EXAM 2-Chapter 14 Quiz
OPEC provides an example of
an international cartel.
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
The kinked-demand curve of an oligopolist is based on the assumption that
competitors will follow a price cut but ignore a price increase.
Concentration ratios
may understate the degree of competition because they ignore imported products.
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.
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.
Firm Market Share(%) A 40 B 30 C 20 D 5 E 5 This industry shown in this table illustrates
oligopoly.
The term oligopoly indicates
a few firms producing either a differentiated or a homogeneous product.
Differentiated oligopoly exists where a small number of firms are
producing goods that differ in terms of quality and design.
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 $20 million profit.
Oligopolistic firms engage in collusion to
earn greater profits.
Refer to the diagram. Equilibrium output is
g.
Cartels are difficult to maintain in the long run because
individual members may find it profitable to cheat on agreements.
As a general rule, oligopoly exists when the four-firm concentration ratio
is 40 percent or more.
Which of the following is a unique feature of oligopoly?
mutual interdependence
The mutual interdependence that characterizes oligopoly arises because
each firm in an oligopoly depends on its own pricing strategy and that of its rivals.
Prices are likely to be least flexible
in oligopoly.
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 antitrust laws.
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.
Game theory
is the analysis of how people (or firms) behave in strategic situations.
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.
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.
