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Exam 17: Oligopoly

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Question 231

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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. As long as Kunal and Naj operate as a profit-maximizing monopoly, what will their combined weekly revenue amount to?

A) $450
B) $675
C) $875
D) $900

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

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Question 232

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Tying can be thought of as a form of price discrimination.

A) True
B) False

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Question 233

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As the number of firms in an oligopoly industry decreases, the market moves closer to a __________ market.

Scenario 17-3. ​ Consider two countries, Kinglandia and Rovinastan, that are engaged in an arms race. Each country must decide whether to build new weapons or to disarm existing weapons. Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs. But each country also prefers to live in a world safe from the other country's weapons. The following table shows the possible outcomes for each decision combination. The numbers in each cell represent the country's ranking of the outcome (10 = best outcome, 1 = worst outcome) . -Refer to Scenario 17-3. Suppose the two countries agreed to disarm existing weapons. In reality these two countries may have a hard time keeping this agreement due to which of the following reasons? (i) Even though Kinglandia has no incentive to cheat on the agreement, Rovinastan has an incentive to cheat on the agreement. (ii) Much like the prisoners' dilemma, both countries are better off reneging on the agreement and building new weapons. (iii) Both countries want to increase their world power by building new weapons.

Assume that Bart's Batteries has entered into a resale price maintenance agreement with Radio Shanty but not with Prime Purchase. In this case,

The theory of oligopoly provides another reason that free trade can benefit all countries because

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. Assume that there are two profit-maximizing internet radio providers operating in this market. Further assume that they are not able to collude on the price and quantity of subscriptions to sell. How much profit will each firm earn when this market reaches a Nash equilibrium?

Which of these situations produces the largest profits for oligopolists?

The practice of selling a product to retailers and requiring the retailers to charge a specific price for the product is called

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?

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

Table 17-33 Suppose that Robert and Howard own the only two movie studios in California. Each producer must choose between a low budget and a high budget strategy for his next film. The economic profit from each strategy is indicated in the table below: -Refer to Table 17-33. Does Howard have a dominant strategy? If so, describe it.

Figure 17-3. Hector and Bart are roommates. On a particular day, their apartment needs to be cleaned. Each person has to decide whether to take part in cleaning. At the end of the day, either the apartment will be completely clean (if one or both roommates take part in cleaning) , or it will remain dirty (if neither roommate cleans) . With happiness measured on a scale of 1 (very unhappy) to 10 (very happy) , the possible outcomes are as follows: -Refer to Figure 17-3. In pursuing his own self-interest, Hector will

The equilibrium price in a market characterized by oligopoly is

Oligopolies produce more when they collude then when they do not.

As the number of firms in an oligopoly market

If the output effect is larger than the price effect, an individual firm will __________ production.

The primary purpose of antitrust legislation is to

A distinguishing feature of an oligopolistic industry is the tension between

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. Suppose the town enacts new antitrust laws that prohibit Rochelle and Alec from operating as a monopoly. What will be the price of water once Rochelle and Alec reach a Nash equilibrium?