Toàn bộ những gì bạn cần để qua môn kinh tế học, tài liệu này tập hợp những câu hỏi trắc nghiệm mới nhất của kinh tế vi mô năm 2018. Về nội dung tài liệu, với các khái niệm phổ biến và khái quát nhất về kinh tế vi mô cũng như những giải thích về các cơ chế hoạt động của nền kinh tế, bộ giáo trình bao gồm 23 phần cung cấp cho người đọc các kiến thức khá toàn diện và chuyên sâu về các nguyên lý kinh tế học như các lý thuyết cổ điển, các lý thuyết về phát triển: nền kinh tế trong dài hạn, các lý thuyết về vòng tròn kinh tế: nền kinh tế trong ngắn hạn, các yếu tố vi mô ẩn sau kinh tế vĩ mô, các tranh luận về chính sách vĩ mô… Tất cả đều được giải thích và đánh giá bởi một vị giáo sư kinh tế hàng đầu trên thế giới. Các khái niệm trong sách được định nghĩa rất rõ ràng, dễ nắm bắt, dễ hiểu, có tóm tắt các chương tạo điều kiện tốt nhất cho việc ôn tập
Chapter 17/Oligopoly ❖ 129 Chapter 17 Oligopoly TRUE/FALSE The essence of an oligopolistic market is that there are only a few sellers ANS: T DIF: REF: 17-0 NAT: Analytic LOC: Oligopoly TOP: Oligopoly MSC: Definitional Game theory is just as necessary for understanding competitive or monopoly markets as it is for understanding oligopolistic markets ANS: F DIF: REF: 17-0 NAT: Analytic LOC: Oligopoly TOP: Oligopoly | Game theory MSC: Interpretive In a competitive market, strategic interactions among the firms are not important ANS: T DIF: REF: 17-0 NAT: Analytic LOC: Oligopoly TOP: Game theory | Competitive markets MSC: Interpretive For a firm, strategic interactions with other firms in the market become more important as the number of firms in the market becomes larger ANS: F DIF: REF: 17-0 NAT: Analytic LOC: Oligopoly TOP: Oligopoly | Game theory MSC: Interpretive 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 ANS: F DIF: REF: 17-1 NAT: Analytic LOC: Oligopoly TOP: Collusion MSC: Interpretive 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 ANS: F DIF: REF: 17-1 NAT: Analytic LOC: Oligopoly TOP: Oligopoly | Cooperation MSC: Interpretive Whether an oligopoly consists of firms or 10 firms, the level of output likely will be the same ANS: F DIF: REF: 17-1 NAT: Analytic LOC: Oligopoly TOP: Oligopoly MSC: Interpretive Cartels with a small number of firms have a greater probability of reaching the monopoly outcome than cartels with a larger number of firms ANS: T DIF: REF: 17-1 NAT: Analytic LOC: Oligopoly TOP: Cartels MSC: Interpretive As the number of firms in an oligopoly becomes very large, the price effect disappears ANS: T DIF: REF: 17-1 NAT: Analytic LOC: Oligopoly TOP: Oligopoly MSC: Interpretive 10 If all of the firms in an oligopoly successfully collude and form a cartel, then total profit for the cartel is equal to what it would be if the market were a monopoly ANS: T DIF: REF: 17-1 NAT: Analytic LOC: Oligopoly TOP: Cartels MSC: Interpretive 11 As the number of firms in an oligopoly increases, the magnitude of the price effect increases ANS: F DIF: REF: 17-1 NAT: Analytic LOC: Oligopoly TOP: Oligopoly MSC: Interpretive 130 ❖ Chapter 17/Oligopoly 12 All examples of the prisoner’s dilemma game are characterized by one and only one Nash equilibrium ANS: F DIF: REF: 17-2 NAT: Analytic LOC: Oligopoly TOP: Nash equilibrium | Prisoners' dilemma MSC: Interpretive 13 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 ANS: T DIF: REF: 17-2 NAT: Analytic LOC: Oligopoly TOP: Prisoners' dilemma MSC: Interpretive 14 The story of the prisoners' dilemma contains a general lesson that applies to any group trying to maintain cooperation among its members ANS: T DIF: REF: 17-2 NAT: Analytic LOC: Oligopoly TOP: Prisoners' dilemma MSC: Interpretive 15 In the prisoners' dilemma game, one prisoner is always better off confessing, no matter what the other prisoner does ANS: T DIF: REF: 17-2 NAT: Analytic LOC: Oligopoly TOP: Prisoners' dilemma MSC: Interpretive 16 In the prisoners' dilemma game, confessing is a dominant strategy for each of the two prisoners ANS: T DIF: REF: 17-2 NAT: Analytic LOC: Oligopoly TOP: Prisoners' dilemma | Dominant strategy MSC: Interpretive 17 The game that oligopolists play in trying to reach the oligopoly outcome is similar to the game that the two prisoners play in the prisoners' dilemma ANS: T DIF: REF: 17-2 NAT: Analytic LOC: Oligopoly TOP: Game theory MSC: Interpretive 18 In the case of oligopolistic markets, self-interest makes cooperation difficult and it often leads to an undesirable outcome for the firms that are involved ANS: T DIF: REF: 17-2 NAT: Analytic LOC: Oligopoly TOP: Game theory MSC: Interpretive 19 When prisoners' dilemma games are repeated over and over, sometimes the threat of penalty causes both parties to cooperate ANS: T DIF: REF: 17-2 NAT: Analytic LOC: Oligopoly TOP: Prisoners' dilemma MSC: Interpretive 20 A tit-for-tat strategy, in a repeated game, is one in which a player starts by cooperating and then does whatever the other player did last time ANS: T DIF: REF: 17-2 NAT: Analytic LOC: Oligopoly TOP: Game theory MSC: Definitional 21 One way that public policy encourages cooperation among oligopolists is through antitrust law ANS: F DIF: REF: 17-3 NAT: Analytic LOC: Oligopoly TOP: Antitrust MSC: Interpretive 22 The Sherman Antitrust Act prohibits competing firms from even talking about fixing prices ANS: T DIF: REF: 17-3 NAT: Analytic LOC: Oligopoly TOP: Sherman Antitrust Act of 1890 MSC: Interpretive Chapter 17/Oligopoly ❖ 131 23 Resale price maintenance prevents retailers from competing on price ANS: T DIF: REF: 17-3 NAT: Analytic LOC: Oligopoly TOP: Resale price maintenance MSC: Interpretive 24 Some business practices that appear to reduce competition, such as resale price maintenance, may have legitimate economic purposes ANS: T