Question 1

A key characteristic of oligopoly is

Accepted Answer

One of the key characteristics of an oligopoly is the actual and perceived interdependence among firms. This means that the actions of one firm can have an impact on the other firms in the industry. Firms in an oligopoly are also likely to be aware of and react to the actions of their competitors.

Question 2

In the United States,most collusive agreements were declared illegal by the ________ Act.

Accepted Answer

The Sherman Antitrust Act, passed in 1890, declared most collusive agreements between companies illegal, including price-fixing, bid-rigging, and market allocation. It was the first federal law in the United States to regulate competition and prevent monopolies. While other antitrust laws, such as the Clayton Act and Robinson-Patman Act, have been passed since then, it was the Sherman Antitrust Act that initially addressed collusive agreements.

Question 3

In the theory of games,the optimal behavior for a decision-making unit,regardless of what the other players do,is called a

Accepted Answer

Dominant strategy is the optimal behavior for a decision-making unit, regardless of what the other players do. It is the best option for the player to follow to achieve the highest payoff or outcome, given the choices of the other players. The other options (payoff matrix, rule, contingency plan, and primary path) may be relevant in game theory but are not specifically related to the optimal behavior of a decision-making unit.

Question 4

Monopolistic competition and oligopoly are similar in that firms in both markets

Accepted Answer

Both monopolistic competition and oligopoly markets have a degree of market power and product differentiation. This allows firms to charge higher prices than under perfect competition. However, firms in both markets can earn profits in the long run, which distinguishes them from perfect competition. Additionally, firms in both markets may engage in advertising and other types of selling expenses to differentiate their products and attract customers. Lastly, firms in monopolistic competition may produce differentiated products, while firms in oligopoly may produce either differentiated or homogeneous products. The key similarity between these markets is the ability for firms to exercise market power and charge higher prices.

Question 5

A competitive situation where two or more persons pursue their own interests and no person can dictate the outcome is called a(n)

Accepted Answer

A competitive situation where individuals pursue their own interests and no person can dictate the outcome is commonly referred to as a game. In this context, each participant's decision affects the outcome of the other participants, making it a strategic interaction.

Question 6

Although a cartel may readily agree on a uniform price,problems nevertheless arise because

Accepted Answer

Even if the cartel agrees on a uniform price, decisions must be made as to how production will be distributed among the members. This decision-making process can lead to conflicts and difficulties in enforcing agreements among the members of the cartel.

Question 7

If firms' production functions are such as to achieve the lowest unit costs when each produces a substantial share of total market output,the industry is likely to exhibit the characteristics of

Accepted Answer

When firms' production functions are optimized by producing a substantial share of the total market output, it typically leads to a few firms dominating the market. This scenario is characteristic of an oligopoly, where a small number of firms have a large market share, leading to limited competition and the potential for collaborative behavior or strategic interactions among the firms.

Question 8

A cartel is

Accepted Answer

A cartel is a formal collusion agreement among firms to coordinate their actions on pricing, output levels, and other strategic decisions in order to maximize joint profits. It is often illegal and violates antitrust laws in many countries, including the United States. Cartels are more likely to form in oligopolistic markets where a small number of large firms dominate the industry.

Question 9

A profit-maximizing cartel should produce where

Accepted Answer

A profit-maximizing cartel, like any profit-maximizing firm, should produce where marginal cost equals marginal revenue. This is the fundamental condition for profit maximization in microeconomics, ensuring that the firm or cartel is producing at a level where the cost of producing one more unit is exactly equal to the revenue gained from selling that additional unit.

Question 10

The rationale for using game theory to study oligopoly is that

Accepted Answer

Game theory is a useful tool for studying oligopoly because in such markets, each firm's actions and decisions are interdependent and influenced by those of its competitors. Game theory provides a framework for analyzing how firms may strategically interact with each other to maximize their profits, and how this may lead to various outcomes such as collusion or price wars. Therefore, using game theory helps to capture the complex and dynamic nature of oligopoly markets. Option A, B, C, and D are incorrect as they are either not relevant to oligopoly market or not true about game theory.

Question 11

If oligopolists can form a cartel,their profit-maximizing action is to

Accepted Answer

Cartels allow oligopolists to act like monopolists by coordinating their production and pricing strategies. Therefore, they would act like monopolists with a number of plants or divisions, each of which is a member firm, in order to maximize profits.

Question 12

When firms get together and agree on prices and output,it is called

Accepted Answer

When firms get together and agree on prices and output, it is called collusion. This is an illegal practice that undermines fair competition and harms consumers. Price leadership refers to a situation where one firm sets the price for the industry, monopolistic competition refers to a market structure where there are many small players with differentiated products, the rule of reason is a legal principle used to evaluate antitrust violations, and intermediation refers to the process of connecting buyers and sellers through intermediaries such as brokers or marketplaces.

Question 13

Game theory can most effectively be used to postulate behavior in ________ markets.

Accepted Answer

Game theory is most useful in predicting the behavior of firms in oligopolistic markets, where a small number of firms dominate the market and have interdependent decision-making. The actions of one firm directly affect the profits and strategies of its competitors, making game theory a valuable tool for predicting outcomes and making strategic decisions.

Question 14

An oligopoly market structure prevails in an industry in which there are

Accepted Answer

An oligopoly market structure is characterized by few firms dominating the industry, leading to interdependence among these firms. This means that the actions of one firm will have an impact on the others' profits and market share. The other options are not necessarily indicators of an oligopoly market structure.

Question 15

Which of the following describes oligopolistic interdependence?

Accepted Answer

Oligopolistic interdependence refers to the fact that each firm in an oligopoly takes into account the effects of its pricing and output decisions on the actions of other firms in the market. This interdependence creates an atmosphere of strategic interaction, in which each firm considers the possible reactions of its rivals before making any decisions.

Question 16

In game theory,the outcomes of various strategies for two players can be summarized in a(n)

Accepted Answer

The outcomes of various strategies for two players in game theory can be summarized in a payoff matrix, which shows the payouts or losses for different combinations of strategies chosen by the players. The other options (B, C, D, E) are not relevant to game theory or do not accurately represent the information needed to analyze player strategies.

Question 17

What will the price be if five firms that are the only producers of a product form a cartel and charge a uniform price,if marginal costs are constant at $36 and the demand for the product is as follows? (Hint: MR = 100 - 4Q.)

Accepted Answer

The answer of What will the price be if five...

Question 18

The possible outcomes of a two-firm nonrepeated promotional campaign are summarized as follows:
 
-According to the information given,it would be best for firm B to

Accepted Answer

C) Matching A's strategy allows firm B to directly compete and potentially neutralize the impact of A's promotional campaign, ensuring they remain competitive regardless of the medium chosen.

Question 19

The most frequently found barriers to entry in oligopoly include

Accepted Answer

The barriers to entry in oligopoly typically include factors that prevent new firms from entering the market and competing with existing firms. Patents, large initial and continuing financial requirements, and access to basic inputs are some of the most frequently found barriers to entry. These factors can make it difficult or impossible for new firms to enter the market and compete with existing firms, which allows the existing firms to maintain their dominance and control over prices and production levels. Therefore, choice E is the best answer.

Question 20

The possible outcomes of a two-firm nonrepeated promotional campaign are summarized as follows:
 
-According to the information given

Accepted Answer

Firm A's dominant strategy is local radio spots because it is the best response to any strategy that firm B chooses.

Quiz 8: Monopolistic Competition,oligopoly,and Antitrust Policy