Question 1

The oligopoly price will be greater than marginal cost but less than the monopoly price when

Accepted Answer

A)  the oligopolists collude by jointly choosing a quantity to produce and maintaining their agreement. 
B)  the oligopolists collude by jointly choosing a price to charge and maintaining their agreement. 
C)  each oligopolist individually chooses a quantity to produce to maximize profit. 
D)  each oligopolist's objective is minimization of average total cost, rather than maximization of profit. 
A)  the oligopolists collude by jointly choosing a quantity to produce and maintaining their agreement. 
B)  the oligopolists collude by jointly choosing a price to charge and maintaining their agreement. 
C)  each oligopolist individually chooses a quantity to produce to maximize profit. 
D)  each oligopolist's objective is minimization of average total cost, rather than maximization of profit.

Question 2

As the number of firms in the oligopoly grows very large, the

Accepted Answer

A)  output effect disappears. 
B)  price effect disappears. 
C)  output effect equals the price effect. 
D)  price of the product greatly exceeds marginal cost. 
A)  output effect disappears. 
B)  price effect disappears. 
C)  output effect equals the price effect. 
D)  price of the product greatly exceeds marginal cost.

Question 3

A firm that practices resale price maintenance

Accepted Answer

A)  has incentive to reduce competition between its retailers. Resale price maintenance can lead to more service. 
B)  has incentive to reduce competition between its retailers. Resale price maintenance cannot lead to more service. 
C)  has no incentive to reduce competition between its retailers. Resale price maintenance can lead to more service. 
D)  has no incentive to reduce competition between its retailers. Resale price maintenance cannot lead to more service. 
A)  has incentive to reduce competition between its retailers. Resale price maintenance can lead to more service. 
B)  has incentive to reduce competition between its retailers. Resale price maintenance cannot lead to more service. 
C)  has no incentive to reduce competition between its retailers. Resale price maintenance can lead to more service. 
D)  has no incentive to reduce competition between its retailers. Resale price maintenance cannot lead to more service.

Question 4

Table 17-1
Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each week Rochelle and Alec 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 Rochelle and Alec 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:
   21.
-Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, how much profit will each of them earn?

Accepted Answer

A)  $8,750 
B)  $9,000 
C)  $12,000 
D)  $18,000 
A)  $8,750 
B)  $9,000 
C)  $12,000 
D)  $18,000

Question 5

Outline the purpose of antitrust laws. What do they accomplish?

Accepted Answer

The purpose of antitrust laws

Question 6

Scenario 17-2.
Imagine that two oil companies, BQ and Exxoff, own adjacent oil fields. Under the fields is a common pool of oil worth $144 million. Drilling a well to recover oil costs $5 million per well. If each company drills one well, each will get half of the oil and earn a $67 million profit ($72 million in revenue - $5 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 each firm is permitted to drill two wells at most, the firms are in a Nash equilibrium when

Accepted Answer

A)  BQ drills one well and Exxoff drills two wells. 
B)  BQ drills two wells and Exxoff drills one well. 
C)  both firms drill one well. 
D)  both firms drill two wells. 
A)  BQ drills one well and Exxoff drills two wells. 
B)  BQ drills two wells and Exxoff drills one well. 
C)  both firms drill one well. 
D)  both firms drill two wells.

Question 7

Table 17-21
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 17-21. What is (are) the Nash equilibrium (equilibria) in this Chicken game?

Accepted Answer

A)  John: Turn Paul: Turn 
B)  John: Turn Paul: Drive Straight 
C)  John: Drive Straight Paul: Turn 
D)  Both b and c are Nash equilibria 
A)  John: Turn Paul: Turn 
B)  John: Turn Paul: Drive Straight 
C)  John: Drive Straight Paul: Turn 
D)  Both b and c are Nash equilibria

Question 8

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, (i) the quantity of hot dogs supplied is closer to the socially optimal level.
(ii) the price of hot dogs is closer to marginal cost.
(iii) the hot dog market at the beach is less competitive.

