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Exam 17: Oligopoly

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Question 71

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

A) the number of oligopolists is large.
B) they learn that a Nash equilibrium is in their best long-term interests.
C) a sufficient number of firms can be persuaded to lower their prices.
D) the game they play is repeated a sufficient number of times.

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

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Question 72

Multiple Choice

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The Sherman Antitrust Act

A) overturned centuries-old views of English and American judges on agreements among competitors.
B) had the effect of discouraging private lawsuits against conspiring oligopolists.
C) strengthened the Clayton Act.
D) elevated agreements among conspiring oligopolists from an unenforceable contract to a criminal conspiracy.

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

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Question 73

Multiple Choice

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Which of the following is correct? When oligopolies collude

The prisoners' dilemma is an important game to study because

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 the market for water were perfectly competitive instead of monopolistic, how many gallons of water would be produced and sold?

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 QRS will

The primary purpose of antitrust legislation is to

Table 17-28 Suppose that two firms determine that each could lower its costs and increase its profits if both reduced their advertising budgets. But in order for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's product, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits: Firm A Breaks agreement Maintains agreement and advertises and does not advertise -Refer to Table 17-28. Which of the following statements does not correctly characterize the outcome of this game?

Individual profit earned by Dave, the oligopolist, depends on which of the following?

A central issue in the Microsoft antitrust lawsuit involved Microsoft's integration of its Internet browser into its Windows operating system, to be sold as one unit. This practice is known as

According to the Clayton Act,

An agreement among firms regarding price and/or production levels is called

In an oligopoly, each firm knows that its profits

The Sherman Antitrust Act states that if a person can prove that he was damaged by an illegal arrangement to restrain trade, he could sue and recover three times the damages he sustained.

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. The dominant strategy For Firm A is to produce

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. If the restaurant is able to use tying to price salads and steaks, what is the profit- maximizing price to charge for the "tied" good?

Table 17-7 The information in the table below shows the total demand for internet radio subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year) and that the marginal cost of providing an additional subscription is always $16. -Refer to Table 17-7. The socially efficient level of output supplied to this market is

Table 17-3 Imagine a small town in a remote area where only two residents, Maria and Miguel, own dairies that produce milk that is safe to drink. Each week Maria and Miguel work together to decide how many gallons of milk to produce. They bring milk to town and sell it at whatever price the market will bear. To keep things simple, suppose that Maria and Miguel can produce as much milk as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for milk is shown in the table below: -Refer to Table 17-3. If this market for milk were perfectly competitive instead of monopolistic, what would be the price for milk?

Figure 17-4. Aaron and Ed are roommates. After a big snowstorm, their driveway needs to be shoveled. Each person has to decide whether to take part in shoveling the driveway. At the end of the day, either the driveway will be shoveled (if one or both roommates take part in shoveling) , or it will remain unshoveled (if neither roommate shovels) . With happiness measured on a scale of 1 (very unhappy) to 10 (very happy) , the possible outcomes are as follows: -Refer to Figure 17-4. In pursuing his own self-interest, Aaron will

Table 17-23 Two bottled beverage manufacturers (Firm A and Firm B) determine that they could lower their costs, and thus increase their profits, if they reduced their advertising budgets. But for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's product, but each firm also believes that if neither firm advertises, the costs savings will outweigh the lost sales. Listed in the table below are the individual profits for each firm. -Refer to Table 17-23. Suppose that the two firms, A and B, make an agreement to withhold any advertising for one month to lower each firm's costs and raise each firm's profits. If the firms reach the Nash equilibrium,