Question 1

From society's standpoint, cooperation among oligopolists is

Accepted Answer

Cooperation among oligopolists typically leads to higher prices and lower output levels, which are not beneficial for society as a whole. This is because oligopolists have market power, meaning they can influence price and output levels through their actions. When they cooperate to restrict output and set higher prices, consumers are negatively impacted and overall economic welfare is reduced. Therefore, the most desirable outcome from society's standpoint is for oligopolists to compete with each other, which would lead to lower prices and higher output levels.

Question 2

Suppose that antitrust laws were successful in moving the allocation of resources in the computer software industry closer to the social optimum. This situation would illustrate which of the following Ten Principles of Economics?

Accepted Answer

This situation would illustrate the principle that governments can sometimes improve market outcomes by correcting market failures, such as monopolies or anti-competitive behavior. In this case, antitrust laws would address a market failure in the computer software industry by promoting competition and moving the allocation of resources closer to the social optimum.

Question 3

Table 17-29
Suppose that two firms, Wild Willy's Wonderdrink (Firm W) and Hyper Hank's Hydration (Firm H), comprise the market for energy drinks. Each firm determines that it could lower its costs and increase its profits if both firms reduced their advertising budgets. But for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's energy drinks, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits:
Firm W
Breaks agreement Maintains agreement
and advertises and does not advertise 
-Refer to Table 17-29. What is the outcome of this game?

Accepted Answer

The answer of Table 17-29
Suppose that two firms, Wild Willy's...

Question 4

Table 17-28
Suppose that two firms determine that each could lower its costs and increase its profits if both reduced their advertising budgets. But in order for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's product, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits:
Firm A
Breaks agreement Maintains agreement
and advertises and does not advertise 
-Refer to Table 17-28. What is the outcome of this game?

Accepted Answer

The answer of Table 17-28
Suppose that two firms determine that...

Question 5

Table 17-29
Suppose that two firms, Wild Willy's Wonderdrink (Firm W) and Hyper Hank's Hydration (Firm H), comprise the market for energy drinks. Each firm determines that it could lower its costs and increase its profits if both firms reduced their advertising budgets. But for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's energy drinks, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits:
Firm W
Breaks agreement Maintains agreement
and advertises and does not advertise 
-Refer to Table 17-29. Which of the following statements does not correctly characterize the outcome of this game?

Accepted Answer

Both firms have the same payoff for either breaking or maintaining the agreement, so neither has a dominant strategy. It is a classic example of the Prisoners' Dilemma, where the Nash equilibrium is for both firms to break the agreement and advertise, resulting in lower overall profits. Therefore, D is the correct statement, as both firms could earn higher profits by maintaining the agreement, but this outcome is not reached in the Nash equilibrium.

Question 6

A law that encourages market competition by prohibiting firms from gaining or exercising excessive market power is

Accepted Answer

An antitrust law aims to promote competition in the market by prohibiting firms from gaining or exercising excessive market power. It intends to prevent the formation of monopolies and oligopolies, which can result in anti-competitive practices, such as price-fixing and collusion. Therefore, it is the best choice among the given options.

Question 7

Which of the following statements is true?

Accepted Answer

Antitrust laws are designed to prevent anti-competitive practices in markets. However, policymakers must also consider that some decisions made by firms may have legitimate purposes, such as promoting innovation or improving efficiency. The proper scope of antitrust laws is not always clear-cut and requires careful evaluation. Choices A, B, and D are incorrect because they do not accurately reflect the purpose and scope of antitrust laws.

Question 8

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

Accepted Answer

In an oligopoly, competition between firms can lead to lower prices and greater quantity produced, bringing the market closer to the socially optimal level of output. Inducing firms to compete with each other rather than cooperate can promote efficiency and benefit consumers. Collusion or forming cartels can lead to higher prices and reduce competition, resulting in an inefficiency and a less socially optimal outcome.

Question 9

Which of the following groups or entities has the authority to initiate legal suits to enforce antitrust laws?

Accepted Answer

Both the U.S. Justice Department and private citizens have the authority to initiate legal suits to enforce antitrust laws. Corporations may also bring legal suits, but only to defend themselves against antitrust accusations, not to enforce antitrust laws. Therefore, choice D is correct.

Question 10

Table 17-28
Suppose that two firms determine that each could lower its costs and increase its profits if both reduced their advertising budgets. But in order for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's product, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits:
Firm A
Breaks agreement Maintains agreement
and advertises and does not advertise 
-Refer to Table 17-28. Which of the following statement(s) correctly characterizes the outcome of this game?

Accepted Answer

The answer of Table 17-28
Suppose that two firms determine that...

Question 11

The primary purpose of antitrust legislation is to

Accepted Answer

The primary purpose of antitrust legislation is to protect the competitiveness of U.S. markets by preventing monopolies, price-fixing, and other unfair business practices. It is not primarily concerned with protecting small businesses, prices of American-made products, or ensuring fair profit for firms.

