Question 1

When more firms enter into a market that was previously characterized as a duopoly,it will

Accepted Answer

A duopoly market is characterized by two firms dominating the entire market. In such a market, the two firms can easily form a cartel and manipulate prices to increase their profits. However, when more firms enter into the market, it becomes more difficult for the firms to collude successfully because they are competing with more firms. Therefore, it will be more difficult for firms in the market to form a successful cartel.

Question 2

The following table shows a small community’s demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm’s marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer the following questions: 
-An agreement between Nextflix and Flixbuster to each supply 250 subscriptions is an example of

Accepted Answer

An agreement between Netflix and Flixbuster to each supply 250 subscriptions is an example of collusion, where two or more firms agree on prices or output levels, which is against competitive market principles.

Question 3

Firm A and Firm B are duopolists.They are choosing the price at which they will sell their products and the quantity they will sell.Both firms make their decisions simultaneously.The ________ equilibrium in this situation occurs when Firm B chooses a pricing strategy given the strategy that Firm A chooses,and Firm A chooses a pricing strategy given the strategy that Firm B chooses.

Accepted Answer

This situation describes a simultaneous game in which both firms are making decisions at the same time without knowledge of each other's decision. The equilibrium in this situation is a Nash equilibrium, in which both firms are choosing the best strategy given the other firm's strategy. In other words, Firm B chooses a pricing strategy that maximizes its profits given the price set by Firm A, and Firm A chooses a pricing strategy that maximizes its profits given the price set by Firm B.

Question 4

Assume all markets are in long-run equilibrium.The market quantity supplied in a duopoly would be ________ the market quantity supplied in a monopoly and ________ the market quantity supplied in a competitive market.

Accepted Answer

The answer of Assume all markets are in long-run equilibrium.The...

Question 5

Assume all markets are in long-run equilibrium.Market price in a duopoly would be ________ the market price in a monopoly,and ________ the market price in a competitive market.

Accepted Answer

In a duopoly, the market price would be less than or equal to that in a monopoly because the presence of a second firm typically leads to some level of price competition, reducing prices compared to a single monopolist. However, the price would be greater than or equal to that in a perfectly competitive market, where prices are pushed down to the level of marginal costs due to the presence of many firms.

Question 6

The following table shows a small community’s demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm’s marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer the following questions: 
-If this market were a monopoly instead of a duopoly,the market price would be ________ and the quantity of streaming movie subscriptions purchased each month would be ________.

Accepted Answer

In a monopoly, the firm would set a higher price and produce a lower quantity compared to a competitive market or duopoly to maximize profits. Option C ($5; 500) reflects a higher price and lower quantity scenario typical of monopolistic behavior.

Question 7

A ________ agreement among rival firms will most likely specify the price each firm will charge and the quantity each firm will produce/sell.

Accepted Answer

A collusive agreement, also known as a cartel, is an agreement among rival firms to coordinate their production and pricing decisions. Such an agreement will specify the price each firm will charge and the quantity each firm will produce/sell, which can result in higher prices and reduced output.

Question 8

The following table shows a small community’s demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm’s marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer the following questions: 
-If this market were highly competitive instead of a duopoly,the market price would be __________ and the quantity of streaming movie subscriptions purchased each month would be __________.

Accepted Answer

If this market were highly competitive instead of a duopoly, the market price would be driven down to marginal cost, which is 0, resulting in a price of $0. At this price, the total quantity demanded by the community is 1,000.

Question 9

The following table shows a small community’s demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm’s marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer the following questions: 
-Listed below are four different collusive agreements that Nextflix and Flixbuster are considering.Assuming both firms will abide by the terms,which collusive agreement(s)would maximize total profit in the market? 
I.Nextflix supplies 50 subscriptions and Flixbuster supplies 450 subscriptions.
II.Nextflix supplies 450 subscriptions and Flixbuster supplies 50 subscriptions.
III.Nextflix supplies 300 subscriptions and Flixbuster supplies 100 subscriptions.
IV.Nextflix supplies 100 subscriptions and Flixbuster supplies 100 subscriptions.

Accepted Answer

The answer of The following table shows a small community’s...

Question 10

An agreement between Nike and Adidas to raise prices of the track shoes that each company produces by 50 percent is an example of a collusive agreement,and economists generally agree that

Accepted Answer

A collusive agreement between Nike and Adidas to raise prices of the track shoes they produce by 50 percent is not in the best interest of society because the price of track shoes is significantly above marginal cost. This means that consumers will pay a higher price than what is required to cover the production costs, resulting in a deadweight loss to society. It also eliminates competition in the market, which may lead to reduced innovation, quality, and variety of track shoes. Therefore, the agreement would harm consumer welfare and reduce societal welfare.

Question 11

In the United States,________ laws prohibit collusion between rivals.

Accepted Answer

Antitrust laws are designed to prevent anticompetitive behavior such as collusion between rivals. These laws exist to promote fair competition and protect consumers from monopolies and other unfair practices.

