two CEOs from different firms in the same market who collude to fix the price in the market.This collusion violates the

Table 16-13 -Refer to Table 16-13.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).Which of the following statements is true regarding this game?