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Exam 17: Oligopoly

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Question 141

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Briefly describe the business practice of tying.

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Tying is the practice of bundl...

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Question 142

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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. What will these two companies do if they behave as individual profit maximizers?

A) Neither company will advertise.
B) Both companies will advertise.
C) One company will advertise, the other will not.
D) There is no way of knowing without knowing how many customers are stolen through advertising.

E) B) and D)
F) B) and C)

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Question 143

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As the number of firms in an oligopoly increases, the price approaches

Table 17-17 This table shows a game played between two firms, Firm A and Firm B. In this game each firm must decide how much output (Q) to produce: 2 units or 3 units. The profit for each firm is given in the table as (Profit for Firm A, Profit for Firm B) . -Refer to Table 17-17. Which of the following outcomes represent the Nash equilibrium in this game?

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 (are) the Nash equilibrium (equilibria) in this Chicken game?

A tit-for-tat strategy starts out

In a prisoner's dilemma situation where firms are setting prices, the dominant strategy is always to charge the price that leads to maximum profits for all firms. ​

​Cartels are difficult to maintain because

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

Which of the following statements is correct?

A group of firms that act in unison to maximize collective profits is called a

In the game in which two oil companies own adjacent oil fields, the companies will not use the oil efficiently because

A dominant strategy is a strategy that is best for a player in a game regardless of the strategies chosen by the other players.

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 both countries follow a dominant strategy, the value of trade flow benefits for Farland will be

How does free trade relate to the theory of oligopoly?

In a prisoner's dilemma, only one firm has a dominant strategy. ​

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. What price will the cartel charge in this market if the marginal cost of production is $4?

Which of the following is correct? When oligopolies collude

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. Suppose that Abby and Brad work together to operate as a profit-maximizing monopolist. What price will they charge for water?

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 B will concede that taking its drug causes liver failure