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Exam 17: Oligopoly

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Question 71

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Table 17-19 Consider a small town that has two grocery stores from which residents can choose to buy a loaf of bread. The store owners each must make a decision to set a high bread price or a low bread 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. What is grocery store 1's dominant strategy?

A) Grocery store 1 does not have a dominant strategy.
B) Grocery store 1 should always set a low price.
C) Grocery store 1 should always set a high price.
D) Grocery store 1 should set a low price when grocery store 2 sets a low price, and grocery store 1 should set a high price when grocery store 2 sets a high price.

E) All of the above
F) None of the above

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Question 72

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A tit-for-tat strategy starts out

A) conciliatory and then encourages an optimal social outcome among the other players.
B) unfriendly and then encourages friendly strategies among players.
C) friendly, then penalizes unfriendly players, and forgives them if warranted.
D) aggressive, then compensates losing players, and eventually forgives unfriendly players.

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

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Question 73

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Table 17-37​ Two restaurants with a focus on Mexican dining operate in Texama. Both Mitch's Mexican and Tim's Tacos need to decide whether to add Zesty Queso or Fresh Guacamole to their menus. The circumstances are that each firm wants to add only one of the two choices on their menu. Below you will find the profits for the stores, shown as: (1) the payoff to Mitch; (2) the payoff to Tim. ​ -Refer to Table 17-37. Based upon the information from the table, if the two firms could coordinate the decisions about product introductions, how much profit would each firm make?​

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. Pursuing its own best interests, Firm A will concede that taking their prescription drug causes liver failure

Table 17-9 The table shows the demand schedule for a particular product. -Refer to Table 17-9. Suppose the market for this product is served by two firms that have formed a cartel. What price will the cartel charge in this market if the marginal cost of production is $0?

​Table 17-36 The information in the table shows the total demand for water service in Takoma. Assume that there are two companies operating in Takoma. Each company that provides these services incurs an annual fixed cost of $400 and that the marginal cost of providing the service to each customer is exactly $2.00. Figures listed are for an annual service contract. ​ -Refer to Table 17-36. Assume there are two profit-maximizing water service providers in this market who had formed a successful cartel. Now assume that the cartel breaks down, so that they are not able to collude on the price and quantity of service contracts to sell. How many service contracts will be sold in total when this market reaches a Nash equilibrium?

Which of the following examples illustrates an oligopoly market?

​A Nash Equilibrium always results in the highest total profit for the firms in an oligopoly market.

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

During the 1990s, the members of OPEC operated independently from one another, causing the world market for crude oil to become close to

We know that people tend to overuse common resources. This problem can be viewed as an example of

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: Howard Low budget High budget -Refer to Table 17-33. Does Robert have a dominant strategy? If so, describe it.

As the number of firms in an oligopoly becomes very large, the price effect disappears.

Once a cartel is formed, the market is in effect served by

OPEC (Organization of Petroleum Exporting Countries) is an example of a cartel in the output market for petroleum. Major League Baseball could be considered a cartel in the __________ market for baseball players.

Suppose that Thierry and Abdul are duopolists. Thierry is producing 700 units of output, and Abdul is producing 500 units of output. When Abdul produces 500 units, Thierry maximizes profit by producing 700 units. When Thierry produces 700 units of output, Abdul maximizes profit by producing 500 units. Thierry and Abdul are

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 17-27 Each year the United States considers renewal of Most Favored Nation (MFN) trading status with Farland (a mythical nation) . Historically, legislators have made threats of not renewing MFN status because of human rights abuses in Farland. The non-renewal of MFN trading status is likely to involve some retaliatory measures by Farland. The payoff table below shows the potential economic gains associated with a game in which Farland may impose trade sanctions against U.S. firms and the United States may not renew MFN status with Farland. The table contains the dollar value of all trade-flow benefits to the United States and Farland. -Refer to Table 17-27. If both countries follow a dominant strategy, the value of trade flow benefits for the United States will be

If two players engaged in a prisoner's dilemma game are likely to repeat the game, they are more likely to cooperate than if they play the game only once.

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?