PCE 9B

compared to the outcome with collusion in the figure provided, if one firm cheats it can increase its payoff by

$3

according to the payoff matrix, if Uptown and RareAir both follow a strategy to dominate market share by using a low price strategy, the RareAir's payoff will be

$8

suppose RareAir honors an agreement to price high with Uptown If Uptown cheats and prices low instead of high, then Uptown can increase its payout by $_3_ million

3

what are the positive effects of large oligopolists not advertising?

a reduction in advertising would help lower prices and possibly increase product output the lack of manipulative information would reduce the chance of a firm becoming a monopoly

which of the following industries is an example of price leadership by one oligopolistic member?

beer

when firms in an oligopoly _collude_, their payoffs are greater than if they did not

collude

_collusion_ means illegal cooperation with rivals.

collusion

when members of an oligopoly met to set prices to maximize profits this applies mainly to the _collusion_and/or the _cartel_ model

collusion; cartel

to reduce uncertainty or increase profits, oligopolistic may change their prices

collusively

what are the negative effects if large oligopolists do not advertise?

consumers would be snare of important new products consumers might purchase less efficient products that cost more

advertising benefits society by

conveying information to consumers

oligopolies typically are not desirable because they

do not achieve allocative efficiency because their price exceeds marginal cost

one qualification to why an oligopoly may not act like a monopoly is

due to foreign in competition that may increase efficient through increased rivalry

which of the following are shortcomings of the kinked-demand analysis of oligopoly?

during macroeconomic instability, oligopoly prices are not as rigid as the kinked-demand theory implies the kinked-demand curve explains price inflexibility but not price itself

when the _economy_ is stable, oligopoly prices tend to be stable

economy

in the graph, the price elasticity of demand is highly _elastic_ above the price of P0

elastic

it is reasonable to assume that the demand for a non-colluding oligopolist facing a kinked-demand curve s highly _elastic_ above the going price.

elastic

a two-firm payoff matrix shows

firm profit from alternative combinations of strategies

the study of how people behave in strategic situations is called _game theory_.

game theory

advertising may decrease economic efficiency if it

increases monopoly power

price leaders make price adjustments

infrequently, due tot he uncertainty in rivals' response to these price changes by communicating impending price adjustments to the industry by establishing a price that discourages new entrants into the industry

the benefits to oligopolists from collusion are:

it increases profits it possibly prohibits the entry of new rivals it reduces price uncertainty

which of the following is true about the oligopolist if rivals match a price cut but ignore a price increase?

its marginal revenue curve would consist of two segments

an oligopoly firm's demand curve will be kinked if:

its rival match price decreases but ignore price increases

in the _kinked-demand_ model of oligopoly, firms react to the price decreases but ignore price increases by other firms

kinked-demand

if RareAir honors an agreement with Uptown to price high, and Uptown needs ti increase profits due to stockholder press, Uptown will price

low to receive a payout of $15

in the game illustrated in the figure tot he right, if both follow a no-collusion strategy, the equilibrium outcome will be such that RareAir uses a _low_ price and Uptown uses a _low_ price strategy

low; low

advertising increases efficiency by

lowering search costs for consumers facilitating the introduction of new products

compared pure monopolies, oligopolies:

may be less desirable because they are not regulated by government to protect consumers

a possible effect of limit pricing by oligopolies is that it

may increase efficiency by setting the price closer to marginal cost and minimum average total cost

the use of advertising by oligopolists

may increase or decrease prices may increase or decrease competition

compared to our competition, oligopolistic industries may result in

more technological advances because oligopolies have assurances of rewards caused by barriers to entry more technological advances because oligopoly firms earn economic profits to fund research and development

the oligopolistic firm's marginal revenue curve exhibits a gap or vertical segment because:

of the sharp difference in elasticity of demand above and below the going price

a type of implicit understanding used by oligopolists to coordinate prices without engaging in outright collusion is known as _price leadership_.

price leadership

when members of an oligopoly react to price changes by a dominant firm, the _price leadership_ model is most applicable

price leadership

by changing their advertising and _pricing_ strategies, firms competing in an oligopoly can affect profits and influence the profits of rivals

pricing

in general, oligopolies are:

productively and allocatively inefficient (an oligopoly, like other imperfect markets, is neither productively or allocatively efficient. In order to be allocatively and productively efficient, it must charge a price equal to marginal cost, as well as to the lowest average total cost of production, respectively.)

advertising can reduce efficiency by

providing misleading information manipulating consumer preferences

which of the following is the reason for the demand curve segment e to D1?

rivals match a price decrease

suppose the rivals of an oligopolistic firm ignore both a price increase and decrease. If so, then the firm's demand curve will be:

straight

suppose the rivals of an oligopolistic firm match either a price increase or decrease. if this occurs, the the firm's demand curve will look:

straight and steep

three models used to study pricing and output by oligopolies are

the kinked-demand curve model price leadership model collusive pricing model

which of the following are shortcomings of the kinked-demand analysis of oligopoly?

the kinked-demanded curve explains price inflexibility but not the price itself during macroeconomic instability. oligopoly prices are not as rigid as the kinked-demand theory implies

according to the kinked-demand model of oligopoly, if two three firms ignore a price decrease by the third firm:

the third firm will gain sales because the other two firms' demand curves become more inelastic, relative to the third firm's demand curve

oligopolistic behavior implies that oligopolists prefer competition

through product development through advertising

multiple models are used to study oligopolies because oligopolies

cannot estimate both their demand and marginal revenue curves due to rivals' reactions encompass a greater range and diversity of market situations

in a non-collusive oligopolistic industry, prices are generally stable for the following?

cost reasons demand reasons

during macroeconomic instability, the lack of determination of price and price rigidity is best described by:

the shortcomings of kinked-demand curve of oligopolistic firms