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Exam 17: Oligopoly

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Question 101

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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 Nash equilibrium for this game is

A) 10 units of output for Firm A and 10 units of output for Firm B.
B) 10 units of output for Firm A and 12 units of output for Firm B.
C) 12 units of output for Firm A and 10 units of output for Firm B.
D) 12 units of output for Firm A and 12 units of output for Firm B.

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

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Question 102

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Suppose that Bieber and Rihanna are duopolists in the music industry. In May, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By June, each singer is considering breaking the agreement. What would you expect to happen next?

A) Bieber and Rihanna will determine that it is in each singer's self interest to maintain the agreement.
B) Bieber and Rihanna will each break the agreement. Both singers' profits will decrease.
C) Bieber and Rihanna will each break the agreement. Both singers' profits will increase.
D) Bieber and Rihanna will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium price also will increase.

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

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Question 103

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For cartels, as the number of firms (members of the cartel) increases,

In imperfectly competitive markets, increasing production will decrease the price of all units sold. This concept is known as the

All cartels are inherently reliant on

The practice of requiring someone to buy two or more items together, rather than separately, is called

The equilibrium quantity in markets characterized by oligopoly is

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. If both firms follow a dominant strategy, Firm B's profits (losses) will be

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. If BQ and Exxoff are able to successfully cooperate to maximize their joint profits, BQ will

Table 17-6 Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week Kunal and Naj 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 Kunal and Naj 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 17-6. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist. What will quantity of water will each of them produce once the Nash equilibrium is reached?

Which government entity is charged with investigating and enforcing antitrust laws?

The Sherman Act made cooperative agreements

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

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. What is the socially efficient quantity of the product?

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. What is John's dominant strategy?

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. ABC and XYZ agree to jointly maximize profits. If ABC and XYZ each break the agreement and each produce 5 more than agreed upon, how much less profit does each make, compared to the profit at to the cartel output?

Which of the controversial business practices, resale price maintenance, predatory pricing, or tying, was a part of a long-running antitrust lawsuit against Microsoft and why?

Individual profit earned by Dave, the oligopolist, depends on which of the following? (i) The quantity of output that Dave produces (ii) The quantities of output that the other firms in the market produce (iii) The extent of collusion between Dave and the other firms in the market

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

Suppose that Barack and Michelle are duopolists. Barack is producing 300 units of output, and Michelle is producing 400 units of output. When Michelle produces 400 units, Barack maximizes profit by producing 300 units. When Barack produces 300 units of output, Michelle maximizes profit by producing 400 units. Barack and Michelle are