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Exam 16: Oligopoly

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Question 31

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

A) the theory of monopoly to model their behavior.
B) the theory of aggressive competition to model their behavior.
C) game theory to model their behavior.
D) cartel theory to model their behavior.

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

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Question 32

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The practice of tying is used to

A) enhance the enforcement of antitrust laws.
B) encourage the enforcement of collusive agreements.
C) control the retail price of a collection of related products.
D) package products to sell at a combined price closer to a buyer's total willingness to pay.

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

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Question 33

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Table 16-4 Imagine a small town in which only two residents, Tony and Jill, own wells that produce safe drinking water. Each week Tony and Jill 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. To keep things simple, suppose that Tony and Jill 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. -Refer to Table 16-4.Suppose the town enacts new antitrust laws that prohibit Tony and Jill from operating as a monopolist.What will the new price of water end up being once the Nash equilibrium is reached?

The prisoners' dilemma provides insights into the

Laurel and Janet are competitors in a local market and each is trying to decide if it is worthwhile to advertise.If both of them advertise,each will earn a profit of $5,000.If neither of them advertise,each will earn a profit of $10,000.If one advertises and the other doesn't,then the one who advertises will earn a profit of $12,000 and the other will earn $2,000.In this version of the prisoner's dilemma,if the game is played only once,Laurel should

Consider a market served by a monopolist,Firm A.A new firm,Firm B,enters the market and,as a result,Firm A lowers its price to try to drive Firm B out of the market.This practice is known as

Martha and Oleg are competitors in a local market and each is trying to decide if it is worthwhile to advertise.If both of them advertise,each will earn a profit of $5,000.If neither of them advertise,each will earn a profit of $10,000.If one advertises and the other doesn't,then the one who advertises will earn a profit of $15,000 and the other will earn $7,000.To make the most money,Martha

When an industry has many firms,the industry is

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.

When individuals are damaged by an illegal arrangement to restrain trade,which law allows them to pursue civil action and recover up to three times the damages sustained?

Table 16-14 -Refer to Table 16-14.This table shows a game played between two firms,A and B.In this game each firm must decide how much output to produce.The profit for each firm is given in the table as (Profit for A,Profit for B) .In this game

The Sherman Act made cooperative agreements

When all consumers are charged the same price and that price exceeds marginal cost,the result is a deadweight loss for society.

Firms in industries that have competitors but,at the same time,do not face so much competition that they are price takers,are operating in either a(n)

Scenario 16-1 Assume that the countries of Irun and Urun are the only two producers of crude oil. Further assume that both countries have entered into an agreement to maintain certain production levels in order to maximize profits. In the world market for oil, the demand curve is downward sloping. -Refer to Scenario 16-1.The agreed-upon production level between the two countries will invariably be

As the number of firms in an oligopoly market

Table 16-9 Each year the United States considers renewal of Most Favored Nation (MFN) trading status with China. Historically, legislators have made threats of not renewing MFN status because of human rights abuses in China. The non renewal of MFN trading status is likely to involve some retaliatory measures by China. The payoff table below shows the potential economic gains associated with a game in which China may impose trade sanctions against U.S. firms and the United States may not renew MFN status with China. The table contains the dollar value of all trade-flow benefits to the United States and China. -Refer to Table 16-9.When this game reaches a Nash equilibrium,the value of trade flow benefits will be

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

A special kind of imperfectly competitive market that has only two firms is called

The practice of tying is illegal on the grounds that