Question 1

When a market is characterized by mutual interdependence
A) one firm's pricing decision does not affect the market share of any other firm.
B) one firm's quantity decision does not affect the market share of any other firm.
C) all firms always act in unison to produce the monopoly quantity.
D) the actions of one firm have an impact on the price and output of its competitors.
E) the actions of one firm have no impact on the price and output decisions of its competitors.

Accepted Answer

In a market characterized by mutual interdependence, the actions of one firm have an impact on the price and output of its competitors. Each firm must take into consideration the likely responses of its competitors when making pricing and output decisions. Therefore, firms in such a market must compete strategically, anticipating and responding to the actions of their competitors.

Question 2

The ________ effect occurs when the market price either decreases or increases by the respective entrance or exit of a rival firm in the market.
A) competitive
B) price
C) output
D) market
E) oligopoly

Accepted Answer

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

Question 3

When a third firm enters a market that was previously categorized as a duopoly,the equilibrium price will ________ and the equilibrium quantity will ________.
A) be lower; be lower
B) be higher; be lower
C) be lower; be higher
D) be higher; be higher
E) not change; not change

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.

Question 4

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.
A) less than or equal to; less than or equal to
B) less than or equal to; greater than or equal to
C) less than; equal to
D) greater than; equal to
E) greater than or equal to; less than or equal to

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 5

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 ________.
A) $0; 1,000
B) $3; 700
C) $5; 500
D) $7; 300
E) $9; 100

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 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:
 
-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.
A) agreement I
B) agreements I and II
C) agreements II and III
D) agreement IV
E) agreements III and IV

Accepted Answer

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

Question 7

Oligopolistic markets are socially ________ because price is ________ marginal cost.
A) efficient; equal to
B) efficient; less than
C) efficient; greater than
D) inefficient; less than
E) inefficient; greater than

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 8

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.
A) agreement I
B) agreements I and II
C) agreements II and III
D) agreement III
E) agreements III and IV

Accepted Answer

The answer of Listed below are four different collusive agreements...

Question 9

When two or more firms form a ________ agreement and set price and quantity in unison,economists refer to them as ________.
A) competitive; a cartel
B) collusive; social benefactors
C) collusive; a cartel
D) monopolistically competitive; social benefactors
E) monopolistically competitive; a cartel

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. Choice A is incorrect because a competitive agreement implies that firms are competing with each other, whereas a cartel involves colluding to reduce competition. Choice B and D are incorrect because social benefactors and monopolistically competitive agreements are not relevant to the question asked.

Question 10

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
A) spirited competition.
B) attempted collusive behavior.
C) predatory pricing.
D) a corporate merger.
E) a tying arrangement.

Accepted Answer

The suggestion by the CEO of Airline A to CEO of Airline B to raise prices 25% across the board next week shows an attempt at collusive behavior, which is essentially an agreement between competitors to limit competition and increase profits by coordinating and controlling prices.

Question 11

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.
A) less than or equal to; less than or equal to
B) less than or equal to; greater than or equal to
C) less than; equal to
D) greater than; equal to
E) greater than or equal to; less than or equal to

Accepted Answer

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

Question 12

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
A) this agreement is in the best interest of society because the price of track shoes is significantly above marginal cost.
B) this agreement is in the best interest of society because the quantity of track shoes bought and sold is significantly less than the quantity that would be bought and sold in a perfectly competitive market.
C) this agreement is not in the best interest of society because the price of track shoes is significantly below marginal cost.
D) this agreement is not in the best interest of society because the price of track shoes is significantly above marginal cost.
E) the price of track shoes does not affect societal welfare.

Accepted Answer

Collusive agreements that result in significantly higher prices than marginal cost are not in the best interest of society because they reduce consumer surplus and lead to deadweight loss. This agreement between Nike and Adidas would result in higher prices for track shoes that are significantly above marginal cost, and therefore, not in the best interest of society.

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
A) Nextflix supplies 400 subscriptions and Flixbuster supplies 100 subscriptions.
B) Flixbuster supplies 400 subscriptions and Nextflix supplies 100 subscriptions.
C) Nextflix supplies 0 (zero)subscriptions and Flixbuster supplies 500 subscriptions.
D) Flixbuster supplies 0 (zero)subscriptions and Nextflix supplies 500 subscriptions.
E) Nextflix supplies 250 subscriptions and Nextflix supplies 250 subscriptions.