Question 12

Who wrote, "People of the same trade seldom meet together, but the conversation ends in a conspiracy against the public, or in some diversion to raise prices."?

Accepted Answer

This quote is from Adam Smith's book "The Wealth of Nations" in which he discusses the potential negative effects of businesses and individuals in a particular industry collaborating and forming monopolies or raising prices to benefit themselves at the expense of the general public.

Question 13

The Sherman Act made cooperative agreements

Accepted Answer

The answer of The Sherman Act made cooperative agreements
...

Question 14

Table 17-29
Suppose that two firms, Wild Willy's Wonderdrink (Firm W) and Hyper Hank's Hydration (Firm H), comprise the market for energy drinks. Each firm determines that it could lower its costs and increase its profits if both firms reduced their advertising budgets. But for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's energy drinks, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits:
Firm W
Breaks agreement Maintains agreement
and advertises and does not advertise 
-Refer to Table 17-29 Does either Firm W or Firm H have a dominant strategy?

Accepted Answer

The answer of Table 17-29
Suppose that two firms, Wild Willy's...

Question 15

The Sherman Antitrust Act

Accepted Answer

The Sherman Antitrust Act restricted the ability of competitors to engage in cooperative agreements, such as those that could result in monopolies or cartels, in order to promote fair competition in the market.

Question 16

Table 17-29
Suppose that two firms, Wild Willy's Wonderdrink (Firm W) and Hyper Hank's Hydration (Firm H), comprise the market for energy drinks. Each firm determines that it could lower its costs and increase its profits if both firms reduced their advertising budgets. But for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's energy drinks, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits:
Firm W
Breaks agreement Maintains agreement
and advertises and does not advertise 
-Refer to Table 17-29. Which of the following statement(s) correctly characterizes the outcome of this game?

Accepted Answer

The answer of Table 17-29
Suppose that two firms, Wild Willy's...

Question 17

Table 17-28
Suppose that two firms determine that each could lower its costs and increase its profits if both reduced their advertising budgets. But in order for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's product, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits:
Firm A
Breaks agreement Maintains agreement
and advertises and does not advertise 
-Refer to Table 17-28. Which of the following statements does not correctly characterize the outcome of this game?

Accepted Answer

Both firms have an incentive to maintain the agreement not to advertise, as it results in higher joint profits than if both firms break the agreement and advertise. Therefore, there is a Nash equilibrium in which both firms maintain the agreement. However, each firm does not have a dominant strategy, as their optimal choice depends on the choice of the other firm. The game is an example of the Prisoners' Dilemma, as both firms have a dominant strategy to break the agreement and advertise, but this leads to a suboptimal outcome for both firms.

Question 18

Which of the following is necessarily a problem with antitrust laws?

Accepted Answer

Antitrust laws may sometimes target a business whose practices may appear to be anti-competitive, but in fact, those practices may have legitimate purposes. This can lead to unnecessary legal costs and negative publicity for the targeted business, even if they are not engaging in anti-competitive behavior.

Question 19

Which government entity is charged with investigating and enforcing antitrust laws?

Accepted Answer

The U.S. Justice Department is responsible for enforcing antitrust laws through the Antitrust Division, which investigates and prosecutes antitrust violations in industries such as healthcare, telecommunications, and technology. The other choices, including the U.S. Commerce Department, the U.S. Treasury Department, and the Bureau of Alcohol, Tobacco, and Firearms, are not responsible for antitrust enforcement.

Question 20

Table 17-28
Suppose that two firms determine that each could lower its costs and increase its profits if both reduced their advertising budgets. But in order for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's product, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits:
Firm A
Breaks agreement Maintains agreement
and advertises and does not advertise 
-Refer to Table 17-28. Does either Firm A or Firm B have a dominant strategy?

Accepted Answer

The answer of Table 17-28
Suppose that two firms determine that...

Quiz 17: Oligopoly

From society's standpoint, cooperation among oligopolists is

Suppose that antitrust laws were successful in moving the allocation of resources in the computer software industry closer to the social optimum. This situation would illustrate which of the following Ten Principles of Economics?

A law that encourages market competition by prohibiting firms from gaining or exercising excessive market power is

Which of the following statements is true?

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

Which of the following groups or entities has the authority to initiate legal suits to enforce antitrust laws?

The primary purpose of antitrust legislation is to

Who wrote, "People of the same trade seldom meet together, but the conversation ends in a conspiracy against the public, or in some diversion to raise prices."?

The Sherman Act made cooperative agreements

The Sherman Antitrust Act

Which of the following is necessarily a problem with antitrust laws?

Which government entity is charged with investigating and enforcing antitrust laws?