ECON 2302 CH. 14
Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a differentiated oligopolist in a highly concentrated industry?
ford motor company
The copper, aluminum, cement, and industrial alcohol industries are examples of
homogeneous oligopoly
Prices are likely to be least flexible
in oligopoly
Suppose an oligopolistic producer assumes its rivals will ignore a price increase but match a price cut. In this case the firm perceives its
demand curve as kinked, being steeper below the going price than above.
The mutual interdependence that characterizes oligopoly arises because
each firm in an oligopoly depends on its own pricing strategy and that of its rivals
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 both firms follow a high-price policy,
each will realize a $20mil profit
Oligopolistic firms engage in collusion to
earn greater profits
As a general rule, oligopoly exists when the four-firm concentration ratio
is 40 percent or more
Game theory
is the analysis of how people (or firms) behave in strategic situations.
Oligopoly is more difficult to analyze than other market models because
of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models.
Differentiated oligopoly exists where a small number of firms are
producing goods that differ in terms of quality and design.
Interindustry competition means that
in some markets, the producers of a particular product might face competition from products produced by other industries.
In the United States cartels are
in violation of the anti-trust laws
Cartels are difficult to maintain in the long run because
individual members may find it profitable to cheat on agreements.
The term oligopoly indicates
a few firms producing either a differentiated or a homogeneous product.
If there are significant economies of scale in an industry, then
a firm that is large may be able to produce at a lower unit cost than can a small firm.
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
The kinked-demand curve of an oligopolist is based on the assumption that
competitors will follow a price cut but ignore a price increase.
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. Which cell represents a Nash equilibrium?
cell d
Concentration ratios
may understate the degree of competition because they ignore imported products.
Which of the following is a unique feature of oligopoly?
mutual interdependance
Suppose that a particular industry has a four-firm concentration ratio of 85 and a Herfindahl index of 3,000. Most likely, this industry would achieve
neither productive efficiency nor allocative efficiency.
