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Chrissy and Marvin 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 $10,000. If neither of them advertise, each will earn a profit of $20,000. If one advertises and the other doesn't, then the one who advertises will earn a profit of $30,000 and the other will earn $14,000. To earn the highest profit, Chrissy


A) should advertise, and she will earn $10,000.
B) should advertise, and she will earn $30,000.
C) should not advertise, and she will earn 20,000.
D) has no dominant strategy.

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

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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


A) resale price maintenance.
B) fixed retail pricing.
C) tying.
D) cost plus pricing.

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

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As a group, oligopolists would always earn the highest profit if they would


A) produce the perfectly competitive quantity of output.
B) produce more than the perfectly competitive quantity of output.
C) charge the same price that a monopolist would charge if the market were a monopoly.
D) operate according to their own individual self-interests.

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

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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. 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, Lopes will A) increase the size of its store and parking lot only if HomeMax also increases the size of its store and parking lot. B) increase the size of its store and parking lot only if HomeMax does not increase the size of its store and parking lot. C) increase the size of its store and parking lot regardless of the decision made by HomeMax. D) not increase the size of its store and parking lot regardless of the decision made by HomeMax. 14. -Refer to Table 17-13. Pursuing its own best interest, Lopes will


A) increase the size of its store and parking lot only if HomeMax also increases the size of its store and parking lot.
B) increase the size of its store and parking lot only if HomeMax does not increase the size of its store and parking lot.
C) increase the size of its store and parking lot regardless of the decision made by HomeMax.
D) not increase the size of its store and parking lot regardless of the decision made by HomeMax.

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

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Table 17-11 Only two firms, ABC and XYZ, sell a particular product. The table below shows the demand curve for their product. Each firm has the same constant marginal cost of $8 and zero fixed cost. Table 17-11 Only two firms, ABC and XYZ, sell a particular product. The table below shows the demand curve for their product. Each firm has the same constant marginal cost of $8 and zero fixed cost. -Refer to Table 17-11. What is the socially efficient quantity of the product? A) 25 B) 35 C) 50 D) 70 -Refer to Table 17-11. What is the socially efficient quantity of the product?


A) 25
B) 35
C) 50
D) 70

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

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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 C)
F) A) and B)

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Table 17-29 Suppose that two firms, Wild Willy's Wonderdrink (Firm W) and Hyper Hank's Hydration (Firm H) , comprise the market for energy drinks. Each firm determines that it could lower its costs and increase its profits if both firms reduced their advertising budgets. But for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's energy drinks, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits: Firm W Breaks agreement Maintains agreement and advertises and does not advertise Table 17-29 Suppose that two firms, Wild Willy's Wonderdrink (Firm W) and Hyper Hank's Hydration (Firm H) , comprise the market for energy drinks. Each firm determines that it could lower its costs and increase its profits if both firms reduced their advertising budgets. But for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's energy drinks, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits: Firm W Breaks agreement Maintains agreement and advertises and does not advertise -Refer to Table 17-29 Does either Firm W or Firm H have a dominant strategy? A) Both Firm W and Firm H have a dominant strategy. B) Neither Firm W nor Firm H has a dominant strategy. C) Firm W has a dominant strategy, but Firm H does not. D) Firm W does not have a dominant strategy, but Firm H does. -Refer to Table 17-29 Does either Firm W or Firm H have a dominant strategy?


A) Both Firm W and Firm H have a dominant strategy.
B) Neither Firm W nor Firm H has a dominant strategy.
C) Firm W has a dominant strategy, but Firm H does not.
D) Firm W does not have a dominant strategy, but Firm H does.

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

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Economists use game theory to analyze .

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strategic ...

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The Sherman Antitrust Act was passed in


A) 1836.
B) 1890.
C) 1914.
D) 1946.

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

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Why are the actions of the firms in an oligopoly interdependent?

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because there are on...

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Describe the output and price effects that influence the profit-maximizing decision faced by a firm in an oligopoly market. How does this differ from output and price effects in a monopoly market?

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Output effect: Price > Marginal cost => ...

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Table 17-5 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. Table 17-5 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 17-5. Assume there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell. How many premium digital channel cable TV subscriptions will be sold altogether when this market reaches a Nash equilibrium? A) 6,000 B) 9,000 C) 12,000 D) 15,000 -Refer to Table 17-5. Assume there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell. How many premium digital channel cable TV subscriptions will be sold altogether when this market reaches a Nash equilibrium?


A) 6,000
B) 9,000
C) 12,000
D) 15,000

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

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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. 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. Assume that trade negotiators meet to discuss trade policy between the United States and Farland. If neither party to the negotiation is able to trust the other party, then A) each should assume that the other will choose a strategy that optimizes total value of the trade relationship. B) the Nash equilibrium will provide the largest possible gains to each party. C) Farland negotiators should assume that United States negotiators will implement a policy that is in the mutual best interest of both countries. D) each should follow its dominant strategy. -Refer to Table 17-27. Assume that trade negotiators meet to discuss trade policy between the United States and Farland. If neither party to the negotiation is able to trust the other party, then


A) each should assume that the other will choose a strategy that optimizes total value of the trade relationship.
B) the Nash equilibrium will provide the largest possible gains to each party.
C) Farland negotiators should assume that United States negotiators will implement a policy that is in the mutual best interest of both countries.
D) each should follow its dominant strategy.