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 9

The practice of selling a product to retailers and requiring the retailers to charge a specific price for the product is called

Accepted Answer

A)  fixed retail pricing. 
B)  resale price maintenance. 
C)  cost plus pricing. 
D)  unfair trade. 
A)  fixed retail pricing. 
B)  resale price maintenance. 
C)  cost plus pricing. 
D)  unfair trade.

Question 10

Oligopolists may well be able to reach their preferred, cooperative outcome if

Accepted Answer

A)  the number of oligopolists is large. 
B)  they learn that a Nash equilibrium is in their best long-term interests. 
C)  a sufficient number of firms can be persuaded to lower their prices. 
D)  the game they play is repeated a sufficient number of times. 
A)  the number of oligopolists is large. 
B)  they learn that a Nash equilibrium is in their best long-term interests. 
C)  a sufficient number of firms can be persuaded to lower their prices. 
D)  the game they play is repeated a sufficient number of times.

Question 11

Figure 17-1  
-Refer to Figure 17-1. Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram. The marginal revenue curve that a monopolist would face in this market is also shown. If the firms are able to collude successfully,

Accepted Answer

A)  the total output will be 2 units and the price will be $6.00 per unit. 
B)  the total output will be 2 units and the price will be $8.00 per unit. 
C)  the total output will be 4 units and the price will be $6.00 per unit. 
D)  there will be no deadweight loss. 
A)  the total output will be 2 units and the price will be $6.00 per unit. 
B)  the total output will be 2 units and the price will be $8.00 per unit. 
C)  the total output will be 4 units and the price will be $6.00 per unit. 
D)  there will be no deadweight loss.

Question 12

Give an example of a famous cartel.

Accepted Answer

OPEC (Organization o

Question 13

The Sherman Antitrust Act

Accepted Answer

A)  overturned centuries-old views of English and American judges on agreements among competitors. 
B)  had the effect of discouraging private lawsuits against conspiring oligopolists. 
C)  strengthened the Clayton Act. 
D)  elevated agreements among conspiring oligopolists from an unenforceable contract to a criminal conspiracy. 
A)  overturned centuries-old views of English and American judges on agreements among competitors. 
B)  had the effect of discouraging private lawsuits against conspiring oligopolists. 
C)  strengthened the Clayton Act. 
D)  elevated agreements among conspiring oligopolists from an unenforceable contract to a criminal conspiracy.

Question 14

A law that encourages market competition by prohibiting firms from gaining or exercising excessive market power is

Accepted Answer

A)  a patent. 
B)  impossible to enforce. 
C)  an antitrust law. 
D)  an externality law. 
A)  a patent. 
B)  impossible to enforce. 
C)  an antitrust law. 
D)  an externality law.

Question 15

Which of the following statements is true?

Accepted Answer

A)  The proper scope of antitrust laws is well defined and definite. 
B)  Antitrust laws focus on granting certain firms the option to form a cartel. 
C)  Policymakers have the difficult task of determining whether some firms' decisions have legitimate purposes even though they appear anti-competitive. 
D)  There is always a need for policymakers to try to limit a firm's pricing power, regardless of whether the firm's market is competitive, a monopoly, or an oligopoly. 
A)  The proper scope of antitrust laws is well defined and definite. 
B)  Antitrust laws focus on granting certain firms the option to form a cartel. 
C)  Policymakers have the difficult task of determining whether some firms' decisions have legitimate purposes even though they appear anti-competitive. 
D)  There is always a need for policymakers to try to limit a firm's pricing power, regardless of whether the firm's market is competitive, a monopoly, or an oligopoly.

Question 16

The simplest type of oligopoly is

Accepted Answer

A)  monopoly. 
B)  duopoly. 
C)  monopolistic competition. 
D)  oligopolistic competition. 
A)  monopoly. 
B)  duopoly. 
C)  monopolistic competition. 
D)  oligopolistic competition.

