True/False
Indicate whether the sentence or statement is true
or false.
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| 1. | When
prices exceed marginal cost the result is a deadweight loss for society.
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| 2. | In a
competitive market, strategic interactions among the firms are not important.
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| 3. | In
the story of the prisoners' dilemma, Clyde is always better off confessing, no matter what Bonnie
does.
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| 4. | When
prisoners' dilemma games are repeated over and over, sometimes the threat of penalty causes both
parties to cooperate.
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| 5. | The
Sherman Antitrust Act prohibits competing firms from even talking about fixing prices.
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Short Answer
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| | 6. | Briefly contrast the difference between equilibrium market outcomes in a monopoly,
oligopoly, and perfect competition.
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| | 7. | Even
when allowed to collude, firms in an oligopoly will choose to cheat on their agreements with the rest
of the cartel. Why?
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| | 8. | What
effect does the number of firms in an oligopoly have on the characteristics of the
market?
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| | 9. | Assume that demand for a product that is produced at zero marginal cost is reflected
in the table below.
Quantity | Price |
0 | $36 | 200 | $33 | 400 | $30 |
600 | $27 | 800 | $24 | 1000 | $21 | 1200 | $18 | 1400 | $15 | 1600 | $12 | 1800 | $
9 | 2000 | $
6 | 2200 | $
3 | 2400 | $
0 | | |
a. | What is the profit-maximizing level of production for a group
of oligopolistic firms that operate as a cartel? | b. | 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
profit-maximizing Nash equilibrium? | c. | Assume that this market is served by three identical firms who
operate as independent oligopolists (no collusive agreements). What market price and quantity will be
associated with a profit-maximizing Nash equilibrium? How does your answer differ from (b)
above? | | |
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| | 10. | Explain how the output effect and the price effect influence the production decision
of the individual oligopolist.
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| | 11. | 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.
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| | 12. | While
on vacation in Berserkistan, you are arrested and accused of spying for your country. You are, of
course, innocent. Your captors inform you that if you confess, you will receive a sentence of six
months while your co-conspirator (whom you have never heard of) will receive a sentence of thirty
years. If you both confess you will each receive a sentence of three years. You are also told that
your co-conspirator is being offered the same option. You suspect that there is not enough evidence
to convict you (and you will be allowed to leave Berserkistan immediately) unless your alleged
co-conspirator confesses. What should you choose to do and why?
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| | 13. | Explain the practice of resale price maintenance and discuss why it is
controversial.
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| | 14. | Explain the practice of tying and discuss why it is controversial.
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| | 15. | In
Berserkistan, two political parties vie for control of the country. Each political party, when it is
not in power, has a tendency to call general strikes to influence the policy of the ruling party.
Evaluate this strategy in the context of a multiple-period game. Is it possible, in this situation,
that a multiple-period game reduces, rather than enhances, social well-being? What would have to
happen in this game to improve social welfare, if a tit-for-tat strategy is used?
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