Question 1

Which potentially anti-competitive business practice is often justified on the grounds that it corrects for the free rider problem?

Accepted Answer

resale pri

Question 2

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 BQ were to drill a second well and Exxoff also drilled a second well, what would BQ's profit be?

Accepted Answer

A)  $31 million 
B)  $62 million 
C)  $67 million 
D)  $86 million 
A)  $31 million 
B)  $62 million 
C)  $67 million 
D)  $86 million

Question 3

A dominant strategy is one that

Accepted Answer

A)  makes every player better off. 
B)  makes at least one player better off without hurting the competitiveness of any other player. 
C)  increases the total payoff for the player. 
D)  is best for the player, regardless of what strategies other players follow. 
A)  makes every player better off. 
B)  makes at least one player better off without hurting the competitiveness of any other player. 
C)  increases the total payoff for the player. 
D)  is best for the player, regardless of what strategies other players follow.

Question 4

When individuals are damaged by an illegal arrangement to restrain trade, which law allows them to pursue civil action and recover up to three times the damages sustained?

Accepted Answer

A)  Trade Damage Act 
B)  Clayton Act 
C)  Sherman Act 
D)  No law allows individuals to pursue civil action and recover up to three times the damages sustained. 
A)  Trade Damage Act 
B)  Clayton Act 
C)  Sherman Act 
D)  No law allows individuals to pursue civil action and recover up to three times the damages sustained.

Question 5

Table 17-33
Suppose that Robert and Howard own the only two movie studios in California. Each producer must choose between a low budget and a high budget strategy for his next film. The economic profit from each strategy is indicated in the table below:
Howard
Low budget High budget  
-Refer to Table 17-33. Does Robert have a dominant strategy? If so, describe it.

Accepted Answer

Yes, regardless of Howard's strategy, Ro

Question 6

Table 17-32
Suppose that Angelina and Brad own the only two professional photography stores in town. Each must choose between a low price and a high price for senior photo packages. The annual economic profit from each strategy is indicated in the table below:
Angelina
Low price High price  
-Refer to Table 17-32. Is there a Nash equilibrium? If so, describe it.

Accepted Answer

Yes. Angelina has a dominant strategy to

Question 7

Suppose a market is initially perfectly competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, we would expect

Accepted Answer

A)  an increase in market output and an increase in the price of the product. 
B)  an increase in market output and an decrease in the price of the product. 
C)  a decrease in market output and an increase in the price of the product. 
D)  a decrease in market output and a decrease in the price of the product. 
A)  an increase in market output and an increase in the price of the product. 
B)  an increase in market output and an decrease in the price of the product. 
C)  a decrease in market output and an increase in the price of the product. 
D)  a decrease in market output and a decrease in the price of the product.

Question 8

The Sherman Act made cooperative agreements

Accepted Answer

A)  unenforceable outside of established judicial review processes. 
B)  enforceable with proper judicial review. 
C)  a criminal conspiracy. 
D)  a crime, but did not give direction on possible penalties. 
A)  unenforceable outside of established judicial review processes. 
B)  enforceable with proper judicial review. 
C)  a criminal conspiracy. 
D)  a crime, but did not give direction on possible penalties.

Question 9

As the number of firms in an oligopoly industry decreases, the market moves closer to a _________ market.

Accepted Answer

The answer of As the number of firms in an...

Question 10

When the prisoners' dilemma game is generalized to describe situations other than those that literally involve two prisoners, we see that cooperation between the players of the game

Accepted Answer

A)  can be difficult to maintain, but only when cooperation would make at least one of the players of the game worse off. 
B)  can be difficult to maintain, even when cooperation would make both players of the game better off. 
C)  always works to the benefit of society as a whole. 
D)  always works to the detriment of society as a whole. 
A)  can be difficult to maintain, but only when cooperation would make at least one of the players of the game worse off. 
B)  can be difficult to maintain, even when cooperation would make both players of the game better off. 
C)  always works to the benefit of society as a whole. 
D)  always works to the detriment of society as a whole.

Question 11

Table 17-13
Two home-improvement stores (Lopes and HomeMax) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Increases in annual profits of the two home-improvement stores are shown in the table below.   14.
-Refer to Table 17-13. Pursuing its own best interest, HomeMax will

Accepted Answer

A)  increase the size of its store and parking lot only if Lopes also increases the size of its store and parking lot. 
B)  increase the size of its store and parking lot only if Lopes does not increase the size of its store and parking lot. 
C)  increase the size of its store and parking lot regardless of the decision made by Lopes. 
D)  not increase the size of its store and parking lot regardless of the decision made by Lopes. 
A)  increase the size of its store and parking lot only if Lopes also increases the size of its store and parking lot. 
B)  increase the size of its store and parking lot only if Lopes does not increase the size of its store and parking lot. 
C)  increase the size of its store and parking lot regardless of the decision made by Lopes. 
D)  not increase the size of its store and parking lot regardless of the decision made by Lopes.

Question 12

In game theory, a Nash equilibrium is

Accepted Answer

A)  an outcome in which each player is doing his best given the strategies chosen by the other players. 
B)  an outcome in which no player wishes to change her chosen strategy given the strategies chosen by the other players. 
C)  the outcome that occurs when all players have a dominant strategy. 
D)  All of the above are correct. 
A)  an outcome in which each player is doing his best given the strategies chosen by the other players. 
B)  an outcome in which no player wishes to change her chosen strategy given the strategies chosen by the other players. 
C)  the outcome that occurs when all players have a dominant strategy. 
D)  All of the above are correct.

