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Exam 17: Oligopoly

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Question 31

True/False

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In the case of oligopolistic markets,self-interest makes cooperation difficult and it often leads to an undesirable outcome for the firms that are involved.

A) True
B) False

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Question 32

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Barb and Sue are competitors in a local market.Each is trying to decide if it is better to advertise on TV,on radio,or not at all.If they both advertise on TV,each will earn a profit of $5,000.If they both advertise on radio,each will earn a profit of $7,000.If neither advertises at all,each will earn a profit of $10,000.If one advertises on TV and other advertises on radio,then the one advertising on TV will earn $8,000 and the other will earn $3,000.If one advertises on TV and the other does not advertise,then the one advertising on TV will earn $15,000 and the other will earn $2,000.If one advertises on radio and the other does not advertise,then the one advertising on radio will earn $12,000 and the other will earn $4,000.If both follow their dominant strategy,then Barb will

A) advertise on TV and earn $5,000.
B) advertise on radio and earn $7,000.
C) not advertise at all and earn $10,000.
D) None of the above is correct.Barb and Sue do not have dominant strategies.

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

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Question 33

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In the U.S.government's 1998 suit against the Microsoft Corporation,a central issue was whether Microsoft should be allowed to integrate its Internet browser into its Windows operating system.Microsoft responded that

If two firms comprise the entire soft drink market,the market would be a(n)

Figure 17-2.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 17-2.The possible outcome in which both Hector and Bart clean is analogous to which of the following outcomes of the duopoly game?

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

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

Table 17-19 Consider a small town that has two grocery stores from which residents can choose to buy a gallon of milk.The store owners each must make a decision to set a high milk price or a low milk price.The payoff table,showing profit per week,is provided below.The profit in each cell is shown as (Store 1,Store 2) . -Refer to Table 17-19.If grocery store 1 sets a high price,what price should grocery store 2 set? And what will grocery store 2's payoff equal?

Table 17-25 There are just two producers of a certain product.Each is considering offering promotional discounts. -Refer to Table 17-25.At the Nash equilibrium,how much profit will Firm A earn?

Table 17-2.The table shows the town of Pittsville's demand schedule for gasoline.For simplicity,assume the town's gasoline seller(s) incur no costs in selling gasoline. -Refer to Table 17-2.If there are exactly three sellers of gasoline in Pittsville and if they collude,then which of the following outcomes is most likely?

A dominant strategy is a strategy that is best for a player in a game regardless of the strategies chosen by the other players.

Figure 17-3.Katie and Taylor are roommates.On a particular day,their lawn needs to be mowed.Each person has to decide whether to take part in mowing the lawn.At the end of the day,either the lawn will be mowed (if one or both roommates take part in mowing) ,or it will remain unmowed (if neither roommate mows) .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.If this game is played only once,then which of the following outcomes is the most likely one?

The prisoners' dilemma game

Table 17-1 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 17-1.Suppose that Abby and Brad work together in order to operate as a profit-maximizing monopolist.How many gallons of water will be produced and sold?

Table 17-13 Two home-improvement stores (Lopes and HomeMax) in a growing urban area are interested in expanding their market share.Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base.The following game depicts the strategic outcomes that result from the game.Increases in annual profits of the two home-improvement stores are shown in the table below. -Refer to Table 17-13.Increasing the size of its store and parking lot is a dominant strategy for

Resale price maintenance prevents retailers from competing on price.

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 17-3.The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market.Assume that each digital cable TV operator pays a fixed cost of $200,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero. -Refer to Table 17-3.Assume there are two profit-maximizing digital cable TV companies operating in this market.Further assume that they are able to collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions.How much profit will each company earn?

Table 17-9 Only two firms,Acme and Pinnacle,sell a particular product.The table below shows the demand curve for their product.Each firm has the same constant marginal cost of $10 and zero fixed cost. -Refer to Table 17-9.Acme and Pinnacle agree to maximize joint profits.However,while Acme produces the agreed upon amount,Pinnacle breaks the agreement and produces 100 more than agreed,how much profit does Pinnacle make?

In choosing among alternative courses of action,Raj must consider how others might respond to the action he takes.In the language of game theory,we say that Raj must think