Question 1

An agreement between two duopolists to function as a monopolist usually breaks down because

Accepted Answer

A)  they cannot agree on the price that a monopolist would charge. 
B)  they cannot agree on the output that a monopolist would produce. 
C)  each duopolist wants a larger share of the market in order to capture more profit. 
D)  each duopolist wants to charge a higher price than the monopoly price. 
A)  they cannot agree on the price that a monopolist would charge. 
B)  they cannot agree on the output that a monopolist would produce. 
C)  each duopolist wants a larger share of the market in order to capture more profit. 
D)  each duopolist wants to charge a higher price than the monopoly price.

Question 2

Figure 17-3.Katie and Taylor are roommates.On a particular day,their lawn needs to be mowed.Each person has to decide whether to take part in mowing the lawn.At the end of the day,either the lawn will be mowed (if one or both roommates take part in mowing),or it will remain unmowed (if neither roommate mows).With happiness measured on a scale of 1 (very unhappy)to 10 (very happy),the possible outcomes are as follows:  
-Refer to Figure 17-3.The dominant strategy for Taylor is to

Accepted Answer

A)  mow,and the dominant strategy for Katie is to mow. 
B)  mow,and the dominant strategy for Katie is to refrain from mowing. 
C)  refrain from mowing,and the dominant strategy for Katie is to mow. 
D)  refrain from mowing,and there is no dominant strategy for Katie. 
A)  mow,and the dominant strategy for Katie is to mow. 
B)  mow,and the dominant strategy for Katie is to refrain from mowing. 
C)  refrain from mowing,and the dominant strategy for Katie is to mow. 
D)  refrain from mowing,and there is no dominant strategy for Katie.

Question 3

Game theory is just as necessary for understanding competitive or monopoly markets as it is for understanding oligopolistic markets.

Accepted Answer

A) True 
 B)False

Question 4

The likely outcome of the standard prisoners' dilemma game is that

Accepted Answer

A)  neither prisoner confesses. 
B)  exactly one prisoner confesses. 
C)  both prisoners confess. 
D)  Not enough information is given to answer this question. 
A)  neither prisoner confesses. 
B)  exactly one prisoner confesses. 
C)  both prisoners confess. 
D)  Not enough information is given to answer this question.

Question 5

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.Pursuing its own best interests,Farland will impose trade sanctions against U.S.firms

Accepted Answer

A)  only if the U.S.does not renew MFN status with Farland. 
B)  only if the U.S.renews MFN status with Farland. 
C)  regardless of whether the U.S.renews MFN status with Farland. 
D)  None of the above is correct.In pursuing its own best interests,Farland will in no case impose trade sanctions against U.S.firms. 
A)  only if the U.S.does not renew MFN status with Farland. 
B)  only if the U.S.renews MFN status with Farland. 
C)  regardless of whether the U.S.renews MFN status with Farland. 
D)  None of the above is correct.In pursuing its own best interests,Farland will in no case impose trade sanctions against U.S.firms.

Question 6

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

Accepted Answer

A)  70 
B)  90 
C)  110 
D)  120 
A)  70 
B)  90 
C)  110 
D)  120

Question 7

Suppose that two poker players believe that they are superior players to the rest of the people at their table.Further suppose that the two players make an agreement to concede hands to each other in order to drive the other players from the game first.Economists would model such behavior as

Accepted Answer

A)  monopolistic competition. 
B)  game theory. 
C)  predatory pricing. 
D)  a dominant strategy. 
A)  monopolistic competition. 
B)  game theory. 
C)  predatory pricing. 
D)  a dominant strategy.

Question 8

Scenario 17-2.Imagine that two oil companies,Lexxon and PB,own adjacent oil fields.Under the fields is a common pool of oil worth $48 million.Drilling a well to recover oil costs $4 million per well.If each company drills one well,each will get half of the oil and earn a $20 million profit ($24 million in revenue - $4 million in costs).Assume that having X percent of the total wells means that a company will collect X percent of the total revenue.
-Refer to Scenario 17-2.If Lexxon were to drill a second well and PB also drilled a second well,what would Lexxon's profit be?

