Question 1

There are two types of markets in which firms face some competition yet are still able to have some control over the prices of their products.Those two types of market are

Accepted Answer

A)  monopolistic competition and oligopoly. 
B)  duopoly and triopoly. 
C)  perfect competition and monopolistic competition. 
D)  duopoly and imperfect competition. 
A)  monopolistic competition and oligopoly. 
B)  duopoly and triopoly. 
C)  perfect competition and monopolistic competition. 
D)  duopoly and imperfect competition.

Question 2

The prisoners' dilemma game

Accepted Answer

A)  is a situation in which two players both have dominant strategies which lead to the highest total payoff for the two players. 
B)  has no Nash equilibrium since players,after agreeing to play their dominant strategy,will have an incentive to switch to another strategy. 
C)  has a Nash equilibrium,but the Nash equilibrium outcome is not the outcome the players would agree to if they could cooperate with each other. 
D)  Both a and c are correct. 
A)  is a situation in which two players both have dominant strategies which lead to the highest total payoff for the two players. 
B)  has no Nash equilibrium since players,after agreeing to play their dominant strategy,will have an incentive to switch to another strategy. 
C)  has a Nash equilibrium,but the Nash equilibrium outcome is not the outcome the players would agree to if they could cooperate with each other. 
D)  Both a and c are correct.

Question 3

In imperfectly competitive markets,increasing production will decrease the price of all units sold.This concept is known as the

Accepted Answer

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

Question 4

As the number of firms in an oligopoly increases,

Accepted Answer

A)  each seller becomes more concerned about its impact on the market price. 
B)  the output effect decreases. 
C)  the total quantity of output produced by firms in the market gets closer to the socially efficient quantity. 
D)  the oligopoly has more market power and firms earn a greater profit. 
A)  each seller becomes more concerned about its impact on the market price. 
B)  the output effect decreases. 
C)  the total quantity of output produced by firms in the market gets closer to the socially efficient quantity. 
D)  the oligopoly has more market power and firms earn a greater profit.

Question 5

The manufacturer of Bozz Radios sells radios to retail stores for $500 each,and it requires the retail stores to charge customers $550 per radio.Any retailer that charges less than $550 would violate its contract with Bozz Radios.What do economists call this business practice?

Accepted Answer

A)  predatory pricing 
B)  resale price maintenance 
C)  tying 
D)  leverage 
A)  predatory pricing 
B)  resale price maintenance 
C)  tying 
D)  leverage

Question 6

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

Accepted Answer

As the number of firms increas

Question 7

If a person can prove that she was damaged by an illegal arrangement to restrain trade,that person can sue and recover

Accepted Answer

A)  the damages she sustained,as provided for in the Sherman Act. 
B)  the damages she sustained,as provided for in the Clayton Act. 
C)  three times the damages she sustained,as provided for in the Sherman Act. 
D)  three times the damages she sustained,as provided for in the Clayton Act. 
A)  the damages she sustained,as provided for in the Sherman Act. 
B)  the damages she sustained,as provided for in the Clayton Act. 
C)  three times the damages she sustained,as provided for in the Sherman Act. 
D)  three times the damages she sustained,as provided for in the Clayton Act.

Question 8

Table 17-21.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 17-21.Suppose that the two firms,A and B,make an agreement to withhold any advertising for one month in order to lower each firm's costs and raise each firm's profits.If the firms reach the Nash equilibrium,

Accepted Answer

A)  both firms will choose not to advertise. 
B)  firm A will choose not to advertise,but firm B will break the agreement and choose to advertise. 
C)  firm B will choose not to advertise,but firm A will break the agreement and choose to advertise. 
D)  both firms will break the agreement and choose to advertise. 
A)  both firms will choose not to advertise. 
B)  firm A will choose not to advertise,but firm B will break the agreement and choose to advertise. 
C)  firm B will choose not to advertise,but firm A will break the agreement and choose to advertise. 
D)  both firms will break the agreement and choose to advertise.

Question 9

Table 17-10
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 17-10.Assume that trade negotiators meet to discuss trade policy between the United States and Farland.If neither party to the negotiation is able to trust the other party,then

Accepted Answer

A)  each should assume that the other will choose a strategy that optimizes total value of the trade relationship. 
B)  the Nash equilibrium will provide the largest possible gains to each party. 
C)  Chinese negotiators should assume that United States negotiators will implement a policy that is in the mutual best interest of both countries. 
D)  each should follow its dominant strategy. 
A)  each should assume that the other will choose a strategy that optimizes total value of the trade relationship. 
B)  the Nash equilibrium will provide the largest possible gains to each party. 
C)  Chinese negotiators should assume that United States negotiators will implement a policy that is in the mutual best interest of both countries. 
D)  each should follow its dominant strategy.