Question 12

When two or more firms form a ________ agreement and set price and quantity in unison,economists refer to them as ________.

Accepted Answer

When two or more firms form a collusive agreement and set price and quantity in unison, economists refer to them as a cartel. This is because a cartel is a group of firms that collude to restrict output and raise prices in order to maximize profits.

Question 13

The following table shows a small community’s demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm’s marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer the following questions: 
-If the two firms operating in this market agreed to each supply one-half of the quantity a monopolist would supply,the contract would specify that

Accepted Answer

To find the quantity at which a monopolist would supply, we can add the quantities demanded by each firm at each price level to get the total quantity demanded:

At a price of $8, Firm A would supply 100 subscriptions and Firm B would supply 0 subscriptions. Total quantity demanded: 100 subscriptions.
At a price of $7, Firm A would supply 150 subscriptions and Firm B would supply 50 subscriptions. Total quantity demanded: 200 subscriptions.
At a price of $6, Firm A would supply 200 subscriptions and Firm B would supply 100 subscriptions. Total quantity demanded: 300 subscriptions.
At a price of $5, Firm A would supply 250 subscriptions and Firm B would supply 150 subscriptions. Total quantity demanded: 400 subscriptions.
At a price of $4, Firm A would supply 300 subscriptions and Firm B would supply 200 subscriptions. Total quantity demanded: 500 subscriptions.

Therefore, a monopolist would supply 500 subscriptions at a price of $4. If the two firms agreed to each supply one-half of this quantity, they would each supply 250 subscriptions. Therefore, the correct answer is E.

Question 14

If antitrust laws did not prohibit efforts to restrict competition in markets,then

Accepted Answer

Without antitrust laws, firms would have more freedom to collude on price and/or quantity, but such attempts would likely often fail due to the difficulty of coordinating and enforcing agreements among rival firms. This is because each firm has an incentive to cheat and try to gain a larger market share, leading to a breakdown in the agreement. Therefore, attempts at collusion would probably often fail.

Question 15

The following table shows a small community’s demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm’s marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer the following questions: 
-The following list includes four different collusive agreements that Nextflix and Flixbuster are considering.Assuming both firms will abide by the terms,which collusive agreement(s)would maximize total profit in the market? 
I.Nextflix supplies 400 subscriptions and Flixbuster supplies 500 subscriptions.
II.Nextflix supplies 500 subscriptions and Flixbuster supplies 300 subscriptions.
III.Nextflix supplies 250 subscriptions and Flixbuster supplies 250 subscriptions.
IV.Nextflix supplies 100 subscriptions and Flixbuster supplies 400 subscriptions.

Accepted Answer

The answer of The following table shows a small community’s...

Question 16

Airline A and Airline B are the two largest airlines in the country.The chief executive officer of Airline A calls the chief executive officer of Airline B and says,"Why don't we both raise prices 25 percent across the board next week?" This is an example of

Accepted Answer

The conversation between the CEO of Airline A and Airline B suggests attempted collusive behavior or collusion, which is an illegal agreement between two or more firms to limit competition by setting prices or output, allocating customers or territories, or engaging in other anti-competitive practices. Spirited competition refers to aggressive but legal competition between firms, while predatory pricing involves setting prices below cost to drive rivals out of business. A corporate merger involves two companies combining into one, while a tying arrangement involves a seller requiring a buyer to purchase one product to get another.

Question 17

The ________ effect occurs when the market price either decreases or increases by the respective entrance or exit of a rival firm in the market.

Accepted Answer

The answer of The ________ effect occurs when the market...

Question 18

Oligopolistic markets are socially ________ because price is ________ marginal cost.

Accepted Answer

In oligopolistic markets, firms often have market power that allows them to set prices above marginal cost, leading to inefficiency because not all mutually beneficial trades occur.

Question 19

When a market is characterized by mutual interdependence

Accepted Answer

In a market characterized by mutual interdependence, the actions of one firm have a direct impact on the price and output decisions of its competitors. This is because each firm must consider the reactions of its competitors when making decisions about pricing, output, and other strategic choices. Therefore, choice D is the correct answer.

Question 20

When a third firm enters a market that was previously categorized as a duopoly,the equilibrium price will ________ and the equilibrium quantity will ________.

Accepted Answer

The entry of a third firm into a previously duopolistic market typically increases competition, leading to a lower equilibrium price and a higher equilibrium quantity as the new firm adds to the total supply.

Quiz 13: Oligopoly and Strategic Behavior

When more firms enter into a market that was previously characterized as a duopoly,it will

Assume all markets are in long-run equilibrium.The market quantity supplied in a duopoly would be the market quantity supplied in a monopoly and the market quantity supplied in a competitive market.

Assume all markets are in long-run equilibrium.Market price in a duopoly would be the market price in a monopoly,and the market price in a competitive market.