Accepted Answer

A)  $14 million 
B)  $16 million 
C)  $18 million 
D)  $22 million 
A)  $14 million 
B)  $16 million 
C)  $18 million 
D)  $22 million

Question 9

Table 17-1
Imagine a small town in which only two residents,Lisa and Mark,own wells that produce safe drinking water.Each week Lisa and Mark work together to decide how many gallons of water to pump.They bring the water to town and sell it at whatever price the market will bear.To keep things simple,suppose that Lisa and Mark 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 17-1.Suppose the town enacts new antitrust laws that prohibit Lisa and Mark from operating as a monopoly.How many gallons of water will be produced and sold once Lisa and Mark reach a Nash equilibrium?

Accepted Answer

A)  600 
B)  700 
C)  800 
D)  900 
A)  600 
B)  700 
C)  800 
D)  900

Question 10

As the number of firms in an oligopoly increases,the price approaches

Accepted Answer

A)  zero. 
B)  marginal cost. 
C)  infinity. 
D)  the monopoly price. 
A)  zero. 
B)  marginal cost. 
C)  infinity. 
D)  the monopoly price.

Question 11

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 A will concede that cigarette smoke causes lung cancer

Accepted Answer

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

Question 12

In a particular town,Metrovision and Cableview are the only two providers of cable TV service.Metrovision and Cableview constitute a

Accepted Answer

A)  duopoly,whether they collude or not. 
B)  cartel,whether they collude or not. 
C)  Nash industry,whether they collude or not. 
D)  monopolistically competitive market if they charge the same price. 
A)  duopoly,whether they collude or not. 
B)  cartel,whether they collude or not. 
C)  Nash industry,whether they collude or not. 
D)  monopolistically competitive market if they charge the same price.

Question 13

Table 17-6.The table shows the demand schedule for a particular product.
  
-Refer to Table 17-6.Suppose the market for this product is served by two firms that have formed a cartel.What price will the cartel charge in this market if the marginal cost of production is $0?

Accepted Answer

A)  $6 
B)  $8 
C)  $10 
D)  $12 
A)  $6 
B)  $8 
C)  $10 
D)  $12

Question 14

A key issue in the Microsoft case involved whether or not the bundling of the Windows operating system with an Internet browser was an example of

Accepted Answer

A)  predatory pricing. 
B)  tying. 
C)  resale price maintenance. 
D)  price discrimination. 
A)  predatory pricing. 
B)  tying. 
C)  resale price maintenance. 
D)  price discrimination.

Question 15

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.What is Heather's dominant strategy?

Accepted Answer

A)  Heather has no dominant strategy. 
B)  Heather should always choose Clean. 
C)  Heather should always choose Don't Clean. 
D)  Heather has two dominant strategies,Clean and Don't Clean,depending on the choice Amy makes. 
A)  Heather has no dominant strategy. 
B)  Heather should always choose Clean. 
C)  Heather should always choose Don't Clean. 
D)  Heather has two dominant strategies,Clean and Don't Clean,depending on the choice Amy makes.

Question 16

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 dominant strategy For Firm A is to produce

Accepted Answer

A)  5 units and the dominant strategy for Firm B is to produce 5 units. 
B)  5 units and the dominant strategy for Firm B is to produce 6 units. 
C)  6 units and the dominant strategy for Firm B is to produce 5 units. 
D)  6 units and the dominant strategy for Firm B is to produce 6 units. 
A)  5 units and the dominant strategy for Firm B is to produce 5 units. 
B)  5 units and the dominant strategy for Firm B is to produce 6 units. 
C)  6 units and the dominant strategy for Firm B is to produce 5 units. 
D)  6 units and the dominant strategy for Firm B is to produce 6 units.