Question 13

Table 17-10
The table shows the demand schedule for a particular product.  
-Refer to Table 17-10. Suppose the market for this product is served by two firms who have formed a cartel and are colluding to set the price and quantity in this market. If the marginal cost to produce this product is constant at $40 per unit and there is no fixed cost, then what will the combined profit of the cartel be?

Accepted Answer

A)  $15,000 
B)  $24,000 
C)  $27,000 
D)  $63,000 
A)  $15,000 
B)  $24,000 
C)  $27,000 
D)  $63,000

Question 14

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. If the two companies make their pricing decisions independently, then it is likely that ABC will

Accepted Answer

A)  charge a high price only if QRS charges a high price. 
B)  charge a high price only if QRS charges a low price. 
C)  charge a high price regardless of whether QRS charges a high price or a low price. 
D)  None of the above are correct. 
A)  charge a high price only if QRS charges a high price. 
B)  charge a high price only if QRS charges a low price. 
C)  charge a high price regardless of whether QRS charges a high price or a low price. 
D)  None of the above are correct.

Question 15

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 steak?

Accepted Answer

A)  $20 
B)  $16 
C)  $12 
D)  $8 
A)  $20 
B)  $16 
C)  $12 
D)  $8

Question 16

Table 17-13
Two home-improvement stores (Lopes and HomeMax) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Increases in annual profits of the two home-improvement stores are shown in the table below.   14.
-Refer to Table 17-13. If both stores follow a dominant strategy, HomeMax's annual profit will grow by

Accepted Answer

A)  $0.6 million. 
B)  $1.5 million. 
C)  $2.5 million. 
D)  $3.4 million. 
A)  $0.6 million. 
B)  $1.5 million. 
C)  $2.5 million. 
D)  $3.4 million.

Question 17

Scenario 17-3.
Consider two countries, Kinglandia and Rovinastan, that are engaged in an arms race. Each country must decide whether to build new weapons or to disarm existing weapons. Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs. But each country also prefers to live in a world safe from the other country's weapons. The following table shows the possible outcomes for each decision combination. The numbers in each cell represent the country's ranking of the outcome (10 = best outcome, 1 = worst outcome).  
-Refer to Scenario 17-3. Building new weapons is a dominant strategy for

Accepted Answer

A)  Kinglandia, but not for Rovinastan. 
B)  Rovinastan, but not for Kinglandia. 
C)  both Kinglandia and Rovinastan. 
D)  neither Kinglandia nor Rovinastan. 
A)  Kinglandia, but not for Rovinastan. 
B)  Rovinastan, but not for Kinglandia. 
C)  both Kinglandia and Rovinastan. 
D)  neither Kinglandia nor Rovinastan.

Question 18

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. Which of the following statements is correct?

Accepted Answer

A)  Acme can potentially earn its highest possible profit if it produces a good quality product, and for that reason it is a dominant strategy for Acme to produce a good quality product. 
B)  The highest possible combined profit for the two firms occurs when both produce a poor quality product, and for that reason producing a poor quality product is a dominant strategy for both firms. 
C)  Regardless of the strategy pursued by Acme, Pinnacle's best strategy is to produce a good quality product, and for that reason producing a good quality product is a dominant strategy for Pinnacle. 
D)  Our knowledge of game theory suggests that the most likely outcome of the game, if it is played only once, is for one firm to produce a poor quality product and for the other firm to produce a good quality product. 
A)  Acme can potentially earn its highest possible profit if it produces a good quality product, and for that reason it is a dominant strategy for Acme to produce a good quality product. 
B)  The highest possible combined profit for the two firms occurs when both produce a poor quality product, and for that reason producing a poor quality product is a dominant strategy for both firms. 
C)  Regardless of the strategy pursued by Acme, Pinnacle's best strategy is to produce a good quality product, and for that reason producing a good quality product is a dominant strategy for Pinnacle. 
D)  Our knowledge of game theory suggests that the most likely outcome of the game, if it is played only once, is for one firm to produce a poor quality product and for the other firm to produce a good quality product.

Question 19

If Levi Strauss & Co. were to require every retailer that carried its clothing to charge customers $42 for each pair of jeans, Levi Strauss & Co. would be practicing

Accepted Answer

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

Question 20

Two CEOs from different firms in the same market collude to fix the price in the market. This action violates the

Accepted Answer

A)  Clayton Act of 1914. 
B)  Sherman Antitrust Act of 1890. 
C)  Crandall-Putnam ruling of 1983. 
D)  Jackson-Microsoft ruling of 2000. 
A)  Clayton Act of 1914. 
B)  Sherman Antitrust Act of 1890. 
C)  Crandall-Putnam ruling of 1983. 
D)  Jackson-Microsoft ruling of 2000.

Exam 17: Oligopoly

Which potentially anti-competitive business practice is often justified on the grounds that it corrects for the free rider problem?

A dominant strategy is one that

When individuals are damaged by an illegal arrangement to restrain trade, which law allows them to pursue civil action and recover up to three times the damages sustained?

Suppose a market is initially perfectly competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, we would expect

The Sherman Act made cooperative agreements

As the number of firms in an oligopoly industry decreases, the market moves closer to a _________ market.

When the prisoners' dilemma game is generalized to describe situations other than those that literally involve two prisoners, we see that cooperation between the players of the game

In game theory, a Nash equilibrium is

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. Which of the following statements is correct?

If Levi Strauss & Co. were to require every retailer that carried its clothing to charge customers $42 for each pair of jeans, Levi Strauss & Co. would be practicing

Two CEOs from different firms in the same market collude to fix the price in the market. This action violates the

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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