Econ Exam 3 Chapter 17

2.Refer to Table 17‐1. If Rochelle and Alec operate as a profit‐maximizing monopoly in the market for water, what price will they charge? a. $25 b. $30 c. $35 d. $40

B

17.Refer to Table 17‐6. Suppose the market for this product is served by two firms that have formed a cartel. If the marginal cost of production is $4 and the fixed cost is $6, the combined profit of the cartel will be a. $6 b. $12 c. $24 d. $32

A

32.Refer to Table 17‐17. In this game, a. neither player has a dominant strategy. b. both players have a dominant strategy. c. Firm A has a dominant strategy, but Firm B does not have a dominant strategy. d. Firm B has a dominant strategy, but Firm A does not have a dominant strategy

A

34.Refer to Table 17‐22. Which of the following statements is correct? a. Matt's dominant strategy is to charge a low price. b. Brian's dominant strategy is to charge a high price. c. The dominant strategy for both Brian and Matt is to charge a low price. d. Matt's dominant strategy is to charge a high price.

A

7.Refer to Table 17‐1. If this market for water were perfectly competitive instead of monopolistic, what price would be charged? a. $0 b. $30 c. $40 d. $60

A

Scenario 17‐1. Assume that the countries of Irun and Urun are the only two producers of crude oil. Further assume that both countries have entered into an agreement to maintain certain production levels in order to maximize profits. In the world market for oil, the demand curve is downward sloping 12.Refer to Scenario 17‐1. If Irun fails to live up to the production agreement and overproduces, which of the following statements will be true of Urun's condition? a. Urun will invariably be worse off than before the agreement was broken. b. Urun will counter by decreasing its production in order to maintain price stability. c. Urun's profit will be maximized by holding its production constant. d. Urun's profit will be unaffected by Irun's actions.

A

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. 26.Refer to Scenario 17‐2. If Mobile and Cargo are able to successfully collude to maximize their joint profits, Mobile will a. drill one well and Cargo will drill one well. b. drill one well and Cargo will drill two wells. c. drill two wells and Cargo will drill one well. d. drill two wells and Cargo will drill two wells. 27.Refer to Scenario 17‐2. If Mobile and Cargo are able

A

20.In a game, a dominant strategy is a. the best strategy for a player to follow only if other players are cooperative. b. the best strategy for a player to follow, regardless of the strategies followed by other players. c. a strategy that must appear in every game. d. a strategy that leads to one player's interests dominating the interests of the other players.

B

14.Refer to Table 17‐6. Suppose the market for this product is served by two firms that have formed a cartel. What price will the cartel charge in this market if the marginal cost of production is $0? a. $6 b. $8 c. $10 d. $12

B

19.In which case do firms have some control over their price? a. oligopoly and perfect competition b. oligopoly but not perfect competition c. perfect competition but not oligopoly d. neither perfect competition nor oligopoly

B

25.Refer to Table 17‐11. When this game reaches a Nash equilibrium, profits for Firm A and Firm B will be a. $‐5 and $‐50, respectively. b. $‐10 and $‐10, respectively. c. $‐20 and $‐15, respectively. d. $‐50 and $‐5, respectively.

B

4.Refer to Table 17‐1. If Rochelle and Alec operate as a profit‐maximizing monopoly in the market for water, how much profit will each of them earn? a. $8,750 b. $9,000 c. $12,000 d. $18,000

B

8.Refer to Table 17‐1. Suppose the town enacts new antitrust laws that prohibit Rochelle and Alec from operating as a monopoly. What will be the price of water once Rochelle and Alec reach a Nash equilibrium? a. $15 b. $20 c. $25 d. $30

B

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. 28.Refer to Scenario 17‐2. If Mobile were to drill a second well, what would its profit be if Cargo did not drill a second well? a. $29 million b. $58 million c. $61 million d. $64 million

B

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. 29.Refer to Scenario 17‐2. If Mobile were to drill a second well and Cargo also drilled a second well, what would Mobile's profit be? a. $24 million b. $42 million c. $45 million d. $48 million

B

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. 30.Refer to Scenario 17‐2. Cargo's dominant strategy would lead to what sort of well‐drilling behavior? a. Cargo will never drill a second well. b. Cargo will always drill a second well. c. Cargo will drill a second well only if Mobile drills a well. d. Cargo will drill a second well only if Mobile does not drill a well.

B

cenario 17‐1. Assume that the countries of Irun and Urun are the only two producers of crude oil. Further assume that both countries have entered into an agreement to maintain certain production levels in order to maximize profits. In the world market for oil, the demand curve is downward sloping. 10.Refer to Scenario 17‐1. The fact that both countries have colluded to earn higher profit shows their desire to keep their combined level of output a. above the monopoly level. b. below the Nash equilibrium level. c. equal to the Nash equilibrium level

B

13.An agreement among firms regarding price and/or production levels is called a. an antitrust market. b. a free‐trade arrangement. c. collusion. d. a Nash agreement.

