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Exam 16: Oligopoly

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Question 101

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When an oligopoly grows very large,the

A) output effect disappears.
B) price effect disappears.
C) output effect offsets the price effect.
D) price of the product greatly exceeds marginal cost.

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Question 102

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Table 16-3 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 $100,000 (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 16-3.Assume that there are two profit-maximizing digital cable TV companies operating in this market.Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell.What price will premium digital channel cable TV subscriptions be sold at when this market reaches a Nash equilibrium?

A) $40
B) $60
C) $80
D) $100

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Question 103

Multiple Choice

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The more firms an oligopoly has,

As the number of firms in an oligopoly increases,the magnitude of the price effect rises.

Suppose that Makemoney Movies produces two new films - The Hulk and The Piano.Makemoney offers theaters the two films together at a single price but will not supply the movies separately.What do economists call this business practice?

Scenario 16-5 Assume that a local bank sells two services, checking accounts and ATM card services. Mr. Donethat is willing to pay $8 a month for the bank to service his checking account and $2 a month for unlimited use of his ATM card. Ms. Beenthere is willing to pay only $5 for a checking account, but is willing to pay $9 for unlimited use of her ATM card. Assume that the bank can provide each of these services at zero marginal cost. -Refer to Scenario 16-5.If the bank is able to use tying to price checking account and ATM services,what is the profit-maximizing price to charge for the "tied" good?

Table 16-9 Each year the United States considers renewal of Most Favored Nation (MFN) trading status with China. Historically, legislators have made threats of not renewing MFN status because of human rights abuses in China. The non renewal of MFN trading status is likely to involve some retaliatory measures by China. The payoff table below shows the potential economic gains associated with a game in which China may impose trade sanctions against U.S. firms and the United States may not renew MFN status with China. The table contains the dollar value of all trade-flow benefits to the United States and China. -Refer to Table 16-9.This particular game

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.The socially efficient level of water supplied to the market would be

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.What is grocery store 2's dominant strategy?

If an oligopolist is part of a cartel that is collectively producing the monopoly level of output,then that oligopolist has the incentive to lower production with the aim of

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

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.When this game reaches a Nash equilibrium,profits for Firm A and Firm B will be

A market structure in which there are many firms selling products that are similar but not identical is known as

In game theory,a Nash equilibrium is

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 Drive Straight,what will Paul choose to do and what will Paul's payoff equal?

The prisoners' dilemma is an important game to study because

In a two-person repeated game,a tit-for-tat strategy starts with

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.If Irun fails to live up to the production agreement and overproduces,which of the following statements will be true of Urun's condition?

The general term for market structures that fall somewhere in-between monopoly and perfect competition is

Crude oil is primarily supplied to the world market by a few Middle Eastern countries.Such a market is an example of a(n) (i) imperfectly competitive market. (ii) monopoly market. (iii) oligopoly market.