DIF: REF: 17-3 NAT: Analytic LOC: Oligopoly TOP: Resale price maintenance MSC: Interpretive 25 In 2007 the U.S Supreme Court ruled that it was not necessary illegal for manufacturers and distributors to agree on minimum retail prices ANS: T DIF: REF: 17-3 NAT: Analytic LOC: Oligopoly TOP: Resale price maintenance MSC: Definitional 26 Tying can be thought of as a form of price discrimination ANS: T DIF: REF: 17-3 NAT: Analytic LOC: Oligopoly TOP: Tying MSC: Interpretive 27 Policymakers should be aggressive in using their powers to place limits on firm behavior, because business practices that appear to reduce competition never have any legitimate purposes ANS: F DIF: REF: 17-4 NAT: Analytic LOC: The role of government TOP: Antitrust MSC: Interpretive SHORT ANSWER Even when allowed to collude, firms in an oligopoly may choose to cheat on their agreements with the rest of the cartel Why? ANS: Individual profits can be increased at the expense of group profits if individuals cheat on the cartel's cooperative agreement DIF: LOC: Oligopoly REF: TOP: 17-1 Cartels NAT: Analytic MSC: Interpretive What effect does the number of firms in an oligopoly have on the characteristics of the market? ANS: As the number of firms increases, the equilibrium quantity of goods provided increases and price falls; the market begins to resemble a competitive one DIF: LOC: Oligopoly REF: TOP: 17-1 Oligopoly NAT: Analytic MSC: Analytical 132 ❖ Chapter 17/Oligopoly Assume that demand for a product that is produced at zero marginal cost is reflected in the table below Quantity 200 400 600 800 1000 1200 1400 1600 1800 2000 2200 2400 a b Price $36 $33 $30 $27 $24 $21 $18 $15 $12 $9 $6 $3 $0 What is the profit-maximizing level of production for a group of oligopolistic firms that operate as a cartel? Assume that this market is characterized by a duopoly in which collusive agreements are illegal What market price and quantity will be associated with a Nash equilibrium? ANS: a b Q = 1200 Q = 1600, P = 12 DIF: LOC: Oligopoly REF: TOP: 17-1 Cartels NAT: Analytic MSC: Applicative Describe the source of tension between cooperation and self-interest in a market characterized by oligopoly Use an example of an actual cartel arrangement to demonstrate why this tension creates instability in cartels ANS: The source of the tension exists because total profits are maximized when oligopolists cooperate on price and quantity by operating as a monopolist However, individual profits can be gained by individuals cheating on their cooperative agreement This is why cooperative agreements among members of a cartel are inherently unstable This is evident in the problem OPEC experiences in enforcing the cooperative agreement on production and price of crude oil DIF: LOC: Oligopoly REF: TOP: 17-1 Cartels NAT: Analytic MSC: Interpretive Describe the output and price effects that influence the profit-maximizing decision faced by a firm in an oligopoly market How does this differ from output and price effects in a monopoly market? ANS: Output effect: Price > Marginal cost => increased output will add to profit Price effect: increased quantity is sold at a lower price => lower revenue (profit?) An oligopolist must take into account how the output and price effects will be influenced by competitors' production decisions, or it must assume competitors' production will not change in response to its own actions DIF: LOC: Oligopoly REF: TOP: 17-1 NAT: Analytic Profit maximization | Oligopoly MSC: Interpretive Chapter 17/Oligopoly ❖ 133 Explain how the output effect and the price effect influence the production decision of the individual oligopolist ANS: Since the individual oligopolist faces a downward-sloping demand curve, she realizes that if she increases output, all output must be sold at a lower market price As such, the revenue from selling the additional units at the lower market price must exceed the loss in revenue from selling all previous units at the new lower price Otherwise, profits will fall as output (production) is increased DIF: LOC: Oligopoly REF: TOP: 17-1 NAT: Analytic Profit maximization | Oligopoly MSC: Interpretive Ford and General Motors are considering expanding into the Vietnamese automobile market Devise a simple prisoners' dilemma game to demonstrate the strategic considerations that are relevant to this decision ANS: The answer should present two strategies for each company, such as “Expand” and “Don’t Expand.” To be a prisoner’s dilemma, each firm needs a dominant strategy, but each firm choosing its dominant strategy results in an outcome that is jointly worse than if they both chose their other strategy A possible payoff table with payoffs (Ford, GM) is GM Expand Don’t Expand Ford DIF: LOC: Oligopoly Expand (2, 2) (1, 4) REF: TOP: 17-2 NAT: Prisoners' dilemma Don’t Expand (4, 1) (3, 3) Analytic MSC: Applicative Nike and Reebok (athletic shoe companies) are considering whether or not to advertise during the Super Bowl Devise a simple prisoners' dilemma game to demonstrate the strategic considerations that are relevant to this decision Does the repeated game scenario differ from a single period game? Is it possible that a repeated game (without collusive agreements) could lead to an outcome that is better than a single-period game? Explain the circumstances in which this may be true ANS: The answer should show that if both shoe companies decide to advertise they will both be worse off than if they did not It should also show that each company has the individual incentive to advertise The dominant strategy of both companies will be to advertise, regardless of what the other is doing If the game is repeated more than once it is possible that the shoe companies will