Question 1

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 2

Game theory is important for understanding which of the following market types?

Accepted Answer

A)  perfectly competitive and oligopolistic markets 
B)  perfectly competitive markets but not oligopolistic markets 
C)  oligoplistic but not perfectly competitive markets 
D)  neither oligopolistic nor perfectly competitive markets. 
A)  perfectly competitive and oligopolistic markets 
B)  perfectly competitive markets but not oligopolistic markets 
C)  oligoplistic but not perfectly competitive markets 
D)  neither oligopolistic nor perfectly competitive markets.

Question 3

The primary purpose of antitrust legislation is to

Accepted Answer

A)  protect small businesses. 
B)  protect the competitiveness of U.S. markets. 
C)  protect the prices of American-made products. 
D)  ensure firms earn only a fair profit. 
A)  protect small businesses. 
B)  protect the competitiveness of U.S. markets. 
C)  protect the prices of American-made products. 
D)  ensure firms earn only a fair profit.

Question 4

Juan Pablo and Zak 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 $8,000. If they both advertise on radio, each will earn a profit of $14,000. If neither advertises at all, each will earn a profit of $20,000. If one advertises on TV and other advertises on radio, then the one advertising on TV will earn $12,000 and the other will earn $10,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $22,000 and the other will earn $4,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $24,000 and the other will earn $8,000. If both follow their dominant strategy, then Juan Pablo will

Accepted Answer

A)  advertise on TV and earn $8,000. 
B)  advertise on radio and earn $14,000. 
C)  advertise on TV and earn $22,000. 
D)  not advertise and earn $20,000. 
A)  advertise on TV and earn $8,000. 
B)  advertise on radio and earn $14,000. 
C)  advertise on TV and earn $22,000. 
D)  not advertise and earn $20,000.

Question 5

Table 17-12
The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost.
  
-Refer to Table 17-12. If the market for gasoline in Driveaway is a monopoly, then the monopolist's maximum profit is

Accepted Answer

A)  $350. 
B)  $400. 
C)  $450. 
D)  $500. 
A)  $350. 
B)  $400. 
C)  $450. 
D)  $500.

Question 6

Scenario 17-4.
Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market and earn $50 million each. If they both advertise, they again split the market, but profits are lower by $10 million since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $60 million while the company that does not advertise earns only $30 million.
-Refer to Scenario 17-4. The likely outcome of this game is that PM Inc. earns

Accepted Answer

A)  $30 million and Brown Inc. earns $60 million. 
B)  $40 million and Brown Inc. earns $40 million. 
C)  $50 million and Brown Inc. earns $50 million. 
D)  $60 million and Brown Ind. earns $30 million. 
A)  $30 million and Brown Inc. earns $60 million. 
B)  $40 million and Brown Inc. earns $40 million. 
C)  $50 million and Brown Inc. earns $50 million. 
D)  $60 million and Brown Ind. earns $30 million.

Question 7

Table 17-11
Only two firms, ABC and XYZ, sell a particular product. The table below shows the demand curve for their product. Each firm has the same constant marginal cost of $8 and zero fixed cost.
  
-Refer to Table 17-11. ABC and XYZ agree to jointly maximize profits. If ABC and XYZ each break the agreement and each produce 5 more than agreed upon, how much less profit does each make?

Accepted Answer

A)  $5 
B)  $20 
C)  $60 
D)  $90 
A)  $5 
B)  $20 
C)  $60 
D)  $90

Question 8

Table 17-8
For a certain small town, the table shows the demand schedule for water. Assume the marginal cost of supplying water is constant at $4 per bottle.
  
-Refer to Table 17-8. If there are two suppliers of water, Victor and Sami, and if they have successfully formed a cartel and split the market evenly, then how many bottles will Sami supply?

Accepted Answer

A)  100 
B)  200 
C)  300 
D)  400 
A)  100 
B)  200 
C)  300 
D)  400

Question 9

Table 17-4
The table shows the town of Mauston's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline.
  
-Refer to Table 17-4. If the market for gasoline in Mauston is perfectly competitive, then the equilibrium price of gasoline is

Accepted Answer

A)  $7 and the equilibrium quantity is 150 gallons. 
B)  $5 and the equilibrium quantity is 250 gallons. 
C)  $3 and the equilibrium quantity is 350 gallons. 
D)  $0 and the equilibrium quantity is 500 gallons. 
A)  $7 and the equilibrium quantity is 150 gallons. 
B)  $5 and the equilibrium quantity is 250 gallons. 
C)  $3 and the equilibrium quantity is 350 gallons. 
D)  $0 and the equilibrium quantity is 500 gallons.

