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TRUE/FALSE
1. The key difference between oligopoly and other market structures is the interdependence among producers.
2. The demand curve faced by an oligopolistic producer depends on how rival firms react to its prices and policies.
3. Large oligopoly firms are often able to take advantage of significant economies of scale. As a result, they can often produce at a lower average total cost than can smaller firms.
4. A cartel is a group of firms that attempt to collude by coordinating price and output decisions.
5. In the kinked demand curve model of oligopoly, above the profit maximizing price demand is inelastic and below the profit maximizing price demand is elastic.
1. The key difference between oligopoly and other market structures is the interdependence among producers.
2. The demand curve faced by an oligopolistic producer depends on how rival firms react to its prices and policies.
3. Large oligopoly firms are often able to take advantage of significant economies of scale. As a result, they can often produce at a lower average total cost than can smaller firms.
4. A cartel is a group of firms that attempt to collude by coordinating price and output decisions.
5. In the kinked demand curve model of oligopoly, above the profit maximizing price demand is inelastic and below the profit maximizing price demand is elastic.
FIRM A
Concede that Argue that there is no evidence
smoke causes cancer that it causes cancer
Concede that Firm A profits: - $20 bill. Firm A profits: -$50 bill.
smoke causes cancer Firm B profits: -$20 bill. Firm B profits: -$10 bill.
FIRM B Argue that there is Firm A profits: -$10 bill. Firm A profits: -$15 bill.
no evidence that Firm B profits: -$50 bill. Firm B profits: -$15 bill.
it causes cancer
When this game reaches a Nash equilibrium, profits for Firm A and Firm B will respectively be?
Concede that Argue that there is no evidence
smoke causes cancer that it causes cancer
Concede that Firm A profits: - $20 bill. Firm A profits: -$50 bill.
smoke causes cancer Firm B profits: -$20 bill. Firm B profits: -$10 bill.
FIRM B Argue that there is Firm A profits: -$10 bill. Firm A profits: -$15 bill.
no evidence that Firm B profits: -$50 bill. Firm B profits: -$15 bill.
it causes cancer
When this game reaches a Nash equilibrium, profits for Firm A and Firm B will respectively be?
FIRM A
Concede that Argue there is no evidence
smoke causes cancer that it causes cancer
Concede that Firm A profits: - $20 bill. Firm A profits: -$50 bill.
smoke causes cancer Firm B profits: -$20 bill. Firm B profits: -$10 bill.
FIRM B Argue that there is Firm A profits: -$10 bill. Firm A profits: -$15 bill.
no evidence that Firm B profits: -$50 bill. Firm B profits: -$15 bill.
it causes cancer
If both firms follow a dominant strategy, Firm B's profits (losses) will be?
Concede that Argue there is no evidence
smoke causes cancer that it causes cancer
Concede that Firm A profits: - $20 bill. Firm A profits: -$50 bill.
smoke causes cancer Firm B profits: -$20 bill. Firm B profits: -$10 bill.
FIRM B Argue that there is Firm A profits: -$10 bill. Firm A profits: -$15 bill.
no evidence that Firm B profits: -$50 bill. Firm B profits: -$15 bill.
it causes cancer
If both firms follow a dominant strategy, Firm B's profits (losses) will be?
FIRM A
Concede that Argue that there is no evidence
smoke causes cancer that it causes cancer
Concede that Firm A profits: - $20 bill. Firm A profits: -$50 bill.
smoke Firm B profits: -$20 bill. Firm B profits: -$10 bill.
causes cancer
FIRM B
Argue that there is Firm A profits: -$10 bill. Firm A profits: -$15 bill.
no evidence that Firm B profits: -$50 bill. Firm B profits: -$15 bill.
it causes cancer
If both firms follow a dominant strategy, Firm A's profits (losses) will be?
