Question 1

Which of the following is NOT a way to create economic profits via collusion?

Accepted Answer

Colluding to increase the bargaining power of buyers would not create economic profits for the colluding firms. Rather, it would benefit the buyers, potentially resulting in lower prices and thus lower profits for the colluding firms. The other options, colluding to reduce the threat of new or current competitors or to reduce supplier leverage threats, can all potentially lead to higher prices, greater market share, and thus economic profits for the colluding firms.

Question 2

In examining cheating in collusions,________ examined the performance consequences if colluding firms cheat by adjusting the quantity of their output and let market forces determine prices.

Accepted Answer

The concept of cheating in collusions by adjusting the quantity of output and letting market forces determine prices is based on the Cournot model. Therefore, examining the performance consequences of cheating in collusions using this approach would entail analysis within the context of the Cournot model.

Question 3

Firms can collude to reduce the threats from new competitors by working together to decrease the barriers to entry into an industry.

Accepted Answer

Collusion among firms typically aims to increase barriers to entry to protect their market shares and profits, not decrease them.

Question 4

Which of the following is NOT a way by which firms can collude to reduce the threat of new competitors?

Accepted Answer

Moving away from using product differentiation as a barrier to entry does not help reduce the threat of new competitors. In fact, it may actually make it easier for new competitors to enter the market. A and D both involve increasing barriers to entry, while B involves creating a common barrier to entry through technology standards.

Question 5

It is well established in economic theory that imperfectly competitive markets are consistent with social welfare.

Accepted Answer

Imperfectly competitive markets, such as monopolies or oligopolies, often lead to inefficiencies and can result in a loss of social welfare compared to perfectly competitive markets.

Question 6

Whether explicit or implicit,firms that engage in collusion face a number of fundamental ethical challenges.

Accepted Answer

Collusion involves two or more companies conspiring to limit competition, which can be considered unethical. Such practices can lead to higher prices for consumers, reduced quality of products and services, and a lack of innovation in the market. Therefore, firms that engage in collusion face ethical challenges.

Question 7

What is collusion?

Accepted Answer

The answer of What is collusion?...

Question 8

Generally,long-run profits for firms that cheat on purely collusive agreements fall ________ the perfect competition,zero-economic-profit solution and the perfect competition,shared-monopoly-profit solution.

Accepted Answer

Firms that cheat on purely collusive agreements tend to earn profits that fall somewhere between the zero-economic-profit outcome of perfect competition and the higher profits associated with a shared-monopoly arrangement. This is because cheating may allow a firm to capture more market share or charge slightly higher prices temporarily, but it does not fully replicate the monopoly profit scenario due to the breakdown of collusion and potential competitive responses.

Question 9

Firms that consciously make price and output decisions in order to reduce competition may be engaging in what the courts call ________.

Accepted Answer

Conscious parallelism refers to firms making pricing and output decisions to avoid competition with each other. Predatory action refers to firms engaging in anti-competitive behavior to eliminate rivals, while coalitionary action refers to firms colluding to manipulate prices and output levels. Conspicuous consumption refers to consumers purchasing luxury goods to display their wealth or status.

Question 10

Omega,Inc.signals that if parties cheat on collusive agreements,it will decrease prices more or increase output more than would have otherwise been the case.Omega,Inc.is sending a(n)________ signal.

Accepted Answer

Omega, Inc. is sending a "tough" signal by indicating it will punish parties that cheat on collusive agreements by taking aggressive actions such as decreasing prices or increasing output more than would have otherwise been the case. This is a strategy to deter cheating and maintain the agreement.

Question 11

Members of OPEC discovered the limits of their ability to collude in reducing the volume of oil they were willing to sell when the increased price of crude oil led a variety of companies to explore alternative sources of energy and consumers to conserve.

Accepted Answer

This statement is true. The increased price of crude oil led to companies exploring alternative sources of energy such as wind, solar and biofuels. Consumers also started conserving oil by driving less or using more fuel-efficient vehicles. As a result, OPEC's ability to collude in reducing the volume of oil was limited.

Question 12

Joint lobbying efforts by industry incumbents can increase the cost of entry into an industry.

Accepted Answer

Joint lobbying efforts by industry incumbents can lead to the creation or strengthening of regulations and barriers to entry, which can increase the cost of starting a business in that industry. This can make it more difficult for new entrants to compete with established players, effectively reducing competition in the market.

Question 13

The reason that collusion is a difficult strategy to maintain over time is that while parties to these cooperative agreements often have strong incentives to cooperate,they also have strong incentives to ________ those cooperative agreements.

Accepted Answer

The sentence talks about how parties in a collusion have incentives to cooperate but also to break the agreement. The phrase "cheat on" in option D implies the act of breaking an agreement, making it the best choice.

Question 14

What are the two types of collusion and how are they different?

Accepted Answer

The answer of What are the two types of collusion...

Question 15

Collusion with other firms in an industry involves increasing competition among those firms.

Accepted Answer

Collusion involves cooperation among firms in an industry to reduce competition, often by setting prices or dividing market territories.

Question 16

According to the ________ cheating model,assuming little or no product differentiation among a small number of firms,if one firm decides to cheat on a collusive agreement by reducing its prices,others will as well and,in the long run,firms in this industry will earn no economic profits.

Accepted Answer

The given description matches with the Bertrand model of oligopoly, where firms compete on price instead of quantity. If one firm reduces its prices to increase market share, other firms will follow to maintain their market share, eventually leading to zero economic profits in the long run.

Question 17

Firms can develop competing technological standards that make it very difficult for new firms to enter an industry.

Accepted Answer

The answer of Firms can develop competing technological standards that...

Question 18

Which of the following models is NOT an important form of cheating in collusive agreements?

Accepted Answer

Schumpeter is an economist who studied innovation and entrepreneurship, and his theories do not relate to collusive agreements or cheating in markets. The other options (B) Bertrand, (C) Cournot, and (D) Edgeworth are all models commonly used to analyze collusive behavior and cheating in oligopoly markets.

Question 19

In general,firms can send one of two signals to collusion partners who may cheat on their cooperative agreements: a ________ signal or a ________ signal.

Accepted Answer

Firms can send either a tough signal or a soft signal to collusion partners who may cheat on their cooperative agreements. A tough signal indicates a firm stance against cheating, while a soft signal suggests a more lenient or cooperative approach to maintaining the agreement.

Question 20

Instead of communicating directly,________ colluding firms send and interpret signals of intent to co-operate (or intent not to co-operate)sent by potential collusion partners.

Accepted Answer

Tacit collusion involves firms sending and interpreting signals of intent to cooperate, rather than communicating directly. This allows firms to coordinate their actions without explicitly agreeing to do so.

Quiz 7: Collusion