Question 1

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

Accepted Answer

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

Question 2

For a firm, strategic interactions with other firms in the market become more important as the number of firms in the market becomes larger.

Accepted Answer

A) True 
 B)False  False

Question 3

How did the Clayton Act of 1914 differ from the Sherman Antitrust Act of 1890?

Accepted Answer

The Clayton Act strengthened the antitrust laws and allowed private parties to sue firms alleged to be engaged in illegal restraint of trade.

Question 4

Table 17-12
The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost.  
-Refer to Table 17-12. Suppose we observe that the price of a gallon of gasoline in Driveaway is $2. Given this observation, which of the following scenarios is most likely?

Accepted Answer

A) There is one seller of gasoline in Driveaway. 
B) There are two sellers of gasoline in Driveaway. 
C) There are a few sellers of gasoline in Driveaway, but the number of sellers exceeds two. 
D) There are many sellers of gasoline in Driveaway. 
A) There is one seller of gasoline in Driveaway. 
B) There are two sellers of gasoline in Driveaway. 
C) There are a few sellers of gasoline in Driveaway, but the number of sellers exceeds two. 
D) There are many sellers of gasoline in Driveaway.

Question 5

Table 17-2
Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below:  
-Refer to Table 17-2. Suppose the town enacts new antitrust laws that prohibit Abby and Brad from operating as a monopoly. How much profit will Abby and Brad each earn once they reach a Nash equilibrium?

Accepted Answer

A) $36 
B) $32 
C) $18 
D) $16 
A) $36 
B) $32 
C) $18 
D) $16

Question 6

Scenario 17-6
Assume that a local telecommunications company sells high speed internet access and cable television. The company's only two customers are Taylor and Tim. Taylor is willing to pay $50 per month for high speed internet access and $50 per month for cable television. Tim is willing to pay only $20 per month for high speed internet access, but is willing to pay $70 per month for cable television. Assume that the telecommunications company can provide each of these products at zero marginal cost.
-Refer to Scenario 17-6. If the telecommunications company is unable to use tying, what is the profit-maximizing price to charge for cable television?

Accepted Answer

The answer of Scenario 17-6
Assume that a local telecommunications company...

Question 7

The Clayton Act of 1914 allows those harmed by illegal arrangements to restrain trade to

Accepted Answer

A) sue for up to two times the damages they incurred. 
B) sue for up to three times the damages they incurred. 
C) sue for up to four times the damages they incurred. 
D) sue for damages, but only for the actual amount of damages they incurred. 
A) sue for up to two times the damages they incurred. 
B) sue for up to three times the damages they incurred. 
C) sue for up to four times the damages they incurred. 
D) sue for damages, but only for the actual amount of damages they incurred.

Question 8

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. Suppose there are exactly two sellers of gasoline in Mauston: Shellon and Standstop. If Shellon sells 150 gallons and Standstop sells 200 gallons, then

Accepted Answer

A) Shellon's profit is $450 and Standstop's profit is $600. 
B) Shellon's profit is $1,050 and Standstop's profit is $1,200. 
C) the two firms are colluding and earn monopoly profits. 
D) consumers in Mauston are worse off than they would be if the two firms colluded. 
A) Shellon's profit is $450 and Standstop's profit is $600. 
B) Shellon's profit is $1,050 and Standstop's profit is $1,200. 
C) the two firms are colluding and earn monopoly profits. 
D) consumers in Mauston are worse off than they would be if the two firms colluded.

Question 9

Table 17-28
Suppose that two firms determine that each could lower its costs and increase its profits if both reduced their advertising budgets. But in order 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 product, 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 A
Breaks agreement Maintains agreement
and advertises and does not advertise  
-Refer to Table 17-28. Which of the following statements does not correctly characterize the outcome of this game?

Accepted Answer

A) There is a Nash equilibrium. 
B) Both firms collectively would earn the highest joint profits by maintaining the agreement not to advertise. 
C) Only one firm has a dominant strategy. 
D) The game is an example of the Prisoners' Dilemma. 
A) There is a Nash equilibrium. 
B) Both firms collectively would earn the highest joint profits by maintaining the agreement not to advertise. 
C) Only one firm has a dominant strategy. 
D) The game is an example of the Prisoners' Dilemma.

Question 10

An equilibrium in which each firm in an oligopoly maximizes profit, given the actions of its rivals, is called

Accepted Answer

A) a general equilibrium. 
B) a dominant equilibrium. 
C) a Nash equilibrium. 
D) an oligopoly equilibrium. 
A) a general equilibrium. 
B) a dominant equilibrium. 
C) a Nash equilibrium. 
D) an oligopoly equilibrium.

Question 11

Table 17-10
The table shows the demand schedule for a particular product.  
-Refer to Table 17-10. If this market is perfectly competitive and the marginal cost is constant at $40 per unit, then how much output will be produced?

Accepted Answer

A) 900 
B) 1,200 
C) 1,500 
D) 1,800 
A) 900 
B) 1,200 
C) 1,500 
D) 1,800

Question 12

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. Which of the following statements does not correctly characterize the outcome of this game?