decide not to advertise in the hopes that the other company adequately understands the mutually beneficial gains that come from not advertising DIF: LOC: Oligopoly REF: TOP: 17-2 NAT: Prisoners' dilemma Analytic MSC: Applicative Outline the purpose of antitrust laws What they accomplish? ANS: The purpose of antitrust laws is to move markets toward a competitive equilibrium outcome These laws are used to prevent behavior that would lead to excessive market power by any single firm DIF: LOC: Oligopoly REF: TOP: 17-3 Antitrust NAT: Analytic MSC: Interpretive 10 Explain the practice of resale price maintenance and discuss why it is controversial ANS: Resale price maintenance is a requirement by producers that retailers sell their product for a price specified by the manufacturer It is controversial because on the surface it appears to limit the ability of retailers to compete on the basis of price However, if the manufacturer does not exercise resale price maintenance a free-rider problem may become evident among the retailers and ultimately lead to lower profits for the manufacturer DIF: REF: 17-3 LOC: The role of government TOP: MSC: Interpretive NAT: Analytic Resale price maintenance 134 ❖ Chapter 17/Oligopoly 11 Explain the practice of tying and discuss why it is controversial ANS: Tying is the practice of bundling goods for sale It is controversial because it is perceived as a tool for expanding the market power of firms by forcing consumers to purchase additional products However, economists are skeptical that a buyer's willingness to pay increases just because two products are bundled together In other words, simply bundling two products together doesn't necessarily add any value It is more accurately believed to be a form of price discrimination DIF: LOC: Oligopoly REF: TOP: 17-3 Tying NAT: Analytic MSC: Interpretive Sec00 - Oligopoly MULTIPLE CHOICE In the language of game theory, a situation in which each person must consider how others might respond to his or her own actions is called a a quantifiable situation b cooperative situation c strategic situation d tactical situation ANS: C NAT: Analytic 17-0 Game theory MSC: Definitional DIF: LOC: Oligopoly REF: TOP: 17-0 Game theory MSC: Definitional Which of the following statements is correct? a Strategic situations are more likely to arise when the number of decision-makers is very large rather than very small b Strategic situations are more likely to arise in monopolistically competitive markets than in oligopolistic markets c Game theory is useful in understanding certain business decisions, but it is not really applicable to ordinary games such as chess or tic-tac-toe d Game theory is not necessary for understanding competitive or monopoly markets ANS: D NAT: Analytic REF: TOP: In general, game theory is the study of a how people behave in strategic situations b how people behave when the possible actions of other people are irrelevant c oligopolistic markets d all types of markets, including competitive markets, monopolistic markets, and oligopolistic markets ANS: A NAT: Analytic DIF: LOC: Oligopoly DIF: LOC: Oligopoly REF: TOP: 17-0 Game theory MSC: Interpretive In which of the following markets are strategic interactions among firms most likely to occur? a markets to which patent and copyright laws apply b the market for piano lessons c the market for tennis balls d the market for corn ANS: C NAT: Analytic DIF: LOC: Oligopoly REF: TOP: 17-0 Game theory MSC: Interpretive Sec01 - Oligopoly - Markets with Only a Few Sellers MULTIPLE CHOICE A distinguishing feature of an oligopolistic industry is the tension between a profit maximization and cost minimization b cooperation and self interest c producing a small amount of output and charging a price above marginal cost d short-run decisions and long-run decisions Chapter 17/Oligopoly ❖ 135 ANS: B NAT: Analytic REF: TOP: 17-1 Oligopoly | Cooperation DIF: LOC: Oligopoly REF: TOP: 17-1 Duopoly MSC: Interpretive DIF: LOC: Oligopoly REF: TOP: 17-1 Duopoly MSC: Definitional DIF: LOC: Oligopoly REF: TOP: 17-1 Duopoly MSC: Interpretive Which of the following statements is correct? a If duopolists successfully collude, then their combined output will be equal to the output that would be observed if the market were a monopoly b Although the logic of self-interest decreases a duopoly’s price below the monopoly price, it does not push the duopolists to reach the competitive price c Although the logic of self-interest increases a duopoly’s level of output above the monopoly level, it does not push the duopolists to reach the competitive level d All of the above are correct ANS: D NAT: Analytic DIF: LOC: Oligopoly An agreement between two duopolists to function as a monopolist usually breaks down because a they cannot agree on the price that a monopolist would charge b they cannot agree on the output that a monopolist would produce c each duopolist wants a larger share of the market in order to capture more profit d each duopolist wants to charge a higher price than the monopoly price ANS: C NAT: Analytic MSC: Interpretive A special kind of imperfectly competitive market that has only two firms is called a a two-tier competitive structure b an incidental monopoly c a doublet d a duopoly ANS: D NAT: Analytic 17-1 Oligopoly The simplest type of oligopoly is a monopoly b duopoly c monopolistic competition d oligopolistic competition ANS: B NAT: Analytic REF: TOP: In studying oligopolistic markets, economists assume that a there is no conflict or tension between cooperation and self-interest b it is easy for a group of firms to cooperate and thereby establish and maintain a monopoly outcome c each oligopolist cares only about its own profit