Question 1

For a firm, strategic interactions with other firms in the market become more important as the number of firms in the market becomes larger.

Accepted Answer

Strategic interactions become more important in markets with fewer firms because each firm's actions have a more significant impact on the market and on the other firms. In markets with many firms, individual actions have less impact, reducing the importance of strategic interactions.

Question 2

The essence of an oligopolistic market is that there are only a few sellers.

Accepted Answer

In an oligopolistic market, there are only a few sellers who dominate the market and have a significant market share. This gives them a certain degree of control over the price and supply of goods or services, making competition relatively limited.

Question 3

A particular cable TV company requires a household to subscribe to its high-speed Internet service if it subscribes to cable TV, and vice versa. This practice

Accepted Answer

The answer of A particular cable TV company requires a...

Question 4

If firms in an oligopoly agree to produce according to the monopoly outcome, they will produce the same level of output as they would produce in a Nash equilibrium.

Accepted Answer

In a Nash equilibrium, each firm in an oligopoly chooses its best strategy given the strategies chosen by other firms, often leading to a higher total output compared to the monopoly outcome, where firms agree to produce a lower total output to maximize joint profits.

Question 5

In a competitive market, strategic interactions among the firms are not important.

Accepted Answer

The answer of In a competitive market, strategic interactions among...

Question 6

Whether an oligopoly consists of 3 firms or 10 firms, the level of output likely will be the same.

Accepted Answer

The level of output in an oligopoly can vary depending on the number of firms and their individual market power. A smaller number of firms with greater market power may limit output to increase prices and profits, while a larger number of firms may compete more aggressively and increase output to gain market share.

Question 7

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

Accepted Answer

An oligopoly consists of a few firms dominating the market, whereas a monopoly is characterized by a single firm controlling the entire market. They are distinct market structures with different competitive dynamics.

Question 8

Suppose three firms form a cartel and agree to charge a specific price for their output. Each individual firm has an incentive to maintain the agreement because the firm's individual profits will be the greatest under the cartel arrangement.

Accepted Answer

While a cartel agreement aims to maximize collective profits by setting high prices, each individual firm has an incentive to cheat on the agreement by slightly undercutting the agreed price to increase its market share and individual profits, thus undermining the cartel's stability.

Question 9

The practice of tying is used to

Accepted Answer

The practice of tying involves offering products together in a package deal to sell at a combined price closer to a buyer's total willingness to pay. This allows the seller to increase overall revenue by offering a discount for purchasing multiple products together. It is often used in marketing and sales tactics rather than antitrust laws or collusive agreements.

Question 10

When all firms choose their best strategy given the strategies that all the other firms have chosen, the result is a Nash equilibrium.

Accepted Answer

This is the definition of Nash equilibrium, where no individual firm can gain by unilaterally changing their strategy, given the strategies of the other firms.

Question 11

Scenario 17-5
Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost.
-Refer to Scenario 17-5. If the restaurant is unable to use tying, what is the profit-maximizing price to charge for a steak?

Accepted Answer

The answer of Scenario 17-5
Assume that a local restaurant sells...

Question 12

Suppose that Makemoney Movies produces two new films - The Hulk and The Piano. Makemoney offers theaters the two films together at a single price but will not supply the movies separately. What do economists call this business practice?

Accepted Answer

This business practice is called "tying," which refers to the practice of bundling or tying together two products or services, typically offering them at a single price, in order to increase sales or leverage market power over competitors. In this case, Makemoney is tying the two films together and forcing theaters to purchase both in order to show either one, which may limit competition from other studios or films that theaters may prefer to show.

Question 13

The story of the prisoners' dilemma shows why

Accepted Answer

The prisoners' dilemma is a game theory scenario in which two individuals acting in their own self-interest do not result in the optimal outcome for both of them. This scenario is often used to explain why oligopolies (markets that are dominated by a few large firms) may fail to cooperate, even when cooperation would benefit them all. Each firm may choose to act in its own self-interest by lowering prices to gain market share, but if all firms do this, they may end up in a worse position than if they had all cooperated to keep prices stable. This is why cooperation between firms is often necessary for a healthy and competitive market.

Question 14

In the U.S. government's 1998 suit against the Microsoft Corporation, a central issue was whether Microsoft should be allowed to integrate its Internet browser into its Windows operating system. Microsoft responded that

Accepted Answer

Microsoft's response was that integrating new features into older products is a common practice in the technology industry.

Question 15

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

Accepted Answer

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of tying. Tying is when a seller insists that a buyer purchase two (or more) products together, rather than allowing them to be purchased separately. This argument suggests that consumers are not being harmed by the tie-in because they are not paying more than they would for the two items separately.

Question 16

Scenario 17-5
Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost.
-Refer to Scenario 17-5. If the restaurant is unable to use tying, what is the profit-maximizing price to charge for a salad?

Accepted Answer

The answer of Scenario 17-5
Assume that a local restaurant sells...

Question 17

Scenario 17-5
Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost.
-Refer to Scenario 17-5. How much additional profit can the restaurant earn by switching to the use of a tying strategy to price salads and steaks rather than pricing these goods separately?

Accepted Answer

The answer of Scenario 17-5
Assume that a local restaurant sells...

Question 18

Scenario 17-5
Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost.
-Refer to Scenario 17-5. If the restaurant is able to use tying to price salads and steaks, what is the profit- maximizing price to charge for the "tied" good?

Accepted Answer

The answer of Scenario 17-5
Assume that a local restaurant sells...

Question 19

A central issue in the Microsoft antitrust lawsuit involved Microsoft's integration of its Internet browser into its Windows operating system, to be sold as one unit. This practice is known as

Accepted Answer

The practice of integrating the browser into the operating system and selling it as one unit is known as tying, which was a central issue in the Microsoft antitrust lawsuit.

Question 20

Game theory is just as necessary for understanding competitive or monopoly markets as it is for understanding oligopolistic markets.

Accepted Answer

The answer of Game theory is just as necessary for...

Quiz 17: Oligopoly

For a firm, strategic interactions with other firms in the market become more important as the number of firms in the market becomes larger.

The essence of an oligopolistic market is that there are only a few sellers.

A particular cable TV company requires a household to subscribe to its high-speed Internet service if it subscribes to cable TV, and vice versa. This practice

If firms in an oligopoly agree to produce according to the monopoly outcome, they will produce the same level of output as they would produce in a Nash equilibrium.

In a competitive market, strategic interactions among the firms are not important.

Whether an oligopoly consists of 3 firms or 10 firms, the level of output likely will be the same.

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

Suppose three firms form a cartel and agree to charge a specific price for their output. Each individual firm has an incentive to maintain the agreement because the firm's individual profits will be the greatest under the cartel arrangement.

The practice of tying is used to

When all firms choose their best strategy given the strategies that all the other firms have chosen, the result is a Nash equilibrium.

Suppose that Makemoney Movies produces two new films - The Hulk and The Piano. Makemoney offers theaters the two films together at a single price but will not supply the movies separately. What do economists call this business practice?

The story of the prisoners' dilemma shows why

In the U.S. government's 1998 suit against the Microsoft Corporation, a central issue was whether Microsoft should be allowed to integrate its Internet browser into its Windows operating system. Microsoft responded that

The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of which of the following?

A central issue in the Microsoft antitrust lawsuit involved Microsoft's integration of its Internet browser into its Windows operating system, to be sold as one unit. This practice is known as

Game theory is just as necessary for understanding competitive or monopoly markets as it is for understanding oligopolistic markets.