Chapter 15

Question 1

When a firm shapes its policy with an eye to the policies of competing firms

Answer 1

Mutual interdependence

Question 2

When firms act together to restrict competition

Answer 2

Collusion

Question 3

A collection of firms that agree on sales, pricing, and other decisions

Answer 3

Cartel

Question 4

Determination of price based on the marginal revenue derived from the market demand schedule and marginal cost schedule of the firms in the industry

Answer 4

Joint profit maximization

Question 5

A large firm in an oligopoly that unilaterally makes changes in its product prices that competitors tend to follow

Answer 5

Price leader

Question 6

A competitor in an oligopoly that goes along with the pricing decision of the price leader

Answer 6

Price follower

Question 7

When a dominant firm that produces a large portion of the industry’s output sets a price that maximizes its profits, and other firms follow

Answer 7

Price leadership

Question 8

Setting a price deliberately low in order to drive out competitors

Answer 8

Predatory pricing

Question 9

The study of strategic interactions among economic agents

Answer 9

Game theory

Question 10

In this game, firms cooperate to increase their mutual payoff

Answer 10

Cooperative game

Question 11

In this game, players do not cooperate but each pursues their individual self-interest

Answer 11

Noncooperative game

Question 12

Strategy that will be optimal regardless of opponents actions

Answer 12

Dominant strategy

Question 13

A game in which pursuing dominant strategies results in non-cooperation and makes everyone worse off

Answer 13

Prisoners’ dilemma

Question 14

A summary of the possible outcomes of various strategies

Answer 14

Payoff matrix

Question 15

Strategy used in repeated games where one player follows the other player’s move in the previous round; leads to greater cooperation

Answer 15

Tit-for-tat strategy

Question 16

When the number of other people purchasing the good influences quantity demanded

Answer 16

Network externality

Question 17

Increase in a consumer’s quantity demanded for a good because a greater number of other consumers are purchasing the good

Answer 17

Positive network externality

Question 18

Increase in a consumer’s demand for a good because fewer consumers are purchasing the same good

Answer 18

Negative network externality

Question 19

A positive network externality in which a consumer’s demand for a product increases because other consumers own it

Answer 19

Bandwagon effect

Question 20

The costs involved in changing from one product to another brand or in changing suppliers

Answer 20

Switching costs