ECN 104 Chapter Notes - Chapter 17: Nash Equilibrium, Oligopoly, Root Mean Square

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bronzepig36

23 Jul 2016

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Because an oligopolistic market has only a small groups of sellers, a key feature of oligopoly is the tension between cooperation and self interest. Collusion: an agreement among rms in a market about quantities to produce or prices to charge. Cartel: a group of rms acting in unison. Nash equilibrium: a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all other actors have chosen. When rms in a oligopoly individually choose production to maximize pro t they produce a quantity of output greater than the level produced by monopoly and less than the level produced by completion. The oligopoly price is less than the monopoly price but greater than the competitive price (which equals marginal cost) The oligopoly price is less than the monopoly price, greater than the competitive price. How the size of an oligopoly affects the market outcome.

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1. Which of the following statements about oligopolies is not correct?

a.		Oligopolistic firms always charge the monopoly price.
b.		Oligopolistic firms are interdependent in a way that firms in perfect competition are not.
c.		An oligopolistic market has only a few sellers.
d.		The actions of any one seller can have a large impact on the profits of all other sellers.

2. Which is true of an oligopoly market that reaches a Nash equilibrium?

a.		The firms will not have behaved as profit maximizers.
b.		A firm will have chosen its best strategy, given the strategies chosen by other firms in the market.
c.		A firm will not take into account the strategies of competing firms.
d.		The market price will be different for each firm.

3. In game theory, what is a dominant strategy?

a.		the best strategy for a player to follow, regardless of the what strategies other players use
b.		a strategy that makes every player better off
c.		a strategy that must appear in every game
d.		the best strategy for a player to follow only if other players are cooperative

4. Which of the following situations produces the largest profits for oligopolists?

a.		The firms reach a Nash equilibrium.
b.		The firms combine to produce the monopoly output level.
c.		The firms set prices equal to marginal cost.
d.		The firms produce a quantity of output that lies between the competitive outcome and the monopoly outcome.

1. Which of the following statements about oligopolies is not correct?

a.		Oligopolistic firms always charge the monopoly price.
b.		Oligopolistic firms are interdependent in a way that firms in perfect competition are not.
c.		An oligopolistic market has only a few sellers.
d.		The actions of any one seller can have a large impact on the profits of all other sellers.

2. Which is true of an oligopoly market that reaches a Nash equilibrium?

a.		The firms will not have behaved as profit maximizers.
b.		A firm will have chosen its best strategy, given the strategies chosen by other firms in the market.
c.		A firm will not take into account the strategies of competing firms.
d.		The market price will be different for each firm.

3. In game theory, what is a dominant strategy?

a.		the best strategy for a player to follow, regardless of the what strategies other players use
b.		a strategy that makes every player better off
c.		a strategy that must appear in every game
d.		the best strategy for a player to follow only if other players are cooperative

4. Which of the following situations produces the largest profits for oligopolists?

a.		The firms reach a Nash equilibrium.
b.		The firms combine to produce the monopoly output level.
c.		The firms set prices equal to marginal cost.
d.		The firms produce a quantity of output that lies between the competitive outcome and the monopoly outcome.

A. A competitive firm

can consider only its location in setting the price.
must base its competitive price on product differentiation.
has the ability to set its own price.
must accept the price determined by the intersection of the market supply and demand curves.
has no supply curve.

B. If a firm is making an economic profit, then

the factors of production are being paid their opportunity costs.
there will be no change in the number of firms if the industry is perfectly competitive.
the factors of production are being paid less than their opportunity costs.
the factors of production are being paid more than their opportunity costs.
the firm will exit the industry

C. Along a downward-sloping monopoly demand curve,

marginal revenue is greater than price.
the elasticity of demand is constant.
marginal revenue decreases when the price decreases.
marginal revenue is equal to zero when the price is equal to zero

D. If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

shut down because economic profits are negative.
continue to produce as long as P > AVC.
continue to produce because accounting profits are positive.
set a higher price for its output.
set a lower price for its output

E. For a perfectly competitive firm, the demand curve is

the marginal revenue curve.
perfectly inelastic.
always equal to marginal cost.
the same as the market demand curve

F. A firm in a(n) industry will have the most elastic demand curve

monopolistic
oligopolistic
monopolistically competitive
perfectly competitive

G. If the demand curve of a monopolist is in the inelastic range, then

total revenue will fall if the price increases.
total revenue will be unchanged if the price increases.
total revenue will rise if the price increases.
the total supply will increase by an equal amount if demand increases.
the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

monopoly.
perfect competition.
theories of consumer behavior.
imperfect competition.
the extreme cases on the market structure continuum

I. Under which market structure do firms face the flattest (most elastic) demand curve?

perfect competition
monopolistic competition
oligopoly
monopoly

J. At the point of long-run equilibrium for a perfectly competitive firm,

economic profits are zero.
TR > TC.
TR < TC.
P = AVC.
normal profits are zero.

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ECN 104 Chapter Notes - Chapter 17: Nash Equilibrium, Oligopoly, Root Mean Square

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