ECON CHAPTER 17

Cartels are difficult to maintain because

there is always tension between cooperation and self-interest in a cartel.

One characteristic of an oligopoly market structure is:

firms in the industry have some degree of market power.

Refer to Table 16-3. Assume that there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell. What price will premium digital channel cable TV subscriptions be sold at when this market reaches a Nash equilibrium?

40$ (price one step down from highest combination)

Refer to Table 16-3. If there is only one digital cable TV company in this market, what price would it charge for a premium digital channel subscription to maximize its profit?

60$ (price that yields the highest value)

what is or are the Nash equilibrium(s) in the chicken game

John:turn, Paul: drive straight AND John drive straight Paul turn

Refer to Table 16-3. Assume that there are two digital cable TV companies operating in this market. If they are able to collude on the price and quantity of subscriptions to sell, what price (P) will they charge, and how many subscriptions (Q) will they sell collectively?

P = $60, Q = 9,000 (multiply and choose highest value)

In markets characterized by oligopoly,

The oligopolists earn the highest profit when they cooperate and behave like a monopolist.

Refer to Table 16-10. When this game reaches a Nash equilibrium, the dollar value of growth-related profits will be

Ultimate Saver $65 and SuperDuper Saver $50.

Refer to Table 16-10. The dominant strategy is to increase the size of its store and parking lot for

both stores

the prisoners dilemma game

has a Nash equilibrium, but the Nash equilibrium outcome is not the outcome the players would agree to if they could cooperate with each other.

An agreement among firms regarding price and/or production levels is called

collusion

Refer to Table 16-12. 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). Which of the following outcomes represents a Nash equilibrium in the game?

middle right (has the highest score for playoff to B)

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). Which of the following statements regarding this game is true?

neither player has a dominant strategy

who has a dominant strategy in the chicken game?

no one has a dominant strategy

game theory is important for the understanding of

oligopolies

Which of these situations produces the largest profits for oligopolists?

the firms reach the monopoly outcome

other things the same, in which case is the quantity produced the highest?

there are a very large number of firms

in the prisoner's dilemma

when each player chooses his dominant strategy the players reach a Nash equilibrium