Exam 17: Oligopoly

Although the practice of predatory pricing is a common claim in antitrust suits, some economists are skeptical of this argument because they believe

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. What is the Nash Equilibrium of this price-setting game?

Table 17-26 Two prescription drug manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the healthcare related expenses associated with side-effects from its drugs. Each drug manufacturer has evidence that indicates that taking its prescription drug causes liver failure. State prosecutors do not have access to the same data used by drug manufacturers and thus will have difficulty recovering full costs without the help of at least one of the drug manufacturer's studies. 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 17-26. Pursuing its own best interests, Firm A will concede that taking their prescription drug causes liver failure e. only if Firm B concedes that taking its drug causes liver failure. f. only if Firm B does not concede that taking its drug causes liver failure. g. regardless of whether Firm B concedes that taking its drug causes liver failure. h. None of the above. In pursuing its own best interests, Firm A will in no case concede that taking its prescription drug causes liver failure. ANSWER: d POINTS: 1 DIFFICULTY: Difficulty: Moderate LEARNING OBJECTIVES: ECON.MANK.15.84 - LO: 17-2 NATIONAL STANDARDS: United States - BUSPROG: Analytic TOPICS: DISC: Game Theory KEYWORDS: BLOOM'S: Application NOTES: r -Refer to Table 17-26. Which of the following statements is correct?

Figure 17-5. Two companies, ABC and QRS, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-5. The dominant strategy for ABC is to

Table 17-9 The table shows the demand schedule for a particular product. -Refer to Table 17-9. Suppose the market for this product is served by two firms that have formed a cartel. If the marginal cost of production is $0 and there is no fixed cost, the combined profit of the cartel will be

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?

Whether an oligopoly consists of 3 firms or 10 firms, the level of output likely will be the same.

A cooperative agreement among oligopolists is less likely to be maintained,

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 there are exactly five sellers of gasoline in Driveaway and if they collude, then which of the following outcomes is most likely?

What effect does the number of firms in an oligopoly have on the characteristics of the market?

Table 17-35 Suppose that two coal mining companies - Allied and Barclay - own adjacent land suitable for excavating coal mines. The profits that each firm earns depends on both the number of mines it excavates and the number of mines excavated by the other firm. The table below lists each firm's individual profits: Allied Excavate one mine Excavate two mines -Refer to Table 17-35. Does Allied have a dominant strategy? If so, describe it.

In imperfectly competitive markets, increasing production will decrease the price of all units sold. This concept is known as the

When all firms choose their best strategy given the strategies that all the other firms have chosen, the result is a Nash equilibrium.

As a group, oligopolists earn the highest profit when they

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. How much additional profit can the restaurant earn by switching to the use of a tying strategy to price salads and steaks rather than pricing these goods separately?

When firms have agreements among themselves on the quantity to produce and the price at which to sell output, we refer to their form of organization as a

Much of the research on game theory in recent decades was driven by attempts to analyze actions of players during

The equilibrium price in a market characterized by oligopoly is

In some games, the noncooperative equilibrium is bad for the players and bad for society.

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. If ABC and XYZ operate to jointly maximize profits, then what quantity is sold?