d strategic decisions not play a role in such markets ANS: C NAT: Analytic MSC: Interpretive DIF: LOC: Oligopoly DIF: LOC: Oligopoly REF: TOP: 17-1 Duopoly MSC: Interpretive Suppose that Sonny and Cher 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 Sonny and Cher will determine that it is in each singer’s best self interest to maintain the agreement b Sonny and Cher will each break the agreement The new equilibrium quantity of songs will increase, and the new equilibrium price will decrease c Sonny and Cher will each break the agreement The new equilibrium quantity of songs will decrease, and the new equilibrium price will increase d Sonny and Cher will each break the agreement The new equilibrium quantity of songs will increase, and the new equilibrium price also will increase 136 ❖ Chapter 17/Oligopoly ANS: B NAT: Analytic REF: TOP: 17-1 Duopoly MSC: Interpretive As the number of firms in an oligopoly increases, the a price approaches marginal cost, and the quantity approaches the socially efficient level b price and quantity approach the monopoly levels c price effect exceeds the output effect d individual firms’ profits increase ANS: A NAT: Analytic DIF: LOC: Oligopoly DIF: LOC: Oligopoly REF: TOP: 17-1 Oligopoly MSC: Interpretive If a certain market were a monopoly, then the monopolist would maximize its profit by producing 1,000 units of output If, instead, that market were a duopoly, then which of the following outcomes would be most likely if the duopolists successfully collude? a Each duopolist produces 1,000 units of output b Each duopolist produces 600 units of output c One duopolist produces 400 units of output and the other produces 600 units of output d One duopolist produces 800 units of output and the other produces 400 units of output ANS: C NAT: Analytic DIF: LOC: Oligopoly REF: TOP: 17-1 Duopoly MSC: Applicative Table 17-1 Imagine a small town in which only two residents, Lisa and Mark, own wells that produce safe drinking water Each week Lisa and Mark 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 Lisa and Mark 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: Quantity (in gallons) 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 10 Price $120 110 100 90 80 70 60 50 40 30 20 10 Total Revenue (and Total Profit) $0 11,000 20,000 27,000 32,000 35,000 36,000 35,000 32,000 27,000 20,000 11,000 Refer to Table 17-1 If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, what price will they charge? a $20 b $40 c $60 d $70 ANS: C NAT: Analytic MSC: Applicative DIF: LOC: Oligopoly REF: TOP: 17-1 Oligopoly | Monopoly Chapter 17/Oligopoly ❖ 137 11 Refer to Table 17-1 If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, how many gallons of water will be produced and sold? a b 500 c 600 d 1,200 ANS: C NAT: Analytic MSC: Applicative 12 REF: TOP: 17-1 Oligopoly | Monopoly DIF: LOC: Oligopoly REF: TOP: 17-1 Competitive markets DIF: LOC: Oligopoly REF: TOP: 17-1 Competitive markets Refer to Table 17-1 If this market for water were perfectly competitive instead of monopolistic, what price would be charged? a $0 b $50 c $60 d $120 ANS: A NAT: Analytic MSC: Applicative 16 DIF: LOC: Oligopoly Refer to Table 17-1 What is the socially efficient quantity of water? a gallons b 600 gallons c 900 gallons d 1,200 gallons ANS: D NAT: Analytic MSC: Applicative 15 17-1 Oligopoly | Monopoly Refer to Table 17-1 If the market for water were perfectly competitive instead of monopolistic, how many gallons of water would be produced and sold? a b 600 c 900 d 1,200 ANS: D NAT: Analytic MSC: Applicative 14 REF: TOP: Refer to Table 17-1 If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, how much profit will each of them earn? a $0 b $18,000 c $32,000 d $36,000 ANS: B NAT: Analytic MSC: Applicative 13 DIF: LOC: Oligopoly DIF: LOC: Oligopoly REF: TOP: 17-1 Competitive markets Refer to Table 17-1 Suppose the town enacts new antitrust laws that prohibit Lisa and Mark from operating as a monopoly What will be the price of water once Lisa and Mark reach a Nash equilibrium? a $30 b $40 c $50 d $60 ANS: B NAT: Analytic MSC: Analytical DIF: LOC: Oligopoly REF: TOP: 17-1 Nash equilibrium 138 ❖ Chapter 17/Oligopoly 17 Refer to Table 17-1 Suppose the town enacts new antitrust laws that prohibit Lisa and Mark from operating as a monopoly How many gallons of water will be produced and sold once Lisa and Mark reach a Nash equilibrium? a 600 b 700 c 800 d 900 ANS: C NAT: Analytic MSC: Analytical DIF: LOC: Oligopoly REF: TOP: 17-1 Nash equilibrium 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 Quantity (in gallons) 100 200 300 400 500 600 700 800 900 1,000 18 DIF: REF: LOC: Perfect competition 17-1 TOP: Perfect Competition Refer to Table 17-2 If the market for gasoline in Pittsville is a monopoly, then the profit-maximizing monopolist will charge a price of a $8 and sell 200 gallons b $5 and sell 500 gallons c $2 and sell 800 gallons d $0 and sell 1,000 gallons ANS: B NAT: Analytic 20 Total Revenue (and total profit) $0 900 1,600 2,100 2,400 2,500 2,400 2,100 1,600 900 Refer to Table 17-2 If the market for gasoline in Pittsville is perfectly competitive, then the equilibrium price of gasoline is a $8 and the equilibrium quantity is 200 gallons b $5 and the equilibrium quantity is 500 gallons c $2 and the equilibrium quantity is 800 gallons d $0 and the equilibrium quantity is 1,000 gallons ANS: D NAT: Analytic MSC: Applicative 19 Price $10 DIF: LOC: Monopoly REF: TOP: 17-1 Monopoly MSC: Applicative Refer to Table 17-2 If there are exactly two sellers of gasoline in Pittsville and if they collude, then which of the following outcomes is most likely? a Each seller will sell 500 gallons and charge a price of $5 b Each seller