Question 17

When the prisoners' dilemma game is generalized to describe situations other than those that literally involve two prisoners,we see that cooperation between the players of the game

Accepted Answer

A)  can be difficult to maintain,but only when cooperation would make at least one of the players of the game worse off. 
B)  can be difficult to maintain,even when cooperation would make both players of the game better off. 
C)  always works to the benefit of society as a whole. 
D)  always works to the detriment of society as a whole. 
A)  can be difficult to maintain,but only when cooperation would make at least one of the players of the game worse off. 
B)  can be difficult to maintain,even when cooperation would make both players of the game better off. 
C)  always works to the benefit of society as a whole. 
D)  always works to the detriment of society as a whole.

Question 18

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.What is the Nash Equilibrium in this dorm room cleaning game?

Accepted Answer

A)  Amy: Clean
Heather: Clean 
B)  Amy: Don't Clean
Heather: Clean 
C)  Amy: Clean
Heather: Don't Clean 
D)  Amy: Don't Clean
Heather: Don't Clean 
A)  Amy: Clean
Heather: Clean 
B)  Amy: Don't Clean
Heather: Clean 
C)  Amy: Clean
Heather: Don't Clean 
D)  Amy: Don't Clean
Heather: Don't Clean

Question 19

Figure 17-1.Two companies,ABC and XYZ,each decide whether to produce a high level of output or a low level of output.In the figure,the dollar amounts are payoffs and they represent annual profits for the two companies.  
-Refer to Figure 17-1.The dominant strategy for ABC is to

Accepted Answer

A)  produce high output,and the dominant strategy for XYZ is to produce high output. 
B)  produce high output,and the dominant strategy for XYZ is to produce low output. 
C)  produce low output,and the dominant strategy for XYZ is to produce high output. 
D)  produce low output,and the dominant strategy for XYZ is to produce low output. 
A)  produce high output,and the dominant strategy for XYZ is to produce high output. 
B)  produce high output,and the dominant strategy for XYZ is to produce low output. 
C)  produce low output,and the dominant strategy for XYZ is to produce high output. 
D)  produce low output,and the dominant strategy for XYZ is to produce low output.

Question 20

If nations such as Germany,Japan,and the United States prohibited international trade in automobiles,a likely effect would be that

Accepted Answer

A)  the price effect would become a more significant consideration for each firm that makes automobiles. 
B)  the excess of price over marginal cost would become less pronounced in the automobile market. 
C)  all countries would become better off. 
D)  automobile producers in the U.S.would collude to produce a large number of cars. 
A)  the price effect would become a more significant consideration for each firm that makes automobiles. 
B)  the excess of price over marginal cost would become less pronounced in the automobile market. 
C)  all countries would become better off. 
D)  automobile producers in the U.S.would collude to produce a large number of cars.

Exam 17: Oligopoly

An agreement between two duopolists to function as a monopolist usually breaks down because

Game theory is just as necessary for understanding competitive or monopoly markets as it is for understanding oligopolistic markets.

The likely outcome of the standard prisoners' dilemma game is that

Suppose that two poker players believe that they are superior players to the rest of the people at their table.Further suppose that the two players make an agreement to concede hands to each other in order to drive the other players from the game first.Economists would model such behavior as

As the number of firms in an oligopoly increases,the price approaches

In a particular town,Metrovision and Cableview are the only two providers of cable TV service.Metrovision and Cableview constitute a

Table 17-6.The table shows the demand schedule for a particular product. -Refer to Table 17-6.Suppose the market for this product is served by two firms that have formed a cartel.What price will the cartel charge in this market if the marginal cost of production is $0?

A key issue in the Microsoft case involved whether or not the bundling of the Windows operating system with an Internet browser was an example of

When the prisoners' dilemma game is generalized to describe situations other than those that literally involve two prisoners,we see that cooperation between the players of the game

Figure 17-1.Two companies,ABC and XYZ,each decide whether to produce a high level of output or a low level of output.In the figure,the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-1.The dominant strategy for ABC is to

If nations such as Germany,Japan,and the United States prohibited international trade in automobiles,a likely effect would be that

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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