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Exam 14: Oligopoly

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Question 31

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Use the following to answer questions : $\begin{array}{l}\text { Table: Demand for Crude Oil }\\\begin{array} { c c c } \text { Quantity } & \begin{array} { c } \text { Price } \\\text { (\$/barrel) }\end{array} & \begin{array} { c } \text { Total } \\\text { Revenue (\$) }\end{array} \\\hline 0 & \$ 160 & \$ 0 \\10 & 150 & 1500 \\20 & 140 & 2800 \\30 & 130 & 3900 \\40 & 120 & 4800 \\50 & 110 & 5500 \\60 & 100 & 6000 \\70 & 90 & 6300 \\80 & 80 & 6400 \\90 & 70 & 6300 \\100 & 60 & 6000 \\110 & 50 & 5500 \\120 & 40 & 4800 \\130 & 30 & 3900 \\140 & 20 & 2800 \\150 & 10 & 1500 \\160 & 0 & 0\end{array}\end{array}$ -Game theory is commonly used to explain behaviour in oligopolies because oligopolies are characterized by:

A) large profits in the long run.
B) either homogeneous or heterogeneous products.
C) interdependence.
D) imperfect competition.

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

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Question 32

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Which scenario BEST describes an oligopolistic industry?

A) A single cable company serves customers in a small town.
B) Thousands of soybean farmers sell their output in a global commodities market.
C) Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.
D) A university has one bookstore selling textbooks to students.

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

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Question 33

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Use the following to answer questions : Figure: Payoff Matrix for Canada and the European Union -(Figure: Payoff Matrix for Canada and the European Union) Use Figure: Payoff Matrix for Canada and the European Union.Suppose that Canada 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 Canada to produce a _____ output and the European Union to produce a _____ output.

Use the following to answer questions : $\begin{array}{l}\text { Table: Demand Schedule of Gadgets }\\\begin{array} { c c } \hline \begin{array} { c } \text { Price of } \\\text { a Gadget }\end{array} & \begin{array} { c } \text { Quantity of } \\\text { Gadgets Demanded }\end{array} \\\hline \$ 10 & 0 \\9 & 100 \\8 & 200 \\7 & 300 \\6 & 400 \\5 & 500 \\4 & 600 \\3 & 700 \\2 & 800 \\1 & 900 \\0 & 1000\end{array}\end{array}$ -(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.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,Margaret's quantity effect will be a(n) _____ in profit of _____.

The pattern of behaviour in which one company tacitly sets prices for the industry as a whole is known as price leadership.

Use the following to answer questions : 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 _____.

Use the following to answer questions : $\begin{array}{l}\text { Table: Demand Schedule of Gadgets }\\\begin{array} { c c } \hline \begin{array} { c } \text { Price of } \\\text { a Gadget }\end{array} & \begin{array} { c } \text { Quantity of } \\\text { Gadgets Demanded }\end{array} \\\hline \$ 10 & 0 \\9 & 100 \\8 & 200 \\7 & 300 \\6 & 400 \\5 & 500 \\4 & 600 \\3 & 700 \\2 & 800 \\1 & 900 \\0 & 1000\end{array}\end{array}$ -(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 questions : Figure: Monopoly Profits in Duopoly -(Figure: Monopoly Profits in Duopoly) Use Figure: Monopoly Profits in Duopoly.Given the duopoly industry illustrated in the figure,if each firm acted on the belief that it faced demand curve D₂ and acted without consideration of the other,each firm would attempt to maximize economic profits by producing quantity _____ and setting price equal to _____.

Use the following to answer questions : $\begin{array}{l}\text { Table: Coke and Pepsi Advertising Game }\\\begin{array} { l l c c } & & { \text { Pepsi } } \\ & & \text { Super Bowl Ad } & \text { No Super Bowl Ad } \\\hline { \text { Coke } } & \text { Super Bowl Ad } & \$ 800 , \$ 700 & \$ 1500 , \$ 600 \\& \text { No Super Bowl Ad } & \$ 650 , \$ 900 & \$ 1000 , \$ 800\end{array}\end{array}$ -(Table: Coke and Pepsi Advertising Game) Use 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 its 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,the Nash equilibrium is for Coke _____ and Pepsi _____ during the Super Bowl.

An attempt by a firm to convince buyers that its product is different from the products of other firms in the industry is tacit collusion.

Oligopolies are industries:

In game theory,when a player has an action that is always best for that player,regardless of the action taken by the other player(s) in a game,we say this player has a _____ strategy.

Suppose that each of the two firms in a duopoly has the independent choice of advertising or not advertising.If neither advertises,each gets $10 million in profit;if both advertise,their profits will be $5 million each;and if one advertises while the other does not,the advertiser gets profit of $15 million and the other gets profit of $2 million.According to game theory,the Nash equilibrium is that:

Use the following to answer questions : Figure: Pricing Strategy in Cable TV Market II -(Figure: Pricing Strategy in Cable TV Market II) Use Figure: Pricing Strategy in Cable TV Market II.The noncooperative equilibrium in the cable TV market occurs when:

Use the following to answer questions : Figure: Pricing Strategy in Cable TV Market II -(Figure: Pricing Strategy in Cable TV Market II) Use Figure: Pricing Strategy in Cable TV Market II.If the two firms in the cable TV market collude:

Until recently,most other advanced countries did not have policies that prohibited price-fixing.

The government agency in Canada that reviews proposed mergers of firms in the same industry and prohibits mergers that it believes will reduce competition is the Competition Bureau.

In the classic prisoners' dilemma with two accomplices in crime,the Nash equilibrium is for:

If an industry initially has an HHI of 1 250,a merger between two of the largest (in terms of market share) firms in the industry:

_____ occurs when the only two firms in an industry agree to fix the price at a given level.