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Table 17-4 The table shows the town of Mauston's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline. Table 17-4 The table shows the town of Mauston's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline. -Refer to Table 17-4. Suppose there are exactly two sellers of gasoline in Mauston: Shellon and Standstop. If Shellon sells 150 gallons and Standstop sells 200 gallons, then A) Shellon's profit is $450 and Standstop's profit is $600. B) Shellon's profit is $1,050 and Standstop's profit is $1,200. C) the two firms are colluding and earn monopoly profits. D) consumers in Mauston are worse off than they would be if the two firms colluded. -Refer to Table 17-4. Suppose there are exactly two sellers of gasoline in Mauston: Shellon and Standstop. If Shellon sells 150 gallons and Standstop sells 200 gallons, then


A) Shellon's profit is $450 and Standstop's profit is $600.
B) Shellon's profit is $1,050 and Standstop's profit is $1,200.
C) the two firms are colluding and earn monopoly profits.
D) consumers in Mauston are worse off than they would be if the two firms colluded.

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

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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 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? A) There is a Nash equilibrium. B) Both firms collectively would earn the highest joint profits by maintaining the agreement not to advertise. C) Only one firm has a dominant strategy. D) The game is an example of the Prisoners' Dilemma. -Refer to Table 17-28. Which of the following statements does not correctly characterize the outcome of this game?


A) There is a Nash equilibrium.
B) Both firms collectively would earn the highest joint profits by maintaining the agreement not to advertise.
C) Only one firm has a dominant strategy.
D) The game is an example of the Prisoners' Dilemma.

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

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Table 17-12 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 17-12 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 17-12. Suppose we observe that the price of a gallon of gasoline in Driveaway is $2. Given this observation, which of the following scenarios is most likely? A) There is one seller of gasoline in Driveaway. B) There are two sellers of gasoline in Driveaway. C) There are a few sellers of gasoline in Driveaway, but the number of sellers exceeds two. D) There are many sellers of gasoline in Driveaway. -Refer to Table 17-12. Suppose we observe that the price of a gallon of gasoline in Driveaway is $2. Given this observation, which of the following scenarios is most likely?


A) There is one seller of gasoline in Driveaway.
B) There are two sellers of gasoline in Driveaway.
C) There are a few sellers of gasoline in Driveaway, but the number of sellers exceeds two.
D) There are many sellers of gasoline in Driveaway.

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

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Much of the research on game theory in recent decades was driven by attempts to analyze actions of players during


A) the Great Depression of the 1930s.
B) World War II.
C) the Cold War between the United States and the Soviet Union.
D) the ascendancy of the conservative movement in the United States in the 1970s and 1980s.

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

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An equilibrium in which each firm in an oligopoly maximizes profit, given the actions of its rivals, is called


A) a general equilibrium.
B) a dominant equilibrium.
C) a Nash equilibrium.
D) an oligopoly equilibrium.

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

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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 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? A) There is a Nash equilibrium. B) Only one firm has a dominant strategy. C) The game is an example of the Prisoners' Dilemma. D) Both firms collectively would earn the highest joint profits by maintaining the agreement not to advertise. -Refer to Table 17-29. Which of the following statements does not correctly characterize the outcome of this game?


A) There is a Nash equilibrium.
B) Only one firm has a dominant strategy.
C) The game is an example of the Prisoners' Dilemma.
D) Both firms collectively would earn the highest joint profits by maintaining the agreement not to advertise.

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

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Figure 17-5. Two companies, ABC and QRS, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. Figure 17-5. Two companies, ABC and QRS, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-5. In what sense is the game involving ABC and QRS similar to the prisoners' dilemma game involving Bonnie and Clyde? A) In both games, if the players pursue their own interests, then the outcome is the best possible outcome for each player. B) In both games, a dominant strategy can be identified for each player. C) In both games, cooperation between the players is easy to maintain. D) All of the above are correct. -Refer to Figure 17-5. In what sense is the game involving ABC and QRS similar to the prisoners' dilemma game involving Bonnie and Clyde?


A) In both games, if the players pursue their own interests, then the outcome is the best possible outcome for each player.
B) In both games, a dominant strategy can be identified for each player.
C) In both games, cooperation between the players is easy to maintain.
D) All of the above are correct.

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

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Scenario 17-6 Assume that a local telecommunications company sells high speed internet access and cable television. The company's only two customers are Taylor and Tim. Taylor is willing to pay $50 per month for high speed internet access and $50 per month for cable television. Tim is willing to pay only $20 per month for high speed internet access, but is willing to pay $70 per month for cable television. Assume that the telecommunications company can provide each of these products at zero marginal cost. -Refer to Scenario 17-6. If the telecommunications company is unable to use tying, what is the profit-maximizing price to charge for cable television?

