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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.

A) True
B) False

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To move the allocation of resources closer to the social optimum,policymakers should typically try to induce firms in an oligopoly to


A) collude with each other.
B) form various degrees of cartels.
C) compete rather than cooperate with each other.
D) cooperate rather than compete with each other.

E) A) and B)
F) None of the above

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Suppose that Jay-Z and Beyonce are duopolists in the music industry.In January,they agree to work together as a monopolist,charging the monopoly price for their music and producing the monopoly quantity of songs.By February,each singer is considering breaking the agreement.What would you expect to happen next?


A) Jay-Z and Beyonce will determine that it is in each singer's best self interest to maintain the agreement.
B) Jay-Z and Beyonce will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium price will decrease.
C) Jay-Z and Beyonce will each break the agreement. The new equilibrium quantity of songs will decrease, and the new equilibrium price will increase.
D) Jay-Z and Beyonce will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium price also will increase.

E) All of the above
F) C) and D)

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Figure 17-1 Figure 17-1 -Refer to Figure 17-1.Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram and have zero fixed cost.The marginal revenue curve that a monopolist would face in this market is also shown.If the firms are able to collude successfully,each firm should earn a profit equal to A) $1. B) $2. C) $4. D) $6. -Refer to Figure 17-1.Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram and have zero fixed cost.The marginal revenue curve that a monopolist would face in this market is also shown.If the firms are able to collude successfully,each firm should earn a profit equal to


A) $1.
B) $2.
C) $4.
D) $6.

E) A) and C)
F) A) and B)

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Table 17-12 Each year the United States considers renewal of Most Favored Nation (MFN) trading status with Farland (a mythical nation) . Historically, legislators have made threats of not renewing MFN status because of human rights abuses in Farland. The non-renewal of MFN trading status is likely to involve some retaliatory measures by Farland. The payoff table below shows the potential economic gains associated with a game in which Farland may impose trade sanctions against U.S. firms and the United States may not renew MFN status with Farland. The table contains the dollar value of all trade-flow benefits to the United States and Farland. Table 17-12 Each year the United States considers renewal of Most Favored Nation (MFN) trading status with Farland (a mythical nation) . Historically, legislators have made threats of not renewing MFN status because of human rights abuses in Farland. The non-renewal of MFN trading status is likely to involve some retaliatory measures by Farland. The payoff table below shows the potential economic gains associated with a game in which Farland may impose trade sanctions against U.S. firms and the United States may not renew MFN status with Farland. The table contains the dollar value of all trade-flow benefits to the United States and Farland. -Refer to Table 17-12.This particular game A) features a dominant strategy for the U.S. B) features a dominant strategy for Farland. C) is a version of the prisoners' dilemma game. D) All of the above are correct. -Refer to Table 17-12.This particular game


A) features a dominant strategy for the U.S.
B) features a dominant strategy for Farland.
C) is a version of the prisoners' dilemma game.
D) All of the above are correct.

E) None of the above
F) A) and C)

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Table 17-1 Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each week Rochelle and Alec work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Rochelle and Alec can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: Table 17-1 Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each week Rochelle and Alec work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Rochelle and Alec can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: -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 -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

E) B) and C)
F) A) and D)

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Table 17-16 This table shows a game played between two players, A and B. The payoffs are given in the table as (Payoff to A, Payoff to B) . Table 17-16 This table shows a game played between two players, A and B. The payoffs are given in the table as (Payoff to A, Payoff to B) . -Refer to Table 17-16.Which of the following outcomes represents a Nash equilibrium in the game? A) Middle-Center B) Down-Center C) Up-Left D) More than one of the above is a Nash equilibrium in this game. -Refer to Table 17-16.Which of the following outcomes represents a Nash equilibrium in the game?


A) Middle-Center
B) Down-Center
C) Up-Left
D) More than one of the above is a Nash equilibrium in this game.

E) A) and B)
F) A) and D)

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Individual profit earned by Dave,the oligopolist,depends on which of the following? (i) The quantity of output that Dave produces (ii) The quantities of output that the other firms in the market produce (iii) The extent of collusion between Dave and the other firms in the market


A) (i) and (ii)
B) (ii) and (iii)
C) (iii) only
D) (i) , (ii) , and (iii)

E) None of the above
F) All of the above

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Table 17-13 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 of the two home-improvement stores are shown in the table below. Table 17-13 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 of the two home-improvement stores are shown in the table below. -Refer to Table 17-13.If both stores follow a dominant strategy,HomeMax's annual profit will grow by A) $0.6 million. B) $1.5 million. C) $2.5 million. D) $3.4 million. -Refer to Table 17-13.If both stores follow a dominant strategy,HomeMax's annual profit will grow by


A) $0.6 million.
B) $1.5 million.
C) $2.5 million.
D) $3.4 million.

E) A) and C)
F) A) and B)

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An oligopoly would tend to restrict output and drive up price if


A) barriers to entering the industry are negligible.
B) firms engage in informative advertising.
C) firms produce a standardized product.
D) firms collude and behave like a monopoly.

E) A) and C)
F) All of the above

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Which of the following would be most likely to contribute to the breakdown of a cartel in a natural resource (e.g.,bauxite) market?