Question 17

Table 17-1
Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each week Rochelle and Alec 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 Rochelle and Alec 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:
   21.
-Refer to Table 17-1. Suppose the town enacts new antitrust laws that prohibit Rochelle and Alec from operating as a monopoly. How many gallons of water will be produced and sold once Rochelle and Alec reach a Nash equilibrium?

Accepted Answer

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

Question 18

Suppose that Bieber and Rihanna are duopolists in the music industry. In May, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By June, each singer is considering breaking the agreement. What would you expect to happen next?

Accepted Answer

A)  Bieber and Rihanna will determine that it is in each singer's self interest to maintain the agreement. 
B)  Bieber and Rihanna will each break the agreement. Both singers' profits will decrease. 
C)  Bieber and Rihanna will each break the agreement. Both singers' profits will increase. 
D)  Bieber and Rihanna will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium price also will increase. 
A)  Bieber and Rihanna will determine that it is in each singer's self interest to maintain the agreement. 
B)  Bieber and Rihanna will each break the agreement. Both singers' profits will decrease. 
C)  Bieber and Rihanna will each break the agreement. Both singers' profits will increase. 
D)  Bieber and Rihanna will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium price also will increase.

Question 19

Scenario 17-6
Assume that a local telecommunications company sells high speed internet access and cable television. The company's only two customers are Taylor and Tim. Taylor is willing to pay $50 per month for high speed internet access and $50 per month for cable television. Tim is willing to pay only $20 per month for high speed internet access, but is willing to pay $70 per month for cable television. Assume that the telecommunications company can provide each of these products at zero marginal cost.
-Refer to Scenario 17-6. If the telecommunications company is unable to use tying, what is the profit-maximizing price to charge for high speed internet access?

Accepted Answer

The answer of Scenario 17-6
Assume that a local telecommunications company...

Question 20

A tit-for-tat strategy, in a repeated game, is one in which a player starts by cooperating and then does whatever the other player did last time.

Accepted Answer

A) True 
 B)False

The oligopoly price will be greater than marginal cost but less than the monopoly price when

As the number of firms in the oligopoly grows very large, the

A firm that practices resale price maintenance

Outline the purpose of antitrust laws. What do they accomplish?

The practice of selling a product to retailers and requiring the retailers to charge a specific price for the product is called

Oligopolists may well be able to reach their preferred, cooperative outcome if

Figure 17-1 -Refer to Figure 17-1. Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram. The marginal revenue curve that a monopolist would face in this market is also shown. If the firms are able to collude successfully,

Give an example of a famous cartel.

The Sherman Antitrust Act

A law that encourages market competition by prohibiting firms from gaining or exercising excessive market power is

Which of the following statements is true?

The simplest type of oligopoly is

A tit-for-tat strategy, in a repeated game, is one in which a player starts by cooperating and then does whatever the other player did last time.

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

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Exam 17: Oligopoly

The oligopoly price will be greater than marginal cost but less than the monopoly price when

As the number of firms in the oligopoly grows very large, the

A firm that practices resale price maintenance

Outline the purpose of antitrust laws. What do they accomplish?

The practice of selling a product to retailers and requiring the retailers to charge a specific price for the product is called

Oligopolists may well be able to reach their preferred, cooperative outcome if

Figure 17-1 -Refer to Figure 17-1. Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram. The marginal revenue curve that a monopolist would face in this market is also shown. If the firms are able to collude successfully,

Give an example of a famous cartel.

The Sherman Antitrust Act

A law that encourages market competition by prohibiting firms from gaining or exercising excessive market power is

Which of the following statements is true?

The simplest type of oligopoly is

A tit-for-tat strategy, in a repeated game, is one in which a player starts by cooperating and then does whatever the other player did last time.

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

Filters