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Exam 14: Oligopoly

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Question 21

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Oligopolists compete on price but not quality.

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Question 22

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Refer to the information provided in Table 14.2 below to answer the question that follows. Table 14.2 B's Strategy $\begin{array}{l}\begin{array} {| ll | l l| } \hline &&\text {Advertise }&\text { Don't Advertise}\\\hline &&\text {A's profit \$ 100 }&\text {A's profit \$ 200 }\\&&\text {million }&\text { million}\\&\text {Advertise}&\text {B's profit \$ 100 }&\text {B's profit \$ 50 }\\&&\text {million }&\text { million}\\\text {A`s strategy}\\&DON`T&\text {A's profit \$ 50million}&\text {A's profit \$ 75million}\\&advertise&\text {B's profit \$ 200million}&\text {B's profit \$ 75million}\\\hline \end{array}\end{array}$ -Refer to Table 14.2. If both firms follow a maximin strategy, the equilibrium in the game is ________.

A) (Advertise, Advertise)
B) (Don't Advertise, Don't Advertise)
C) (Don't Advertise, Advertise)
D) (Advertise, Don't Advertise)

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Question 23

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Which of the following are benefits associated with the oligopoly model?

Refer to the information provided in Table 14.3 below to answer the question that follows. Table 14.3 B's Strategy $\begin{array} { l l l l } & & { \text { Advertise } } & { \text { Don't Advertise } } \\\hline & & & \text { A's profit \$ 200 million}\\& & \text { A's profit } \$ 75 \text { million } \\\text { A's Strategy } & \text { Advertise } & \text { B's profit \$ 75 million }& \text {B's profit } \$ 50 \text { million } \\& & & \\& \text { Don't } & \text { A's profit } \$ 50 \text { million } & \text { A's profit } \$ 100 \text { million } \\& & \text { B's profit } \$ 200 & \text { B's profit } \$ 100 \\& \text { Advertise } & \text { million } & \text { million } \\\hline\end{array}$ -Refer to Table 14.3. The result of this game is a prisoner's dilemma. In which of the following cases is it most likely that the firms will be able to overcome the prisoner's dilemma?

The government uses the four firm concentration ratio as a guideline to determine which proposed mergers are acceptable.

________ is a group of firms colluding to make price and output decisions.

An industry in which there are five firms each accounting for 20 percent of the market has an HHI of 100.

To the extent that oligopolies differentiate their products,

The product differentiation of firms in an industry is an indicator of the size distribution of firms.

Refer to the information provided in Figure 14.7 below to answer the questions that follow. Figure 14.7 -Refer to Figure 14.7. Six firms that produce chewing gum form a cartel. The cartel faces the market demand curve given by D. To maximize profits, the cartel should produce ________ packs of chewing gum and the price should be ________.

In an oligopolistic industry, the price firms charge and the quantity they produce would be the same as if the industry were a monopoly if

Refer to the information provided in Table 14.1 below to answer the question that follows. Table 14.1 B's Strategy $\begin{array} { r r r r } \hline & & \text { Raise Price } & \text { Don't Raise Price } \\\hline& \text { Raise } & \text { A's profit } \$ 3,000 & \text { A's profit } \$ 10,000 \\& \text { Price } & \text { B's profit } \$ 3,000 & \text { B's profit } \$ 15,000 \\ { \text { A's Strategy } } & & & \\& \text { Don't } & \text { A's profit } \$ 15,000 & \text { A's profit } \$ 5,000 \\& \text { Raise } & \text { B's profit } \$ 10,000 & \text { B's profit } \$ 5,000 \\\hline\end{array}$ -Refer to Table 14.1. Firm A does not have a dominant strategy.

The conclusion that firms in oligopoly always produce where price exceeds marginal cost is true for all models of oligopoly EXCEPT the

Game theory was first developed by John Nash.

The market structure in which the behavior of any given firm depends on the behavior of the other firms in the industry is

In general, oligopolists compete

Markets in which entry and exit are difficult are known as contestable markets.

A(n) ________ industry is characterized by strategic behavior.

When all players play their best strategy given what their competitors are doing, they are following their dominant strategy.

Game theory enables economists to fully understand and predict the behavior of oligopolistic industries with more than two firms.