Econ Ch 10 Quiz

Cartel agreements are difficult to sustain because:

it's a dominant strategy for each cartel member to cheat on the cartel agreement. (Cartels are inherently unstable because each member has an incentive to cheat on the cartel agreement.)

Monopolistic competition is characterized by a:

large number of firms and low entry barriers.

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be:

$16

If the firms in an oligopolistic industry can establish an effective cartel, the resulting output and price will approximate those of:

a pure monopoly.

The essential feature that differentiates imperfectly competitive firms from perfectly competitive firms is that an imperfectly competitive firm:

faces a downward-sloping demand curve. (The essential difference between perfectly competitive firms and imperfectly competitive firms is that a perfectly competitive firm faces a horizontal demand curve while an imperfectly competitive firm faces a downward-sloping demand curve.)

A credible promise is:

in the promiser's interest to keep. (For a promise to be credible, it must be in the promiser's interest to carry out the promise.)

A credible threat is:

in the threatener's interest to carry out. (For a threat to be credible, it must be in the threatener's interest to carry out the threat.)

Given the demand curve it faces, if an imperfectly competitive firm wants to sell another unit of output, it must:

lower its price. (An imperfectly competitive firm faces a downward-sloping demand curve.)

Monopolistic competition means:

many firms producing differentiated products.

The monopolist will maximize profits at the output level for which:

marginal revenue equals marginal cost. (Following the Cost-Benefit Principle, all firms maximize their profit by choosing the level of output at which marginal revenue equals marginal cost.)

Most cartels cease to be effective because:

of the incentive to cheat on the cartel agreement. (Cartels are inherently unstable because each member has an incentive to cheat on the cartel agreement.)

A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from:

product differentiation.

A prisoner's dilemma illustrates situations in which:

there is a conflict between the narrow self-interest of individuals and the broader interests of a group. (A prisoner's dilemma is a game in which each player has a dominant strategy, and when each plays it, the resulting payoffs are smaller than if each had played a dominated strategy. Thus, everyone would be better off if they did not pursue their narrow self-interest.)

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be:

160

The term oligopoly indicates:

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