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

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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: 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. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel from operating as a monopoly. How much profit will Miguel and Maria each earn once they reach a Nash equilibrium? A) $40 B) $36 C) $32 D) $30 -Refer to Table 17-3. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel from operating as a monopoly. How much profit will Miguel and Maria each earn once they reach a Nash equilibrium?


A) $40
B) $36
C) $32
D) $30

E) A) and C)
F) All of the above

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Lori and Maya are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of $10,000. If they both advertise on radio, each will earn a profit of $14,000. If neither advertises at all, each will earn a profit of $20,000. If one advertises on TV and other advertises on radio, then the one advertising on TV will earn $16,000 and the other will earn $6,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $30,000 and the other will earn $4,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $24,000 and the other will earn $8,000. If both follow their dominant strategy, then Lori will


A) advertise on TV and earn $10,000.
B) advertise on radio and earn $14,000.
C) not advertise at all and earn $20,000.
D) None of the above is correct. Lori and Maya do not have dominant strategies.

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

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Figure 17-4. Aaron and Ed are roommates. After a big snowstorm, their driveway needs to be shoveled. Each person has to decide whether to take part in shoveling the driveway. At the end of the day, either the driveway will be shoveled (if one or both roommates take part in shoveling) , or it will remain unshoveled (if neither roommate shovels) . With happiness measured on a scale of 1 (very unhappy) to 10 (very happy) , the possible outcomes are as follows: Figure 17-4. Aaron and Ed are roommates. After a big snowstorm, their driveway needs to be shoveled. Each person has to decide whether to take part in shoveling the driveway. At the end of the day, either the driveway will be shoveled (if one or both roommates take part in shoveling) , or it will remain unshoveled (if neither roommate shovels) . With happiness measured on a scale of 1 (very unhappy) to 10 (very happy) , the possible outcomes are as follows: -Refer to Figure 17-4. If this game is played only once, then which of the following outcomes is the most likely one? A) Aaron and Ed both shovel. B) Aaron shovels and Ed does not shovel. C) Ed shovels and Aaron does not shovel. D) All of the above outcomes are equally likely. -Refer to Figure 17-4. If this game is played only once, then which of the following outcomes is the most likely one?


A) Aaron and Ed both shovel.
B) Aaron shovels and Ed does not shovel.
C) Ed shovels and Aaron does not shovel.
D) All of the above outcomes are equally likely.

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

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Table 17-7 The information in the table below shows the total demand for internet radio subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year) and that the marginal cost of providing an additional subscription is always $16. Table 17-7 The information in the table below shows the total demand for internet radio subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year) and that the marginal cost of providing an additional subscription is always $16. -Refer to Table 17-7. Assume that there are two profit-maximizing internet radio providers operating in this market. Further assume that they are not able to collude on the price and quantity of subscriptions to sell. How much profit will each firm earn when this market reaches a Nash equilibrium? A) $12,000 B) $16,000 C) $52,000 D) $64,000 -Refer to Table 17-7. Assume that there are two profit-maximizing internet radio providers operating in this market. Further assume that they are not able to collude on the price and quantity of subscriptions to sell. How much profit will each firm earn when this market reaches a Nash equilibrium?


A) $12,000
B) $16,000
C) $52,000
D) $64,000

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

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Table 17-4 The table shows the town of Mauston's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline. Table 17-4 The table shows the town of Mauston's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline. -Refer to Table 17-4. If there are exactly two sellers of gasoline in Mauston and if they collude, then which of the following outcomes is most likely? A) Each seller will sell 250 gallons and charge a price of $5. B) Each seller will sell 175 gallons and charge a price of $3. C) Each seller will sell 125 gallons and charge a price of $2.5. D) Each seller will sell 125 gallons and charge a price of $5. -Refer to Table 17-4. If there are exactly two sellers of gasoline in Mauston and if they collude, then which of the following outcomes is most likely?


A) Each seller will sell 250 gallons and charge a price of $5.
B) Each seller will sell 175 gallons and charge a price of $3.
C) Each seller will sell 125 gallons and charge a price of $2.5.
D) Each seller will sell 125 gallons and charge a price of $5.

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

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Table 17-11 Only two firms, ABC and XYZ, sell a particular product. The table below shows the demand curve for their product. Each firm has the same constant marginal cost of $8 and zero fixed cost. Table 17-11 Only two firms, ABC and XYZ, sell a particular product. The table below shows the demand curve for their product. Each firm has the same constant marginal cost of $8 and zero fixed cost. -Refer to Table 17-11. If this market were perfectly competitive instead of oligopolistic, what would the price be? A) $14 B) $18 C) $8 D) $0 -Refer to Table 17-11. If this market were perfectly competitive instead of oligopolistic, what would the price be?


A) $14
B) $18
C) $8
D) $0

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

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An agreement among firms regarding price and/or production levels is called


A) an antitrust market.
B) a free-trade arrangement.
C) collusion.
D) a Nash agreement.

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

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