will sell 500 gallons and charge a price of $2.50 c Each seller will sell 350 gallons and charge a price of $3 d Each seller will sell 250 gallons and charge a price of $5 ANS: D NAT: Analytic DIF: LOC: Oligopoly REF: TOP: 17-1 Duopoly MSC: Applicative 182 ❖ Chapter 17/Oligopoly 124 In which of the following games is it clearly the case that the cooperative outcome of the game is good for the two players and good for society? a Two guilty criminals have been captured by the police, and each prisoner decides whether to confess or to remain silent b Two airlines dominate air travel between City A and City B, and each airline decides whether to charge a “high” airfare or a “low” airfare c Two duopoly firms account for all of the production in a market, and each firm decides whether to produce a “high” amount of output or a “low” amount of output d Two oil companies own adjacent oil fields over a common pool of oil, and each company decides whether to drill one well or two wells ANS: D NAT: Analytic MSC: Interpretive DIF: LOC: Oligopoly REF: TOP: 17-2 Prisoners' dilemma 125 In which of the following games is it clearly the case that the cooperative outcome of the game is good for the two players and bad for society? a Two oil companies own adjacent oil fields over a common pool of oil, and each company decides whether to drill one well or two wells b Two airlines dominate air travel between City A and City B, and each airline decides whether to charge a “high” airfare or a “low” airfare on flights between those two cities c Two superpowers decide whether to build new weapons or to disarm d In all of the above cases, the cooperative outcome of the game is good for the two players and bad for society ANS: B NAT: Analytic MSC: Interpretive DIF: LOC: Oligopoly REF: TOP: 17-2 Prisoners' dilemma 126 Nobel prize-winner Thomas Schelling a opposed the use of game theory as a means of analyzing strategic situations b used mathematics to give precise formulations to game theory c described drug addiction as a “game against oneself.” d had his life portrayed in the movie A Beautiful Mind ANS: C NAT: Analytic MSC: Interpretive DIF: LOC: Oligopoly REF: TOP: 17-2 Game theory | Economists Sec03 - Oligopoly - Public Policy toward Oligopolies MULTIPLE CHOICE From society’s standpoint, cooperation among oligopolists is a desirable, because it leads to less conflict among firms and a wider variety of products for consumers b desirable, because it leads to an outcome closer to the competitive outcome than what would be observed in the absence of cooperation c undesirable, because it leads to output levels that are too low and prices that are too high d undesirable, because it leads to output levels that are too high and prices that are too high ANS: C NAT: Analytic MSC: Interpretive DIF: LOC: Oligopoly REF: TOP: 17-3 Cooperation | Oligopoly The Sherman Antitrust Act a was passed to encourage judicial leniency in the review of cooperative agreements b was concerned with self-interest dominated Nash equilibriums in prisoners' dilemma games c enhanced the ability to enforce cartel agreements d restricted the ability of competitors to engage in cooperative agreements ANS: D NAT: Analytic MSC: Interpretive DIF: REF: 17-3 LOC: The role of government TOP: Antitrust Chapter 17/Oligopoly ❖ 183 The Sherman Act made cooperative agreements a unenforceable outside of established judicial review processes b enforceable with proper judicial review c a criminal conspiracy d a crime, but did not give direction on possible penalties ANS: C NAT: Analytic MSC: Interpretive DIF: REF: 17-3 LOC: The role of government TOP: Antitrust DIF: REF: 17-3 LOC: The role of government TOP: Antitrust The Sherman Antitrust Act a overturned centuries-old views of English and American judges on agreements among competitors b had the effect of discouraging private lawsuits against conspiring oligopolists c strengthened the Clayton Act d elevated agreements among conspiring oligopolists from an unenforceable contract to a criminal conspiracy ANS: D NAT: Analytic MSC: Interpretive Antitrust The Sherman Antitrust Act prohibits executives of competing companies from a fixing prices, but it does not prohibit them from talking about fixing prices b even talking about fixing prices c sharing with one another their knowledge of game theory d failing to stand by agreements that they had made with one another ANS: B NAT: Analytic MSC: Interpretive DIF: REF: 17-3 LOC: The role of government TOP: The Sherman Antitrust Act prohibits price-fixing in the sense that a competing executives cannot even talk about fixing prices b competing executives can talk about fixing prices, but they cannot take action to fix prices c a price-fixing agreement can lead to prosecution provided the government can show that the public was not well-served by the agreement d None of the above is correct The Sherman Act did not address the matter of price-fixing ANS: A NAT: Analytic MSC: Interpretive Antitrust The Sherman Antitrust Act was passed in a 1836 b 1890 c 1914 d 1946 ANS: B NAT: Analytic MSC: Definitional DIF: REF: 17-3 LOC: The role of government TOP: DIF: REF: 17-3 LOC: The role of government TOP: Antitrust The Clayton Act a preceded the Sherman Act b replaced the Sherman Act c strengthened the Sherman Act d was specifically designed to reduce the ability of cartels to organize ANS: C NAT: Analytic MSC: Interpretive DIF: REF: 17-3 LOC: The role of government TOP: Antitrust 184 ❖ Chapter 17/Oligopoly According to the Clayton Act, a lawyers are given an incentive to reduce the number of cases involving cooperative arrangements b individuals can sue to recover damages from illegal cooperative agreements c the