Question 10

Table 17-7
The information in the table below shows the total demand for internet radio subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year) and that the marginal cost of providing an additional subscription is always $16.
  
-Refer to Table 17-7. Assume there are two internet radio providers that operate 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 $40 and each firm will sell 3,000 subscriptions. 
B)  each firm will charge a price of $40 and each firm will sell 1,500 subscriptions. 
C)  each firm will charge a price of $32 and each firm will sell 2,000 subscriptions. 
D)  each firm will charge a price of $20 and each firm will sell 3,000 subscriptions. 
A)  each firm will charge a price of $40 and each firm will sell 3,000 subscriptions. 
B)  each firm will charge a price of $40 and each firm will sell 1,500 subscriptions. 
C)  each firm will charge a price of $32 and each firm will sell 2,000 subscriptions. 
D)  each firm will charge a price of $20 and each firm will sell 3,000 subscriptions.

Question 11

Table 17-27
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 17-27. If trade negotiators are able to communicate effectively about the consequences of various trade policies (i.e., enter into an agreement about the policy they should adopt), then we would expect the countries to agree to which outcome?

Accepted Answer

A)  United States $35 b and Farland $285 b 
B)  United States $65 b and Farland $75 b 
C)  United States $140 b and Farland $5 b 
D)  United States $130 b and Farland $275 b 
A)  United States $35 b and Farland $285 b 
B)  United States $65 b and Farland $75 b 
C)  United States $140 b and Farland $5 b 
D)  United States $130 b and Farland $275 b

Question 12

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 John's dominant strategy?

Accepted Answer

A)  John has no dominant strategy. 
B)  John should always choose Turn. 
C)  John should always choose Drive Straight. 
D)  John has two dominant strategies. 
A)  John has no dominant strategy. 
B)  John should always choose Turn. 
C)  John should always choose Drive Straight. 
D)  John has two dominant strategies.

Question 13

Oligopolies would like to act like a

Accepted Answer

A)  duopoly, but self-interest often drives them closer to the perfectly competitive outcome. 
B)  competitive firm, but self-interest often drives them closer to the duopoly outcome. 
C)  monopoly, but self-interest often drives them to charge a higher price than would be charged by a monopoly. 
D)  monopoly, but self-interest often drives them closer to the perfectly competitive outcome. 
A)  duopoly, but self-interest often drives them closer to the perfectly competitive outcome. 
B)  competitive firm, but self-interest often drives them closer to the duopoly outcome. 
C)  monopoly, but self-interest often drives them to charge a higher price than would be charged by a monopoly. 
D)  monopoly, but self-interest often drives them closer to the perfectly competitive outcome.

Question 14

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. If Irun fails to live up to the production agreement and overproduces, which of the following statements will be true of Urun's condition?

Accepted Answer

A)  Urun will invariably be worse off than before the agreement was broken. 
B)  Urun will counter by decreasing its production in order to maintain price stability. 
C)  Urun's profit will be maximized by holding its production constant. 
D)  Urun's profit will be unaffected by Irun's actions. 
A)  Urun will invariably be worse off than before the agreement was broken. 
B)  Urun will counter by decreasing its production in order to maintain price stability. 
C)  Urun's profit will be maximized by holding its production constant. 
D)  Urun's profit will be unaffected by Irun's actions.

Question 15

According to the Clayton Act,

Accepted Answer

A)  lawyers are given an incentive to reduce the number of cases involving cooperative arrangements. 
B)  individuals can sue to recover damages from illegal cooperative agreements. 
C)  the government was able to incarcerate the CEO of a firm for illegal pricing arrangements. 
D)  private lawsuits are discouraged. 
A)  lawyers are given an incentive to reduce the number of cases involving cooperative arrangements. 
B)  individuals can sue to recover damages from illegal cooperative agreements. 
C)  the government was able to incarcerate the CEO of a firm for illegal pricing arrangements. 
D)  private lawsuits are discouraged.