Accepted Answer

To find the quantity a monopolist would supply, we need to add the quantities demanded at each price level, which gives us a total quantity of 500 subscriptions. If the two firms each supply one-half of this quantity, they would each supply 250 subscriptions, which is option E. The other options either give one firm more than half the quantity or none of the quantity, which would not be profitable for both firms.

Question 14

If antitrust laws did not prohibit efforts to restrict competition in markets,then
A) no firms would attempt to collude on price and/or quantity.
B) attempts at collusion with rival firms on price and or/quantity would succeed all the time.
C) attempts at collusion with rival firms would probably often fail.
D) all firms in the economy would earn negative economic profit in the long run.
E) all firms in the market would earn zero economic profit in the long run.

Accepted Answer

Even if antitrust laws did not prohibit efforts to restrict competition, attempts at collusion with rival firms would probably often fail due to the incentive for individual firms to cheat on the agreed-upon conditions in order to gain a competitive advantage. As a result, there is likely to still be some competition in the market, although it may not be as intense as it would be in a perfectly competitive market. Option A is incorrect because firms may still attempt to collude even if antitrust laws did not exist. Option B is incorrect because there are various factors that could affect the success of collusion efforts. Options D and E are irrelevant as they do not relate to the impact of antitrust laws on competition.

Question 15

In the United States,________ laws prohibit collusion between rivals.
A) competitive arbitration
B) immigration
C) anticompetition
D) union
E) antitrust

Accepted Answer

Antitrust laws, also known as competition laws, are regulations that prohibit collusion or agreements between competitors that aim to limit or manipulate competition in a particular market. These laws aim to protect consumers, promote fair competition, and prevent monopolies from forming. Examples of antitrust laws in the United States include the Sherman Antitrust Act, the Clayton Act, and the Federal Trade Commission Act.

Question 16

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.
A) antitrust
B) Nash
C) Von Neumman
D) Morgenstern
E) cartel

Accepted Answer

The situation described here is a classic example of a simultaneous game in which both players (Firm A and Firm B) make their decisions simultaneously. In such cases, the Nash equilibrium is the best strategy for both players, given the other player's strategy. The Nash equilibrium is the pricing strategy chosen by each player that maximizes their profits, given the other player's strategy. In this case, both firms must consider the other firm's pricing strategy when deciding how much to produce and to what price to sell their product. Therefore, the Nash equilibrium 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.

Question 17

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
A) price discrimination.
B) Bertrand competition.
C) price leadership.
D) collusion.
E) increasing marginal costs.

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 18

A ________ agreement among rival firms will most likely specify the price each firm will charge and the quantity each firm will produce/sell.
A) friendly
B) competitive
C) monopolistic
D) collusive
E) price-quantity

Accepted Answer

Collusive agreements among rival firms are designed to control prices and market shares by agreeing on the price each firm will charge and the quantity each firm will produce/sell, effectively reducing competition.

Question 19

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 __________.
A) $0; 1,000
B) $2; 800
C) $4; 600
D) $6; 400
E) $8; 800

Accepted Answer

In a highly competitive market, firms will compete to offer the lowest price possible to attract customers, leading to a market price of zero in this case. The quantity demanded at a price of zero is 1,000, which is when the entire community would subscribe to the streaming service. Therefore, the answer is A) $0; 1,000.

Question 20

When more firms enter into a market that was previously characterized as a duopoly,it will
A) be easier for firms in the market to form a successful cartel.
B) be more difficult for firms in the market to form a successful cartel.
C) be just as difficult for firms in the market to form a successful cartel as it was before the new firms entered.
D) be impossible for firms in the market to form a successful cartel,whereas before the new firms entered,it would have been possible.
E) still be impossible for firms in the market to form a successful cartel.

Accepted Answer

In a duopoly, it is easier for the firms to coordinate and form a cartel due to the few firms involved. However, when more firms enter, it becomes more difficult to coordinate and reach an agreement on prices and output. Therefore, it will be more difficult for firms in the market to form a successful cartel.

Quiz 13: Oligopoly and Strategic Behavior

When a market is characterized by mutual interdependence

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

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

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.

Oligopolistic markets are socially because price is marginal cost.

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

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

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.

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

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

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

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

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