Exam 3 Ch 14

(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Sydney and Robbie. Each firm can produce gadgets with no marginal cost or 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 Sydney decides to cheat on the agreement and sell 100 more gadgets, the market price of gadgets will be: $6. $7. $5. $4.

$4.

(Figure: Payoff Matrix for Gehrig and Gabriel) The figure Payoff Matrix for Gehrig and Gabriel describes two people who sell art figurines. Both Gehrig and Gabriel have two strategies available to them: to produce 5,000 figurines each month or to produce 7,000 figurines each month. The combined profits of the two are maximized if Gehrig produces _____ figurines and Gabriel produces _____ figurines. 7,000; 7,000 7,000; 5,000 5,000; 5,000 5,000; 7,000

5,000; 5,000

(Scenario: Payoff Matrix for Firms X and Y) In the scenario Payoff Matrix for Firms X and Y, if firm X and firm Y wish to maximize joint profits: each firm should choose its dominant strategy. Firm Y should choose a dominant strategy and Firm X, a nondominant strategy. each should consider its specific situation before choosing a strategy, since strategies also entail costs. each should choose a nondominant strategy.

Firm Y should choose a dominant strategy and Firm X, a nondominant strategy.

In which of the following situations does overt collusion take place? Firms in an industry agree openly on price and output, and they jointly make other decisions aimed at achieving monopoly profits. Competition among a large number of small firms generates a stable market price. Small firms in an industry have an unspoken agreement to charge the same price as the largest firm. Competition among a large number of small firms generates similar but slightly different prices.

Firms in an industry agree openly on price and output, and they jointly make other decisions aimed at achieving monopoly profits

Oligopoly first became an issue in the United States when: the Sons of Liberty dumped the East India Company's tea into Boston Harbor in 1773. the Emancipation Proclamation was issued in 1863. the growth of railroads made possible a national market for goods in the second half of the nineteenth century. Google purchased Motorola Mobility in 2011.

the growth of railroads made possible a national market for goods in the second half of the nineteenth century.

(Figure: Monopoly Profits in Duopoly) Look at the figure Monopoly Profits in Duopoly. Each firm faces an identical demand curve, D1, and the market demand curve is D2. The figure illustrates how firms can reap monopoly profits even in an industry with: a four-firm concentration ratio of 50. two firms. free entry and exit. monopolistic competition.

two firms.

_____ occurs if Coke hires LeBron James to make a commercial and Pepsi follows by hiring Stephen Curry for its commercial. Antitrust policy Nonprice competition Tacit collusion Price leadership

Nonprice competition

Two identical firms make up an industry in which the market demand curve is represented by Q = 5,000 - 4P, where Q is the quantity demanded and P is price per unit. The marginal cost of producing the good in this industry is constant and equal to $650. Fixed cost is zero. Reference: Ref 14-20 (Scenario: Two Identical Firms) Suppose the two firms in the scenario Two Identical Firms decide to cooperate and collude, resulting in the same amount of production for each firm. What is the profit-maximizing price and output for the industry? P = $400; Q = 5,000 P = $950; Q = 1,200 P = $600; Q = 1,500 P = $300; Q = 2,000

P = $950; Q = 1,200

(Figure: Collusion) Look at the figure Collusion. The price charged by the industry with collusion is shown by: W. X. Y. Z.

W.

To be called an oligopoly, an industry must have: independence in decision making. a small number of interdependent firms. a horizontal demand curve. relatively easy entry and exit.

a small number of interdependent firms.

(Figure: Pricing Strategy in Cable TV Market II) Look at the figure Pricing Strategy in Cable TV Market II. If CableNorth followed a high-price strategy one month just to find it only earned $80,000 because CableSouth followed a low-price strategy, and CableNorth decided to lower prices for the next month, we would say that CableNorth is following: a tit-for-tat strategy. a dominant strategy. a collusive strategy. a kinked demand model

a tit-for-tat strategy.

The field of law that attempts to limit the ability of oligopolists to collude and restrict competition is called: antitrust policy. product safety policy. fuel efficiency standards. excise tax policy.

antitrust policy.

Two identical firms make up an industry in which the market demand curve is represented by Q = 5,000 - 4P, where Q is the quantity demanded and P is price per unit. The marginal cost of producing the good in this industry is constant and equal to $650. Fixed cost is zero. Reference: Ref 14-20 (Scenario: Two Identical Firms) If one firm in the scenario Two Identical Firms decides to cheat, the cheating firm will: find that the other firm has an increase in its profits alone. be able to increase its profits initially. find that cheating initially leads to an increase in both firms' profits. find that cheating leads to a decrease in its profits alone.

be able to increase its profits initially.

(Figure: Pricing Strategy in Cable TV Market II) Look at the figure Pricing Strategy in Cable TV Market II. The Nash equilibrium in the cable TV market occurs when: both firms set a low price and each earns $90,000 per month. both firms set a high price and each earns $100,000 per month. CableNorth sets a high price and earns $80,000 per month, and CableSouth sets a low price and earns $130,000 per month. CableNorth sets a low price and earns $130,000 per month, and CableSouth sets a high price and earns $80,000 per month.

both firms set a low price and each earns $90,000 per month.

(Figure: Pricing Strategy in Cable TV Market II) Look at the figure Pricing Strategy in Cable TV Market II. The noncooperative equilibrium in the cable TV market occurs when: CableNorth sets a high price and earns $80,000 per month and CableSouth sets a low price and earns $130,000 per month. CableNorth sets a low price and earns $130,000 per month and CableSouth sets a high price and earns $80,000 per month. both firms set a low price and each earns $90,000 per month. both firms set a high price and each earns $100,000 per month.

both firms set a low price and each earns $90,000 per month.

(Scenario: Payoff Matrix for Firms X and Y) In the scenario Payoff Matrix for Firms X and Y, if firm Y were to choose its dominant strategy, it would: choose a low price. choose a high price. encounter a dilemma, since there are two dominant strategies. allow firm X to dominate the industry.

choose a high price.

(Figure: Pricing Strategy in Cable TV Market I) Look at the figure Pricing Strategy in Cable TV Market I. If the two firms in the cable TV market collude: both firms advertise, and each earns $100,000 per month. neither firm advertises, and each earns $150,000 per month. CableNorth advertises and earns $130,000 per month, while CableSouth does not advertise and earns $70,000 per month. both firms advertise and each earns $130,000 per month.

neither firm advertises, and each earns $150,000 per month.

The purpose of antitrust policy is to: limit pollution. provide access to affordable health care for uninsured Americans. prevent the exercise of monopoly power. control inflation and interest rates.

prevent the exercise of monopoly power.

If rival solar roof panel manufacturers in Reno limit production and _____ prices in a way that increases their profits without meeting with one another in a formal way, they are engaging in _____ collusion. lower; tacit raise; tacit lower; explicit raise; explicit

raise; tacit