government was able to incarcerate the CEO of a firm for illegal pricing arrangements d private lawsuits are discouraged ANS: B NAT: Analytic MSC: Interpretive 10 DIF: REF: 17-3 LOC: The role of government TOP: Antitrust DIF: LOC: Oligopoly REF: TOP: 17-3 Resale price maintenance Assume that Peach Computers has entered into a resale price maintenance agreement with Computer Super Stores Inc (CSS Inc.) but not with CompuMart In this case, a the wholesale price of Peach computers will be different for CSS Inc than it is for CompuMart b Peach computers will never increase profits by having a resale price maintenance agreement with all retail outlets that sell its products c CompuMart will benefit from customers who go to CSS Inc for information about different computers d CSS Inc will sell Peach computers at a lower price than CompuMart ANS: C NAT: Analytic MSC: Interpretive 14 Antitrust Economists claim that a resale price maintenance agreement is not anti-competitive because a suppliers are never able to exercise noncompetitive market power b if a supplier has market power, it will be likely to exert that power through wholesale price rather than retail price c retail markets are inherently noncompetitive d retail cartel agreements cannot increase retail profits ANS: B NAT: Analytic MSC: Interpretive 13 DIF: REF: 17-3 LOC: The role of government TOP: Antitrust laws in general are used to a prevent oligopolists from acting in ways that make markets less competitive b encourage oligopolists to pursue cooperative-interest at the expense of self-interest c encourage frivolous lawsuits among competitive firms d encourage all firms to cut production levels and cut prices ANS: A NAT: Analytic MSC: Interpretive 12 Antitrust If a person can prove that she was damaged by an illegal arrangement to restrain trade, that person can sue and recover a the damages she sustained, as provided for in the Sherman Act b the damages she sustained, as provided for in the Clayton Act c three times the damages she sustained, as provided for in the Sherman Act d three times the damages she sustained, as provided for in the Clayton Act ANS: D NAT: Analytic MSC: Interpretive 11 DIF: REF: 17-3 LOC: The role of government TOP: DIF: LOC: Oligopoly REF: TOP: 17-3 Resale price maintenance Assume that Apple Computer has entered into an enforceable resale price maintenance agreement with Computer Super Stores Inc (CSS Inc.) and Wal-Mart Which of the following will always be true? a The wholesale price of Apple computers will be different for CSS Inc than it is for Wal-Mart b Wal-Mart will benefit from customers who go to CSS Inc for information about different computers c CSS Inc will sell Apple computers at a lower price than Wal-Mart d Wal-Mart and CSS Inc will always sell Apple Computers for exactly the same price Chapter 17/Oligopoly ❖ 185 ANS: D NAT: Analytic MSC: Interpretive 15 REF: TOP: 17-3 Resale price maintenance 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 ANS: A NAT: Analytic MSC: Interpretive 16 DIF: LOC: Oligopoly DIF: REF: 17-3 LOC: The role of government TOP: Tying The practice of tying is used to a enhance the enforcement of antitrust laws b encourage the enforcement of collusive agreements c control the retail price of a collection of related products d package products to sell at a combined price closer to a buyer's total willingness to pay ANS: D NAT: Analytic DIF: LOC: Oligopoly REF: TOP: 17-3 Tying MSC: Definitional Scenario 17-5 Assume that a local bank sells two services, checking accounts and ATM card services The bank’s only two customers are Mr Donethat and Ms Beenthere Mr Donethat is willing to pay $8 a month for the bank to service his checking account and $2 a month for unlimited use of his ATM card Ms Beenthere is willing to pay only $5 for a checking account, but is willing to pay $9 for unlimited use of her ATM card Assume that the bank can provide each of these services at zero marginal cost 17 Refer to Scenario 17-5 If the bank is unable to use tying, what is the profit-maximizing price to charge for a checking account? a $13 b $9 c $8 d $5 ANS: D NAT: Analytic 18 REF: TOP: 17-3 Tying MSC: Applicative Refer to Scenario 17-5 If the bank is unable to use tying, what is the profit-maximizing price to charge for unlimited use of an ATM card? a $14 b $11 c $9 d $2 ANS: C NAT: Analytic 19 DIF: LOC: Oligopoly DIF: LOC: Oligopoly REF: TOP: 17-3 Tying MSC: Applicative Refer to Scenario 17-5 If the bank is able to use tying to price checking account and ATM services, what is the profit-maximizing price to charge for the "tied" good? a $14 b $10 c $9 d $8 ANS: B NAT: Analytic DIF: LOC: Oligopoly REF: TOP: 17-3 Tying MSC: Applicative 186 ❖ Chapter 17/Oligopoly 20 Refer to Scenario 17-5 How much additional profit can the bank earn by switching to the use of a tying strategy to price checking accounts and ATM service rather than pricing these services separately? a $14 b $11 c $7 d $1 ANS: D NAT: Analytic 21 DIF: REF: 17-3 LOC: The role of government TOP: Antitrust DIF: REF: 17-3 LOC: The role of government TOP: Antitrust DIF: LOC: Oligopoly REF: TOP: 17-3 Oligopoly MSC: Interpretive The practice of selling a product to retailers and requiring the retailers to charge a specific price for the product is called a fixed retail pricing b resale price maintenance c cost plus pricing d unfair trade ANS: B NAT: Analytic MSC: Definitional 25 MSC: Applicative 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."