Exam 17: Oligopoly

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

Scenario 17-5 Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost. -Refer to Scenario 17-5. If the restaurant is unable to use tying, what is the profit-maximizing price to charge for a salad?

Tying can be thought of as a form of price discrimination.

Some business practices that appear to reduce competition, such as resale price maintenance, may have legitimate economic purposes.

Assuming that oligopolists do not have the opportunity to collude, once they have reached the Nash equilibrium, it

When firms are faced with making strategic choices to maximize profit, economists typically use

The Sherman Antitrust Act

Table 17-28 Suppose that two firms determine that each could lower its costs and increase its profits if both 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 cost savings will outweigh the lost sales. The table below lists each firm's individual profits: Firm A Breaks agreement Maintains agreement and advertises and does not advertise -Refer to Table 17-28. What is the outcome of this game?

In a prisoners' dilemma game,

Table 17-20 Nadia and Maddie 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 Nadia, payoff for Maddie). -Refer to Table 17-20. What is Maddie's dominant strategy?

An equilibrium in which each firm in an oligopoly maximizes profit, given the actions of its rivals, is called

If duopoly firms that are not colluding were able to successfully collude, then

Predatory pricing occurs when

Explain the practice of resale price maintenance and discuss why it is controversial.

Table 17-16 This table shows a game played between two players, A and B. The payoffs are given in the table as (Payoff to A, Payoff to B). -Refer to Table 17-16. Which of the following outcomes represents a Nash equilibrium in the game?

From society's standpoint, cooperation among oligopolists is

Table 17-2 Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: -Refer to Table 17-2. If this market for water were perfectly competitive instead of monopolistic, how many gallons of water would be produced and sold?

The theory of oligopoly provides a reason why

As the number of firms in an oligopoly becomes very large, the price effect disappears.

Suppose that Thierry and Abdul are duopolists. Thierry is producing 700 units of output, and Abdul is producing 500 units of output. When Abdul produces 500 units, Thierry maximizes profit by producing 700 units. When Thierry produces 700 units of output, Abdul maximizes profit by producing 500 units. Thierry and Abdul are