Exam 14: Oligopoly

Use the following to answer questions: Figure: Monopoly Profits in Duopoly -(Figure: Monopoly Profits in Duopoly) The figure Monopoly Profits in Duopoly shows how an industry consisting of two firms that face identical demand curves (D₁) can collude to increase profits. If the firms collude to share the market demand equally, then each firm will act as if its demand curve is given by _____, while the market demand curve is given by _____.

The purpose of the trusts established in the United States in the late 1800s was to decrease government spending and the size of the federal budget deficit.

Large barriers to entry in the gas station business explain why the two only gas stations in a small town:

The study of behavior in situations of interdependence is known as:

Use the following to answer questions: -(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, Margaret's quantity effect will be a(n) _____ in profit of _____.

The 1890 law intended to prevent the establishment of more monopolies and to break up existing ones in the United States was the:

An attempt by a firm to convince buyers that its product is different from the products of other firms in the industry is an example of cooperative behavior.

Use the following to answer questions: Figure: Payoff Matrix II for Blue Spring and Purple Rain -(Figure: Payoff Matrix II for Blue Spring and Purple Rain) Payoff Matrix II for Blue Spring and Purple Rain describes two producers of bottled water. Suppose Blue Spring charges a high price and Purple Rain does the same. In the next period, Blue Spring charges a low price and Purple Rain incurs a loss. If Purple Rain responds with a tit-for-tat strategy, it will:

Use the following to answer questions: Figure: Pricing Strategy in Cable TV Market I -(Figure: Pricing Strategy in Cable TV Market I) In the figure Pricing Strategy in Cable TV Market I, the dominant strategy for CableSouth:

A trust is the organization that is formed when two large companies merge.

Use the following to answer questions: -(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, Margaret's profit will be _____, and Ray's profit will be _____.

Use the following to answer questions: -(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that the crude oil industry is a duopoly and the marginal and fixed cost of producing crude oil equals zero. Suppose that the two firms are maximizing industry profit and splitting the profit evenly. If both firms decide to cheat and produce 10 more barrels each, firm 1's profit will be _____, and firm 2's profit will be _____.

The fact that the price effect for an oligopolist is less than the price effect for a monopolist helps explain why firms are likely to cheat on a cartel agreement.

Use the following to answer questions: Figure: Pricing Strategy in Cable TV Market I -(Figure: Pricing Strategy in Cable TV Market I) Look at the figure Pricing Strategy in Cable TV Market I. If neither CableNorth nor CableSouth advertises, then without any collusion:

An industry with only two firms is generally called:

An attempt by a firm to convince buyers that its product is different from the products of other firms in the industry is product differentiation.

Nonprice competition is more prevalent in an oligopoly when there is (are):

The field of law that attempts to limit the ability of oligopolists to collude and restrict competition is called:

The effect of product differentiation is to increase price competition.

One framework used to analyze strategic choices is: