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Exam 17: Oligopoly.

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Question 181

True/False

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Game theory is just as necessary for understanding competitive or monopoly markets as it is for understanding oligopolistic markets.

A) True
B) False

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Question 182

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The players in a two-person game are choosing between Strategy X and Strategy Y.If the second player chooses Strategy X,the first player's best outcome is to select X.If the second player chooses Strategy Y,the first player's best outcome is to select X.For the first player,Strategy X is called a

A) dominant strategy.
B) collusive strategy.
C) repeated-trial strategy.
D) cartel strategy.

E) None of the above
F) A) and D)

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Question 183

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If Levi Strauss & Co.were to require every retailer that carried its clothing to charge customers $42 for each pair of jeans,Levi Strauss & Co.would be practicing

Figure 17-4. Two companies, Acme and Bilco, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-4.Suppose the outcome of the game is one in which Acme's profit is $2 million and Bilco's profit is $7 million.The most likely explanation for this outcome is that

A manufacturer of light bulbs sells its products to retail stores and requires the stores to sell the bulbs to customers for $2 per bulb.This practice is known as tying.

Scenario 17-1. 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 17-1.As long as the combined level of output is less than the Nash equilibrium level,both Irun and Urun have the individual incentive to

Figure 17-1 -Refer to Figure 17-1.Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram.The marginal revenue curve that a monopolist would face in this market is also shown.If the firms are able to collude successfully,

For cartels,as the number of firms (members of the cartel) increases,

Suppose two companies own adjacent oil fields.Under the two fields is a common pool of oil worth $30 million.For each well that is drilled,the company that drills the well incurs a cost of $3 million.Each company can drill up to two wells.What is the likely outcome of this game if each company pursues its own self-interest?

In general,game theory is the study of

Figure 17-4. Two companies, Acme and Bilco, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-4.The situation faced by Acme and Bilco is

Table 17-4. The information in the table below shows the total demand for high-speed Internet subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $200,000 (per year) and that the marginal cost of providing an additional subscription is always $80. -Refer to Table 17-4.Suppose there is only one high-speed Internet service provider in this market and it seeks to maximize its profit.The company will

Nike and Reebok (athletic shoe companies)are considering whether 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.

In pursing its own interest,an oligopoly firm will decide to increase production by 1 unit as long as

Table 17-11 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 17-11.Pursuing its own best interests,Firm A will concede that cigarette smoke causes lung cancer

Table 17-20 Nadia and Maddie are two college roommates who both prefer a clean common space in their dorm room, but neither enjoys cleaning. The roommates must each make a decision to either clean or not clean the dorm room's common space. The payoff table for this situation is provided below, where the higher a player's payoff number, the better off that player is. The payoffs in each cell are shown as (payoff for Nadia, payoff for Maddie) . -Refer to Table 17-20.What is Maddie's dominant strategy?

Table 17-9 Only two firms, Acme and Pinnacle, sell a particular product. The table below shows the demand curve for their product. Each firm has the same constant marginal cost of $10 and zero fixed cost. -Refer to Table 17-9.What is the socially efficient quantity of the product?

Consider a market served by a monopolist,Firm A.A new firm,Firm B,enters the market and,as a result,Firm A lowers its price to try to drive Firm B out of the market.This practice is known as

In imperfectly competitive markets,increasing production will decrease the price of all units sold.This concept is known as the

Table 17-14 This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B) . -Refer to Table 17-14.Which outcome is the Nash equilibrium in this game?