Question 10

Scenario 17-1.Assume that the countries of Irun and Urun are the only two producers of crude oil.Further assume that both countries have entered into an agreement to maintain certain production levels in order to maximize profits.In the world market for oil,the demand curve is downward sloping.
-Refer to Scenario 17-1.The fact that both countries have colluded to earn higher profit shows their desire to keep their combined level of output

Accepted Answer

A)  above the monopoly level. 
B)  below the Nash equilibrium level. 
C)  equal to the Nash equilibrium level. 
D)  above the Nash equilibrium level. 
A)  above the monopoly level. 
B)  below the Nash equilibrium level. 
C)  equal to the Nash equilibrium level. 
D)  above the Nash equilibrium level.

Question 11

Predatory pricing involves a firm

Accepted Answer

A)  colluding with another firm to restrict output and raise prices. 
B)  selling two individual products together for a single price rather than selling each product individually at separate prices. 
C)  temporarily cutting the price of its product to drive a competitor out of the market. 
D)  requiring that the firm reselling its product do so at a specified price. 
A)  colluding with another firm to restrict output and raise prices. 
B)  selling two individual products together for a single price rather than selling each product individually at separate prices. 
C)  temporarily cutting the price of its product to drive a competitor out of the market. 
D)  requiring that the firm reselling its product do so at a specified price.

Question 12

Table 17-18.Amy and Heather are two college roommates who both prefer a clean common space in their dorm room,but neither enjoys cleaning.The roommates must each make a decision to either clean or not clean the dorm room's common space.The payoff table for this situation is provided below,where the higher a player's payoff number,the better off that player is.The payoffs in each cell are shown as (payoff for Amy,payoff for Heather).
  
-Refer to Table 17-18.If Heather chooses to clean,then Amy will

Accepted Answer

A)  clean and Heather's payoff will be 75. 
B)  not clean and Heather's payoff will be 100. 
C)  clean and Heather's payoff will be 15. 
D)  not clean and Heather's payoff will be 20. 
A)  clean and Heather's payoff will be 75. 
B)  not clean and Heather's payoff will be 100. 
C)  clean and Heather's payoff will be 15. 
D)  not clean and Heather's payoff will be 20.

Question 13

Table 17-3.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 $200,000 (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 17-3.Assume there are two profit-maximizing digital cable TV companies operating in this market.Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell.What price will premium digital channel cable TV subscriptions be sold at when this market reaches a Nash equilibrium?

Accepted Answer

A)  $30 
B)  $60 
C)  $90 
D)  $120 
A)  $30 
B)  $60 
C)  $90 
D)  $120

Question 14

Table 17-5.Imagine a small town in which only two residents,Bill and Ben,own wells that produce safe drinking water.Each week Bill and Ben 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 Bill and Ben 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.The socially efficient level of water supplied to the market would be

Accepted Answer

A)  60 gallons. 
B)  80 gallons. 
C)  100 gallons. 
D)  120 gallons. 
A)  60 gallons. 
B)  80 gallons. 
C)  100 gallons. 
D)  120 gallons.

Question 15

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 $4,000.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 $6,000 and the other will earn $5,000.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 $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 Dave will

Accepted Answer

A)  advertise on TV and earn $4,000. 
B)  advertise on radio and earn $7,000. 
C)  advertise on TV and earn $11,000. 
D)  not advertise and earn $10,000. 
A)  advertise on TV and earn $4,000. 
B)  advertise on radio and earn $7,000. 
C)  advertise on TV and earn $11,000. 
D)  not advertise and earn $10,000.

Question 16

Table 17-3.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 $200,000 (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 17-3.Assume there are two digital cable TV companies operating in this market.If they are able to collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions,then their agreement will stipulate that

Accepted Answer

A)  each firm will charge a price of $90 and each firm will sell 4,500 subscriptions. 
B)  each firm will charge a price of $90 and each firm will sell 9,000 subscriptions. 
C)  each firm will charge a price of $120 and each firm will sell 3,000 subscriptions. 
D)  each firm will charge a price of $150 and each firm will sell 1,500 subscriptions. 
A)  each firm will charge a price of $90 and each firm will sell 4,500 subscriptions. 
B)  each firm will charge a price of $90 and each firm will sell 9,000 subscriptions. 
C)  each firm will charge a price of $120 and each firm will sell 3,000 subscriptions. 
D)  each firm will charge a price of $150 and each firm will sell 1,500 subscriptions.