Accepted Answer

A) There is a Nash equilibrium. 
B) Only one firm has a dominant strategy. 
C) The game is an example of the Prisoners' Dilemma. 
D) Both firms collectively would earn the highest joint profits by maintaining the agreement not to advertise. 
A) There is a Nash equilibrium. 
B) Only one firm has a dominant strategy. 
C) The game is an example of the Prisoners' Dilemma. 
D) Both firms collectively would earn the highest joint profits by maintaining the agreement not to advertise.

Question 13

Much of the research on game theory in recent decades was driven by attempts to analyze actions of players during

Accepted Answer

A) the Great Depression of the 1930s. 
B) World War II. 
C) the Cold War between the United States and the Soviet Union. 
D) the ascendancy of the conservative movement in the United States in the 1970s and 1980s. 
A) the Great Depression of the 1930s. 
B) World War II. 
C) the Cold War between the United States and the Soviet Union. 
D) the ascendancy of the conservative movement in the United States in the 1970s and 1980s.

Question 14

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. In what sense is the game involving ABC and QRS similar to the prisoners' dilemma game involving Bonnie and Clyde?

Accepted Answer

A) In both games, if the players pursue their own interests, then the outcome is the best possible outcome for each player. 
B) In both games, a dominant strategy can be identified for each player. 
C) In both games, cooperation between the players is easy to maintain. 
D) All of the above are correct. 
A) In both games, if the players pursue their own interests, then the outcome is the best possible outcome for each player. 
B) In both games, a dominant strategy can be identified for each player. 
C) In both games, cooperation between the players is easy to maintain. 
D) All of the above are correct.

Question 15

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 four sellers of gasoline in Mauston and if they collude, then which of the following outcomes is most likely?

Accepted Answer

A) Each seller will sell 62.5 gallons and charge a price of $1.25. 
B) Each seller will sell 62.5 gallons and charge a price of $5. 
C) Each seller will sell 100 gallons and charge a price of $2. 
D) Each seller will sell 250 gallons and charge a price of $0. 
A) Each seller will sell 62.5 gallons and charge a price of $1.25. 
B) Each seller will sell 62.5 gallons and charge a price of $5. 
C) Each seller will sell 100 gallons and charge a price of $2. 
D) Each seller will sell 250 gallons and charge a price of $0.

Question 16

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

Accepted Answer

A) output effect increases. 
B) output effect decreases. 
C) price effect increases. 
D) price effect decreases. 
A) output effect increases. 
B) output effect decreases. 
C) price effect increases. 
D) price effect decreases.

Question 17

The practice of tying is illegal on the grounds that

Accepted Answer

A) it allows firms to expand their market power. 
B) it allows firms to form collusive arrangements. 
C) it prevents firms from forming collusive agreements. 
D) the Sherman Act explicitly prohibited such agreements. 
A) it allows firms to expand their market power. 
B) it allows firms to form collusive arrangements. 
C) it prevents firms from forming collusive agreements. 
D) the Sherman Act explicitly prohibited such agreements.

Question 18

Explain the practice of tying and discuss why it is controversial.

Accepted Answer

Tying is the practice of bundling goods

Question 19

Table 17-2
Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below:  
-Refer to Table 17-2. Suppose the town enacts new antitrust laws that prohibit Abby and Brad from operating as a monopoly. What will be the price of water once Abby and Brad reach a Nash equilibrium?

Accepted Answer

A) $12 
B) $8 
C) $6 
D) $4 
A) $12 
B) $8 
C) $6 
D) $4

Question 20

Table 17-19
Consider a small town that has two grocery stores from which residents can choose to buy a loaf of bread. The store owners each must make a decision to set a high bread price or a low bread 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 17-19. What is grocery store 2's dominant strategy?

Accepted Answer

A) Grocery store 2 does not have a dominant strategy. 
B) Grocery store 2 should always set a low price. 
C) Grocery store 2 should always set a high price. 
D) Grocery store 2 should set a low price when grocery store 1 sets a low price, and grocery store 2 should set a high price when grocery store 1 sets a high price. 
A) Grocery store 2 does not have a dominant strategy. 
B) Grocery store 2 should always set a low price. 
C) Grocery store 2 should always set a high price. 
D) Grocery store 2 should set a low price when grocery store 1 sets a low price, and grocery store 2 should set a high price when grocery store 1 sets a high price.

Exam 17: Oligopoly

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

For a firm, strategic interactions with other firms in the market become more important as the number of firms in the market becomes larger.

How did the Clayton Act of 1914 differ from the Sherman Antitrust Act of 1890?

The Clayton Act of 1914 allows those harmed by illegal arrangements to restrain trade to

An equilibrium in which each firm in an oligopoly maximizes profit, given the actions of its rivals, is called

Table 17-10 The table shows the demand schedule for a particular product. -Refer to Table 17-10. If this market is perfectly competitive and the marginal cost is constant at $40 per unit, then how much output will be produced?

Much of the research on game theory in recent decades was driven by attempts to analyze actions of players during

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

The practice of tying is illegal on the grounds that

Explain the practice of tying and discuss why it is controversial.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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