Exam 17: Oligopoly

Table 17-1 Imagine a small town in which only two residents, Matthew and Anna, own wells that produce water for safe drinking. Each Saturday, Matthew and Anna 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 Matthew and Anna 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 is reflected in the table. -Refer to Table 17-1.As long as Matthew and Anna operate as a profit-maximizing monopoly,what will their weekly revenue equal

Perfect competition occurs when there are many firms in a market offering essentially identical products.

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

How does equilibrium quantity in markets characterized by oligopoly compare with that in monopolies and perfectly competitive markets

Table 17-4 Consider trade relations between Canada and Germany. Assume that the leaders of the two countries believe the payoffs to alternative trade policies are as follows: -Refer to Table 17-4.If both countries follow a dominant strategy,what will the value of trade flow benefits for Canada be

What is an oligopoly

In the story of the prisoners' dilemma,Clyde is always better off confessing,no matter what Bonnie does.

Table 17-3 Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from provinces trying to recover the health-care related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses). Provincial prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without obtaining at least one cigarette firm study. Each firm has been presented with an opportunity to lower their liability in the suit if they cooperate with attorneys representing the provinces. -Refer to Table 17-3.Pursuing its own best interests,when will Firm B concede that cigarette smoke causes lung cancer

Table 17-2 The information in the table depicts the total demand for wireless Internet subscriptions in a small urban market. Assume that each wireless Internet operator pays a fixed cost of $100,000 (per year) to provide wireless Internet in the market area and that the marginal cost of providing the wireless Internet service to a household is zero. -Refer to Table 17-2.Assume that there are two profit-maximizing wireless Internet companies operating in this market.Further assume that they are not able to "collude" on price and quantity of wireless Internet subscriptions to sell.How much profit will each firm earn when this market reaches a Nash equilibrium

Anna,Bill,and Charles are competitors in a local market,and each is trying to decide if it is worthwhile to advertise.If all of them advertise,each will earn a profit of $5000.If none of them advertise,each will earn a profit of $8000.If only one of them advertises,the one who advertises will earn a profit of $10,000 and the other two will each earn $2000.If two of them advertise,those two will each earn a profit of $6000 and the other one will earn $1000.If all three follow their dominant strategy,what will Anna do and how much will she earn

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

The Competition Act prohibits competing firms from even talking about fixing prices.

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

Scenario 17-4 Assume that a local bank sells two services, chequing accounts and ATM card services.Mr.Leung is willing to pay $10 a month for the bank to service his chequing account and $6 a month for unlimited use of his ATM card.Ms.Gardner is willing to pay only $6 for a chequing account, but is willing to pay $10 for unlimited use of her ATM card.Assume that each customer uses only one service and that the bank can provide each of these services at zero marginal cost. -Refer to Scenario 17-4.If the bank is unable to use tying,what is the profit-maximizing price to charge for a chequing account

Once a cartel is formed,what structure in effect serves the market

Table 17-3 Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from provinces trying to recover the health-care related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses). Provincial prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without obtaining at least one cigarette firm study. Each firm has been presented with an opportunity to lower their liability in the suit if they cooperate with attorneys representing the provinces. -Refer to Table 17-3.If both firms follow a dominant strategy,what will Firm B's profits (losses) be

When an oligopolist decreases production,it is likely that the output effect is less than the price effect.

Dave and Andy are competitors in a local market.Each is trying to decide if it is better to advertise on TV,on radio,or not at all.If they both advertise on TV,each will earn a profit of $4000.If they both advertise on radio,each will earn a profit of $7000.If neither advertises at all,each will earn a profit of $10,000.If one advertises on TV and other advertises on radio,then the one advertising on TV will earn $6000 and the other will earn $5000.If one advertises on TV and the other does not advertise,then the one advertising on TV will earn $11,000 and the other will earn $2000.If one advertises on radio and the other does not advertise,then the one advertising on radio will earn $12,000 and the other will earn $4000.If both follow their dominant strategy,what will Dave do and what will he earn

Table 17-5 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 under two scenarios are reflected in the table below. Table 17-5 ​ -Refer to Table 17-5.When this game reaches a Nash equilibrium,what will the dollar value of growth-related profits be

What,essentially,is an oligopoly if it has a large number of firms