Question 1

Price coordination among firms will be more difficult when there are substantial differences among the cost structures of the competing firms and the technologies they employ.

Accepted Answer

When there are substantial differences among the cost structures and technologies employed by competing firms, it can be difficult to find a common price point or pricing strategy that fits all firms. This makes price coordination more challenging.

Question 2

Assume two firms are currently competing in a market.If one of the two firms wants to try to eliminate the other firm as a competitor,should it undertake a strategy of limit pricing or predatory pricing? Why? In addition,describe the conditions under which the strategy you have selected will be most successful.

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The answer of Assume two firms are currently competing in...

Question 3

Assume a monopolist regularly posts price increases three months in advance of when they will take effect.After a small number of new firms enter the market,the original firm continues the practice of announcing price increases in advance.Following the court's logic in the Ethyl case,the firms in this market would not be guilty of price fixing behavior.

Accepted Answer

In the Ethyl case, advance announcement of price changes was not considered evidence of price fixing, especially if the practice was consistent before and after the entry of new competitors. The court reasoned that such announcements could be part of a competitive strategy rather than a mechanism for coordinating prices among competitors.

Question 4

According to the kinked demand curve model,if there is a modest increase in a firm's variable production costs,what is likely to happen to the firm's profit-maximizing level of output and the amount of profit earned by the firm? Why?

Accepted Answer

The answer of According to the kinked demand curve model,if...

Question 5

Of the various models of noncooperative oligopoly behavior discussed in the text,which one has the greatest shortcoming when it comes to explaining observed behavior in an oligopoly market

Accepted Answer

The answer of Of the various models of noncooperative oligopoly...

Question 6

Explain the difference between a cartel and tacit collusion.Is tacit collusion illegal in the United States? Explain.

Accepted Answer

The answer of Explain the difference between a cartel and...

Question 7

Summarize the three conditions cited in the text under which a cartel is most likely to succeed.Of these three,which do you think is most important? Why?

Accepted Answer

The answer of Summarize the three conditions cited in the...

Question 8

Because there is no formal agreement among the participating firms,firms that engage in tacit collusion are exempt from prosecution under the anti-trust laws.

Accepted Answer

Tacit collusion, while more difficult to prove than explicit collusion, can still violate antitrust laws if it significantly restricts competition, as it involves firms indirectly coordinating actions without a formal agreement.

Question 9

Explain the essential difference between games in which moves are simultaneous and those in which moves are sequential.

Accepted Answer

The answer of Explain the essential difference between games in...

Question 10

A firm acting as a price leader would never reduce market price because this would clearly make all of the firms in the market worse off and defeat the purpose of having a firm act as the price leader.

Accepted Answer

A price leader may reduce market prices to gain more market share, drive out competition, or respond to changes in demand or costs, which can be strategic moves benefiting the leader even if it temporarily impacts overall market profits.

Question 11

OPEC has had a sustained effect on the price of oil since it was first founded in 1960.

Accepted Answer

The answer of OPEC has had a sustained effect on...

Question 12

It is often observed that the prices charged for gasoline by the various gas stations in a particular city tend to move together very closely.Is this an example of tacit collusion that should be prosecuted in the United States? Why or why not?

Accepted Answer

The answer of It is often observed that the prices...

Question 13

What is the significance of the mutual interdependence among the firms in an oligopolistic market?

Accepted Answer

The answer of What is the significance of the mutual...

Question 14

Use the information in the following table,which summarizes the payoffs (i.e.,profit)to two firms that must decide between an average-quality and a high quality product,to answer the questions that follow:
Firm 2
  
a.What is each player's dominant strategy? Explain your reasoning.
b.Referring to the table above,is this an example of a prisoner's dilemma game? Why or why not?
c.Is there a Nash equilibrium? If so,what is it?

Accepted Answer

The answer of Use the information in the following table,which...

Question 15

The text's discussion of the airline industry,the soft drink industry,and the doughnut industry reveals a common theme when it comes to the types of competitive practices firms in each industry engage in.What is it and what advantage does it offer firms?

Accepted Answer

The answer of The text's discussion of the airline industry,the...

Question 16

Although tacit collusion can enhance the price-setting power of the participating firms,it can also result in greater efficiency in production,which also benefits society.Thus,it is not immediately clear,a priori,when tacit collusion actually hurts or helps consumers.

Accepted Answer

The statement correctly states that tacit collusion can have both positive and negative effects on consumers and society, making it difficult to determine its overall impact without further analysis.

Quiz 9: Market Structure: Oligopoly