Oligopoly 4233
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:
Quantity
(in gallons)
Price
Total Revenue
(and Total Profit)
0
$12
$0
1
$11
$11
2
$10
$20
3
$9
$27
4
$8
$32
5
$7
$35
6
$6
$36
7
$5
$35
8
$4
$32
9
$3
$27
10
$2
$20
11
$1
$11
12
$0
$0
30. Refer to Table 17-2. Suppose that Abby and Brad work together to operate as a profit–
maximizing monopolist. What price will they charge for water?
a. $8
b. $7
c. $6
d. $4
4234 Oligopoly
31. Refer to Table 17-2. Suppose that Abby and Brad work together to operate as a profit–
maximizing monopolist. How many gallons of water will be produced and sold?
a. 4 gallons
b. 5 gallons
c. 6 gallons
d. 8 gallons
32. Refer to Table 17-2. If this market for water were perfectly competitive instead of
monopolistic, what would be the price for water?
a. $0
b. $4
c. $6
d. $12
Oligopoly 4235
33. Refer to Table 17-2. If this market for water were perfectly competitive instead of
monopolistic, how many gallons of water would be produced and sold?
a. 12 gallons
b. 8 gallons
c. 6 gallons
d. 0 gallons
34. 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
4236 Oligopoly
35. 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
Table 17-3
Imagine a small town in a remote area where only two residents, Maria and Miguel, own dairies
that produce milk that is safe to drink. Each week Maria and Miguel work together to decide how
many gallons of milk to produce. They bring milk to town and sell it at whatever price the market
will bear. To keep things simple, suppose that Maria and Miguel can produce as much milk as
they want without cost so that the marginal cost is zero. The weekly town demand schedule and
total revenue schedule for milk is shown in the table below:
Quantity
(in gallons)
Price
Total Revenue
(and Total Profit)
0
$24
$0
1
$22
$22
2
$20
$40
3
$18
$54
4
$16
$64
5
$14
$70
6
$12
$72
7
$10
$70
8
$8
$64
9
$6
$54
10
$4
$40
11
$2
$22
12
$0
$0
Oligopoly 4237
36. Refer to Table 17-3. Suppose that Maria and Miguel work together in order to operate as a
profit–maximizing monopolist. What price will they charge for milk?
a. $14
b. $12
c. $10
d. $8
37. Refer to Table 17-3. Suppose that Maria and Miguel work together in order to operate as a
profit–maximizing monopolist. How many gallons of milk will be produced and sold?
a. 5 gallons
b. 6 gallons
c. 7 gallons
d. 8 gallons
4238 Oligopoly
38. Refer to Table 17-3. If this market for milk were perfectly competitive instead of monopolistic,
what would be the price for milk?
a. $0
b. $10
c. $12
d. $16
39. Refer to Table 17-3. If this market for milk were perfectly competitive instead of monopolistic,
how many gallons of milk would be produced and sold?
a. 12 gallons
b. 8 gallons
c. 6 gallons
d. 0 gallons
Oligopoly 4239
40. Refer to Table 17–3. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel
from operating as a monopoly. What will be the price of milk once Maria and Miguel reach a Nash
equilibrium?
a. $14
b. $12
c. $10
d. $8
41. Refer to Table 17–3. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel
from operating as a monopoly. How much profit will Miguel and Maria each earn once they reach
a Nash equilibrium?
a. $40
b. $36
c. $32
d. $30
4240 Oligopoly
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.
Price
Total Revenue
(and total profit)
$10
$0
9
450
8
800
7
1,050
6
1,200
5
1,250
4
1,200
3
1,050
2
800
1
450
0
0
42. Refer to Table 17-4. If the market for gasoline in Mauston is perfectly competitive, then the
equilibrium price of gasoline is
a. $7 and the equilibrium quantity is 150 gallons.
b. $5 and the equilibrium quantity is 250 gallons.
c. $3 and the equilibrium quantity is 350 gallons.
d. $0 and the equilibrium quantity is 500 gallons.
