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Why are the actions of firms interdependent in an oligopoly market but not in a monopolistically competitive market?

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Because there are only a few firms in an...

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If four firms comprise the entire golf club industry, the market would be


A) competitive.
B) characterized by interdependence of firms.
C) a duopoly.
D) a monopoly.

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

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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. 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. Pursuing its own best interests, Farland will impose trade sanctions against U.S. firms A) only if the U.S. does not renew MFN status with Farland. B) only if the U.S. renews MFN status with Farland. C) regardless of whether the U.S. renews MFN status with Farland. D) None of the above is correct. In pursuing its own best interests, Farland will in no case impose trade sanctions against U.S. firms. -Refer to Table 17-27. Pursuing its own best interests, Farland will impose trade sanctions against U.S. firms


A) only if the U.S. does not renew MFN status with Farland.
B) only if the U.S. renews MFN status with Farland.
C) regardless of whether the U.S. renews MFN status with Farland.
D) None of the above is correct. In pursuing its own best interests, Farland will in no case impose trade sanctions against U.S. firms.

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

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Scenario 17-2. Imagine that two oil companies, BQ and Exxoff, own adjacent oil fields. Under the fields is a common pool of oil worth $144 million. Drilling a well to recover oil costs $5 million per well. If each company drills one well, each will get half of the oil and earn a $67 million profit ($72 million in revenue - $5 million in costs) . Assume that having X percent of the total wells means that a company will collect X percent of the total revenue. -Refer to Scenario 17-2. Exxoff's dominant strategy would lead to what sort of well-drilling behavior?


A) Exxoff will never drill a second well.
B) Exxoff will always drill a second well.
C) Exxoff will drill a second well only if BQ drills a well.
D) Exxoff will drill a second well only if BQ does not drill a well.

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

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When price is above marginal cost, selling one more unit at the current price will increase profit. This concept is known as the


A) income effect.
B) price effect.
C) output effect.
D) cartel effect.

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

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Table 17-4 The table shows the town of Mauston's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline. Table 17-4 The table shows the town of Mauston's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline. -Refer to Table 17-4. If there are exactly four sellers of gasoline in Mauston and if they collude, then which of the following outcomes is most likely? A) Each seller will sell 62.5 gallons and charge a price of $1.25. B) Each seller will sell 62.5 gallons and charge a price of $5. C) Each seller will sell 100 gallons and charge a price of $2. D) Each seller will sell 250 gallons and charge a price of $0. -Refer to Table 17-4. If there are exactly four sellers of gasoline in Mauston and if they collude, then which of the following outcomes is most likely?


A) Each seller will sell 62.5 gallons and charge a price of $1.25.
B) Each seller will sell 62.5 gallons and charge a price of $5.
C) Each seller will sell 100 gallons and charge a price of $2.
D) Each seller will sell 250 gallons and charge a price of $0.

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

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The prisoners' dilemma is an important game to study because


A) most games present zero-sum alternatives.
B) it identifies the fundamental difficulty in maintaining cooperative agreements.
C) strategic decisions faced by prisoners are identical to those faced by firms engaged in competitive agreements.
D) all interactions among firms are represented by this game.

E) None of the above
F) C) and D)

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In the prisoners' dilemma game, self-interest leads


A) each prisoner to confess.
B) to a breakdown of any agreement that the prisoners might have made before being questioned.
C) to an outcome that is not particularly good for either prisoner.
D) All of the above are correct.

E) None of the above
F) All of the above

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

A) True
B) False

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Table 17-24 Two firms are considering going out of business and selling their assets. Each considers what happens if the other goes out of business. The payoff matrix below shows the net gain or loss to each firm. Table 17-24 Two firms are considering going out of business and selling their assets. Each considers what happens if the other goes out of business. The payoff matrix below shows the net gain or loss to each firm. -Refer to Table 17-24. Which firms have a dominant strategy? A) A and B B) Neither A nor B C) A but not B D) B but not A -Refer to Table 17-24. Which firms have a dominant strategy?


A) A and B
B) Neither A nor B
C) A but not B
D) B but not A

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

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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


A) monopolistic competition and oligopoly.
B) duopoly and triopoly.
C) perfect competition and monopolistic competition.
D) duopoly and imperfect competition.

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

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How does free trade relate to the theory of oligopoly?

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Free trade increases the number of produ...

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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. 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. -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) All of the above
F) C) and D)

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To move the allocation of resources closer to the social optimum, policymakers should typically try to induce firms in an oligopoly to


A) collude with each other.
B) form various degrees of cartels.
C) compete rather than cooperate with each other.
D) cooperate rather than compete with each other.

