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Exam 17: Oligopoly

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Question 51

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Table 17-2 The information in the table depicts the total demand for wireless Internet subscriptions in a small urban market. Assume that each wireless Internet operator pays a fixed cost of $100,000 (per year) to provide wireless Internet in the market area and that the marginal cost of providing the wireless Internet service to a household is zero. -Refer to Table 17-2.Assume that there are two profit-maximizing wireless Internet companies operating in this market.Further assume that they are not able to "collude" on price and quantity of wireless Internet subscriptions to sell.What price will wireless Internet subscriptions be sold at when this market reaches a Nash equilibrium

A) $60
B) $90
C) $120
D) $150

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

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Question 52

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Laurel and Jana are competitors in a local market and each is trying to decide if it is worthwhile to advertise.If both of them advertise,each will earn a profit of $5000.If neither of them advertises,each will earn a profit of $10,000.If one advertises and the other doesn't,then the one who advertises will earn a profit of $12,000 and the other will earn $2000.In this version of the prisoner's dilemma,if the game is played only once,what should Laurel do And what should she do if the game is repeated many times

A) advertise, but if the game is to be repeated many times she should probably not advertise
B) advertise, and if the game is to be repeated many times she should still probably advertise
C) not advertise, but if the game is to be repeated many times she should probably advertise
D) not advertise, and if the game is to be repeated many times she should still not advertise

E) A) and C)
F) C) and D)

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Question 53

Multiple Choice

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When is predatory pricing best exemplified

When firms have agreements among themselves on the quantity to produce and the price at which to sell output,what is their form of organization called

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

Table 17-1 Imagine a small town in which only two residents, Matthew and Anna, own wells that produce water for safe drinking. Each Saturday, Matthew and Anna work together to decide how many litres of water to pump, bring the water to town, and sell it at whatever price the market will bear. To keep things simple, suppose that Matthew and Anna can pump as much water as they want without cost; therefore, the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is reflected in the table. -Refer to Table 17-1.What would be the socially efficient level of water supplied to the market

Scenario 17-2 Imagine that two oil companies, Big Petro Inc.and Gargantuan Gas, own adjacent oil fields.Under the fields is a common pool of oil worth $24 million.Drilling a well to recover oil costs $1 million per well.If each company drills one well, each will get half of the oil and earn a $11 million profit ($12 million in revenue minus $1 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.Gargantuan Gas's dominant strategy would lead to what sort of well-drilling behaviour

Describe the source of tension between cooperation and self-interest in a market characterized by oligopoly.Use an example of an actual cartel arrangement to demonstrate why this tension creates instability in cartels.

To move the allocation of resources closer to the social optimum,what should policymakers typically try to induce firms in an oligopoly to do

A central issue in the Microsoft antitrust lawsuit involved Microsoft's integration of its Internet browser into its Windows operating system,to be sold as one unit.What is this practice known as

Table 17-4 Consider trade relations between Canada and Germany. Assume that the leaders of the two countries believe the payoffs to alternative trade policies are as follows: -Refer to Table 17-4.Assume that trade negotiators meet to discuss trade policy between Canada and Germany.If neither party to the negotiation is able to trust the other party,then how will they choose their strategies

When will profit-maximizing production decisions drive price to equal marginal cost

In what type of market do the actions of any one seller have a significant impact on the profits of all other sellers

Assume that Peach Computers has entered into an enforceable resale price maintenance agreement with Computer Super Stores Inc.(CSS Inc.) and CompuMart.Which outcome will result

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 production levels are less than the Nash equilibrium levels,what do both Irun and Urun have the individual incentive to do

Larger cartels have a greater probability of reaching the monopoly outcome than do smaller cartels.

Sienna and Connell are competitors in a local market and each is trying to decide if it is worthwhile to advertise.If both of them advertise,each will earn a profit of $5000.If neither of them advertises,each will earn a profit of $10,000.If one advertises and the other doesn't,then the one who advertises will earn a profit of $15,000 and the other will earn $7000.To make the most money,what should Sienna do and what will she earn

What do games that are played more than once generally lead to

What is a situation called in which economic actors.interacting with one another,each choose their best strategy,given the strategies the others have chosen

Assume that demand for a product that is produced at zero marginal cost is reflected in the table below. a. What is the profit-maximizing level of production for a group of oligopolistic firms that operate as a cartel? b. Assume that this market is characterized by a duopoly in which collusive agreements are illegal. What market price and quantity will be associated with a profit-maximizing Nash equilibrium? c. Assume that this market is served by three identical firms who operate as independent oligopolists (no collusive agreements). What market price and quantity will be associated with a profit-maximizing Nash equilibrium? How does your answer differ from (b) above?