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Exam 15: Oligopoly

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Question 31

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In a duopoly game, we observe the following payouts. If the two firms collude they each make an economic profit of $50,000. If one firm cheats, then that firm makes an economic profit of $60,000 and the other incurs an economics loss of $10,000. If both firms cheat, then they both make zero economic profit. What is the Nash equilibrium?

A) Both firms cheat.
B) Neither firm cheats.
C) One firm cheats but we don't know which one.
D) Only the larger firm cheats.
E) Only the smaller firm cheats.

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Question 32

Multiple Choice

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Which of the following quotes shows a contestable market in the widget industry?

A) "I am producing extra widgets, even though it costs me short-run profits, to stop Wally's Widgets from expanding into my market."
B) "I am producing more widgets than Wally and I agreed to in our talk last week."
C) "If only Wally and I could agree on a higher price, we could make more profits."
D) "I have been spending extra on research and development of my new two-way widget."
E) None of the above

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Question 33

Multiple Choice

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Limit pricing is the practice of

Which one of the following is not a feature common to all games?

In a repeated game, punishments that result in heavy damages are an incentive for players to adopt the strategies that result in a ________ equilibrium.

Canada's anti-combine law dates from the

A Nash equilibrium occurs when

Two firms are trying to decide how much to budget for research and development. Once a new discovery is made, each firm benefits regardless of which firm developed the innovation. In this R&D game of chicken, the Nash equilibrium is that

The Competition Act distinguishes between business practices that are criminal and noncriminal. Which of the following is noncriminal?

Use the table below to answer the following questions. Table 15.2.2 -Table 15.2.2 gives the payoff matrix in terms of economic profit for firms A and B when there are two strategies facing each firm: (1) charge a low price, or (2) charge a high price. Refer to the nonrepeated game in the table. In Nash equilibrium, firm A will make an economic profit of

Use the information below to answer the following questions. Fact 15.1.1 An Energy Drink with a Monster of a Stock The $5.7 billion energy-drink category, in which Monster holds the No. 2 position behind industry leader Red Bull, has slowed down as copycat brands jostle for shelf space. Over the past five years Red Bull's market share in dollar terms has gone from 91 percent to well under 50 percent and much of that loss has been Monster's gain. -Refer to Fact 15.1.1. If Monster and Red Bull successfully formed a cartel, the priced charged for energy drinks would ________ and economic profit would ________.

Consider the cartel of Trick and Gear. The game is repeated indefinitely and each firm employs a tit-for-tat strategy. The equilibrium is called

In a prisoners' dilemma game, which of the following strategies gives the best outcome for both prisoners?

Because an oligopoly has a small number of firms,

Limit pricing refers to

If a duopoly collusive agreement is made that maximizes joint profit,

Table 15.2.8 -Refer to Table 15.2.8. Libertyville has two optometrists, Dr. Smith and Dr. Jones. Each optometrist can choose to advertise his service or not. The incomes of each optometrist, in thousands of dollars, are given in the payoff matrix above. Which of the following statements correctly describes Dr. Jones' strategy given what Dr. Smith may do?

Use the information below to answer the following questions. Fact 15.2.1 Two firms, FastNet and SmartCast are the only Internet providers in a city. They have identical costs and one firm's service is a perfect substitute for the other firm's service. The industry is a natural duopoly. FastNet and SmartCast decide to collude and agree to share the market equally. -Refer to Fact 15.2.1. What is the result if both firms cheat on the agreement?

Table 15.2.7 -Refer to Table 15.2.7. Disney and Fox must decide when to release their next films. The revenues received by each studio depend in part on when the other studio releases its film. Each studio can release its film at Thanksgiving or at Christmas. The revenues received by each studio, in millions of dollars, are given in the payoff matrix above. Which of the following statements correctly describes Disney's strategy given what Fox's release choice may be?

Consider the cartel of Trick and Gear. The game is repeated indefinitely and each firm employs a tit-for-tat strategy. The equilibrium is