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Exam 16: Oligopoly

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Question 1

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Table 16-18 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 16-18.If John chooses Turn,what will Paul choose to do and what will Paul's payoff equal?

A) Turn, 10
B) Drive Straight, 20
C) Turn, 5
D) Drive Straight, 0

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

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Question 2

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The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

A) Resale price maintenance
B) Tying
C) Predatory pricing
D) Free-riding

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

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Question 3

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Table 16-2 The following table shows the total output produced by the top six firms as well as the total industry output for four industries. -Refer to Table 16-2.What is the concentration ratio for Industry C?

Table 16-16 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 16-16.If grocery store 2 sets a low price,what price should grocery store 1 set? And what will grocery store 1's payoff equal?

Antitrust laws in general are used to

Imperfectly competitive firms are characterized by

The equilibrium price in a market characterized by oligopoly is

Table 16-10 Two discount superstores (Ultimate Saver and SuperDuper Saver) 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. Growth-related profits of the two discount superstores are shown in the table below. -Refer to Table 16-10.If both stores follow a dominant strategy,SuperDuper Saver's growth-related profits will be

Nike and Reebok (athletic shoe companies)are considering whether or not to advertise during the Super Bowl.Devise a simple prisoners' dilemma game to demonstrate the strategic considerations that are relevant to this decision.Does the repeated game scenario differ from a single period game? Is it possible that a repeated game (without collusive agreements)could lead to an outcome that is better than a single-period game? Explain the circumstances in which this may be true.

Suppose a market is initially perfectly competitive with many firms selling an identical product.Over time,however,suppose the merging of firms results in the market being served by only three or four firms selling this same product.As a result,we would expect

There are some logical economical arguments in favor of resale price maintenance.

George and Jerry 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 $3,000.If they both advertise on radio,each will earn a profit of $5,000.If neither advertises at all,each will earn a profit of $10,000.If one advertises on TV and the other advertises on radio,then the one advertising on TV will earn $4,000 and the other will earn $2,000.If one advertises on TV and the other does not advertise,then the one advertising on TV will earn $8,000 and the other will earn $5,000.If one advertises on radio and the other does not advertise,then the one advertising on radio will earn $9,000 and the other will earn $6,000.If both follow their dominant strategy,then George will

Table 16-8 Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the healthcare related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses) . State prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without the help of at least one cigarette firm study. 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 16-8.Pursuing its own best interests,Firm B will concede that cigarette smoke causes lung cancer

Two suspected drug dealers are stopped by the highway patrol for speeding.The officer searches the car and finds a small bag of marijuana and arrests the two.During the interrogation,each is separately offered the following: "If you confess to dealing drugs and testify against your partner,you will be given immunity and released while your partner will get 10 years in prison.If you both confess,you will each get 5 years." If neither confesses,there is no evidence of drug dealing,and the most they could get is one year each for possession of marijuana.If each suspected drug dealer follows a dominant strategy,what should he/she do?

In a market that is characterized by imperfect competition,

Table 16-4 Imagine a small town in which only two residents, Tony and Jill, own wells that produce safe drinking water. Each week Tony and Jill 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. To keep things simple, suppose that Tony and Jill 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. -Refer to Table 16-4.Since Tony and Jill operate as a profit-maximizing monopoly in the market for water,what price will they charge for water?

Scenario 16-3 Consider two countries, Eudora and Inhabii, 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. -Refer to Scenario 16-3.Which of these statements is correct? (i) Eudora is better off building new weapons if Inhabii builds new weapons. (ii) Eudora is better off building new weapons if Inhabii disarms existing weapons. (iii) Building new weapons is Eudora's dominant strategy.

In which of the following markets is economic profit driven to zero in the long run?

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

Scenario 16-1 Assume that the countries of Irun and Urun are the only two producers of crude oil. Further assume that both countries have entered into an agreement to maintain certain production levels in order to maximize profits. In the world market for oil, the demand curve is downward sloping. -Refer to Scenario 16-1.The fact that both countries have colluded to earn higher profit shows their desire to keep production levels