ECON Ch. 14

Answer the question based on the payoff matrix for a duopoly in which the numbers indicate the profit in millions of dollars for each firm. If Firm A adopts the low-price strategy, then Firm B would adopt the

high-price strategy and earn $200

The copper, aluminum, cement, and industrial alcohol industries are examples of

homogeneous oligopoly.

The Organization of Petroleum Exporting Countries (OPEC) is an international cartel. If the cartel were to hire a consulting firm to monitor the production rates of member countries, the economic reason for this monitoring would be to

detect those member countries that are depressing prices by producing more than their assigned quotas.

The automobile, household appliance, and automobile tire industries are all illustrations of

differentiated oligopoly

Other things being equal, a firm in a cartel will most likely cheat on a price-fixing agreement by

secretly lowering price and increasing sales to a few customers

Refer to the diagram for a non collusive oligopolist. Suppose that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. If the firm's rivals will ignore any price increase but match any price reduction, then the firm's demand curve will be (moving from left to right)

D2ED1

Oligopolistic industries are characterized by

a few dominant firms and substantial entry barriers

The term oligopoly indicates

a few firms producing either a differentiated or a homogeneous product.

Refer to the diagram, where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Beta commits to a high-price policy, Alpha will gain the largest profit by

adopting a low-price policy

OPEC provides an example of

an international cartel

When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of

collusion

The kinked-demand curve of an oligopolist is based on the assumption that

competitors will follow a price cut but ignore a price increase.

The product in an oligopolistic market

may be homogeneous or differentiated.

If a particular bank regularly announces changes in its interest rate schedules before its competitors, who then set rates very close to those announced by that bank, this could be described as

price leadership

Mergers of firms in an industry tend to

transform monopolistic competition into oligopoly.