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Table 17-19 Consider a small town that has two grocery stores from which residents can choose to buy a loaf of bread. The store owners each must make a decision to set a high bread price or a low bread price. The payoff table, showing profit per week, is provided below. The profit in each cell is shown as (Store 1, Store 2) . Table 17-19 Consider a small town that has two grocery stores from which residents can choose to buy a loaf of bread. The store owners each must make a decision to set a high bread price or a low bread price. The payoff table, showing profit per week, is provided below. The profit in each cell is shown as (Store 1, Store 2) . -Refer to Table 17-19. What is grocery store 2's dominant strategy? A) Grocery store 2 does not have a dominant strategy. B) Grocery store 2 should always set a low price. C) Grocery store 2 should always set a high price. D) Grocery store 2 should set a low price when grocery store 1 sets a low price, and grocery store 2 should set a high price when grocery store 1 sets a high price. -Refer to Table 17-19. What is grocery store 2's dominant strategy?


A) Grocery store 2 does not have a dominant strategy.
B) Grocery store 2 should always set a low price.
C) Grocery store 2 should always set a high price.
D) Grocery store 2 should set a low price when grocery store 1 sets a low price, and grocery store 2 should set a high price when grocery store 1 sets a high price.

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

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

A) True
B) False

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False

Explain the practice of tying and discuss why it is controversial.

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Tying is the practice of bundling goods ...

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If Levi Strauss & Co. were to require every retailer that carried its clothing to charge customers $42 for each pair of jeans, Levi Strauss & Co. would be practicing


A) resale price maintenance.
B) fixed retail pricing.
C) tying.
D) cost plus pricing.

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

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A

Table 17-4 The table shows the town of Mauston's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline. Table 17-4 The table shows the town of Mauston's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline. -Refer to Table 17-4. If there are exactly four sellers of gasoline in Mauston and if they collude, then which of the following outcomes is most likely? A) Each seller will sell 62.5 gallons and charge a price of $1.25. B) Each seller will sell 62.5 gallons and charge a price of $5. C) Each seller will sell 100 gallons and charge a price of $2. D) Each seller will sell 250 gallons and charge a price of $0. -Refer to Table 17-4. If there are exactly four sellers of gasoline in Mauston and if they collude, then which of the following outcomes is most likely?


A) Each seller will sell 62.5 gallons and charge a price of $1.25.
B) Each seller will sell 62.5 gallons and charge a price of $5.
C) Each seller will sell 100 gallons and charge a price of $2.
D) Each seller will sell 250 gallons and charge a price of $0.

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

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How did the Clayton Act of 1914 differ from the Sherman Antitrust Act of 1890?

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The Clayton Act strengthened the antitrust laws and allowed private parties to sue firms alleged to be engaged in illegal restraint of trade.

Table 17-2 Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: Table 17-2 Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: -Refer to Table 17-2. Suppose the town enacts new antitrust laws that prohibit Abby and Brad from operating as a monopoly. How much profit will Abby and Brad each earn once they reach a Nash equilibrium? A) $36 B) $32 C) $18 D) $16 -Refer to Table 17-2. Suppose the town enacts new antitrust laws that prohibit Abby and Brad from operating as a monopoly. How much profit will Abby and Brad each earn once they reach a Nash equilibrium?


A) $36
B) $32
C) $18
D) $16

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

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Table 17-10 The table shows the demand schedule for a particular product. Table 17-10 The table shows the demand schedule for a particular product. -Refer to Table 17-10. If this market is perfectly competitive and the marginal cost is constant at $40 per unit, then how much output will be produced? A) 900 B) 1,200 C) 1,500 D) 1,800 -Refer to Table 17-10. If this market is perfectly competitive and the marginal cost is constant at $40 per unit, then how much output will be produced?


A) 900
B) 1,200
C) 1,500
D) 1,800

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

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As the number of firms in an oligopoly increases, the magnitude of the


A) output effect increases.
B) output effect decreases.
C) price effect increases.
D) price effect decreases.

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

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The Clayton Act of 1914 allows those harmed by illegal arrangements to restrain trade to


A) sue for up to two times the damages they incurred.
B) sue for up to three times the damages they incurred.
C) sue for up to four times the damages they incurred.
D) sue for damages, but only for the actual amount of damages they incurred.

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

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Table 17-2 Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: Table 17-2 Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: -Refer to Table 17-2. Suppose the town enacts new antitrust laws that prohibit Abby and Brad from operating as a monopoly. What will be the price of water once Abby and Brad reach a Nash equilibrium? A) $12 B) $8 C) $6 D) $4 -Refer to Table 17-2. Suppose the town enacts new antitrust laws that prohibit Abby and Brad from operating as a monopoly. What will be the price of water once Abby and Brad reach a Nash equilibrium?


A) $12
B) $8
C) $6
D) $4

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

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The practice of tying is illegal on the grounds that


A) it allows firms to expand their market power.
B) it allows firms to form collusive arrangements.
C) it prevents firms from forming collusive agreements.
D) the Sherman Act explicitly prohibited such agreements.

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

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