Economics for Managers Chapter 9

Question 1

Oligopoly

Answer 1

A market structure characterized by competition among a small number of large firms that have market power, but that must take their rival’s actions into account when developing their own competitive strategies.

Question 2

Noncooperative Oligopoly Models

Answer 2

Models of interdependent oligopoly behavior that assume that firms pursue profit-maximizing strategies based on assumptions about rivals’ behavior and the impact of this behavior on the given firm’s strategies.

Question 3

Cooperative Oligopoly Models

Answer 3

Models of interdependent oligopoly behavior that assume that firms explicitly or implicitly cooperate with each other to achieve outcomes that benefit all the firms.

Question 4

Kinked Demand Curve Model

Answer 4

An oligopoly model based on two demand curves that assumes that other firms will not match a firm’s price increases, but will match its price decreases.

Question 5

Game Theory

Answer 5

A set of mathematical tools for analyzing situations in which players make various strategic moves and have different outcomes or payoffs associated with those moves.

Question 6

Dominant Strategy

Answer 6

A strategy that results in the best outcome or highest payoff to a given player no matter what action or choice the other player makes.

Question 7

Nash Equilibrium

Answer 7

A set of strategies from which all players are choosing their best strategy, given the actions of the other players.

Question 8

Strategic Entry Deterrence

Answer 8

Strategic policies pursued by a firm that prevent other firms from entering the market.

Question 9

Limit Pricing

Answer 9

A policy of charging a price lower than the profit-maximizing price to keep other firms from entering the market.

Question 10

Predatory Pricing

Answer 10

A strategy of lowering prices below cost to drive firms out of the industry and scare off potential entrants.

Question 11

Cartel

Answer 11

An organization of firms that agree to coordinate their behavior regarding pricing and output decisions in order to maximize profits for the organization.

Question 12

Joint Profit Maximization

Answer 12

A strategy that maximizes profits for a cartel, but that may create incentives for individual members to cheat.

Question 13

Horizontal Summation of Marginal Cost Curves

Answer 13

For every level of marginal cost, add the amount of output produced by each firm to determine the overall level of output produced at each level of marginal cost.

Question 14

Tacit Collusion

Answer 14

Coordinated behavior among oligopoly firms that is achieved without a formal agreement.

Question 15

Price Leadership

Answer 15

An oligopoly strategy in which one firm in the industry institutes price increases and waits to see if they are followed by rival firms.