Chapter 18- Oligopoly

Question 1

A small number of firms compete
Natural or legal barriers prevent the entry of new firms
HHI>1800 is oligopoly
Price usually exceeds marginal cost
Quantity produced is less than the efficient quantity
IT IS INEFFICIENT

Answer 1

Oligopoly

Question 2

The profit earned by each firm depends on the firms own actions and on the actions of the other firms
Before making a decision, each firm must consider how the other firms will react to its decision and influence its profit

Answer 2

Interdependence

Question 3

A group of firms acting together to limit output, raise price, and increase economic profit
Are illegal but do operate in some markets
Tend to collapse

Answer 3

Cartel

Question 4

Market with two firms

Answer 4

Duopoly

Question 5

Tool used to analyze strategic behavior, behavior that recognizes mutual interdependence and takes account of the expected behavior of others

Answer 5

Game theory

Question 6

Rules
Strategies(possible actions of each player)
Payoffs

Answer 6

All games involve 3 features

Question 7

Table that shows the payoffs for every possible action by each player given every possible action by the other player

Answer 7

Payoff matrix

Question 8

An agreement between a manufacturer and a distributor on the price at which the product will be resold
These agreements are illegal under the Sherman act (antitrust law)

Answer 8

Resale price maintenance

Question 9

Setting a low price to drive competitors out of business with the intention of setting a monopoly price when the competition has gone
The firm that sets this price will incur a loss
UNPROFITABLE, rarely occurs

Answer 9

Predatory pricing

Question 10

Agreement to sell one product only if the buyer agrees to also buy another different product
Ex: Chemistry textbook with masteringchemistry access code

Answer 10

Tying arrangement