Chapter 17 Post-Class Assignment Part I: Oligopoly: Algorithmic End of Chapter

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If there were many suppliers of diamonds, the price would be $??? per diamond and the quantity sold would be ?? diamonds.

$1,000 & 12,000

If there were only one supplier of diamonds, the price would be $??? per diamond and the quantity sold would be ??? diamonds.

$7,000 & 6,000

Suppose Russia and South Africa form a cartel. In this case, the price would be $???? per diamond and the total quantity sold would be ???? diamonds. If the countries split the market evenly, South Africa would produce diamonds and earn a profit of $??? .

$7,000 & 6,000

If the two firms could collude and agree on how to split the total profits, what outcome would they pick? Big Brew maintains a high price and Little Kona enters. Big Brew maintains a low price and Little Kona enters. Big Brew maintains a low price and Little Kona does not enter. Big Brew maintains a high price and Little Kona does not enter.

Big Brew maintains a high price and Little Kona does not enter.

Which of the following outcomes represent a Nash equilibrium in this case? Check all that apply. Big Brew maintains a high price and Little Kona enters. Big Brew maintains a low price and Little Kona does not enter. Big Brew maintains a high price and Little Kona does not enter. Big Brew maintains a low price and Little Kona enters.

Big Brew maintains a high price and Little Kona enters.

Baseball players went on strike in 1994 because they would not accept the salary cap that the owners wanted to impose. True or False: The owners felt the need for a salary cap to dissolve collusive behavior over salaries.

False

Baseball players went on strike in 1994 because they would not accept the salary cap that the owners wanted to impose. True or False: The owners felt the need for a salary cap to increase the quality of players.

False

In 1993, the U.S. Congress ratified the North American Free Trade Agreement, in which the United States and Mexico agreed to reduce trade barriers simultaneously. True or False: Given the trade strategy decisions in the table, the United States is better off and Mexico is worse off with this new trade policy.

False

True or False: Only Little Kona has a dominant strategy of entering in this game.

False

True or False: The Nash equilibrium is taking the drug if X is greater than $6,000.

False

True or False: The Nash equilibrium is taking the drug if X is less than $10,000.

False

True or False: The Nash equilibrium is the best outcome for both airlines.

False

True or False: This goal is difficult to achieve because teams have different budgets.

False

Suppose there was a way to make the drug safer (that is, have lower X ). Which of the following statements are true about the effects of making the drug safer? Check all that apply: It lowers the likelihood of taking the drug. It increases the payoff of taking the drug. It has no effect on the athletes' decision to take the drug if X remains greater than $5,000.

It increases the payoff of taking the drug. It has no effect on the athletes' decision to take the drug if X remains greater than $5,000.

The newspaper also noted OPEC's view "that producing nations outside the organization, like Norway and Britain, should do their share and cut production." What does the phrase "do their share" suggest about OPEC's desired relationship with Norway and Britain? OPEC would like Norway and Britain to join the cartel. OPEC would like Norway and Britain to act competitively. OPEC would like Norway and Britain to keep their production levels high.

OPEC would like Norway and Britain to join the cartel.

The New York Times (Nov. 30, 1993) reported that "the inability of OPEC to agree last week to cut production has sent the oil market into turmoil . . . [leading to] the lowest price for domestic crude oil since June 1990." True or False: The members of OPEC were trying to agree to cut production so they could lower the price. OPEC was unable to agree on cutting production because each country has a different production capacity. The members of OPEC were trying to agree to cut production so they could save more oil for the future. OPEC was unable to agree on cutting production because each country has an incentive to cheat on any agreement. The members of OPEC were trying to agree to cut production so they could raise the price. OPEC was unable to agree on cutting production because each country experiences different production costs.

The members of OPEC were trying to agree to cut production so they could lower the price.= False OPEC was unable to agree on cutting production because each country has a different production capacity.= False The members of OPEC were trying to agree to cut production so they could save more oil for the future.= False OPEC was unable to agree on cutting production because each country has an incentive to cheat on any agreement.= True The members of OPEC were trying to agree to cut production so they could raise the price.= True OPEC was unable to agree on cutting production because each country experiences different production costs.= False

Based on your understanding of the gains from trade (discussed in Chapters 3 and 9), which of the following statements accurately characterize how well the payoffs indicated for the four possible outcomes actually reflect a nation's welfare? Check all that apply: The payoffs in the upper right and lower left corners of the matrix reflect a nation's welfare because the nation with lower tariffs is better off, since that nation is more open to trade. The payoffs in the upper right and lower left corners of the matrix do not reflect a nation's welfare because tariffs hurt overall total surplus, so both countries' welfare should decline regardless of who charges the high and low tariffs. The payoffs in the upper left and lower right corners of the matrix reflect a nation's welfare because they show that trade is beneficial and tariffs are a barrier to trade.

The payoffs in the upper right and lower left corners of the matrix do not reflect a nation's welfare because tariffs hurt overall total surplus, so both countries' welfare should decline regardless of who charges the high and low tariffs The payoffs in the upper left and lower right corners of the matrix reflect a nation's welfare because they show that trade is beneficial and tariffs are a barrier to trade.

Baseball players went on strike in 1994 because they would not accept the salary cap that the owners wanted to impose. True or False: The owners felt the need for a salary cap to help prevent any team from cheating.

True

Big Brew threatens Little Kona by saying, "If you enter, we're going to set a low price, so you had better stay out." True or False: Little Kona should not believe the threat.

True

The Nash equilibrium is taking the drug if X is less than $3,000.

True

True or False: Both airlines would be better off than in the Nash equilibrium if both set a high price.

True

True or False: Consumers would lose if the two airlines collude to earn higher profits than those given by the Nash equilibrium

True

True or False: The Nash equilibrium outcome for trade policy is for both the United States and Mexico to have high tariffs.

True

True or False: There is a Nash equilibrium for this scenario. (Hint: Look closely at the definition of Nash equilibrium.)

True

True or False: This goal is difficult to achieve because baseball players demand more money.

True

True or False: This goal is difficult to achieve because teams can attract better players with higher salaries.

True

If Dynaco believes Synergy will go with a large budget, it will choose a budget. If Dynaco believes Synergy will go with a small budget, it will choose a budget. Therefore, Dynaco have a dominant strategy.

large, large, does

If Synergy believes Dynaco will go with a large budget, it will choose a budget. If Synergy believes Dynaco will go with a small budget, it will choose a budget. Therefore, Synergy have a dominant strategy.

large, small, does not

Major league baseball team owners have an oligopoly in the market for baseball players. The owners' goal is to keep players' salaries ???? .

low

The Nash equilibrium outcome in this game is for American to set a price and for Braniff to set a .

low & low

The dominant strategy for the United States is to always choose tariffs. The dominant strategy for Mexico is to always choose tariffs.

low & low


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