Exam 17: Oligopoly

Barb and Sue 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 $5,000.If they both advertise on radio,each will earn a profit of $7,000.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 $8,000 and the other will earn $3,000.If one advertises on TV and the other does not advertise,then the one advertising on TV will earn $15,000 and the other will earn $2,000.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 $4,000.If both follow their dominant strategy,then Barb will

As the number of sellers in an oligopoly becomes very large,

Table 17-19.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 17-19.What is Paul's dominant strategy?

Consider a market served by a monopolist,Firm A.A new firm,Firm B,enters the market and,as a result,Firm A lowers its price to try to drive Firm B out of the market.This practice is known as

An oligopolist will increase production if the output effect is

Table 17-4.The information in the table below shows the total demand for high-speed Internet subscriptions in a small urban market.Assume that each company that provides these subscriptions incurs an annual fixed cost of $200,000 (per year)and that the marginal cost of providing an additional subscription is always $80. -Refer to Table 17-4.Assume that there are two profit-maximizing high-speed Internet service providers operating in this market.Further assume that they are not able to collude on the price and quantity of subscriptions to sell.How much profit will each firm earn when this market reaches a Nash equilibrium?

Predatory pricing occurs when a firm

Table 17-9 Two cigarette manufacturers (Firm A and Firm B)are faced with lawsuits from states to recover the healthcare related expenses associated with cigarette smoking.Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses).State prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without the help of at least one cigarette firm study.Each firm has been presented with an opportunity to lower its liability in the suit if it cooperates with attorneys representing the states. -Refer to Table 17-9.If both firms follow a dominant strategy,Firm B's profits (losses)will be

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

Why would lack of cooperation between criminal suspects be desirable for society as a whole?

Table 17-19.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 17-19.If John chooses Drive Straight,what will Paul choose to do and what will Paul's payoff equal?

Resale price maintenance prevents retailers from competing on price.

Assume oligopoly firms are profit maximizers,they do not form a cartel,and they take other firms' production levels as given.Then in equilibrium the output effect

Oligopolies would like to act like a

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

An equilibrium occurs in a game when

In general,game theory is the study of

The theory of oligopoly provides a reason as to why

Scenario 17-5 Assume that a local bank sells two services,checking accounts and ATM card services.The bank's only two customers are Mr.Donethat and Ms.Beenthere.Mr.Donethat is willing to pay $8 a month for the bank to service his checking account and $2 a month for unlimited use of his ATM card.Ms.Beenthere is willing to pay only $5 for a checking account,but is willing to pay $9 for unlimited use of her ATM card.Assume that the bank can provide each of these services at zero marginal cost. -Refer to Scenario 17-5.If the bank is unable to use tying,what is the profit-maximizing price to charge for unlimited use of an ATM card?

Martha and Oleg are competitors in a local market and each is trying to decide if it is worthwhile to advertise.If both of them advertise,each will earn a profit of $5,000.If neither of them advertise,each will earn a profit of $10,000.If one advertises and the other doesn't,then the one who advertises will earn a profit of $15,000 and the other will earn $7,000.To earn the highest profit,Martha