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Exam 17: Oligopoly

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Question 91

Multiple Choice

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

A) Clayton Act of 1914.
B) Sherman Antitrust Act of 1890.
C) Crandall-Putnam ruling of 1983.
D) Jackson-Microsoft ruling of 2000.

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

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Question 92

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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?

A) $31 million
B) $62 million
C) $67 million
D) $86 million

E) C) and D)
F) B) and D)

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Question 93

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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: Howard Low budget High budget -Refer to Table 17-33. Does Robert have a dominant strategy? If so, describe it.

When individuals are damaged by an illegal arrangement to restrain trade, which law allows them to pursue civil action and recover up to three times the damages sustained?

Table 17-32 Suppose that Angelina and Brad own the only two professional photography stores in town. Each must choose between a low price and a high price for senior photo packages. The annual economic profit from each strategy is indicated in the table below: Angelina Low price High price -Refer to Table 17-32. Is there a Nash equilibrium? If so, describe it.

Scenario 17-3. Consider two countries, Kinglandia and Rovinastan, that are engaged in an arms race. Each country must decide whether to build new weapons or to disarm existing weapons. Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs. But each country also prefers to live in a world safe from the other country's weapons. The following table shows the possible outcomes for each decision combination. The numbers in each cell represent the country's ranking of the outcome (10 = best outcome, 1 = worst outcome) . -Refer to Scenario 17-3. Building new weapons is a dominant strategy for

The Sherman Act made cooperative agreements

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 17-2. 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?

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

Figure 17-5. Two companies, ABC and QRS, 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 17-5. If the two companies make their pricing decisions independently, then it is likely that ABC will

Scenario 17-5 Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost. -Refer to Scenario 17-5. If the restaurant is unable to use tying, what is the profit-maximizing price to charge for a steak?

In game theory, a Nash equilibrium is

Suppose a market is initially perfectly competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, we would expect

When the prisoners' dilemma game is generalized to describe situations other than those that literally involve two prisoners, we see that cooperation between the players of the game

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. 14. -Refer to Table 17-13. Pursuing its own best interest, HomeMax will

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. 14. -Refer to Table 17-13. If both stores follow a dominant strategy, HomeMax's annual profit will grow by

Table 17-10 The table shows the demand schedule for a particular product. -Refer to Table 17-10. Suppose the market for this product is served by two firms who have formed a cartel and are colluding to set the price and quantity in this market. If the marginal cost to produce this product is constant at $40 per unit and there is no fixed cost, then what will the combined profit of the cartel be?

A dominant strategy is one that

Which potentially anti-competitive business practice is often justified on the grounds that it corrects for the free rider problem?