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Exam 17: Oligopoly

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Question 151

True/False

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When prisoners' dilemma games are repeated over and over,sometimes the threat of penalty causes both parties to cooperate.

A) True
B) False

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Question 152

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Which of the following statements is correct?

A) Strategic situations are more likely to arise when the number of decision-makers is very large rather than very small.
B) Strategic situations are more likely to arise in monopolistically competitive markets than in oligopolistic markets.
C) Game theory is useful in understanding certain business decisions,but it is not really applicable to ordinary games such as chess or tic-tac-toe.
D) Game theory is not necessary for understanding competitive or monopoly markets.

E) A) and C)
F) A) and B)

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Question 153

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

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?

When strategic interactions are important to pricing and production decisions,a typical firm will

Figure 17-3.Katie and Taylor are roommates.On a particular day,their lawn needs to be mowed.Each person has to decide whether to take part in mowing the lawn.At the end of the day,either the lawn will be mowed (if one or both roommates take part in mowing) ,or it will remain unmowed (if neither roommate mows) .With happiness measured on a scale of 1 (very unhappy) to 10 (very happy) ,the possible outcomes are as follows: -Refer to Figure 17-3.If this game is played only once,then which of the following outcomes is the most likely one?

In 1971,Congress passed a law that banned cigarette advertising on television.After the ban it is most likely that the

Figure 17-2.John and Michael are roommates.On a particular day,their apartment needs to be cleaned.Each person has to decide whether to take part in cleaning.At the end of the day,either the apartment will be completely clean (if one or both roommates take part in cleaning) ,or it will remain dirty (if neither roommate cleans) .With happiness measured on a scale of 1 (very unhappy) to 10 (very happy) ,the possible outcomes are as follows: -Refer to Figure 17-2.If this game is played only once,then the most likely outcome is that

Table 17-2.The table shows the town of Pittsville's demand schedule for gasoline.For simplicity,assume the town's gasoline seller(s) incur no costs in selling gasoline. -Refer to Table 17-2.Suppose there are exactly two sellers of gasoline in Pittsville: Exxoff and BQ.Currently,Exxoff sells 300 gallons and BQ sells 400 gallons.Which of the following statements is correct? (Hint: Perform simple interpolation between rows of the chart where necessary. )

Table 17-11 Two home-improvement stores (Big Box Deluxe and Homes R Us) 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 17-11.If both stores follow a dominant strategy,Big Box Deluxe's annual profit will grow by

Two CEOs from different firms in the same market collude to fix the price in the market.This action violates the

As the number of firms in an oligopoly becomes very large,the price effect disappears.

Table 17-3.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 $200,000 (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 17-3.If there is only one digital cable TV company in this market,what price would it charge for a premium digital channel subscription to maximize its profit?

As the number of firms in an oligopoly increases,the magnitude of the

In which of the following games is it clearly the case that the cooperative outcome of the game is good for the two players and bad for society?

What happens when the prisoners' dilemma game is repeated numerous times in an oligopoly market?

Table 17-3.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 $200,000 (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 17-3.Assume there are two profit-maximizing digital cable TV companies operating in this market.Further assume that they are able to collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions.How much profit will each company earn?

Table 17-17.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 17-17.If grocery store 1 sets a high price,what price should grocery store 2 set? And what will grocery store 2's payoff equal?

If a certain market were a monopoly,then the monopolist would maximize its profit by producing 1,000 units of output.If,instead,that market were a duopoly,then which of the following outcomes would be most likely if the duopolists successfully collude?

Scenario 17-2.Imagine that two oil companies,Lexxon and PB,own adjacent oil fields.Under the fields is a common pool of oil worth $48 million.Drilling a well to recover oil costs $4 million per well.If each company drills one well,each will get half of the oil and earn a $20 million profit ($24 million in revenue - $4 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.PB's dominant strategy would lead to what sort of well-drilling behavior?