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Exam 17: Oligopoly

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Question 181

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Even when allowed to collude, firms in an oligopoly may choose to cheat on their agreements with the rest of the cartel. Why?

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Individual profits can be incr...

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Question 182

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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. Pursuing its own best interests, the U.S. will renew MFN status with Farland

A) only if Farland does not impose trade sanctions against U.S. firms.
B) only if Farland imposes trade sanctions against U.S. firms.
C) regardless of whether Farland imposes trade sanctions against U.S. firms.
D) None of the above is correct. In pursuing its own best interests, the United States will in no case renew MFN status with Farland.

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

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Question 183

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Table 17-34 Suppose that two oil companies - BP and Exxon - own adjacent natural gas fields. The profits that each firm earns depends on both the number of wells it drills and the number of wells drilled by the other firm. The table below lists each firm's individual profits: -Refer to Table 17-34. Does Exxon have a dominant strategy? If so, describe it.

Figure 17-2. Two companies, Acme and Pinnacle, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-2. Which of the following statements is correct?

Table 17-8 For a certain small town, the table shows the demand schedule for water. Assume the marginal cost of supplying water is constant at $4 per bottle and there are no other costs. -Refer to Table 17-8. If there are two suppliers of water, Victor and Sami, and if they have successfully formed a cartel, then what would be the price and the market quantity?

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

Scenario 17-2. ​ Imagine that two oil companies, BQ and Exxoff, own adjacent oil fields. Under the fields is a common pool of oil worth $144 million. Drilling a well to recover oil costs $5 million per well. If each company drills one well, each will get half of the oil and earn a $67 million profit ($72 million in revenue - $5 million in costs) . Assume that having X percent of the total wells means that a company will collect X percent of the total revenue. -Refer to Scenario 17-2. If BQ were to drill a second well and Exxoff also drilled a second well, what would BQ's profit be?

All examples of the prisoner's dilemma game are characterized by one and only one Nash equilibrium.

​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?

The simplest type of oligopoly is

Predatory pricing refers to

As the number of firms in an oligopoly increases,

Any market that is served by an oligopoly is in effect served by a monopoly.

Before the __________, agreements between oligopolists were unenforceable contracts; afterwards, such agreements were criminal conspiracies.

Table 17-3 Imagine a small town in a remote area where only two residents, Maria and Miguel, own dairies that produce milk that is safe to drink. Each week Maria and Miguel work together to decide how many gallons of milk to produce. They bring milk to town and sell it at whatever price the market will bear. To keep things simple, suppose that Maria and Miguel can produce as much milk as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for milk is shown in the table below: -Refer to Table 17-3. If this market for milk were perfectly competitive instead of monopolistic, what would be the price for milk?

Table 17-8 For a certain small town, the table shows the demand schedule for water. Assume the marginal cost of supplying water is constant at $4 per bottle and there are no other costs. -Refer to Table 17-8. If there were only one supplier of water, what would be the price and quantity?

As the number of firms in an oligopoly industry increases, the market moves closer to a __________ market.

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: -Refer to Table 17-33. Is there a Nash equilibrium? If so, describe it.

Table 17-13 Two home-improvement stores (Lopes and HomeMax) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Increases in annual profits of the two home-improvement stores are shown in the table below. -Refer to Table 17-13. When this game reaches a Nash equilibrium, annual profit will grow by

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?