C

16.Refer to Table 17‐6. Suppose the market for this product is served by two firms that have formed a cartel. What price will the cartel charge in this market if the marginal cost of production is $4? a. $6 b. $8 c. $10 d. $12

C

18.If duopolists colluded but then stopped colluding, a. price and quantity would rise. b. price would rise and quantity would fall. c. price would fall and quantity would rise d. price and quantity would fall.

C

23.Refer to Table 17‐11. If both firms follow a dominant strategy, Firm A's profits (losses) will be a. $‐50 b. $‐20 c. $‐10 d. $‐5

C

24.Refer to Table 17‐11. If both firms follow a dominant strategy, Firm B's profits (losses) will be a. $‐50 b. $‐15 c. $‐10 d. $‐5

C

3.Refer to Table 17‐1. If Rochelle and Alec operate as a profit‐maximizing monopoly in the market for water, how many gallons of water will be produced and sold? a. 0 b. 500 c. 600 d. 1,200

C

9.Refer to Table 17‐1. Suppose the town enacts new antitrust laws that prohibit Rochelle and Alec from operating as a monopoly. How many gallons of water will be produced and sold once Rochelle and Alec reach a Nash equilibrium? a. 600 b. 700 c. 800 d. 900

C

Scenario 17‐1. Assume that the countries of Irun and Urun are the only two producers of crude oil. Further assume that both countries have entered into an agreement to maintain certain production levels in order to maximize profits. In the world market for oil, the demand curve is downward sloping. 11.Refer to Scenario 17‐1. As long as the combined level of output is less than the Nash equilibrium level, both Irun and Urun have the individual incentive to a. hold production constant. b. decrease production. c. increase production. d. increase price.

C

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. 27.Refer to Scenario 17‐2. If Mobile and Cargo are able to successfully collude to maximize their joint profits, Mobile will earn a. $29 million and Cargo will earn $58 million. b. $42 million and Cargo will earn $42 million. c. $45 million and Cargo will earn $45 million. d. $58 million and Cargo will earn $29 million.

C

1.Which of the following statements is correct? a. If duopolists successfully collude, then their combined output will be equal to the output that would be observed if the market were a monopoly. b. Although the logic of self‐interest decreases a duopoly's price below the monopoly price, it does not push the duopolists to reach the competitive price. c. Although the logic of self‐interest increases a duopoly's level of output above the monopoly level, it does not p

D

15.Refer to Table 17‐6. Suppose the market for this product is served by two firms that have formed a cartel. If the marginal cost of production is $0 and there is no fixed cost, the combined profit of the cartel will be a. $16 b. $24 c. $30 d. $32

D

21.Refer to Table 17‐11. Pursuing its own best interests, Firm A will concede that cigarette smoke causes lung cancer a. only if Firm B concedes that cigarette smoke causes lung cancer. b. only if Firm B does not concede that cigarette smoke causes lung cancer. c. regardless of whether Firm B concedes that cigarette smoke causes lung cancer. d. None of the above. In pursuing its own best interests, Firm A will in no case concede that cigarette smoke causes lung cancer.

D

22.Refer to Table 17‐11. Pursuing its own best interests, Firm B will concede that cigarette smoke causes lung cancer a. only if Firm A concedes that cigarette smoke causes lung cancer. b. only if Firm A does not concede that cigarette smoke causes lung cancer. c. regardless of whether Firm A concedes that cigarette smoke causes lung cancer. d. None of the above; in pursuing its own best interests, Firm B will in no case concede that cigarette smoke causes lung cancer.

D

31.George and Jerry 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 $3,000. If they both advertise on radio, each will earn a profit of $5,000. If neither advertises at all, each will earn a profit of $10,000. If one advertises on TV and the other advertises on radio, then the one advertising on TV will earn $4,000 and the other will earn $2,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $8,000 and the other will earn $5,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $9,000 and the other will earn $6,000. If both follow their dominant strategy, then George will a. advertise on TV and earn $3,000. b. advertise on radio and earn $5,000. c. advertise on TV and earn $8,000. d. not advertise and earn $10,000.

D

33.Refer to Table 17‐17. Which of the following outcomes represent the Nash equilibrium in this game? a. Q=2 for Firm A and Q=3 for Firm B. b. Q=3 for Firm A and Q=2 for Firm B. c. There is no Nash equilibrium in this game since neither player has a dominant strategy. d. Both a and b are correct.

D

35.Refer to Table 17‐22. Which of the following statements is correct if Brian and Matt will play this game only once? a. The Nash equilibrium is the high price. b. A Nash equilibrium cannot be established unless Brian and Matt collude. c. A Nash equilibrium cannot be established without the players repeating the game. d. The Nash equilibrium price is the low price.

D

5.Refer to Table 17‐1. If the market for water were perfectly competitive instead of monopolistic, how many gallons of water would be produced and sold? a. 0 b. 600 c. 900 d. 1,200

D

6.Refer to Table 17‐1. What is the socially efficient quantity of water? a. 0 gallons b. 600 gallons c. 900 gallons d. 1,200 gallons

D