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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. Suppose the owners of Lopes and HomeMax meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit. They should both agree to A) increase their store and parking lot sizes. B) refrain from increasing their store and parking lot sizes. C) be more competitive in capturing market share. D) share the context of their conversation with the Federal Trade Commission. 14. -Refer to Table 17-13. Suppose the owners of Lopes and HomeMax meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit. They should both agree to


A) increase their store and parking lot sizes.
B) refrain from increasing their store and parking lot sizes.
C) be more competitive in capturing market share.
D) share the context of their conversation with the Federal Trade Commission.

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

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Which of the following statements is false?


A) The Clayton Act allows triple damages in civil lawsuits in order to encourage lawsuits against conspiring oligopolists.
B) Many economists defend the practice of resale price maintenance on the grounds that it may help solve a free-rider problem.
C) Most economists agree that predatory pricing is a profitable business strategy that usually preserves market power.
D) The U.S. Supreme Court's view that the practice of tying usually allows a firm to extend its market power is not generally supported by economic theory.

E) None of the above
F) All of the above

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Why do economists use game theory to study the actions of firms in oligopoly markets but not in other markets?

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In oligopoly markets, there are a few fi...

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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: 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. If this market for water were perfectly competitive instead of monopolistic, what would be the price for water? A) $0 B) $4 C) $6 D) $12 -Refer to Table 17-2. If this market for water were perfectly competitive instead of monopolistic, what would be the price for water?


A) $0
B) $4
C) $6
D) $12

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

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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: 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 that Abby and Brad work together to operate as a profit-maximizing monopolist. What price will they charge for water? A) $8 B) $7 C) $6 D) $4 -Refer to Table 17-2. Suppose that Abby and Brad work together to operate as a profit-maximizing monopolist. What price will they charge for water?


A) $8
B) $7
C) $6
D) $4

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

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The problems faced by oligopolies with three or more members are entirely different from the problems faced by duopolies.

A) True
B) False

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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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The oligopoly price will be greater than marginal cost but less than the monopoly price when


A) the oligopolists collude by jointly choosing a quantity to produce and maintaining their agreement.
B) the oligopolists collude by jointly choosing a price to charge and maintaining their agreement.
C) each oligopolist individually chooses a quantity to produce to maximize profit.
D) each oligopolist's objective is minimization of average total cost, rather than maximization of profit.

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

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If four firms comprise the entire golf club industry, the market would be


A) competitive.
B) characterized by interdependence of firms.
C) a duopoly.
D) a monopoly.

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

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Scenario 17-3. Consider two countries, Kinglandia and Rovinastan, that are engaged in an arms race. Each country must decide whether to build new weapons or to disarm existing weapons. Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs. But each country also prefers to live in a world safe from the other country's weapons. The following table shows the possible outcomes for each decision combination. The numbers in each cell represent the country's ranking of the outcome (10 = best outcome, 1 = worst outcome) . Scenario 17-3. Consider two countries, Kinglandia and Rovinastan, that are engaged in an arms race. Each country must decide whether to build new weapons or to disarm existing weapons. Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs. But each country also prefers to live in a world safe from the other country's weapons. The following table shows the possible outcomes for each decision combination. The numbers in each cell represent the country's ranking of the outcome (10 = best outcome, 1 = worst outcome) . -Refer to Scenario 17-3. Suppose the two countries agreed to disarm existing weapons. In reality these two countries may have a hard time keeping this agreement due to which of the following reasons? (i) Even though Kinglandia has no incentive to cheat on the agreement, Rovinastan has an incentive to cheat on the agreement. (ii) Much like the prisoners' dilemma, both countries are better off reneging on the Agreement and building new weapons. (iii) Both countries want to increase their world power by building new weapons. A) (i) and (ii) B) (ii) and (iii) C) (i) and (iii) D) (i) , (ii) , and (iii) -Refer to Scenario 17-3. Suppose the two countries agreed to disarm existing weapons. In reality these two countries may have a hard time keeping this agreement due to which of the following reasons? (i) Even though Kinglandia has no incentive to cheat on the agreement, Rovinastan has an incentive to cheat on the agreement. (ii) Much like the prisoners' dilemma, both countries are better off reneging on the Agreement and building new weapons. (iii) Both countries want to increase their world power by building new weapons.


A) (i) and (ii)
B) (ii) and (iii)
C) (i) and (iii)
D) (i) , (ii) , and (iii)

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

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When oligopolistic firms interacting with one another each choose their best strategy given the strategies chosen by other firms in the market, we have


A) a cartel.
B) a group of oligopolists behaving as a monopoly.
C) a Nash equilibrium.
D) the perfectly competitive outcome.