Oligopoly 4241
43. Refer to Table 17-4. If the market for gasoline in Mauston is a monopoly, then the profit-
maximizing monopolist will charge a price of
a. $7 and sell 150 gallons.
b. $5 and sell 250 gallons.
c. $3 and sell 350 gallons.
d. $0 and sell 500 gallons.
44. Refer to Table 17-4. If there are exactly two sellers of gasoline in Mauston and if they collude,
then which of the following outcomes is most likely?
a. Each seller will sell 250 gallons and charge a price of $5.
b. Each seller will sell 175 gallons and charge a price of $3.
c. Each seller will sell 125 gallons and charge a price of $2.5.
d. Each seller will sell 125 gallons and charge a price of $5.
4242 Oligopoly
45. 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.
46. 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.
Oligopoly 4243
Table 17-5
The information in the table below shows the total demand for premium-channel digital cable TV
subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed
cost of $200,000 (per year) to provide premium digital channels in the market area and that the
marginal cost of providing the premium channel service to a household is zero.
Quantity
Price (per year)
0
$180
3,000
$150
6,000
$120
9,000
$ 90
12,000
$ 60
15,000
$ 30
18,000
$ 0
47. Refer to Table 17-5. If there is only one digital cable TV company in this market, what price
would it charge for a premium digital channel subscription to maximize its profit?
a. $30
b. $60
c. $90
d. $150
4244 Oligopoly
48. Refer to Table 17-5. Assume there are two digital cable TV companies operating in this
market. If they are able to collude on the quantity of subscriptions that will be sold and on the
price that will be charged for subscriptions, then their agreement will stipulate that
a. each firm will charge a price of $90 and each firm will sell 4,500 subscriptions.
b. each firm will charge a price of $90 and each firm will sell 9,000 subscriptions.
c. each firm will charge a price of $120 and each firm will sell 3,000 subscriptions.
d. each firm will charge a price of $150 and each firm will sell 1,500 subscriptions.
49. Refer to Table 17-5. Assume there are two profit-maximizing digital cable TV companies
operating in this market. Further assume that they are able to collude on the quantity of
subscriptions that will be sold and on the price that will be charged for subscriptions. How much
profit will each company earn?
a. $610,000
b. $550,000
c. $405,000
d. $205,000
Oligopoly 4245
50. Refer to Table 17-5. Assume there are two profit-maximizing digital cable TV companies
operating in this market. Further assume that they are not able to collude on the price and quantity
of premium digital channel subscriptions to sell. How many premium digital channel cable TV
subscriptions will be sold altogether when this market reaches a Nash equilibrium?
a. 6,000
b. 9,000
c. 12,000
d. 15,000
51. Refer to Table 17-5. Assume there are two profit-maximizing digital cable TV companies
operating in this market. Further assume that they are not able to collude on the price and quantity
of premium digital channel subscriptions to sell. What price will premium digital channel cable TV
subscriptions be sold at when this market reaches a Nash equilibrium?
a. $30
b. $60
c. $90
d. $120
4246 Oligopoly
52. Refer to Table 17-5. Assume that there are two profit-maximizing digital cable TV companies
operating in this market. Further assume that they are not able to collude on the price and quantity
of premium digital channel subscriptions to sell. How much profit will each firm earn when this
market reaches a Nash equilibrium?
a. $25,000
b. $90,000
c. $160,000
d. $215,000
Table 17-6
Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe
drinking water. Each week Kunal and Naj work together to decide how many gallons of water to
pump, to bring the water to town, and to sell it at whatever price the market will bear. Assume
Kunal and Naj 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 are shown in the table
below.
