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Exam 14: Oligopoly

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Question 101

Multiple Choice

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If there are two gas stations in a very small town,then the gas station business there is probably BEST characterized as:

A) perfectly competitive.
B) monopolistically competitive.
C) monopolistic.
D) oligopolistic.

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Question 102

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Which Herfindahl-Hirschman index is MOST likely to indicate a perfectly competitive market?

A) 100
B) 1,800
C) 10,000
D) 100,000

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Question 103

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(Scenario: Payoff Matrix for Two Firms) Use Scenario: Payoff Matrix for Two Firms.Firm A has: Scenario: Payoff Matrix for Two Firms The following table provides the payoff matrix for two firms,firm A and firm B.They are the only two firms in the industry and can either compete or cooperate with each other,with the following profit results reflecting their actions.

Use the following to answer question: Figure: Pricing Strategy in Cable TV Market I -(Figure: Pricing Strategy in Cable TV Market I) Use Figure: Pricing Strategy in Cable TV Market I.In the figure,the dominant strategy for CableSouth:

Suppose all of the firms in an industry form a cartel and succeed in raising the price to the monopoly level by reducing output.Any single firm will find that it can increase its profits by cheating on the cartel agreement.

Two players in a game both have an incentive to cheat no matter what the other player does.Furthermore,if both players cheat in this manner,both players will be worse off.This is a:

Gary's Gas and Frank's Fuel are the only two providers of gasoline in their small town.Gary and Frank decide to form a cartel to raise the price of gasoline.The total industry profits are highest when _____ cheat(s) on the agreement,and Gary's profits are highest when _____.

Use the following to answer question: -(Table: Demand Schedule of Gadgets) Use Table: Demand Schedule of Gadgets.The market for gadgets consists of two producers,Margaret and Ray.Each firm can produce gadgets with no marginal cost or fixed cost.Suppose that these two producers have formed a cartel,agreed to split production of output evenly,and are maximizing total industry profits.If Margaret decides to cheat on the agreement and sell 100 more gadgets but Ray continues to sell 250 gadgets,Ray's profits will be:

Cartels made up of a large number of firms are unstable because each firm in the cartel:

Use the following to answer question: -(Table: Two Rival Gas Stations) Use Table: Two Rival Gas Stations.The table shows a payoff matrix for two gas stations in a small town.Each firm can set either a high price or a low price,and customers view these two firms as nearly perfect substitutes.Profits in each cell of the payoff matrix are given as (Swifty's profit,Speedy's profit) .If each firm sets the price independently,the Nash equilibrium outcome will be:

Use the following to answer question: Figure: Monopoly Profits in Duopoly -(Figure: Monopoly Profits in Duopoly) Use Figure: Monopoly Profits in Duopoly.If the two firms in the figure colluded to split production evenly and to maximize their joint profits,the market price they set would be _____,and each firm's economic profit would be _____.(Assume that the market demand curve is D₂. )

Gary's Gas and Frank's Fuel are the only two providers of gasoline in their small town.Gary summarizes his pricing strategy as,"I'll do to Frank (price-wise) what Frank did to me last time." This is an example of:

The market structure characterized by a few interdependent firms and barriers to entry is called:

Use the following to answer question: Figure: Payoff Matrix for the United States and the European Union -(Figure: Payoff Matrix for the United States and the European Union) Use Figure: Payoff Matrix for the United States and the European Union.Suppose that the United States and the European Union both produce corn,and each region can make more profit if output is limited and the price of corn is high.The Nash equilibrium combination is for the United States to produce a _____ output and the European Union to produce a _____ output.

A strategy of tit-for-tat involves playing cooperatively at first,then doing whatever the other player did the previous period.

Use the following to answer question: Figure: Payoff Matrix II for Blue Spring and Purple Rain -(Figure: Payoff Matrix II for Blue Spring and Purple Rain) Use Figure: Payoff Matrix II for Blue Spring and Purple Rain.The figure describes two producers of bottled water.The Nash equilibrium in the figure is reached when Blue Spring charges a _____ price and Purple Rain charges a _____ price.

Use the following to answer question: -(Table: Demand Schedule of Gadgets) Use Table: Demand Schedule of Gadgets.The market for gadgets consists of two producers,Margaret and Ray.Each firm can produce gadgets at a marginal cost of $2 and no fixed cost.If these two producers formed a cartel,agreed to split production of output evenly,and acted to maximize total industry profits,total industry output would be _____,and the price would be _____.

Use the following to answer question: Figure: Payoff Matrix for Jake and Zoe -(Figure: Payoff Matrix for Jake and Zoe) Use 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.According to the Nash equilibrium,Jake prices _____ and Zoe prices _____.

Which scenarios BEST describes an oligopolistic industry?

Until recently,most advanced countries except the United States did not have policies against price fixing.