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Exam 17: Oligopoly

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Question 121

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In which of the following games is it clearly the case that the cooperative outcome of the game is good for the two players and bad for society?

A) Two oil companies own adjacent oil fields over a common pool of oil, and each company decides whether to drill one well or two wells.
B) Two airlines dominate air travel between City A and City B, and each airline decides whether to charge a "high" airfare or a "low" airfare on flights between those two cities.
C) Two superpowers decide whether to build new weapons or to disarm.
D) In all of the above cases, the cooperative outcome of the game is good for the two players and bad for society

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

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Question 122

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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. Suppose there are exactly two sellers of gasoline in Driveaway: Amogo and Spilmerica. If Amogo sells 150 gallons and Spilmerica sells 100 gallons, then

A) Amogo's profit is $150 and Spilmerica's profit is $100.
B) Amogo's profit is $100 and Spilmerica's profit is $66.67.
C) Amogo's profit is $75 and Spilmerica's profit is $50.
D) there is an excess supply of gasoline in Driveaway.

E) A) and B)
F) None of the above

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Question 123

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In the prisoners' dilemma game with Bonnie and Clyde as the players, the likely outcome is one

Define collusion.

George and Jerry are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of $3,000. If they both advertise on radio, each will earn a profit of $5,000. If neither advertises at all, each will earn a profit of $10,000. If one advertises on TV and the other advertises on radio, then the one advertising on TV will earn $4,000 and the other will earn $2,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $8,000 and the other will earn $5,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $9,000 and the other will earn $6,000. If both follow their dominant strategy, then George will

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?

When oligopolistic firms interacting with one another each choose their best strategy given the strategies chosen by other firms in the market, we have

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. If John chooses Drive Straight, what will Paul choose to do and what will Paul's payoff equal?

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. When this game reaches a Nash equilibrium, the value of trade flow benefits will be

OPEC (Organization of Petroleum Exporting Countries) is an example of a cartel in the output market for petroleum. Major League Baseball could be considered a cartel in the __________ market for baseball players.

Antitrust laws tend to target restraint of trade as characterized by __________.

The practice of tying is used to

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

If one firm left a duopoly market where the firms did not cooperate then

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. If the market for water were perfectly competitive instead of monopolistic, how many gallons of water would be produced and sold?

An agreement among firms regarding price and/or production levels is called

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 B earn?

As the number of firms in the oligopoly grows very large, the

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. -Refer to Table 17-13. If both stores follow a dominant strategy, HomeMax's annual profit will grow by

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. If John chooses Turn, what will Paul choose to do and what will Paul's payoff equal?