? a Thomas Jefferson b Adam Smith c Bill Gates d Robert Axelrod ANS: B NAT: Analytic 24 17-3 Tying Which of the following groups or entities has the authority to initiate legal suits to enforce antitrust laws? a the U.S Justice Department b private citizens c corporations d All of the above are correct ANS: D NAT: Analytic MSC: Interpretive 23 REF: TOP: When individuals are damaged by an illegal arrangement to restrain trade, which law allows them to pursue civil action and recover up to three times the damages sustained? a Trade Damage Act b Clayton Act c Sherman Act d No law allows individuals to pursue civil action and recover up to three times the damages sustained ANS: B NAT: Analytic MSC: Interpretive 22 DIF: LOC: Oligopoly DIF: LOC: Oligopoly REF: TOP: 17-3 Resale price maintenance The practice of requiring someone to buy two or more items together, rather than separately, is called a resale maintenance b product fixing c tying d free-riding ANS: C NAT: Analytic DIF: LOC: Oligopoly REF: TOP: 17-3 Tying MSC: Definitional Chapter 17/Oligopoly ❖ 187 26 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 ANS: A NAT: Analytic MSC: Interpretive 27 DIF: REF: 17-3 LOC: The role of government TOP: Antitrust DIF: LOC: Oligopoly REF: TOP: 17-3 Tying MSC: Interpretive DIF: LOC: Oligopoly REF: TOP: 17-3 Cartels MSC: Interpretive REF: TOP: 17-3 Cartels MSC: Interpretive All cartels are inherently reliant on a a horizontal demand curve b an inelastic demand for their product c the cooperation of their members d enforcement of antitrust laws ANS: C NAT: Analytic 32 Antitrust OPEC is able to raise the price of its product by a tying b setting production levels for each of its members c increasing the supply of oil above the competitive level d imposing resale price maintenance agreements on members ANS: B NAT: Analytic 31 DIF: REF: 17-3 LOC: The role of government TOP: 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 resale price maintenance b tying c predatory pricing d free-riding ANS: B NAT: Analytic 30 17-3 Resale price maintenance Which government entity is charged with investigating and enforcing antitrust laws? a the U.S Justice Department b the U.S Commerce Department c the U.S Treasury Department d the Bureau of Alcohol, Tobacco, and Firearms ANS: A NAT: Analytic MSC: Interpretive 29 REF: TOP: Which of the following prohibits executives of competing firms from even talking about fixing prices? a Sherman Act b Clayton Act c Federal Trade Commission d U.S Justice Department ANS: A NAT: Analytic MSC: Interpretive 28 DIF: LOC: Oligopoly DIF: LOC: Oligopoly In 1971, Congress passed a law that banned cigarette advertising on television After the ban it is most likely that the (i) profits of cigarette companies increased (ii) prices of cigarettes increased (iii) total costs incurred by cigarette companies increased 188 ❖ Chapter 17/Oligopoly a b c d (i) only (i) and (ii) (ii) and (iii) (i), (ii), and (iii) ANS: A NAT: Analytic 33 DIF: REF: 17-3 LOC: The role of government TOP: Economic welfare DIF: REF: 17-3 LOC: The role of government TOP: Antitrust DIF: REF: 17-3 LOC: The role of government TOP: Predatory pricing Which of the following statements is true? a The proper scope of antitrust laws is well defined and definite b Antitrust laws focus on granting certain firms the option to form a cartel c Policymakers have the difficult task of determining whether some firms' decisions have legitimate purposes even though they appear anti-competitive d There is always a need for policymakers to try to limit a firm's pricing power, regardless of whether the firm's market is competitive, a monopoly, or an oligopoly ANS: C NAT: Analytic MSC: Interpretive 37 MSC: Applicative Although the practice of predatory pricing is a common claim in antitrust suits, some economists are skeptical of this argument because they believe a the evidence of its practice is nearly impossible to collect b predatory pricing is not a profitable business strategy c even though predatory pricing is a profitable business strategy, it is on balance beneficial to society d predatory pricing actually attracts new firms to the industry ANS: B NAT: Analytic MSC: Interpretive 36 17-3 Oligopoly Which of the following is necessarily a problem with antitrust laws? a They may target a business whose practices appear to be anti-competitive but in fact have legitimate purposes b They promote competition c They limit monopoly power d They prohibit firms from entering or exiting a market ANS: A NAT: Analytic MSC: Interpretive 35 REF: TOP: 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 ANS: C NAT: Analytic MSC: Interpretive 34 DIF: LOC: Oligopoly DIF: REF: 17-3 LOC: The role of government TOP: Antitrust 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 a tying b predation c wholesale maintenance d retail maintenance ANS: A NAT: Analytic MSC: Interpretive DIF: REF: 17-3 LOC: The role of government TOP: Tying Chapter 17/Oligopoly ❖ 189 38 A key issue in the Microsoft case involved whether or not the bundling of the Windows operating system with an Internet browser was an example of a predatory pricing b tying c resale price maintenance d price discrimination ANS: B NAT: Analytic MSC: Interpretive 39 17-3 Predatory pricing DIF: LOC: Oligopoly REF: TOP: 17-3 Predatory pricing DIF: REF: 17-3 LOC: The role of government TOP: Antitrust 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 ANS: B NAT: Analytic MSC: Definitional 43 REF: TOP: Two CEOs from different firms in the same market collude to fix the price in the market This action violates the a Clayton Act of 1914 b Sherman Antitrust Act of 1890 c Crandall-Putnam ruling of 1983 d Jackson-Microsoft ruling of 2000 ANS: B NAT: Analytic MSC: Interpretive 42 DIF: LOC: Oligopoly Consider a market served by a monopolist, Firm A A new firm, Firm B, enters the market and, as a result, Firm A lowers its price to try to drive Firm B out of the market This