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Exam 17: Oligopoly

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Question 181

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Table 17-37​ Two restaurants with a focus on Mexican dining operate in Texama. Both Mitch's Mexican and Tim's Tacos need to decide whether to add Zesty Queso or Fresh Guacamole to their menus. The circumstances are that each firm wants to add only one of the two choices on their menu. Below you will find the profits for the stores, shown as: (1) the payoff to Mitch; (2) the payoff to Tim. ​ -​Refer to Table 17-37. Based upon the information from the table, what is the Nash Equilibrium?

A) ​Zesty Queso, Zesty Queso
B) ​Zesty Queso, Fresh Guacamole
C) ​Fresh Guacamole, Zesty Queso
D) ​Fresh Guacamole, Fresh Guacamole

E) A) and C)
F) All of the above

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Question 182

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Tying involves a firm

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.

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

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Question 183

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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 and agree to share the profit equally, then how much profit will each of them earn?

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 Barclay have a dominant strategy? If so, describe it.

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

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

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. Is there a Nash equilibrium? If so, describe it.

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.

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 the market for gasoline in Driveaway is a monopoly, then the profit-maximizing monopolist will charge a price of

Table 17-18 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: 10 units or 12 units. The profit for each firm is given in the table as (Profit for Firm A, Profit for Firm B) . -Refer to Table 17-18. If these two firms agree to cooperate to maximize their joint profit, the outcome of the game will be

Two suspected drug dealers are stopped by the highway patrol for speeding. The officer searches the car and finds a small bag of marijuana and arrests the two. During the interrogation, each is separately offered the following: "If you confess to dealing drugs and testify against your partner, you will be given immunity and released while your partner will get 10 years in prison. If you both confess, you will each get 5 years." If neither confesses, there is no evidence of drug dealing, and the most they could get is one year each for possession of marijuana. If each suspected drug dealer follows a dominant strategy, what should he/she do?

The Sherman Antitrust Act states that if a person can prove that he was damaged by an illegal arrangement to restrain trade, he could sue and recover three times the damages he sustained.

Which of the following would be most likely to contribute to the breakdown of a cartel in a natural resource (e.g., bauxite) market?

All examples of the prisoner's dilemma game are characterized by one and only one Nash equilibrium.

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

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

Economists use game theory to analyze __________.

Scenario 17-6 Assume that a local telecommunications company sells high speed internet access and cable television. The company's only two customers are Taylor and Tim. Taylor is willing to pay $50 per month for high speed internet access and $50 per month for cable television. Tim is willing to pay only $20 per month for high speed internet access, but is willing to pay $70 per month for cable television. Assume that the telecommunications company can provide each of these products at zero marginal cost. -Refer to Scenario 17-6. How much additional profit can the telecommunications company earn by switching to the use of a tying strategy to price high speed internet access and cable television rather than pricing these goods separately?

There are two types of markets in which firms face some competition yet are still able to have some control over the prices of their products. Those two types of market are

Table 17-6 Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week Kunal and Naj work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. Assume Kunal and Naj 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 are shown in the table below. -Refer to Table 17-6. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist. What will the new price of water be once the Nash equilibrium is reached?