ECON 206 Oligopoly

Referring to the graph provided, what is the profit maximizing price and quantity?

The profit maximizing quantity is QA and the price is PA.

Games can have more than one Nash equilibrium. (True or False)

True

Which of the following is not an entry barrier in oligopolistic markets?

Upward-sloping long run marginal cost curve

An outcome in which, unless the players can collude, neither player has an incentive to change his or her strategy is:

a Nash equilibrium.

A situation in which a particular strategy yields the highest payoff, regardless of the other player's strategy, is:

a dominant strategy.

Less aggressive competition is most likely to occur when

a game is played repeatedly.

When the marginal benefit of the last unit equals the marginal cost of the last unit, production is ____ efficient.

allocatively

The process of identifying optimal strategies by starting at the end of a game tree and moving toward its origin is known as

backward induction.

The value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium is called _____ loss.

deadweight

If other firms in an industry decrease price, and a firm is operating under the kinked demand curve model, the firm will respond by

decreasing its price.

A(n) _______ strategy is a situation in which a particular strategy yields the highest payoff - regardless of the other player's strategy.

dominant

A number of _________ barriers are present in oligopolistic markets.

entry

The profit maximization rule states that a firm should produce a level of output where the marginal revenue ________ the marginal cost

equals

The ______-_______ advantage is an advantage that a player receives by moving first in a sequential game.

first mover

Used in noncollusive oligopolistic markets, the practice of a dominant firm to signal upcoming price changes to other firms in the industry is known as

price leadership.

A(n) _______ dilemma is a term used to describe a situation in which the Nash equilibrium is not the outcome that maximizes the payoffs to both players.

prisoner's

In an oligopoly,:

producers may or may not earn economic profits.

Producing output at the lowest possible total cost per unit of production is:

productive efficiency.

(P - ATC) x Q equals

profit

(P - ATC) x Q equals:

profit

(π /Q) = P - ATC tells us _______ per unit.

profit

The difference between total revenue and total cost is:

profit

The profit maximization rule states that a firm should produce a level of output where the marginal ______ equals the marginal cost.

revenue

To maximize profits, a cartel should produce a level of output where the marginal ________ equals the marginal _________.

revenue, cost

Game theory is the study of the _________ behavior of decision makers.

strategic

Oligopolistic firms can influence the prices they charge for their products, but their behavior needs to be _________, given that they face other competitors in their industries

strategic

Given that oligopolistic firms face other competitors in their markets, their behavior must definitely be:

strategic.

Price leadership refers to

the practice of the dominant firm signaling price changes.

A Nash ________ is an outcome in which, unless the players can collude, neither player has an incentive to change his or her strategy.

equilibrium

When a firm is producing at an output level where the MR = MC, it is following:

the profit-maximization rule.

The value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium is called:

deadweight loss.

When a player moves first in a sequential game, thereby influencing the set of possible outcomes they experience the

first-mover advantage.

A _____ _______ is a mapping tool that shows the strategies available to players engaged in a sequential game.

game tree

When profit exceeds zero, the firm is:

generating an economic profit.

When profit equals zero, the firm is:

generating normal profits.

A dominant firm in a noncollusive oligopolistic market may signal for other firms to reduce prices in order to

limit entry of new firms.

The practice used by the dominant firm in a noncollusive oligopolistic market to prevent entry of new firms by reducing price below the profit-maximizing price is known as

limit pricing.

Cellular, Inc., the dominant firm in the cell service industry, has announced that it will be reducing prices due to new technology that delivers its services at a lower cost. It is likely other firms will respond by

lowering their prices.

If other firms in an industry increase price, and a firm is operating under the kinked demand curve model, the firm will respond by

maintaining its existing price.

In game theory, a repeated game is played

many, sometimes an infinite number, times.

A game tree is a

mapping tool that shows the strategies available to players engaged in a sequential game.

To maximize profits, a cartel should produce a level of output where the:

marginal revenue equals the marginal cost.

A payoff _______ is a table showing the potential outcomes arising from the choices made by decision makers.

matrix

A market structure characterized by a single seller is a(n)

monopoly

A person who invents the ability to time travel will likely operate as a(n) _________ because there would be no substitutes and entering that market would be difficult for anyone else.

monopoly

Games can have:

more than one Nash equilibrium

The ________ interdependence observed among oligopolistic firms is often studied using the tools of game theory.

mutual

The kinked demand model occurs when:

noncollusive oligopolistic firms ignore other firms' price increases, but match their price decreases.

The kinked demand model is most common among firms in a(n)

noncollusive oligopoly.

Producers operating in oligopolistic markets generate:

normal profits and even losses in the short run.

The equilibrium output produced by an oligopolistic firm is:

not allocatively efficient. not productively efficient.

The behavior followed by _______ firms needs to be strategic, given that they face other competitors in their markets.

oligopolistic

The equilibrium output produced by a(n) __ firm is neither allocatively nor productively efficient.

oligopolistic

As in a monopoly, in a(n)_________ , the industry has extensive entry barriers.

oligopoly

In a(n) ________, there are a few large producers.

oligopoly

A firm operating under the kinked demand model is most likely operating in a(n)

oligopoly.