practice is known as a resale price maintenance b predatory tying c tying d predatory pricing ANS: D NAT: Analytic MSC: Interpretive 41 Tying Which of the following statements is false? a The Clayton Act allows triple damages in civil lawsuits in order to encourage lawsuits against conspiring oligopolists b Many economists defend the practice of resale price maintenance on the grounds that it may help solve a free-rider problem c Most economists agree that predatory pricing is a profitable business strategy that usually preserves market power d The U.S Supreme Court's view that the practice of tying usually allows a firm to extend its market power is not generally supported by economic theory ANS: C NAT: Analytic MSC: Interpretive 40 DIF: REF: 17-3 LOC: The role of government TOP: DIF: REF: 17-3 LOC: The role of government TOP: Antitrust The manufacturer of Bozz Radios sells radios to retail stores for $500 each, and it requires the retail stores to charge customers $550 per radio Any retailer that charges less than $550 would violate its contract with Bozz Radios What economists call this business practice? a predatory pricing b resale price maintenance c tying d leverage 190 ❖ Chapter 17/Oligopoly ANS: B NAT: Analytic MSC: Interpretive 44 17-3 Tying MSC: Interpretive DIF: REF: 17-3 LOC: The role of government TOP: Antitrust DIF: REF: 17-3 LOC: The role of government TOP: Antitrust DIF: LOC: Oligopoly REF: TOP: 17-3 Resale price maintenance Acme Computer Co sells computers to retail stores for $400 If Acme requires the retailers to charge customers $500 for the computers, then it is engaging in a resale price maintenance b predatory pricing c tying d monopolistic competition ANS: A NAT: Analytic MSC: Definitional 49 REF: TOP: Resale price maintenance involves a firm a colluding with another firm to restrict output and raise prices b selling two individual products together for a single price rather than selling each product individually at separate prices c temporarily cutting the price of its product to drive a competitor out of the market d requiring that the firm reselling its product so at a specified price ANS: D NAT: Analytic MSC: Definitional 48 DIF: LOC: Oligopoly A law that encourages market competition by prohibiting firms from gaining or exercising excessive market power is a a patent b impossible to enforce c an antitrust law d an externality law ANS: C NAT: Analytic MSC: Definitional 47 17-3 Resale price maintenance The primary purpose of antitrust legislation is to a protect small businesses b protect the competitiveness of U.S markets c protect the prices of American-made products d ensure firms earn only a fair profit ANS: B NAT: Analytic MSC: Interpretive 46 REF: TOP: 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 economists call this business practice? a predatory pricing b resale price maintenance c tying d leverage ANS: C NAT: Analytic 45 DIF: LOC: Oligopoly DIF: LOC: Oligopoly REF: TOP: 17-3 Resale price maintenance Predatory pricing involves a firm a colluding with another firm to restrict output and raise prices b selling two individual products together for a single price rather than selling each product individually at separate prices c temporarily cutting the price of its product to drive a competitor out of the market d requiring that the firm reselling its product so at a specified price Chapter 17/Oligopoly ❖ 191 ANS: C NAT: Analytic MSC: Definitional 50 17-3 Predatory pricing DIF: LOC: Oligopoly REF: TOP: 17-3 Predatory pricing Tying involves a firm a colluding with another firm to restrict output and raise prices b selling two individual products together for a single price rather than selling each product individually at separate prices c temporarily cutting the price of its product to drive a competitor out of the market d requiring that the firm reselling its product so at a specified price ANS: B NAT: Analytic 52 REF: TOP: Predatory pricing occurs when a firm a exercises its oligopoly power by raising its price through the formation of a cartel b exercises its monopoly power by raising its price c cuts its prices in order make itself more competitive d cuts its prices temporarily in order to drive out any competition ANS: D NAT: Analytic MSC: Definitional 51 DIF: LOC: Oligopoly DIF: LOC: Oligopoly REF: TOP: 17-3 Tying MSC: Definitional 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 a is referred to as tying b is regarded by some economists as a form of price discrimination c is controversial among economists because they disagree on whether it has adverse effects for society as a whole d All of the above are correct ANS: D NAT: Analytic DIF: LOC: Oligopoly REF: TOP: 17-3 Tying MSC: Interpretive Sec04 - Oligopoly - Conclusion MULTIPLE CHOICE The story of the prisoners’ dilemma shows why a predatory pricing is clearly not in society’s best interest b economists are unanimous in condemning resale price maintenance, since it inevitably reduces competition c oligopolies can fail to act independently, even when independent decision-making is in their best interest d oligopolies can fail to cooperate, even when cooperation is in their best interest ANS: D NAT: Analytic MSC: Interpretive DIF: LOC: Oligopoly REF: TOP: 16-4 Cooperation | Oligopoly ... 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... the number of firms within a given market increases, the price of the good decreases c as the number of firms within a given market increases, the profit of each firm increases d All of the above... The payoff table for this situation is provided below, where the higher a player’s payoff number, the better off that player is The payoffs in each cell are shown as (payoff for Amy, payoff for