Concede that Argue that there is no evidence
smoke causes cancer that it causes cancer
Concede that Firm A profits: - $20 bill. Firm A profits: -$50 bill.
smoke Firm B profits: -$20 bill. Firm B profits: -$10 bill.
causes cancer
FIRM B
Argue that there is Firm A profits: -$10 bill. Firm A profits: -$15 bill.
no evidence that Firm B profits: -$50 bill. Firm B profits: -$15 bill.
it causes cancer
If both firms follow a dominant strategy, Firm A's profits (losses) will be?
MULTIPLE CHOICE
1. Which of the following market structures describes an industry in which a group of firms formally agree to control prices and output of a product?
a. Perfect competition.
b. Monopoly.
c. Oligopoly.
d. Cartel.
e. Monopolistic competition.
2. The purpose of a cartel is to:
a. promote product innovation.
b. increase market competition.
c. act like a monopoly.
d. diversify operations.
e. decrease market concentration.
3. When the player of a game chooses a dominant strategy:
a. it is the best strategy only if other players are cooperative.
b. it always leads to a Nash equilibrium that makes all players equally well off.
c. the game can never reach a Nash equilibrium.
d. it is the best strategy regardless of choices made by other players.
1. Which of the following market structures describes an industry in which a group of firms formally agree to control prices and output of a product?
a. Perfect competition.
b. Monopoly.
c. Oligopoly.
d. Cartel.
e. Monopolistic competition.
2. The purpose of a cartel is to:
a. promote product innovation.
b. increase market competition.
c. act like a monopoly.
d. diversify operations.
e. decrease market concentration.
3. When the player of a game chooses a dominant strategy:
a. it is the best strategy only if other players are cooperative.
b. it always leads to a Nash equilibrium that makes all players equally well off.
c. the game can never reach a Nash equilibrium.
d. it is the best strategy regardless of choices made by other players.
MULTIPLE CHOICE
1. Pricing and output determination under an oligopoly is more complicated than pricing and output determinations in other industries. The primary reason for the complication is the:
a. fewness of firms.
b. brand loyalty of consumers.
c. powerful effect of advertising.
d. variability of concentration ratios.
e. mutual interdependence of firms.
2. A "kinked" demand curve reflects a tendency on the part of an oligopolist to:
a. follow price increases but not price reductions.
b. following price reductions but not price increases.
c. be unconcerned with rivals' behavior.
d. None of these.
3. The kinked demand theory attempts to explain why an oligopolistic firm:
a. has relatively large advertising expenditures.
b. fails to invest in research and development.
c. infrequently changes its price.
d. engages in excessive brand proliferation.
1. Pricing and output determination under an oligopoly is more complicated than pricing and output determinations in other industries. The primary reason for the complication is the:
a. fewness of firms.
b. brand loyalty of consumers.
c. powerful effect of advertising.
d. variability of concentration ratios.
e. mutual interdependence of firms.
2. A "kinked" demand curve reflects a tendency on the part of an oligopolist to:
a. follow price increases but not price reductions.
b. following price reductions but not price increases.
c. be unconcerned with rivals' behavior.
d. None of these.
3. The kinked demand theory attempts to explain why an oligopolistic firm:
a. has relatively large advertising expenditures.
b. fails to invest in research and development.
c. infrequently changes its price.
d. engages in excessive brand proliferation.
MULTIPLE CHOICE
1. Mutual interdependence among firms in an oligopoly means that:
a. firms never practice price leadership.
b. firms never form a cartel.
c. it is difficult to know how firms will react to decisions of rivals.
d. no formal agreement is possible among firms.
2. A major characteristic of the theory of oligopoly is that:
a. there are no real-world examples.
b. the reactions of each firm depends on how the firm believes rivals will react.
c. in reality few oligopolies survive more than 10 years.
d. none of these.
3. If a firm has substantial market power, it must be operating in an industry that would be class
ified as:
a. a monopoly or oligopoly.
b. perfectly competitive.
c. monopolistically competitive.
d. perfectly competitive or monopolistically competitive.
e. perfectly competitive or a monopoly.
