Question 1

Individual profit earned by Dave,the oligopolist,depends on which of the following?

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 2

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.Suppose there is only one high-speed Internet service provider in this market and it seeks to maximize its profit.The company will

Accepted Answer

A)  sell 6,000 subscriptions and charge a price of $200 for each subscription. 
B)  sell 8,000 subscriptions and charge a price of $160 for each subscription. 
C)  sell 10,000 subscriptions and charge a price of $120 for each subscription. 
D)  sell 12,000 subscriptions and charge a price of $80 for each subscription. 
A)  sell 6,000 subscriptions and charge a price of $200 for each subscription. 
B)  sell 8,000 subscriptions and charge a price of $160 for each subscription. 
C)  sell 10,000 subscriptions and charge a price of $120 for each subscription. 
D)  sell 12,000 subscriptions and charge a price of $80 for each subscription.

Question 3

In order to be successful,a cartel must

Accepted Answer

A)  find a way to encourage members to produce more than they would otherwise produce. 
B)  agree on the total level of production for the cartel,but they need not agree on the amount produced by each member. 
C)  agree on the total level of production and on the amount produced by each member. 
D)  agree on the prices charged by each member,but they need not agree on amounts produced. 
A)  find a way to encourage members to produce more than they would otherwise produce. 
B)  agree on the total level of production for the cartel,but they need not agree on the amount produced by each member. 
C)  agree on the total level of production and on the amount produced by each member. 
D)  agree on the prices charged by each member,but they need not agree on amounts produced.

Question 4

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.Pursuing its own best interests,Firm B will concede that cigarette smoke causes lung cancer

Accepted Answer

A)  only if Firm A concedes that cigarette smoke causes lung cancer. 
B)  only if Firm A does not concede that cigarette smoke causes lung cancer. 
C)  regardless of whether Firm A concedes that cigarette smoke causes lung cancer. 
D)  None of the above;in pursuing its own best interests,Firm B will in no case concede that cigarette smoke causes lung cancer. 
A)  only if Firm A concedes that cigarette smoke causes lung cancer. 
B)  only if Firm A does not concede that cigarette smoke causes lung cancer. 
C)  regardless of whether Firm A concedes that cigarette smoke causes lung cancer. 
D)  None of the above;in pursuing its own best interests,Firm B will in no case concede that cigarette smoke causes lung cancer.

Question 5

If firms in an oligopoly agree to produce according to the monopoly outcome,they will produce the same level of output as they would produce in a Nash equilibrium.

Accepted Answer

A) True 
 B)False

Question 6

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 Paul chooses Drive Straight,what will John choose to do and what will John's payoff equal?

Accepted Answer

A)  Turn,5 
B)  Drive Straight,0 
C)  Turn,20 
D)  Drive Straight,5 
A)  Turn,5 
B)  Drive Straight,0 
C)  Turn,20 
D)  Drive Straight,5

Question 7

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.At the Nash equilibrium,how much profit will Firm A earn?

Accepted Answer

A)  $8,000 because firm A will maintain the agreement not to advertise,but firm B will break the agreement and choose to advertise. 
B)  $9,000 because each firm will break the agreement and choose to advertise. 
C)  $10,000 because each firm will maintain the agreement and choose not to advertise. 
D)  $11,000 because firm B will maintain the agreement not to advertise,but firm A will break the agreement and choose to advertise. 
A)  $8,000 because firm A will maintain the agreement not to advertise,but firm B will break the agreement and choose to advertise. 
B)  $9,000 because each firm will break the agreement and choose to advertise. 
C)  $10,000 because each firm will maintain the agreement and choose not to advertise. 
D)  $11,000 because firm B will maintain the agreement not to advertise,but firm A will break the agreement and choose to advertise.

Question 8

Table 17-7.The table shows the demand schedule for a particular product.
  
-Refer to Table 17-7.Suppose that the marginal cost to produce this product is constant at $1 per unit and that the fixed cost of producing this product is $10.If the market is served by two duopolists who each,acting in their own self-interest,choose the Nash equilibrium level of production,how much profit will each firm earn?

Accepted Answer

A)  $10 
B)  $20 
C)  $35 
D)  $50 
A)  $10 
B)  $20 
C)  $35 
D)  $50

Question 9

Which of the following is necessarily a problem with antitrust laws?

Accepted Answer

A)  They may target a business whose practices appear to be anti-competitive but in fact have legitimate purposes. 
B)  They promote competition. 
C)  They limit monopoly power. 
D)  They prohibit firms from entering or exiting a market. 
A)  They may target a business whose practices appear to be anti-competitive but in fact have legitimate purposes. 
B)  They promote competition. 
C)  They limit monopoly power. 
D)  They prohibit firms from entering or exiting a market.

Question 10

Table 17-15.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: 2 units or 3 units.The profit for each firm is given in the table as (Profit for Firm A,Profit for Firm B).
  
-Refer to Table 17-15.Which of the following outcomes represent the Nash equilibrium in this game?

Accepted Answer

A)  Q=2 for Firm A and Q=3 for Firm B. 
B)  Q=3 for Firm A and Q=2 for Firm B. 
C)  There is no Nash equilibrium in this game since neither player has a dominant strategy. 
D)  Both a and b are correct. 
A)  Q=2 for Firm A and Q=3 for Firm B. 
B)  Q=3 for Firm A and Q=2 for Firm B. 
C)  There is no Nash equilibrium in this game since neither player has a dominant strategy. 
D)  Both a and b are correct.

