Question 1

A special kind of imperfectly competitive market that has only two firms is called

Accepted Answer

A market with only two firms is called a duopoly.

Question 2

Suppose there are only five construction companies in a particular region that are each large enough to take on large public infrastructure projects (roads,bridges,sewers,etc.).Representatives of these companies meet regularly for coffee or on the golf course and agree on which company will submit the lowest bid for a particular project.This type of firm behaviour is an example of

Accepted Answer

The behaviour described in the scenario is an example of explicit collusion, where companies are meeting and agreeing on bids. This type of behaviour is illegal under antitrust laws and can lead to higher prices for consumers.

Question 3

The sugar industry in Canada is effectively a duopoly with two large firms competing with each other for market share.Suppose the two firms collude and successfully restrict joint output to that of a profit-maximizing monopolist.As a result,they each realize an increase in their profits.Why would this collusive agreement be difficult to sustain?

Accepted Answer

Each firm has an incentive to break the collusive agreement and increase their own profits by increasing output. This would lead to a breakdown in the agreement and the firms returning to a non-cooperative outcome of further restricting output and reducing profits.

Question 4

In what way can an oligopolistic market structure be beneficial to society?

Accepted Answer

Oligopolistic firms have the resources and incentives to invest in research and development, leading to innovation and economic growth. This can benefit society by increasing living standards and creating new technologies and products. Other choices are either incorrect or not entirely true.

Question 5

Consider the three largest cell-phone service providers in Canada - Bell,Telus,and Rogers.If we observe that all three companies increase their monthly service fees simultaneously,we might conclude that

Accepted Answer

If all three companies increase their monthly service fees simultaneously, it suggests that there is tacit collusion among them. This means that they are informally cooperating with each other to increase profits by setting the same prices or price changes. This could violate competition laws and may lead to an antitrust investigation.

Question 6

Assume that the world's largest smart-phone producers (Apple,Nokia,Samsung,etc.)operate in an oligopolistic industry.In the long run,which of the following is the most important form of competition between these firms?

Accepted Answer

In an oligopolistic market, product differentiation and innovation are crucial for firms to succeed as they cannot compete solely on price. Therefore, product innovation is the most important form of competition between the largest smartphone producers in the long run. Predatory pricing and tacit collusion may occur, but they are not sustainable strategies in the long run as they could lead to antitrust regulation. Brand proliferation and advertising may be important tactics to promote new innovative products, but they are not as significant as actual product innovation in the long run.

Quiz 11: Imperfect Competition and Strategic Behaviour

A special kind of imperfectly competitive market that has only two firms is called

In what way can an oligopolistic market structure be beneficial to society?

Consider the three largest cell-phone service providers in Canada - Bell,Telus,and Rogers.If we observe that all three companies increase their monthly service fees simultaneously,we might conclude that

Assume that the world's largest smart-phone producers (Apple,Nokia,Samsung,etc.) operate in an oligopolistic industry.In the long run,which of the following is the most important form of competition between these firms?