question

In the prisoners' dilemma game, confessing is a dominant strategy for each of the two prisoners.

answer

True

question

One way that public policy encourages cooperation among oligopolists is through antitrust law.

answer

False

question

If firms in an oligopoly agree to produce according to the monopoly outcome, they will produce the same level of output as they would produce in a Nash equilibrium.

answer

False

question

The Sherman Antitrust Act states that if a person can prove that he was damaged by an illegal arrangement to restrain trade, he could sue and recover three times the damages he sustained.

answer

False

question

In the case of oligopolistic markets, self-interest makes cooperation difficult and it often leads to an undesirable outcome for the firms that are involved.

answer

True

question

Tying involves a firm

answer

selling two individual products together for a single price rather than selling each product individually at separate prices.

question

Suppose that Jay-Z and Beyonce are duopolists in the music industry. In January, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By February, each singer is considering breaking the agreement. What would you expect to happen next?

answer

Jay-Z and Beyonce will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium price will decrease.

question

Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market and earn $50 million each. If they both advertise, they again split the market, but profits are lower by $10 million since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $60 million while the company that does not advertise earns only $30 million. The likely outcome of this game is that PM Inc. earns

answer

$40 million and Brown Inc. earns $40 million.

question

In the prisoners' dilemma game, one prisoner is always better off confessing, no matter what the other prisoner does.

answer

True

question

A tit-for-tat strategy, in a repeated game, is one in which a player starts by cooperating and then does whatever the other player did last time.

answer

True

question

Tying can be thought of as a form of price discrimination.

answer

True

question

Whether an oligopoly consists of 3 firms or 10 firms, the level of output likely will be the same.

answer

False

question

A dominant strategy is a strategy that is best for a player in a game regardless of the strategies chosen by the other players.

answer

True

question

Scenario 17-2. Imagine that two oil companies, Mobile and Cargo, own adjacent oil fields. Under the fields is a common pool of oil worth $96 million. Drilling a well to recover oil costs $3 million per well. If each company drills one well, each will get half of the oil and earn a $45 million profit ($48 million in revenue - $3 million in costs). Assume that having X percent of the total wells means that a company will collect X percent of the total revenue. If Mobile and Cargo are able to successfully collude to maximize their joint profits, Mobile will earn

answer

$45 million and Cargo will earn $45 million.

question

Suppose that two poker players believe that they are superior players to the rest of the people at their table. Further suppose that the two players make an agreement to concede hands to each other in order to drive the other players from the game first. Economists would model such behavior as

answer

game theory.

question

For cartels, as the number of firms (members of the cartel) increases,

answer

the magnitude of the price effect decreases.

question

In an oligopoly, the total output produced in the market is

answer

higher than the total output that would be produced if the market were a monopoly but lower than the total output that would be produced if the market were perfectly competitive.

question

Oligopolists may well be able to reach their preferred, cooperative outcome if

answer

the game they play is repeated a sufficient number of times.

question

Assuming that oligopolists do not have the opportunity to collude, once they have reached the Nash equilibrium, it

answer

is always in their best interest to leave their quantities supplied unchanged.

question

The story of the prisoners' dilemma contains a general lesson that applies to any group trying to maintain cooperation among its members.

answer

True

question

Tying is always profitable for a monopoly.

answer

False

question

In some games, the noncooperative equilibrium is bad for the players and bad for society.

answer

True

question

The notion of a tit-for-tat strategy applies to a prisoners' dilemma game that is played repeatedly, but it does not apply if the game is played only once.

answer

True

question

The Sherman Antitrust Act

answer

elevated agreements among conspiring oligopolists from an unenforceable contract to a criminal conspiracy.

question

Economists claim that a resale price maintenance agreement is not anti-competitive because

answer

if a supplier has market power, it will be likely to exert that power through wholesale price rather than retail price.

question

Predatory pricing involves a firm

answer

temporarily cutting the price of its product to drive a competitor out of the market.

question

Assume that a local bank sells two services, checking accounts and ATM card services. The bank's only two customers are Mr. Donethat and Ms. Beenthere. Mr. Donethat is willing to pay $8 a month for the bank to service his checking account and $2 a month for unlimited use of his ATM card. Ms. Beenthere is willing to pay only $5 for a checking account, but is willing to pay $9 for unlimited use of her ATM card. Assume that the bank can provide each of these services at zero marginal cost. If the bank is able to use tying to price checking account and ATM services, what is the profit-maximizing price to charge for the "tied" good?

answer

$10

question

Two CEOs from different firms in the same market collude to fix the price in the market. This action violates the

answer

Sherman Antitrust Act of 1890.

question

Which of the following statements is false?

answer

Most economists agree that predatory pricing is a profitable business strategy that usually preserves market power.

question

The essence of an oligopolistic market is that there are only a few sellers.

answer

True

question

The game that oligopolists play in trying to reach the oligopoly outcome is similar to the game that the two prisoners play in the prisoners' dilemma.

answer

True

question

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

answer

False

question

Regardless of the firm's behavior, Google should face antitrust legislation because it generates a dominant share of the revenue in its market.

answer

False

question

A manufacturer of light bulbs sells its products to retail stores and requires the stores to sell the bulbs to customers for $2 per bulb. This practice is known as tying.

answer

False

question

The more firms an oligopoly has,

answer

the more likely the firms will charge a price closer to the perfectly competitive price.

question

What happens when the prisoners' dilemma game is repeated numerous times in an oligopoly market? (i) The firms may well reach the monopoly outcome. (ii) The firms may well reach the competitive outcome. (iii) Buyers of the oligopolists' product will likely be worse off as a result.

answer

(i) and (iii)

question

Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market and earn $50 million each. If they both advertise, they again split the market, but profits are lower by $10 million since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $60 million while the company that does not advertise earns only $30 million. PM Inc.'s dominant strategy is to

answer

advertise regardless of whether Brown Inc. advertises.

question

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

answer

compete rather than cooperate with each other.

question

An agreement among firms in a market about quantities to produce or prices to charge is called

answer

collusion.

question

In which of the following markets are strategic interactions among firms most likely to occur?

answer

the market for tennis balls

question

Oligopolies produce more when they collude then when they do not.

answer

False

question

All examples of the prisoner's dilemma game are characterized by one and only one Nash equilibrium.

answer

False

question

Game theory is just as necessary for understanding competitive or monopoly markets as it is for understanding oligopolistic markets.

answer

False

question

If two players engaged in a prisoner's dilemma game are likely to repeat the game, they are more likely to cooperate than if they play the game only once.

answer

True

question

Some business practices that appear to reduce competition, such as resale price maintenance, may have legitimate economic purposes.

answer

True

question

In the U.S. government's 1998 suit against the Microsoft Corporation, a central issue was whether Microsoft should be allowed to integrate its Internet browser into its Windows operating system. Microsoft responded that

answer

putting new features into old products is a natural part of technological practice.

question

If nations such as Germany, Japan, and the United States prohibited international trade in automobiles, a likely effect would be that

answer

the price effect would become a more significant consideration for each firm that makes automobiles.

question

Very often, the reason that players can solve the prisoners' dilemma and reach the most profitable outcome is that

answer

the players play the game not once but many times.

question

Predatory pricing refers to

answer

a monopoly firm reducing its price in an attempt to maintain its monopoly.

question

Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market and earn $50 million each. If they both advertise, they again split the market, but profits are lower by $10 million since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $60 million while the company that does not advertise earns only $30 million. In 1971, Congress passed a law that banned cigarette advertising on television. If cigarette companies are profit maximizers, it is likely that

answer

neither company opposed the ban on advertising.

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