Question 1

The demand curve faced by an oligopolistic producer depends on how rival firms react to its prices and policies.

Accepted Answer

In an oligopoly market, the behavior of rival firms plays a crucial role in determining the demand curve faced by an individual firm. The actions of competitors, such as price changes, product innovations, or marketing strategies, can influence consumer preferences and demand for the oligopolistic firm's products. Therefore, the demand curve for an oligopolist is not solely determined by the market forces but also by the competitive behavior of other firms.

Question 2

Oligopoly is an industry with a small number of firms producing homogeneous or differentiated goods with minimal barriers to entry.

Accepted Answer

An oligopoly is characterized by a small number of firms, but it typically has significant barriers to entry, not minimal ones.

Question 3

The U.S.commercial airline industry is a good example of an oligopolistic market.

Accepted Answer

The U.S. commercial airline industry is dominated by a few major players, such as American Airlines, Delta Airlines, United Airlines, and Southwest Airlines. These companies have significant market power and can influence prices and market outcomes. Therefore, the airline industry is considered an oligopoly.

Question 4

Firms in oligopoly often behave like the prisoners in the prisoners' dilemma,carefully
anticipating the moves of their rivals in an uncertain environment.

Accepted Answer

Oligopoly firms often engage in strategic decision-making based on their expectations of their rivals' actions, similar to how prisoners in the prisoners' dilemma game make decisions based on their expectations of the other prisoner's actions. The uncertainty in the market makes it difficult for firms to make decisions on their own without considering the actions of their rivals.

Question 5

At a Nash equilibrium,each player in a game is said to be doing as well as he can given the actions of his competitor.

Accepted Answer

At a Nash equilibrium, each player is not necessarily doing the best possible, but rather they are doing as well as they can given their competitor's actions.

Question 6

In game theory,a strategy that is optimal no matter what your opponent does is called a dominant strategy.

Accepted Answer

This statement is true. A dominant strategy is one that is the best choice for a player regardless of the actions of their opponent.

Question 7

The key difference between oligopoly and other market structures is the interdependence among producers.

Accepted Answer

In an oligopoly market structure, there are only a few large firms that control the market. These firms are interdependent on each other because their decisions and actions directly impact their competitors. This is not the case in other market structures like perfect competition or monopolistic competition, where individual firms have little to no impact on the market as a whole.

Question 8

There are significant technological barriers to entry that help make the automobile industry oligopolistic.

Accepted Answer

The automobile industry has significant technological barriers to entry due to the high costs of research and development, creating economies of scale that are difficult for new competitors to match. Additionally, established car manufacturers also have patents and proprietary technology that make it difficult for new entrants to replicate their products. These factors contribute to the industry being dominated by a few large players, creating an oligopolistic market structure.

Question 9

One of the most famous cartels is OPEC.

Accepted Answer

OPEC (Organization of the Petroleum Exporting Countries) is a cartel of countries that control the production and price of oil. It is one of the most well-known cartels in the world.

Question 10

Oligopolists may charge a price lower than the profit maximizing price to discourage new firms from entering a market.

Accepted Answer

This strategy is known as "limit pricing." By setting a price lower than the profit maximizing price, oligopolists can make it less attractive for new firms to enter the market. It can also help the oligopolists maintain their market share and reduce the risk of price wars with other firms in the industry.

Question 11

Even if entry is easy,oligopolists possess sufficient market power so that profits are assured in the long run.

Accepted Answer

Even if entry is easy, it does not guarantee profits to oligopolists in the long run. The presence of competitors and the possibility of aggressive pricing strategies can make it difficult for oligopolists to maintain their market power and profitability.

Question 12

A cartel is a group of firms that attempt to collude by coordinating price and output decisions.

Accepted Answer

A cartel is formed when firms in an industry come together to coordinate their pricing and output decisions in order to maximize profits. This can involve agreements to limit production, set prices at the same level, and divide up markets. Cartels are illegal in many countries, including the United States, because they reduce competition and harm consumers.

Question 13

The primary difference between cooperative and noncooperative games is the ability to form contracts.

Accepted Answer

Cooperative games allow for players to form contracts and agreements to work towards a common goal, while noncooperative games do not have this feature and players act solely in their own self-interest.

Question 14

When making decisions on pricing and other behaviors,oligopolistic firms must take into account the actions of other firms.

Accepted Answer

Oligopolistic firms face a small number of competitors in the market, which means that the actions of one firm have a significant impact on the others. Therefore, when making decisions on pricing and other behaviors, oligopolistic firms must consider and anticipate the responses of their competitors to maintain their market position and profitability.

Question 15

Cartels are legal in many countries,including the United States.

Accepted Answer

Cartels are illegal in the United States as they violate antitrust laws. While there may be some exceptions for certain industries or situations, overall, cartels are not legal in the US.

Question 16

Collusive behavior guarantees economic profits in the long run for oligopolists.

Accepted Answer

Collusive behavior can lead to short-term economic profits, but in the long run, it may be unsustainable due to potential legal issues, market entry by new competitors, or breakdown of the collusion agreement.

Question 17

Large oligopoly firms are often able to take advantage of significant economies of scale.As a result,they can often produce at a lower average total cost than can smaller firms.

Accepted Answer

Large oligopoly firms have the advantage of economies of scale which allow them to produce larger quantities of goods or services at a lower unit cost. This makes it difficult for smaller firms to compete on price and can lead to increased market power for the larger firm.

Question 18

Economists consider the breakfast food industry to be an oligopolistic market.

Accepted Answer

The breakfast food industry is dominated by a few large firms such as General Mills, Kellogg's, and PepsiCo, which have significant control over pricing and output. This is a characteristic of an oligopolistic market.

Question 19

The "Prisoners' Dilemma" is an example of a cooperative game.

Accepted Answer

The "Prisoners' Dilemma" is an example of a non-cooperative game where the players' interests are in conflict, and cooperation may not be the best course of action for them individually.

Question 20

As in perfect and monopolistic competition,oligopoly firms cannot earn economic profits in the long run.

Accepted Answer

Oligopoly firms can earn economic profits in the long run if they are able to establish barriers to entry and maintain their market power. However, competition among these firms tends to be more intense than in perfect or monopolistic competition, making it more difficult to sustain economic profits over time.

Quiz 15: Oligopoly and Strategic Behavior