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Exam 17: Oligopoly

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Question 21

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A distinguishing feature of an oligopolistic industry is the tension between

A) profit maximization and cost minimization.
B) cooperation and self interest.
C) producing a small amount of output and charging a price above marginal cost.
D) short-run decisions and long-run decisions.

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

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Question 22

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For a firm,strategic interactions with other firms in the market become more important as the number of firms in the market becomes larger.

A) True
B) False

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Question 23

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Table 17-11 Two home-improvement stores (Big Box Deluxe and Homes R Us) 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 17-11.When this game reaches a Nash equilibrium,annual profit will grow by

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

The equilibrium quantity in markets characterized by oligopoly is

In a prisoners' dilemma game,

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.Suppose the two countries agreed to disarm existing weapons.In reality these two countries may have a hard time keeping this agreement due to which of the following reasons?

Tying involves a firm

Table 17-5.Imagine a small town in which only two residents,Bill and Ben,own wells that produce safe drinking water.Each week Bill and Ben 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 Bill and Ben 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 17-5.Suppose the town enacts new antitrust laws that prohibit Bill and Ben from operating as a monopolist.What will the new price of water be once the Nash equilibrium is reached?

Table 17-14.This table shows a game played between two players,A and B.The payoffs are given in the table as (Payoff to A,Payoff to B) . -Refer to Table 17-14.Which of the following statements is true regarding this game?

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

In a competitive market,strategic interactions among the firms are not important.

In a duopoly situation,the logic of self-interest results in a total output level that

In the prisoners' dilemma game,self-interest leads

As a group,oligopolists earn the highest profit when they

Oligopolists may well be able to reach their preferred,cooperative outcome if

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.In 1971,Congress passed a law that banned cigarette advertising on television.If cigarette companies are profit maximizers,it is likely that

Suppose two companies own adjacent oil fields.Under the two fields is a common pool of oil worth $30 million.For each well that is drilled,the company that drills the well incurs a cost of $3 million.Each company can drill up to two wells.What is the likely outcome of this game if each company pursues its own self-interest?

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.

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 are two suppliers of water,Mort and Callie,then what will be their combined level of output when a Nash equilibrium is reached?