Ch 14

Question 1

Oligopoly

Answer 1

• few large and dominant firms
• market power
• high barriers to entry
• interdependent firms

Question 2

Interdependent Firms

Answer 2

• firms take into account other firms possible actions and reactions
• looks at other firms demand curves
• strategic

Question 3

Barriers to entry

Answer 3

• economies of scale
• ownership of a key resource
• government instated barriers to entry

Question 4

Government instated barriers to entry

Answer 4

• allows a natural monopoly to exist
• patents: right to produce a product and prevents others from competing; allows firm to devote resources to research and development; promotes long tern economic welfare of society
• defense and drug companies

Question 5

Four-Firm Concentration Ratio

Answer 5

the fraction of an industry’s sales accounted for by its 4 largest firms; >40%=oligopoly; power is concentrated among a few dominant firms

Question 6

The Collusion Model

Answer 6

model of ogopolistic behavior where the ogopolistic firms together act like a monopoly; they collude

Question 7

Collusion

Answer 7

an agreement among firms regarding price and quantity

Question 8

Cartel

Answer 8

a group of firms that gets together and makes joint price and output decisions

Question 9

Antitrust Law

Answer 9

in the U.S. prohibits explicit agreements; cartels are illegal in the U.S.

Question 10

Tacit Collusion

Answer 10

occurs when price and quantity fixing arrangements are implicit; signal to one another

Question 11

Kinked Demand Curve Model

Answer 11

• competitor firms will follow this model if a single firm cuts price but will not follow this model is that firm raises price
• raise price quantity demanded drops greatly
• drop price and quantity demanded increases slightly
• MC can shift between gap in MR

Question 12

Game Theory

Answer 12

the study of how people make decisions in situations in which attaining their goals depend upon their interactions with others

Question 13

Dominant Strategy

Answer 13

a strategy where no matter what the opponent does it is the best strategy

Question 14

Prisoner’s Dilemma

Answer 14

a game in pursuing dominant strategies results in noncooperation that leaves everyone worse off

Question 15

Price Match Guarentee

Answer 15

can be a way firms use to escape Nash equilibrium; way for firms to signal each other if you lower your prices I will too

Question 16

Nash Equilibrium

Answer 16

a situation in which each firm chooses the best strategy, given the strategies chosen by other firms