1. Mutual interdependence among firms in an oligopoly means that:
a. firms never practice price leadership.
b. firms never form a cartel.
c. it is difficult to know how firms will react to decisions of rivals.
d. no formal agreement is possible among firms.
2. A major characteristic of the theory of oligopoly is that:
a. there are no real-world examples.
b. the reactions of each firm depends on how the firm believes rivals will react.
c. in reality few oligopolies survive more than 10 years.
d. none of these.
3. If a firm has substantial market power, it must be operating in an industry that would be class
ified as:
a. a monopoly or oligopoly.
b. perfectly competitive.
c. monopolistically competitive.
d. perfectly competitive or monopolistically competitive.
e. perfectly competitive or a monopoly.
MULTIPLE CHOICE
1. In the long run in a monopolistic competitive industry:
a. economic profits will be positive.
b. price will be driven to zero.
c. the firm will not operate where MR = MC.
d. economic profit will be zero.
e. price will exceed average cost.
2. One key characteristic that is distinctive of an oligopoly market is that:
a. the demand curve facing each firm is downward sloping, with a marginal revenue curve
that lies below the firm's demand curve.
b. the decisions of one seller often influences the price of products, the output, and the profits
of rival firms.
c. there is only one firm that produces a product for which there are no good substitutes.
d. there are many sellers in the market and each is small relative to the total market.
1. In the long run in a monopolistic competitive industry:
a. economic profits will be positive.
b. price will be driven to zero.
c. the firm will not operate where MR = MC.
d. economic profit will be zero.
e. price will exceed average cost.
2. One key characteristic that is distinctive of an oligopoly market is that:
a. the demand curve facing each firm is downward sloping, with a marginal revenue curve
that lies below the firm's demand curve.
b. the decisions of one seller often influences the price of products, the output, and the profits
of rival firms.
c. there is only one firm that produces a product for which there are no good substitutes.
d. there are many sellers in the market and each is small relative to the total market.
1. The short - run equilibrium for a monopolistically competitive firm is at P = $28.47, ATC = $22.13, and MC = MR = $17.47. Which of the following is true?
a. Per - unit profit is $11.
b. Additional firms will be attracted into the industry.
c. The firm could raise price and increase profits.
d. The firm could lower price and increase profits.
e. Average cost must be rising.
2. The entry of new firms into a monopolistic competitive industry will shift the:
a. market demand curve to the right.
b. market demand curve to the left.
c. existing firm's demand curve to the right.
d. existing firm's demand curve to the left.
e. market supply curve to the left
a. Per - unit profit is $11.
b. Additional firms will be attracted into the industry.
c. The firm could raise price and increase profits.
d. The firm could lower price and increase profits.
e. Average cost must be rising.
2. The entry of new firms into a monopolistic competitive industry will shift the:
a. market demand curve to the right.
b. market demand curve to the left.
c. existing firm's demand curve to the right.
d. existing firm's demand curve to the left.
e. market supply curve to the left
MULTIPLE CHOICE
1. In the long run in monopolistic competition:
a. economic profits are zero.
b. P = MC.
c. P = minimum ATC.
d. firms have an incentive to leave.
e. the demand curve is tangent to the MC curve.
2. The demand curve in monopolistic competition slopes downward because of:
a. strong barriers to entry.
b. product differentiation.
c. the small number of firms.
d. government regulation.
e. the similarities of the businesses.
1. In the long run in monopolistic competition:
a. economic profits are zero.
b. P = MC.
c. P = minimum ATC.
d. firms have an incentive to leave.
e. the demand curve is tangent to the MC curve.
2. The demand curve in monopolistic competition slopes downward because of:
a. strong barriers to entry.
b. product differentiation.
c. the small number of firms.
d. government regulation.
e. the similarities of the businesses.