Question 11

The Clayton Act

Accepted Answer

A)  preceded the Sherman Act. 
B)  replaced the Sherman Act. 
C)  strengthened the Sherman Act. 
D)  was specifically designed to reduce the ability of cartels to organize. 
A)  preceded the Sherman Act. 
B)  replaced the Sherman Act. 
C)  strengthened the Sherman Act. 
D)  was specifically designed to reduce the ability of cartels to organize.

Question 12

In the language of game theory,a situation in which each person must consider how others might respond to his or her own actions is called a

Accepted Answer

A)  quantifiable situation. 
B)  cooperative situation. 
C)  strategic situation. 
D)  tactical situation. 
A)  quantifiable situation. 
B)  cooperative situation. 
C)  strategic situation. 
D)  tactical situation.

Question 13

Which of the following prohibits executives of competing firms from even talking about fixing prices?

Accepted Answer

A)  Sherman Act 
B)  Clayton Act 
C)  Federal Trade Commission 
D)  U.S.Justice Department 
A)  Sherman Act 
B)  Clayton Act 
C)  Federal Trade Commission 
D)  U.S.Justice Department

Question 14

Table 17-2.The table shows the town of Pittsville's demand schedule for gasoline.For simplicity,assume the town's gasoline seller(s)incur no costs in selling gasoline.
  
-Refer to Table 17-2.If there are exactly two sellers of gasoline in Pittsville and if they collude,then which of the following outcomes is most likely?

Accepted Answer

A)  Each seller will sell 500 gallons and charge a price of $5. 
B)  Each seller will sell 500 gallons and charge a price of $2.50. 
C)  Each seller will sell 350 gallons and charge a price of $3. 
D)  Each seller will sell 250 gallons and charge a price of $5. 
A)  Each seller will sell 500 gallons and charge a price of $5. 
B)  Each seller will sell 500 gallons and charge a price of $2.50. 
C)  Each seller will sell 350 gallons and charge a price of $3. 
D)  Each seller will sell 250 gallons and charge a price of $5.

Question 15

A special kind of imperfectly competitive market that has only two firms is called

Accepted Answer

A)  a two-tier competitive structure. 
B)  an incidental monopoly. 
C)  a doublet. 
D)  a duopoly. 
A)  a two-tier competitive structure. 
B)  an incidental monopoly. 
C)  a doublet. 
D)  a duopoly.

Question 16

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.At the Nash equilibrium,how much profit will Firm B earn?

Accepted Answer

A)  $3,500 because firm B will maintain the agreement not to advertise,but firm A will break the agreement and choose to advertise. 
B)  $4,000 because each firm will break the agreement and choose to advertise. 
C)  $5,000 because each firm will maintain the agreement and choose not to advertise. 
D)  $6,000 because firm A will maintain the agreement not to advertise,but firm B will break the agreement and choose to advertise. 
A)  $3,500 because firm B will maintain the agreement not to advertise,but firm A will break the agreement and choose to advertise. 
B)  $4,000 because each firm will break the agreement and choose to advertise. 
C)  $5,000 because each firm will maintain the agreement and choose not to advertise. 
D)  $6,000 because firm A will maintain the agreement not to advertise,but firm B will break the agreement and choose to advertise.

Question 17

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

Accepted Answer

A)  resale price maintenance 
B)  tying 
C)  predatory pricing 
D)  free-riding 
A)  resale price maintenance 
B)  tying 
C)  predatory pricing 
D)  free-riding

Question 18

Hot-dog vendors on the beach fail to cooperate with one another on the quantity of hot-dogs they should sell to earn monopoly profits.A consequence of their failure is that,relative to the outcome the vendors would like,

Accepted Answer

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

Question 19

The practice of requiring someone to buy two or more items together,rather than separately,is called

Accepted Answer

A)  resale maintenance. 
B)  product fixing. 
C)  tying. 
D)  free-riding. 
A)  resale maintenance. 
B)  product fixing. 
C)  tying. 
D)  free-riding.

Question 20

Table 17-11
Two home-improvement stores (Big Box Deluxe and Homes R Us)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.Increases in annual profits of the two home-improvement stores are shown in the table below.
  
-Refer to Table 17-11.If both stores follow a dominant strategy,Homes R Us's annual profit will grow by

Accepted Answer

A)  $0.30 million. 
B)  $0.75 million. 
C)  $1.25 million. 
D)  $1.70 million. 
A)  $0.30 million. 
B)  $0.75 million. 
C)  $1.25 million. 
D)  $1.70 million.

Exam 17: Oligopoly

Individual profit earned by Dave,the oligopolist,depends on which of the following?

In order to be successful,a cartel must

If firms in an oligopoly agree to produce according to the monopoly outcome,they will produce the same level of output as they would produce in a Nash equilibrium.

Which of the following is necessarily a problem with antitrust laws?

The Clayton Act

In the language of game theory,a situation in which each person must consider how others might respond to his or her own actions is called a

Which of the following prohibits executives of competing firms from even talking about fixing prices?

A special kind of imperfectly competitive market that has only two firms is called

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

Hot-dog vendors on the beach fail to cooperate with one another on the quantity of hot-dogs they should sell to earn monopoly profits.A consequence of their failure is that,relative to the outcome the vendors would like,

The practice of requiring someone to buy two or more items together,rather than separately,is called

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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