AP Micro: Oligopoly

The following table shows the profits associated with the pricing strategies of two oligopolistic firms, Agronomia and Farmingdale. Each firm has two possible strategies: to charge a low price or a high price. The first entry in each cell shows the profits to Agronomia and the second the profits to Farmingdale. If the two firms do not cooperate, what will be the profit for each firm?

• Agronomia = $50; Farmingdale = $100
• Agronomia = $150; Farmingdale = $150
• Agronomia = $300; Farmindale = $50
• Agronomia = $100; Farmingdale = $100

E Soda and R Soda are the only two firms in
the soft-drink industry. The companies cannot cooperate. Each firm can follow a high-price strategy or a low-price strategy for pricing its product. In the payoff, the first entry in each cell shows the profits to E Soda and the second entry shows the profits to R Soda. It can be concluded that: 

• neither E Soda nor R Soda has a dominant strategy
• E Soda has a dominant strategy but R Soda does not
• Both firms will choose the high-price strategy
• Both firms will choose the low-price strategy

Evergreen and Nature View are bidding for
a landscaping contract. The payoff matrix shows what each firm’s total weekly profits from all its operations will be for each combination of bids. The first entry in each cell shows Evergreen’s profit, and the second entry in each cell shows Nature View’s profit. A Nash equilibrium results under which of the following conditions? 

• When both firms bid low 
• When Evergreen bids high and Nature View bids low 
• When both firms bid high and when both firms bid low 
• When Evergreen bids low, no matter what Nature View’s bid is 

Assume that Alpha and Beta are the only sellers of a product and they do not cooperate. Each firm has to decide whether to raise the product price. The payoff matrix gives the profits, in dollars, associated with each pair of pricing strategies. The first entry in each cell shows the profits to Alpha, and the second, the profits to Beta. What is the dominant strategy for each firm?

• Alpha: Do Not Raise; Beta: Do Not Raise
• Alpha: Do Not Raise; Beta: Raise
• Alpha: No Dominant Strategy; Beta: Raise
• Alpha: Raise; Beta: Do Not Raise

Which of the following best describes an oligopolistic market? 

• Many sellers with identical products and no barriers to entry 
• No competition among sellers and high barriers to entry 
• A few competing sellers with similar products and high barriers to entry 
• A few competing sellers of identical products and no barriers to entry 

The payoff matrix shows the per-unit profits associated with the production strategies of two utility companies, UA and UB. Each firm has two choices: to reduce production by 10 percent or by 20 percent. The first entry in each cell indicates the profits to UA, and the second, the profits to UB. Assuming no cooperation, which statement is true?

• Neither company has a dominant strategy 
• Both companies have an incentive to reduce production by 10%
  
• Both companies have an incentive to reduce production by 20%
  
• Only UA has an incentive to reduce production by 20%
  

The table shows the profits associated with the strategies of two oligopolistic firms, Lock and Star, that must choose between a high price and a low price for their products. The first entry in each box is the profits received by Lock, and the second entry is the profits received by Star. If Lock chooses low price, Star should charge the: 

• high price and earn a profit of $70 
• high price and earn a profit of $50 
• low price and earn a profit of $40 
• low price and earn a profit of $50 

The cartel model of oligopoly predicts that: 

• all the firms in the industry act in unison to set a monopoly price 
• each producer acts independently of others 
• firms follow the low-price firm in the industry
  
• differences in cost of production discourage individual firms from cheating
  

Suppose that the two biggest producers of gold, Bmine and Gmine, form a cartel to set price. However, each has the option to cheat or to not cheat on the agreement. The table shows the payoffs from these strategies, with the first entry in each cell representing the payoff to Bmine and the second representing the payoff to Gmine. What is the dominant strategy for each firm?

• Neither Gmine nor Bmine has a dominant strategy 
• Gmine’s dominant strategy is to cheat; Bmine does not have a dominant strategy 
• Gmine’s dominant strategy is to not cheat; Bmine does not have a dominant strategy 
• Gmine’s dominant strategy is to not cheat; Bmine’s dominant strategy is to cheat

The characteristic of oligopolistic firms that makes them different from all other types of firms is that oligopolistic firms:

• Advertise their products
• Consider each other's decisions
• Produce differentiated products
• Face high barriers to entry