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16 Cards in this Set
- Front
- Back
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What characterizes an oligopoly market?
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Few powerful sellers and strategic behavior
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an oligopoly that has only two firms with significant market power (there may be other small firms)
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duopoly
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a collusion of firms to fix prices or production quotas (created to increase the firms' profits)
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cartel
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While total industry profit is maximized, a cartel collusion is not stable because?
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each firm has the incentive to cheat on one another
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If firms cannot find a way to restrain themselves from cheating on one another?
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the price will go down, converging to an equilibrium price P*
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The equilibrium industry-level production Q* in an oligopoly is greater than the quantity that a monopolist would produce because?
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price is lower, so more is sold
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T/F
The Q* of an oligopoly is still smaller than the equilibrium production level of a perfectly competitive market |
True
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T/F
Production in an oligopoly market tends to be greater than if the market was monopolized by one firm |
True
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T/F
Production in an oligopoly market will be lower than if the industry had perfectly competitive firms |
True
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Generally, the greater the number of firms in an oligopoly?
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the lower the equilibrium price
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the study of strategic choices
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game theory
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Economists use game theory to analyze firms' price and production decisions in oligopolies because?
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oligopoly firms behave strategically
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a situation where all "players" in a game have no incentive to change their strategies given what other players are choosing in that situation
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Nash equilibrium
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each player has an incentive to be selfish and adopt a non-cooperative strategy, although both players would be better off if they cooperated
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prisoner dilemma
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Players on a basketball team can choose to play as a team or selfishly. When they play as a team, the likelihood that they will win a game increases. However, playing selfishly increases each player's scoring stats, helping to get recruited by a better team in the future. Assume that it does not take more effort to play as a team than to play selfishly. (Is this a prisoner dilemma game?)
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No. Because it does not take more effort to play as a team than to play selfishly.
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ATT and MCI provide long distance calls to residential consumers. Each has the capacity to provide services to all the consumers in a state if needed. If both companies charge the same price, they each get half of the total number of customers (2 million in total). If one company charges a lower price than the other, then all customers will eventually switch to the low price company. Marginal cost of supplying service to a customer is constant and equal to $4 per additional customer. What is the equilibrium price that each company will charge? To simplify, disregard fixed costs of providing service.
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MC = $4
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