Question 17

In which of the following games is it clearly the case that the cooperative outcome of the game is good for the two players and good for society?

Accepted Answer

A)  Two guilty criminals have been captured by the police,and each prisoner decides whether to confess or to remain silent. 
B)  Two airlines dominate air travel between City A and City B,and each airline decides whether to charge a "high" airfare or a "low" airfare. 
C)  Two duopoly firms account for all of the production in a market,and each firm decides whether to produce a "high" amount of output or a "low" amount of output. 
D)  Two oil companies own adjacent oil fields over a common pool of oil,and each company decides whether to drill one well or two wells. 
A)  Two guilty criminals have been captured by the police,and each prisoner decides whether to confess or to remain silent. 
B)  Two airlines dominate air travel between City A and City B,and each airline decides whether to charge a "high" airfare or a "low" airfare. 
C)  Two duopoly firms account for all of the production in a market,and each firm decides whether to produce a "high" amount of output or a "low" amount of output. 
D)  Two oil companies own adjacent oil fields over a common pool of oil,and each company decides whether to drill one well or two wells.

Question 18

Which of the following groups or entities has the authority to initiate legal suits to enforce antitrust laws?

Accepted Answer

A)  the U.S.Justice Department 
B)  private citizens 
C)  corporations 
D)  All of the above are correct. 
A)  the U.S.Justice Department 
B)  private citizens 
C)  corporations 
D)  All of the above are correct.

Question 19

Assume that Peach Computers has entered into a resale price maintenance agreement with Computer Super Stores Inc.(CSS Inc. )but not with CompuMart.In this case,

Accepted Answer

A)  the wholesale price of Peach computers will be different for CSS Inc.than it is for CompuMart. 
B)  Peach computers will never increase profits by having a resale price maintenance agreement with all retail outlets that sell its products. 
C)  CompuMart will benefit from customers who go to CSS Inc.for information about different computers. 
D)  CSS Inc.will sell Peach computers at a lower price than CompuMart. 
A)  the wholesale price of Peach computers will be different for CSS Inc.than it is for CompuMart. 
B)  Peach computers will never increase profits by having a resale price maintenance agreement with all retail outlets that sell its products. 
C)  CompuMart will benefit from customers who go to CSS Inc.for information about different computers. 
D)  CSS Inc.will sell Peach computers at a lower price than CompuMart.

Question 20

Table 17-16.This table shows a game played between two firms,Firm A and Firm B.In this game each firm must decide how much output (Q)to produce: 5 units or 6 units.The profit for each firm is given in the table as (Profit for Firm A,Profit for Firm B).
  
-Refer to Table 17-16.The Nash equilibrium for this game is

Accepted Answer

A)  5 units of output for Firm A and 5 units of output for Firm B. 
B)  5 units of output for Firm A and 6 units of output for Firm B. 
C)  6 units of output for Firm A and 5 units of output for Firm B. 
D)  6 units of output for Firm A and 6 units of output for Firm B. 
A)  5 units of output for Firm A and 5 units of output for Firm B. 
B)  5 units of output for Firm A and 6 units of output for Firm B. 
C)  6 units of output for Firm A and 5 units of output for Firm B. 
D)  6 units of output for Firm A and 6 units of output for Firm B.

Exam 17: Oligopoly

There are two types of markets in which firms face some competition yet are still able to have some control over the prices of their products.Those two types of market are

The prisoners' dilemma game

In imperfectly competitive markets,increasing production will decrease the price of all units sold.This concept is known as the

As the number of firms in an oligopoly increases,

The manufacturer of Bozz Radios sells radios to retail stores for $500 each,and it requires the retail stores to charge customers $550 per radio.Any retailer that charges less than $550 would violate its contract with Bozz Radios.What do economists call this business practice?

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

If a person can prove that she was damaged by an illegal arrangement to restrain trade,that person can sue and recover

Predatory pricing involves a firm

In which of the following games is it clearly the case that the cooperative outcome of the game is good for the two players and good for society?

Which of the following groups or entities has the authority to initiate legal suits to enforce antitrust laws?

Assume that Peach Computers has entered into a resale price maintenance agreement with Computer Super Stores Inc.(CSS Inc. )but not with CompuMart.In this case,

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 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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