Exam 14: Oligopoly

Which of the following is most likely to be observed when firms engage mainly in non-price competition?

Oligopolists will earn zero profits unless they can collude.True

Figure: Payoff Matrix II for Blue Spring and Purple Rain (Figure: Payoff Matrix II for Blue Spring and Purple Rain) Payoff Matrix II for Blue Spring and Purple Rain refers to two producers of bottled water.The Nash equilibrium in the figure is reached when:

Product differentiation is most likely to occur when firms:

To calculate the Herfindahl-Hirschman index (HHI), one must:

Figure: Monopoly Profits in Duopoly (Figure: Monopoly Profits in Duopoly) The figure Monopoly Profits in Duopoly illustrates the situation in which an industry consisting of two firms that face identical demand curves (D1) can collude to increase profits.If the firms collude and agree to share the market demand equally, then each firm will act as if its demand curve is given by:

Figure: Payoff Matrix for Jake and Zoe (Figure: Payoff Matrix for Jake and Zoe) Look at the figure Payoff Matrix for Jake and Zoe.Jake and Zoe are the only producers of slushies in their tourist town.Every week, each decides whether to price high or price low for the following week.The figure shows the profit per week earned by their two firms.Suppose the firms each decide to price high initially and adopt a Tit-for-tat strategy for the following weeks.After a few weeks, how much profit would each firm make per week?

(Table: Demand for Solar Water Heaters) Look at the table Demand for Solar Water Heaters.The marginal cost of producing solar water heaters is zero, and only two firms, Rheem and Calefi, produce them.If they agree to produce only 50 water heaters, with each firm producing only 25 and if Rheem cheats on the agreement and produces 30 water heaters, what is the quantity effect?

Suppose two gas stations operate at the same busy intersection.You notice that the posted prices are almost always the same.Assuming that these firms are engaged in tacit price collusion, can we automatically conclude that there is no competition for customers between the two stations?

Figure: Pricing Strategy in Cable TV Market II (Figure: Pricing Strategy in Cable TV Market II) Look at the figure Pricing Strategy in Cable TV Market II.If CableNorth followed a high-price strategy one month just to find it only earned $80,000 because CableSouth followed a low-price strategy, and CableNorth then decided to lower prices for the next month, we would say that CableNorth is following:

Airlines are prone to price wars because:

Figure: Payoff Matrix I for Blue Spring and Purple Rain (Figure: Payoff Matrix I for Blue Spring and Purple Rain) The figure Payoff Matrix I for Blue Spring and Purple Rain refers to two producers of bottled water.Each has two strategies available to it: a high price and a low price.The dominant strategy for Purple Rain is to:

(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil.Assume that the crude oil industry is a duopoly and the marginal cost of producing crude oil equals zero.Suppose that the two firms are maximizing industry profit and splitting the profit evenly.If firm 1 decides to cheat and increase production by 10 more barrels, firm 1 will earn profits of:

(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil.Assume that the crude oil industry is a duopoly and the marginal cost of producing crude oil equals zero.Suppose that the two firms are maximizing industry profit and splitting the profit evenly.If both firms engage in noncooperative behavior, the industry output will be barrels, and the price of crude oil will be _.

The term imperfect competition is used to refer to both oligopoly and monopolistic competition.False

Figure: Monopoly Profits in Duopoly (Figure: Monopoly Profits in Duopoly) In the figure Monopoly Profits in Duopoly, each firm faces an identical demand curve, D1, and the market demand curve is D2.The figure illustrates how firms can reap monopoly profits even in an industry with:

Overt collusion exists if:

(Table: Demand Schedules of Gadgets) Look at the table Demand Schedule for Gadgets.The market for gadgets is dominated by two producers, Margaret and Ray.Each firm can produce gadgets at a marginal cost of approximately $0.The table shows the market demand schedule.If these two producers formed a cartel and acted to maximize total industry profits, total industry output would be:

(Table: Coke and Pepsi Advertising Game) Look at the table Coke and Pepsi Advertising Game.The soft-drink industry is dominated by Coke and Pepsi, and each firm spends a lot of money on advertising.Suppose each firm is considering a costly television commercial during halftime of the Super Bowl.The table shows the payoff matrix of profits that each firm would receive from their advertising decision, given the advertising decision of their rival.Profits in each cell of the payoff matrix are given as (Coke, Pepsi).If each firm makes the decision whether to advertise on the Super Bowl independently, what is the Nash equilibrium of this game?

Which of the following scenarios best describes an oligopolistic industry?