Question 16

The Sherman Antitrust Act

Accepted Answer

A)  was passed to encourage judicial leniency in the review of cooperative agreements. 
B)  was concerned with self-interest dominated Nash equilibriums in prisoners' dilemma games. 
C)  enhanced the ability to enforce cartel agreements. 
D)  restricted the ability of competitors to engage in cooperative agreements. 
A)  was passed to encourage judicial leniency in the review of cooperative agreements. 
B)  was concerned with self-interest dominated Nash equilibriums in prisoners' dilemma games. 
C)  enhanced the ability to enforce cartel agreements. 
D)  restricted the ability of competitors to engage in cooperative agreements.

Question 17

Figure 17-2. Two companies, Acme and Pinnacle, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies.  
-Refer to Figure 17-2. The dominant strategy for Acme is to

Accepted Answer

A)  produce a good quality product, and the dominant strategy for Pinnacle is to produce a good quality product. 
B)  produce a good quality product, and the dominant strategy for Pinnacle is to produce a poor quality product. 
C)  produce a poor quality product, and the dominant strategy for Pinnacle is to produce a good quality product. 
D)  produce a poor quality product, and the dominant strategy for Pinnacle is to produce a poor quality product. 
A)  produce a good quality product, and the dominant strategy for Pinnacle is to produce a good quality product. 
B)  produce a good quality product, and the dominant strategy for Pinnacle is to produce a poor quality product. 
C)  produce a poor quality product, and the dominant strategy for Pinnacle is to produce a good quality product. 
D)  produce a poor quality product, and the dominant strategy for Pinnacle is to produce a poor quality product.

Question 18

Table 17-19
Consider a small town that has two grocery stores from which residents can choose to buy a loaf of bread. The store owners each must make a decision to set a high bread price or a low bread price. The payoff table, showing profit per week, is provided below. The profit in each cell is shown as (Store 1, Store 2).
  
-Refer to Table 17-19. If grocery store 2 sets a high price, what price should grocery store 1 set? And what will grocery store 1's payoff equal?

Accepted Answer

A)  Low price, $400 
B)  High price, $325 
C)  Low price, $50 
D)  High price, $400 
A)  Low price, $400 
B)  High price, $325 
C)  Low price, $50 
D)  High price, $400

Question 19

Table 17-25
There are just two producers of a certain product. Each is considering offering promotional discounts.
  
-Refer to Table 17-25. At the Nash equilibrium, how much profit will Firm A earn?

Accepted Answer

A)  $120,000 
B)  $90,000 
C)  $80,000 
D)  $70,000 
A)  $120,000 
B)  $90,000 
C)  $80,000 
D)  $70,000

Question 20

The story of the prisoners' dilemma contains a general lesson that applies to any group trying to maintain cooperation among its members.

Accepted Answer

A) True 
 B)False

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

Game theory is important for understanding which of the following market types?

The primary purpose of antitrust legislation is to

Table 17-12 The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost. -Refer to Table 17-12. If the market for gasoline in Driveaway is a monopoly, then the monopolist's maximum profit is

Table 17-4 The table shows the town of Mauston's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline. -Refer to Table 17-4. If the market for gasoline in Mauston is perfectly competitive, then the equilibrium price of gasoline is

Oligopolies would like to act like a

According to the Clayton Act,

The Sherman Antitrust Act

Figure 17-2. Two companies, Acme and Pinnacle, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-2. The dominant strategy for Acme is to

Table 17-25 There are just two producers of a certain product. Each is considering offering promotional discounts. -Refer to Table 17-25. At the Nash equilibrium, how much profit will Firm A earn?

The story of the prisoners' dilemma contains a general lesson that applies to any group trying to maintain cooperation among its members.

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

Exam 17: Oligopoly

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

Game theory is important for understanding which of the following market types?

The primary purpose of antitrust legislation is to

Table 17-12 The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost. -Refer to Table 17-12. If the market for gasoline in Driveaway is a monopoly, then the monopolist's maximum profit is

Table 17-4 The table shows the town of Mauston's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline. -Refer to Table 17-4. If the market for gasoline in Mauston is perfectly competitive, then the equilibrium price of gasoline is

Oligopolies would like to act like a

According to the Clayton Act,

The Sherman Antitrust Act

Figure 17-2. Two companies, Acme and Pinnacle, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-2. The dominant strategy for Acme is to

Table 17-25 There are just two producers of a certain product. Each is considering offering promotional discounts. -Refer to Table 17-25. At the Nash equilibrium, how much profit will Firm A earn?

The story of the prisoners' dilemma contains a general lesson that applies to any group trying to maintain cooperation among its members.

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