Question 1

Tying involves a firm

Accepted Answer

A)  colluding with another firm to restrict output and raise prices. 
B)  selling two individual products together for a single price rather than selling each product individually at separate prices. 
C)  temporarily cutting the price of its product to drive a competitor out of the market. 
D)  requiring that the firm reselling its product do so at a specified price. 
A)  colluding with another firm to restrict output and raise prices. 
B)  selling two individual products together for a single price rather than selling each product individually at separate prices. 
C)  temporarily cutting the price of its product to drive a competitor out of the market. 
D)  requiring that the firm reselling its product do so at a specified price.

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 prisoners' dilemma provides insights into the

Accepted Answer

A)  difficulty of maintaining cooperation. 
B)  benefits of avoiding cooperation. 
C)  benefits of government ownership of monopoly. 
D)  ease with which oligopoly firms maintain high prices. 
A)  difficulty of maintaining cooperation. 
B)  benefits of avoiding cooperation. 
C)  benefits of government ownership of monopoly. 
D)  ease with which oligopoly firms maintain high prices.

Question 4

The players in a two-person game are choosing between Strategy X and Strategy Y. If the second player chooses Strategy X, the first player's best outcome is to select X. If the second player chooses Strategy Y, the first player's best outcome is to select X. For the first player, Strategy X is called a

Accepted Answer

A)  dominant strategy. 
B)  collusive strategy. 
C)  repeated-trial strategy. 
D)  cartel strategy. 
A)  dominant strategy. 
B)  collusive strategy. 
C)  repeated-trial strategy. 
D)  cartel strategy.

Question 5

To function as a monopoly, OPEC and other cartels rely on among members.

Accepted Answer

The answer of To function as a monopoly, OPEC and...

Question 6

Figure 17-3. Hector and Bart are roommates. On a particular day, their apartment needs to be cleaned. Each person has to decide whether to take part in cleaning. At the end of the day, either the apartment will be completely clean (if one or both roommates take part in cleaning), or it will remain dirty (if neither roommate cleans). 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 possible outcome in which both Hector and Bart clean is analogous to which of the following outcomes of the duopoly game?

Accepted Answer

A)  The duopolists collude to achieve the monopoly outcome. 
B)  The duopolists collude to achieve the monopolistically-competitive outcome. 
C)  The outcome is the one that is most preferable for consumers of the duopolists' product. 
D)  The outcome is the one that is least preferable for both the duopolists and for the consumers of their product. 
A)  The duopolists collude to achieve the monopoly outcome. 
B)  The duopolists collude to achieve the monopolistically-competitive outcome. 
C)  The outcome is the one that is most preferable for consumers of the duopolists' product. 
D)  The outcome is the one that is least preferable for both the duopolists and for the consumers of their product.

Question 7

Table 17-23
Two bottled beverage manufacturers (Firm A and Firm B) determine that they could lower their costs, and thus increase their profits, if they reduced their advertising budgets. But 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 costs savings will outweigh the lost sales. Listed in the table below are the individual profits for each firm.  
-Refer to Table 17-23. At the Nash equilibrium, how much profit will Firm A earn?

Accepted Answer

A)  $8,000 because firm A will maintain the agreement not to advertise, but firm B will break the agreement and choose to advertise. 
B)  $9,000 because each firm will break the agreement and choose to advertise. 
C)  $10,000 because each firm will maintain the agreement and choose not to advertise. 
D)  $11,000 because firm B will maintain the agreement not to advertise, but firm A will break the agreement and choose to advertise. 
A)  $8,000 because firm A will maintain the agreement not to advertise, but firm B will break the agreement and choose to advertise. 
B)  $9,000 because each firm will break the agreement and choose to advertise. 
C)  $10,000 because each firm will maintain the agreement and choose not to advertise. 
D)  $11,000 because firm B will maintain the agreement not to advertise, but firm A will break the agreement and choose to advertise.

Question 8

Game theory is necessary to understand which kinds of markets?

Accepted Answer

A)  monopoly 
B)  competitive 
C)  oligopoly 
D)  All of the above are correct. 
A)  monopoly 
B)  competitive 
C)  oligopoly 
D)  All of the above are correct.

