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Exam 17: Oligopoly.

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Question 201

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The theory of oligopoly provides a reason why

A) perfect competition is not a useful object of study.
B) price is less than marginal cost for many firms.
C) all countries can benefit from free trade among nations.
D) firms do not want to capture larger shares of their markets.

E) B) and D)
F) All of the above

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Question 202

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

A) Turn, 5
B) Drive Straight, 0
C) Turn, 20
D) Drive Straight, 5

E) B) and C)
F) A) and C)

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Question 203

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Table 17-9 Only two firms, Acme and Pinnacle, sell a particular product. The table below shows the demand curve for their product. Each firm has the same constant marginal cost of $10 and zero fixed cost. -Refer to Table 17-9.How much less do each of these firms earn in the Nash equilibrium than if they jointly maximize profits?

Explain the practice of tying and discuss why it is controversial.

The prisoners' dilemma is an important game to study because

Table 17-8. For a certain small town, the table shows the demand schedule for water. Assume the marginal cost of supplying water is constant at $4 per bottle. -Refer to Table 17-8.If there were many suppliers of bottled water,what would be the price and quantity?

In a prisoners' dilemma game,

As a group,oligopolists would always earn the highest profit if they would

Policymakers should be aggressive in using their powers to place limits on firm behavior,because business practices that appear to reduce competition never have any legitimate purposes.

Oligopolies produce more when they collude then when they do not.

Table 17-10 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 17-10.Suppose we observe that the price of a gallon of gasoline in Driveaway is $5; we observe as well that a particular seller's profit is $150.Given this observation,which of the following scenarios is most likely?

The game that oligopolists play in trying to reach the oligopoly outcome is similar to the game that the two prisoners play in the prisoners' dilemma.

In the language of game theory,a situation in which each person must consider how others might respond to his or her own actions is called a

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?

Assume oligopoly firms are profit maximizers,they do not form a cartel,and they take other firms' production levels as given.Then in equilibrium the output effect

Suppose three firms form a cartel and agree to charge a specific price for their output.Each individual firm has an incentive to maintain the agreement because the firm's individual profits will be the greatest under the cartel arrangement.

Who wrote,"People of the same trade seldom meet together,but the conversation ends in a conspiracy against the public,or in some diversion to raise prices."?

The notion of a tit-for-tat strategy applies to a prisoners' dilemma game that is played repeatedly,but it does not apply if the game is played only once.

Scenario 17-3. Consider two countries, Muria and Zenya, 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 (4 = best outcome, 1 = worst outcome) . -Refer to Scenario 17-3.Which of these statements is correct? (i) Muria is better off building new weapons if Zenya builds new weapons. (ii) Muria is better off building new weapons if Zenya disarms existing weapons. (iii) Building new weapons is Muria's dominant strategy.

If duopoly firms that are not colluding were able to successfully collude,then