When there is production efficiency,:

output is produced at the lowest possible total cost per unit of production. output is produced using the fewest resources possible to produce a good or a service.

A(n) ________ matrix is a table showing the potential outcomes arising from the choices made by decision makers.

payoff

Profit equals ______ revenue minus _______ cost.

total; total

For a firm operating under the kinked demand model, the profit maximizing quantity occurs

where marginal revenue equals marginal cost and the price is determined by demand.

Which situation depicts the practice of price leadership in a noncollusive oligopolistic market?

A popular local restaurant announces price increases and other restaurants in the city follow by increasing their prices.

The game depicts the pricing decision for two firms producing bottled water and their profits. Mountain Water profits are depicted in purple and Stream Fresh is in gray. If the firms plan to remain in the market for the foreseeable future and decide to not compete on price, what is the likely pricing decision for the firms?

Both Mountain Water and Stream Fresh will price high.

The game tree depicts the research spending strategies and profit payoffs for two firms operating in the pharmaceutical industry. Assuming both firms are maximizing profit, what will the outcome of this game be?

Both Pharm Corp and New Pills will have high spending on research.

The game depicts the pricing decision for two firms operating in the cleaning service industry and their profits. Speedy Cleaner's profits are depicted in purple and Clean R Us is in gray. Suppose that the firms do not have any immediate plans to leave the market and expect to compete with each other for many years to come. What noncollusive outcome might we expect to result if the firms decide on a less aggressive pricing strategy?

Both Speedy Cleaner and Clean R Us will price high.

________ theory is the study of the strategic behavior of decision makers.

Game

Referring to the payoff matrix, suppose two firms, Firm Y and Firm X, in an oligopoly want to compete based on pricing. What is Firm X's dominant strategy?

High price

Referring to the payoff matrix, suppose two firms, Firm A and Firm B, in an oligopoly want to compete based on pricing. What is Firm A's dominant strategy?

Low price

The profit-maximization rules states that a firm should produce a level of output where:

MR = MC

A prisoner's dilemma is a term used to describe a situation in which the ________ equilibrium is not the outcome that maximizes the payoffs to both players.

Nash

The game tree depicts the research spending strategies and profit payoffs for two firms operating in the pharmaceutical industry. If Pharm Corp chooses low spending on research, what is New Pill's best option? Multiple choice question.

New Pill will spend high and earn $20 million.

The game tree depicts the research spending strategies and profit payoffs for two firms operating in the pharmaceutical industry. If Pharm Corp decides to have low spending on research, but New Pills decides to have high spending, what is the profit outcome for the firms? Multiple choice question.

Pharm Corp will earn $5 million and New Pills will earn $20 million.

Which of the following is not a characteristic of an oligopoly?

Producers who are price takers

The game tree depicts the pricing spending strategies and profit payoffs for two firms operating in the cleaning service industry. Assuming both firms are maximizing profit, what will the outcome of this game be?

Speedy Cleaner will charge a high price, but Clean R Us will charge a low price.

When the marginal cost curve decreases from MC1 to MC2, how will the profit maximizing price and quantity adjust?

The profit maximizing quantity and price do not change.

When the marginal cost curve increases from MC1 to MC2, how will the profit maximizing price and quantity adjust?

The profit maximizing quantity and price do not change.

A group of competing companies that aim to maximize joint profits by coordinating their policies to fix prices, manipulate output, or restrict competition is called a(n)

cartel

A group of competing companies that aim to maximize joint profits by coordinating their policies to fix prices, manipulate output, or restrict competition is called a(n):

cartel

Limit pricing is the practice of

charging a price less than the profit maximizing price in order to prevent new entry.

A situation in which decision makers coordinate their actions to achieve a desired outcome describes:

collusion

A situation in which decision makers coordinate their actions to achieve a desired outcome is called

collusion

When firms, individuals, or any group of economic actors engage in ________ , they coordinate their actions to achieve a desired outcome.

collusion

When firms, individuals, or any group of economic actors engage in ________, they coordinate their actions to achieve a desired outcome.

collusion

A situation in which individuals, firms, or any group of actors coordinate their actions to achieve a desired outcome is:

collusion.

The strategy of distinguishing one firm's product from the competing products of other firms is called product

differentiation

Backward induction is the process of

identifying optimal strategies by starting at the end of a game tree and moving toward its origin.

The Market, the dominant grocery store in a small city, has announced it will be increasing prices to adjust for higher utility costs. It is likely other firms will respond by

increasing their prices.

What is the name of the model where firms operating in an oligopolistic market match only price decreases of other firms in the industry?

kinked demand model

Compared to a one period game, repeated games are more likely to result in

less aggressive competition.

(π /Q) = P - ATC tells us:

profit per unit

Producers operating in oligopolistic markets can generate normal _______ and even _______ in the short run.

profits, losses

A situation in which a game is played a number of times, sometimes infinitely, is known as a

repeated game.