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ECON 2106 Chapter 15
SI date: Thursday 11/04
Next exam 11/16
Oligopoly!
1. The study of behavior in situations of interdependence is known as:
A) dominant strategies.
B) game theory.
C) Nash equilibrium.
D) tacit collusion.
2. (Figure: Collusion) In the figure, panel (c) gives the combined marginal revenue,
demand, and marginal cost curves for an industry containing several firms. Panels (a)
and (b) give marginal cost curves for two of those firms. The price charged by the
industry under collusion is shown by:
A) W.
B) X.
C) Y.
D) Z.
3. (Figure: Collusion) In the figure, panel (c) gives the combined marginal revenue,
demand, and marginal cost curves for an industry containing several firms.
Panels (a) and (b) give marginal cost curves for two of those firms. The quantity
of output produced by Firm 1 under collusion is shown by:
A) F.
B) G.
C) H.
D) K.
4. Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary
believes he faces a kinked demand curve. This means Gary thinks if he lowers his price,
then Frank will ________, and if he raises his price, Frank will ________.
A) lower his price; raise his price
B) lower his price; not raise his price
C) not lower his price; raise his price
D) not lower his price; not raise his price
5. Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown.
Gary and Frank decide to form a cartel to raise the price of gasoline. The total
industry profits are highest when ________ and Gary's profits are highest when
________.
A) neither firm cheats on the agreement; neither firm cheats on the agreement
B) neither firm cheats on the agreement; Gary cheats on the agreement and Frank does
not cheat
C) both firms cheat on the agreement; Gary cheats on the agreement and Frank does
not cheat
D) both Gary and Frank cheat on the agreement; both Gary and Frank cheat on the
agreement
6. (Table: Demand for Wooden Stakes) The table shows the demand for wooden stakes in
the town of Sunnyvale. Suppose the marginal cost of producing stakes is zero. The only
two firms producing wooden stakes, Spike Inc. and Buffy Co., agree to produce only 50
stakes, with each firm producing only 25. By how much does Buffy's profit rise if she
cheats on the agreement and produces 30 stakes?
A) $300
B) $270
C) $20
D) $50
Figure: Pricing Strategy in Cable TV Market II
7. (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 then decided to lower prices for the next month, we
would say that they are following:
A) a kinked demand model.
B) a dominant strategy.
C) a tit-for-tat strategy.
D) a collusive strategy.
Figure: Payoff Matrix I for Blue Spring and Purple Rain
8. (Figure: Payoff Matrix I for Blue Spring and Purple Rain) The figure shows the payoff
matrix for two producers of bottled water, Blue Spring and Purple Rain. The Nash
equilibrium in the figure is reached when:
A) both firms charge a high price.
B) both firms charge a low price.
C) Blue Spring charges a high price and Purple Rain charges a low price.
D) Purple Rain charges a high price and Blue Spring charges a low price.
9. (Figure: Payoff Matrix for Gehrig and Gabriel) The figure shows the payoff matrix for
two producers, Gehrig and Gabriel, who sell handmade Davy Crockett figurines in San
Antonio. 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. For Gehrig and
Gabriel, the dominant strategy is to:
A) produce 5,000 figurines.
B) produce 7,000 figurines.
C) produce between 5,000 and 7,000 figurines.
D) collude and increase production to more than 14,000 figurines.
10. Industry Z is made up of five firms. Three of the firms make up 20% of the total market
sales, one firm makes up 25% of the total market sales, and the remaining firm makes up 15%
of the total market sales. What is the HHI for this industry?
A) 100
B) 1,200
C) 2,050
D) 1,800
Key
1. B
2. A
3. A
4.B
5. B
6. C
7. C
8. B
9. B
10. C