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

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Table 17-14 This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B) . Table 17-14 This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B) . -Refer to Table 17-14. Which of the following statements about this game is true? A) Up is a dominant strategy for A and Right is a dominant strategy for B. B) Up is a dominant strategy for A and Left is a dominant strategy for B. C) Down is a dominant strategy for A and Right is a dominant strategy for B. D) Down is a dominant strategy for A and Left is a dominant strategy for B. -Refer to Table 17-14. Which of the following statements about this game is true?


A) Up is a dominant strategy for A and Right is a dominant strategy for B.
B) Up is a dominant strategy for A and Left is a dominant strategy for B.
C) Down is a dominant strategy for A and Right is a dominant strategy for B.
D) Down is a dominant strategy for A and Left is a dominant strategy for B.

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

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Consider a market served by a monopolist, Firm A. A new firm, Firm B, enters the market and, as a result, Firm A lowers its price to try to drive Firm B out of the market. This practice is known as


A) resale price maintenance.
B) predatory tying.
C) tying.
D) predatory pricing.

E) B) and D)
F) C) 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 that Maria and Miguel work together in order to operate as a profit-maximizing monopolist. How many gallons of milk will be produced and sold? A) 5 gallons B) 6 gallons C) 7 gallons D) 8 gallons -Refer to Table 17-3. Suppose that Maria and Miguel work together in order to operate as a profit-maximizing monopolist. How many gallons of milk will be produced and sold?


A) 5 gallons
B) 6 gallons
C) 7 gallons
D) 8 gallons

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

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If a person can prove that she was damaged by an illegal arrangement to restrain trade, that person can sue and recover


A) the damages she sustained, as provided for in the Sherman Act.
B) the damages she sustained, as provided for in the Clayton Act.
C) three times the damages she sustained, as provided for in the Sherman Act.
D) three times the damages she sustained, as provided for in the Clayton Act.

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

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Assume that Bart's Batteries has entered into a resale price maintenance agreement with Radio Shanty but not with Prime Purchase. In this case,


A) the wholesale price of Bart's Batteries will be different for Radio Shanty than it is for Prime Purchase.
B) Bart's Batteries will never increase profits by having a resale price maintenance agreement with all retail outlets that sell its products.
C) Prime Purchase might benefit from customers who go to Radio Shanty for information about different batteries.
D) Radio Shanty will sell Bart's Batteries at a lower price than Prime Purchase.

E) B) and D)
F) All of the above

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Table 17-20 Nadia and Maddie are two college roommates who both prefer a clean common space in their dorm room, but neither enjoys cleaning. The roommates must each make a decision to either clean or not clean the dorm room's common space. The payoff table for this situation is provided below, where the higher a player's payoff number, the better off that player is. The payoffs in each cell are shown as (payoff for Nadia, payoff for Maddie) . Table 17-20 Nadia and Maddie are two college roommates who both prefer a clean common space in their dorm room, but neither enjoys cleaning. The roommates must each make a decision to either clean or not clean the dorm room's common space. The payoff table for this situation is provided below, where the higher a player's payoff number, the better off that player is. The payoffs in each cell are shown as (payoff for Nadia, payoff for Maddie) . -Refer to Table 17-20. If Maddie chooses not to clean, then Nadia will A) clean, and Nadia's payoff will be 50. B) not clean, and Nadia's payoff will be 10. C) clean, and Nadia's payoff will be 7. D) not clean, and Nadia's payoff will be 30. -Refer to Table 17-20. If Maddie chooses not to clean, then Nadia will


A) clean, and Nadia's payoff will be 50.
B) not clean, and Nadia's payoff will be 10.
C) clean, and Nadia's payoff will be 7.
D) not clean, and Nadia's payoff will be 30.

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

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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 able to collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions. How much profit will each company earn? A) $610,000 B) $550,000 C) $405,000 D) $205,000 -Refer to Table 17-5. Assume there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are able to collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions. How much profit will each company earn?


A) $610,000
B) $550,000
C) $405,000
D) $205,000

E) None of the above
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. If ABC and XYZ operate to jointly maximize profits and agree to share the profit equally, then how much profit will each of them earn? A) $105 B) $125 C) $250 D) $450 -Refer to Table 17-11. If ABC and XYZ operate to jointly maximize profits and agree to share the profit equally, then how much profit will each of them earn?


A) $105
B) $125
C) $250
D) $450

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

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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. Increasing the size of its store and parking lot is a dominant strategy for A) Lopes, but not for HomeMax. B) HomeMax, but not for Lopes. C) both stores. D) neither store. 14. -Refer to Table 17-13. Increasing the size of its store and parking lot is a dominant strategy for


A) Lopes, but not for HomeMax.
B) HomeMax, but not for Lopes.
C) both stores.
D) neither store.

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

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