Weekly Quantity (in
gallons)
Price
Weekly
Total Revenue (and Total
Profit)
0
$12
$ 0
25
11
275
50
10
500
75
9
675
100
8
800
125
7
875
150
6
900
175
5
875
200
4
800
225
3
675
250
2
500
275
1
275
300
0
0
Oligopoly 4247
53. Refer to Table 17-6. Since Kunal and Naj operate as a profit-maximizing monopoly in the
market for water, what price will they charge for water?
a. $2
b. $4
c. $6
d. $7
54. Refer to Table 17–6. If the market for water were perfectly competitive instead of monopolistic,
how many gallons of water would be produced and sold?
a. 25
b. 100
c. 200
d. 300
4248 Oligopoly
55. Refer to Table 17-6. As long as Kunal and Naj operate as a profit-maximizing monopoly, what
will their combined weekly revenue amount to?
a. $450
b. $675
c. $875
d. $900
56. Refer to Table 17-6. The socially efficient level of water supplied to the market would be
a. 50 gallons.
b. 150 gallons.
c. 225 gallons.
d. 300 gallons.
Oligopoly 4249
57. Refer to Table 17-6. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj
from operating as a monopolist. What will the new price of water be once the Nash equilibrium is
reached?
a. $3
b. $4
c. $5
d. $6
58. Refer to Table 17-6. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj
from operating as a monopolist. What will quantity of water will each of them produce once the
Nash equilibrium is reached?
a. Each will produce 50 gallons, for a total of 100 gallons.
b. Each will produce 75 gallons, for a total of 150 gallons.
c. Each will produce 100 gallons, for a total of 200 gallons.
d. Each will produce 125 gallons, for a total of 250 gallons.
4250 Oligopoly
59. Refer to Table 17-6. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj
from operating as a monopolist. Once the Nash equilibrium is reached, how much profit will each
producer earn?
a. $400.00
b. $437.50
c. $450.00
d. $800.00
Table 17-7
The information in the table below shows the total demand for internet radio subscriptions in a
small urban market. Assume that each company that provides these subscriptions incurs an annual
fixed cost of $20,000 (per year) and that the marginal cost of providing an additional subscription
is always $16.
Quantity
Price (per year)
0
$64
1,000
$56
2,000
$48
3,000
$40
4,000
$32
5,000
$24
6,000
$16
7,000
$ 8
8,000
$ 0
Oligopoly 4251
60. Refer to Table 17-7. Suppose there is only one internet radio provider in this market and it seeks
to maximize its profit. The company will
a. sell 2,000 subscriptions and charge a price of $48 for each subscription.
b. sell 3,000 subscriptions and charge a price of $40 for each subscription.
c. sell 4,000 subscriptions and charge a price of $32 for each subscription.
d. sell 5,000 subscriptions and charge a price of $24 for each subscription.
61. Refer to Table 17-7. Assume there are two internet radio providers that operate in this market.
If they are able to collude on the quantity of subscriptions that will be sold and on the price that
will be charged for subscriptions, then their agreement will stipulate that
a. each firm will charge a price of $40 and each firm will sell 3,000 subscriptions.
b. each firm will charge a price of $40 and each firm will sell 1,500 subscriptions.
c. each firm will charge a price of $32 and each firm will sell 2,000 subscriptions.
d. each firm will charge a price of $20 and each firm will sell 3,000 subscriptions.
4252 Oligopoly
62. Refer to Table 17-7. Assume there are two profit–maximizing internet radio providers operating
in this market. Further assume that they are able to collude on the quantity of subscriptions that
will be sold and on the price that will be charged for subscriptions. If the firms divide the market
evenly, how much profit will each company earn?
a. $12,000
b. $16,000
c. $44,000
d. $60,000
63. Refer to Table 17-7. Assume there are two profit-maximizing internet radio providers operating
in this market. Further assume that they are not able to collude on the price and quantity of
subscriptions to sell. How many subscriptions will be sold altogether when this market reaches a
Nash equilibrium?
a. 2,000
b. 3,000
c. 4,000
d. 5,000