A) high prices
B) low price elasticity of demand
C) high compatibility of member interests
D) unequal member ownership of the natural resource

E) A) and D)
F) A) and B)

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Table 17-2. The table shows the town of Pittsville's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline. Table 17-2. The table shows the town of Pittsville's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline. -Refer to Table 17-2.Suppose there are exactly two sellers of gasoline in Pittsville: Exxoff and BQ.If Exxoff sells 300 gallons and BQ sells 400 gallons,then A) Exxoff's profit is $900 and BQ's profit is $1,200. B) Exxoff's profit is $2,100 and BQ's profit is $2,400. C) there is an excess demand for gasoline in Pittsville. D) there is an excess supply of gasoline in Pittsville. -Refer to Table 17-2.Suppose there are exactly two sellers of gasoline in Pittsville: Exxoff and BQ.If Exxoff sells 300 gallons and BQ sells 400 gallons,then


A) Exxoff's profit is $900 and BQ's profit is $1,200.
B) Exxoff's profit is $2,100 and BQ's profit is $2,400.
C) there is an excess demand for gasoline in Pittsville.
D) there is an excess supply of gasoline in Pittsville.

E) None of the above
F) B) and D)

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Table 17-8. For a certain small town, the table shows the demand schedule for water. Assume the marginal cost of supplying water is constant at $4 per bottle. Table 17-8. For a certain small town, the table shows the demand schedule for water. Assume the marginal cost of supplying water is constant at $4 per bottle. -Refer to Table 17-8.If there were only one supplier of water,what would be the price and quantity? A) The price would be $7 per gallon and the quantity would be 600 gallons. B) The price would be $6 per gallon and the quantity would be 800 gallons. C) The price would be $5 per gallon and the quantity would be 1000 gallons. D) The price would be $4 per gallon and the quantity would be 1200 gallons. -Refer to Table 17-8.If there were only one supplier of water,what would be the price and quantity?


A) The price would be $7 per gallon and the quantity would be 600 gallons.
B) The price would be $6 per gallon and the quantity would be 800 gallons.
C) The price would be $5 per gallon and the quantity would be 1000 gallons.
D) The price would be $4 per gallon and the quantity would be 1200 gallons.

E) C) and D)
F) B) and D)

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Hot dog vendors on the beach fail to cooperate with one another on the quantity of hot dogs they should sell to earn monopoly profits.A consequence of their failure is that,relative to the outcome the vendors would like, (i) the quantity of hot dogs supplied is closer to the socially optimal level. (ii) the price of hot dogs is closer to marginal cost. (iii) the hot dog market at the beach is less competitive.


A) (i) and (ii)
B) (ii) and (iii)
C) (i) and (iii)
D) (iii) only

E) A) and D)
F) A) and C)

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Any market that is served by an oligopoly is in effect served by a monopoly.

A) True
B) False

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Cartels are difficult to maintain because


A) antitrust laws are difficult to enforce.
B) cartel agreements are conducive to monopoly outcomes.
C) there is always tension between cooperation and self-interest in a cartel.
D) firms pay little attention to the decisions made by other firms.

E) All of the above
F) None of the above

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In the prisoners' dilemma game,one prisoner is always better off confessing,no matter what the other prisoner does.

A) True
B) False

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Table 17-4. The information in the table below shows the total demand for high-speed Internet subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $200,000 (per year) and that the marginal cost of providing an additional subscription is always $80. Table 17-4. The information in the table below shows the total demand for high-speed Internet subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $200,000 (per year) and that the marginal cost of providing an additional subscription is always $80. -Refer to Table 17-4.Assume that there are two profit-maximizing high-speed Internet service providers operating in this market.Further assume that they are not able to collude on the price and quantity of subscriptions to sell.How much profit will each firm earn when this market reaches a Nash equilibrium? A) $120,000 B) $150,000 C) $200,000 D) $225,000 -Refer to Table 17-4.Assume that there are two profit-maximizing high-speed Internet service providers operating in this market.Further assume that they are not able to collude on the price and quantity of subscriptions to sell.How much profit will each firm earn when this market reaches a Nash equilibrium?


A) $120,000
B) $150,000
C) $200,000
D) $225,000

E) None of the above
F) B) and D)

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Table 17-5. Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week Kunal and Naj work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. Assume Kunal and Naj can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water are shown in the table below. Table 17-5. Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week Kunal and Naj work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. Assume Kunal and Naj can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water are shown in the table below. -Refer to Table 17-5.Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist.Once the Nash equilibrium is reached,how much profit will each producer earn? A) $400.00 B) $437.50 C) $450.00 D) $800.00 -Refer to Table 17-5.Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist.Once the Nash equilibrium is reached,how much profit will each producer earn?


A) $400.00
B) $437.50
C) $450.00
D) $800.00

E) A) and B)
F) C) and D)

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Table 17-10 The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost. Table 17-10 The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost. -Refer to Table 17-10.If the market for gasoline in Driveaway is perfectly competitive,then the equilibrium price of gasoline is A) $0 and the equilibrium quantity is 400 gallons. B) $1 and the equilibrium quantity is 350 gallons. C) $2 and the equilibrium quantity is 300 gallons. D) $4 and the equilibrium quantity is 200 gallons. -Refer to Table 17-10.If the market for gasoline in Driveaway is perfectly competitive,then the equilibrium price of gasoline is


A) $0 and the equilibrium quantity is 400 gallons.
B) $1 and the equilibrium quantity is 350 gallons.
C) $2 and the equilibrium quantity is 300 gallons.
D) $4 and the equilibrium quantity is 200 gallons.

E) B) and D)
F) B) and C)

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