CH 17

When an oligopoly market reaches a Nash equilibrium,

a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.

In a prisoner's dilemma, the Nash Equilibrium might not have a dominant strategy for either player.

false

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

false

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.

false

When firms form a cartel in an oligopoly market, the total output is always the same as if the market were perfectly competitive.

false

In the prisoners' dilemma game, self-interest leads

each prisoner to confess.

Whenever a cartel in a duopoly breaks down,​

​total output in the market will rise.

Table 17-4 Only two firms, ABC and MNO, sell a particular product. The following table shows the demand curve for their product. Each firm has the same constant marginal cost of $4 and zero fixed cost. Refer to Table 17-4. If this market were perfectly competitive instead of oligopolistic, what would the price be?​

$4

Which of the following examples illustrates an oligopoly market?

A city with two firms who are licensed to sell school uniforms for the local schools

Table 17-7 Two companies, Wonka and Gekko, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits (in millions of dollars) for the two companies. Which of the following statements is correct?

Regardless of the strategy pursued by Wonka, Gekko's best strategy is to produce a good quality product, and for that reason producing a good quality product is a dominant strategy for Gekko.

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

Sherman Antitrust Act of 1890

Juan Pablo and Zak are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of $8,000. If they both advertise on radio, each will earn a profit of $14,000. If neither advertises at all, each will earn a profit of $20,000. If one advertises on TV and other advertises on radio, then the one advertising on TV will earn $12,000 and the other will earn $10,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $22,000 and the other will earn $4,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $24,000 and the other will earn $8,000. If both follow their dominant strategy, then Juan Pablo will

advertise on radio and earn $14,000.

Table 17-7 Two companies, Wonka and Gekko, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits (in millions of dollars) for the two companies. Refer to Table 17-7. The more frequently this game is played, the more likely it is that

both firms will produce a poor quality product.

Table 17-6 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 (in millions of dollars) of the two home-improvement stores are shown in the following figure. Increasing the size of its store and parking lot is a dominant strategy for​

both stores

In imperfectly competitive markets, increasing production will decrease the price of all units sold. This concept is known as the

price effect

If duopoly firms that are not colluding were able to successfully collude, then

price would rise and quantity would fall

The Sherman Antitrust Act

prohibits price-fixing in the sense that competing executives cannot even talk about fixing prices.

As the number of sellers in an oligopoly becomes very large,

the quantity of output approaches the socially efficient quantity.

As the number of firms in an oligopoly increases,

the total quantity of output produced by firms in the market gets closer to the socially efficient quantity.

A group of firms that collude is called a cartel.

true

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.

true

In a duopoly if the firms have agreed to jointly maximize profits, then each firm can increase its current individual profits by producing more.

true

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

true

The decisions of the US and Soviet Union to build nuclear weapons is much like the prisoners' dilemma.

true

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.

true