Question 9

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 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. Suppose there is only one internet radio provider in this market and it seeks to maximize its profit. The company will

Accepted Answer

A)  sell 2,000 subscriptions and charge a price of $48 for each subscription. 
B)  sell 3,000 subscriptions and charge a price of $40 for each subscription. 
C)  sell 4,000 subscriptions and charge a price of $32 for each subscription. 
D)  sell 5,000 subscriptions and charge a price of $24 for each subscription. 
A)  sell 2,000 subscriptions and charge a price of $48 for each subscription. 
B)  sell 3,000 subscriptions and charge a price of $40 for each subscription. 
C)  sell 4,000 subscriptions and charge a price of $32 for each subscription. 
D)  sell 5,000 subscriptions and charge a price of $24 for each subscription.

Question 11

In the prisoners' dilemma game, self-interest leads

Accepted Answer

A)  each prisoner to confess. 
B)  to a breakdown of any agreement that the prisoners might have made before being questioned. 
C)  to an outcome that is not particularly good for either prisoner. 
D)  All of the above are correct. 
A)  each prisoner to confess. 
B)  to a breakdown of any agreement that the prisoners might have made before being questioned. 
C)  to an outcome that is not particularly good for either prisoner. 
D)  All of the above are correct.

Question 12

If the output effect from increased production is larger than the price effect, then an oligopolist would increase production.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)  the greater the number of oligopolists. 
B)  the larger the number of buyers of the oligopolists' product. 
C)  the smaller the number of buyers of the oligopolists' product. 
D)  the more likely it is that the game among the oligopolists will be played over and over again. 
A)  the greater the number of oligopolists. 
B)  the larger the number of buyers of the oligopolists' product. 
C)  the smaller the number of buyers of the oligopolists' product. 
D)  the more likely it is that the game among the oligopolists will be played over and over again.

Question 14

How did the Clayton Act of 1914 differ from the Sherman Antitrust Act of 1890?

Accepted Answer

The Clayton Act strengthened t

Question 15

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 16

When an oligopoly market reaches a Nash equilibrium,

Accepted Answer

A)  the market price will be different for each firm. 
B)  the firms will not have behaved as profit maximizers. 
C)  a firm will have chosen its best strategy, given the strategies chosen by other firms in the market. 
D)  a firm will not take into account the strategies of competing firms. 
A)  the market price will be different for each firm. 
B)  the firms will not have behaved as profit maximizers. 
C)  a firm will have chosen its best strategy, given the strategies chosen by other firms in the market. 
D)  a firm will not take into account the strategies of competing firms.

Question 17

A particular cable TV company requires a household to subscribe to its high-speed Internet service if it subscribes to cable TV, and vice versa. This practice

Accepted Answer

A)  is referred to as tying. 
B)  is regarded by some economists as a form of price discrimination. 
C)  is controversial among economists because they disagree on whether it has adverse effects for society as a whole. 
D)  All of the above are correct. 
A)  is referred to as tying. 
B)  is regarded by some economists as a form of price discrimination. 
C)  is controversial among economists because they disagree on whether it has adverse effects for society as a whole. 
D)  All of the above are correct.

Question 18

Which of the following is necessarily a problem with antitrust laws?

Accepted Answer

A)  They may target a business whose practices appear to be anti-competitive but in fact have legitimate purposes. 
B)  They may encourage firms to collude and reduce social welfare compared to the unregulated market. 
C)  They reduce the effectiveness of the market to self-regulate. 
D)  They are enforced by agencies whose self-interest contradicts the interests of society as a whole. 
A)  They may target a business whose practices appear to be anti-competitive but in fact have legitimate purposes. 
B)  They may encourage firms to collude and reduce social welfare compared to the unregulated market. 
C)  They reduce the effectiveness of the market to self-regulate. 
D)  They are enforced by agencies whose self-interest contradicts the interests of society as a whole.

Question 19

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 20

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. What will be the price of water once Rochelle and Alec reach a Nash equilibrium?

Accepted Answer

A)  $15 
B)  $20 
C)  $25 
D)  $30 
A)  $15 
B)  $20 
C)  $25 
D)  $30

Exam 17: Oligopoly

Tying involves a firm

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

The prisoners' dilemma provides insights into the

To function as a monopoly, OPEC and other cartels rely on among members.

Game theory is necessary to understand which kinds of markets?

In the prisoners' dilemma game, self-interest leads

If the output effect from increased production is larger than the price effect, then an oligopolist would increase production.

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

How did the Clayton Act of 1914 differ from the Sherman Antitrust Act of 1890?

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

When an oligopoly market reaches a Nash equilibrium,

A particular cable TV company requires a household to subscribe to its high-speed Internet service if it subscribes to cable TV, and vice versa. This practice

Which of the following is necessarily a problem with antitrust laws?

The likely outcome of the standard prisoners' dilemma game is 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

Six Debates Over Macroeconomic Policy

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