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Exam 17: Oligopoly

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Question 21

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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 town's weekly demand schedule and total revenue schedule for water is shown in the table below: -Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, what price will they charge?

A) $25
B) $30
C) $35
D) $40

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

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Question 22

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Explain the practice of resale price maintenance and discuss why it is controversial.

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Resale price maintenance is a requiremen...

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Question 23

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Scenario 17-6 Assume that a local telecommunications company sells high speed internet access and cable television. The company's only two customers are Taylor and Tim. Taylor is willing to pay $50 per month for high speed internet access and $50 per month for cable television. Tim is willing to pay only $20 per month for high speed internet access, but is willing to pay $70 per month for cable television. Assume that the telecommunications company can provide each of these products at zero marginal cost. -Refer to Scenario 17-6. How much additional profit can the telecommunications company earn by switching to the use of a tying strategy to price high speed internet access and cable television rather than pricing these goods separately?

Other things the same, in which case is the quantity produced the highest?

In a typical cartel agreement, the cartel maximizes profit when it

Scenario 17-5 Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost. -Refer to Scenario 17-5. How much additional profit can the restaurant earn by switching to the use of a tying strategy to price salads and steaks rather than pricing these goods separately?

Table 17-11 Only two firms, ABC and XYZ, sell a particular product. The table below shows the demand curve for their product. Each firm has the same constant marginal cost of $8 and zero fixed cost. -Refer to Table 17-11. If this market were perfectly competitive instead of oligopolistic, what would the price be?

Table 17-18 This table shows a game played between two firms, Firm A and Firm B. In this game each firm must decide how much output (Q) to produce: 10 units or 12 units. The profit for each firm is given in the table as (Profit for Firm A, Profit for Firm B) . -Refer to Table 17-18. If these two firms play this game repeatedly, the likely outcome will be

Table 17-2 Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: -Refer to Table 17-2. Suppose that Abby and Brad work together to operate as a profit-maximizing monopolist. How many gallons of water will be produced and sold?

In studying oligopolistic markets, economists assume that

In a prisoners' dilemma game,

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. What is the Nash equilibrium?

Game theory is just as necessary for understanding competitive or monopoly markets as it is for understanding oligopolistic markets.

The Clayton Act of 1914 allowed a person who successfully sued a company for damages caused by an illegal arrangement to restrain trade to recover __________ damages.

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. If these two companies collude and agree upon the best joint strategy,

In an oligopoly, each firm knows that its profits

Figure 17-5. Two companies, ABC and QRS, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-5. If the two companies make their pricing decisions independently, then it is likely that ABC will

Game theory is important for the understanding of

Which of the following prohibits executives of competing firms from even talking about fixing prices?

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 prisoners' dilemma, if the game is played only once, Laurel should