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

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In an oligopoly, the total output produced in the market is


A) higher than the total output that would be produced if the market were a monopoly and higher than the total output that would be produced if the market were perfectly competitive.
B) higher than the total output that would be produced if the market were a monopoly but lower than the total output that would be produced if the market were perfectly competitive.
C) lower than the total output that would be produced if the market were a monopoly but higher than the total output that would be produced if the market were perfectly competitive.
D) lower than the total output that would be produced if the market were a monopoly and lower than the total output that would be produced if the market were perfectly competitive.

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

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Table 17-20 Nadia and Maddie are two college roommates who both prefer a clean common space in their dorm room, but neither enjoys cleaning. The roommates must each make a decision to either clean or not clean the dorm room's common space. The payoff table for this situation is provided below, where the higher a player's payoff number, the better off that player is. The payoffs in each cell are shown as (payoff for Nadia, payoff for Maddie) . Table 17-20 Nadia and Maddie are two college roommates who both prefer a clean common space in their dorm room, but neither enjoys cleaning. The roommates must each make a decision to either clean or not clean the dorm room's common space. The payoff table for this situation is provided below, where the higher a player's payoff number, the better off that player is. The payoffs in each cell are shown as (payoff for Nadia, payoff for Maddie) . -Refer to Table 17-20. If Maddie chooses to clean, then Nadia will A) clean and Maddie's payoff will be 30. B) not clean and Maddie's payoff will be 7. C) clean and Maddie's payoff will be 50. D) not clean and Maddie's payoff will be 10. -Refer to Table 17-20. If Maddie chooses to clean, then Nadia will


A) clean and Maddie's payoff will be 30.
B) not clean and Maddie's payoff will be 7.
C) clean and Maddie's payoff will be 50.
D) not clean and Maddie's payoff will be 10.

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

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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) . 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 -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) All of the above
F) C) and D)

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An equilibrium occurs in a game when


A) price equals marginal cost.
B) quantity supplied equals quantity demanded.
C) all independent strategies counterbalance all dominant strategies.
D) all players follow a strategy that they have no incentive to change.

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

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Table 17-1 Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each week Rochelle and Alec work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Rochelle and Alec 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 is shown in the table below: Table 17-1 Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each week Rochelle and Alec work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Rochelle and Alec 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 is shown in the table below: 21. -Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, how many gallons of water will be produced and sold? A) 0 B) 500 C) 600 D) 1,200 21. -Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, how many gallons of water will be produced and sold?


A) 0
B) 500
C) 600
D) 1,200

E) A) and D)
F) A) and C)

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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. 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 A will concede that taking their prescription drug causes liver failure e. only if Firm B concedes that taking its drug causes liver failure. f. only if Firm B does not concede that taking its drug causes liver failure. g. regardless of whether Firm B concedes that taking its drug causes liver failure. h. None of the above. In pursuing its own best interests, Firm A will in no case concede that taking its prescription drug causes liver failure. ANSWER: d POINTS: 1 DIFFICULTY: Difficulty: Moderate LEARNING OBJECTIVES: ECON.MANK.15.84 - LO: 17-2 NATIONAL STANDARDS: United States - BUSPROG: Analytic TOPICS: DISC: Game Theory KEYWORDS: BLOOM'S: Application NOTES: r -Refer to Table 17-26. If both firms follow a dominant strategy, Firm A's profits (losses) will be A) $-12m B) $-24m C) $-60m D) $-100m Refer to Table 17-26. Pursuing its own best interests, Firm A will concede that taking their prescription drug causes liver failure e. only if Firm B concedes that taking its drug causes liver failure. f. only if Firm B does not concede that taking its drug causes liver failure. g. regardless of whether Firm B concedes that taking its drug causes liver failure. h. None of the above. In pursuing its own best interests, Firm A will in no case concede that taking its prescription drug causes liver failure. ANSWER: d POINTS: 1 DIFFICULTY: Difficulty: Moderate LEARNING OBJECTIVES: ECON.MANK.15.84 - LO: 17-2 NATIONAL STANDARDS: United States - BUSPROG: Analytic TOPICS: DISC: Game Theory KEYWORDS: BLOOM'S: Application NOTES: r -Refer to Table 17-26. If both firms follow a dominant strategy, Firm A's profits (losses) will be


A) $-12m
B) $-24m
C) $-60m
D) $-100m

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

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