oligopolies and game theory Flashcards
A local electricity-generating company has a monopoly that is protected by an entry barrier that takes the form of:
A local electricity-generating company has a monopoly that is protected by an entry barrier that takes the form of:
One reason patent protection is vitally important to pharmaceutical firms is that:
he approval process for new drugs through the Therapeutic Goods Administration can take more than 10 years and is very costly. Patents enable firms to recover costs incurred during this process.
One reason why the coffeehouse market is competitive is that:
One reason why the coffeehouse market is competitive is that:
list the characteristics of a monopolistically competitive market
selling price equals average total cost
marginal revenue equals marginal cost
selling price is greater than marginal cost
Consumers benefit from monopolistic competition by:
being able to choose from products more closely suited to their tastes.
list 3 parts of an oligopolists business strategy
Deciding the level of total output of a new product.
Determining the amount of advertising that a new product needs.
Setting the product’s price after considering what rivals will do.
how is an oligopolistic industry categorised?
there are barriers to entry
the possibility of long-run economic profits
production of standardised products
An oligopoly firm is similar to a monopolistically competitive firm in that:
both firms have market power
An oligopolist differs from a perfect competitor in that:
there are no barriers to entry in perfect competition, but there are in oligopolies
A characteristic found only in oligopolies is
the interdependence of firms.
Producing a differentiated product occurs in which industries?
Monopolistic competition and oligopoly.
An oligopolist’s demand curve is:
unknown because a response of firms to price changes by rivals is uncertain
The prisoner’s dilemma illustrates:
why firms will not cooperate if they behave strategically.
The study of how people make decisions in situations in which attaining their
goals depends on their interaction with others is called:
game theory
what is an oligopoly?
An oligopoly is a market structure in which a small number of interdependent firms compete. Barriers to entry keep new firms from entering an industry.
4 barriers to entry are:
economies of scale, ownership of a key input or raw material, network externalities, and government barriers.
what is game theory
it is the study of the decisions of firms in industries where the profits of each firm depends on its interactions with other firms
what is a cartel?
A cartel is a group of firms that collude by agreeing to restrict output to increase prices and profits.
what is cooperative equilibrium
In a cooperative equilibrium, firms cooperate to increase their mutual payoff
what is a non cooperative equilibrium?
In a non-cooperative equilibrium, firms do not cooperate but pursue their own self-interest
A ______ is a strategy that is the best for a firm no matter what strategies other firms use
dominant strategy
A situation where pursuing dominant strategies results in non-cooperation that leaves everyone worse off is called a :
prisoners dilemma
With______________, one firm takes the lead in announcing a price change, which is then matched by the other firms in the industry.
price leadership
Explain why a market economy with competition is generally efficient
a competitive market, the price adjusts to ensure that the quantity demanded equals the quantity supplied. Stated another way, in equilibrium every consumer willing to pay the market price is able to buy as much of the product as they want, and every firm willing to accept the market price can sell as much as it wants
discuss the economic bases for government intervention.
Government intervention is usually required: to maintain a legal system and enforce the rule of law; to maintain or enforce competition in the market; when positive or negative externalities occur; to regulate the use of common resources; in the provision of public goods and merit goods; to regulate to protect firms and households from the effects of asymmetric information; to improve equity; and in macroeconomic policy management, to stabilise the economy.
Distinguish between market failure and government failure.
Market failure occurs when the market does not result in an economically efficient outcome.
Government failure occurs when the government fails to correct adequately for market failure or takes actions that lead to a more inefficient outcome than produced by the market.
what is an externality
An externality is a benefit or cost to parties who are not involved in a transaction
A _____ occurs when a production or consumption activity benefits others who are not directly involved with that activity and who do not pay for it.
positive
a negative externality is
when a production or consumption activity imposes costs on others who are not directly involved with that activity and no compensation is paid
