question
oligopoly
answer
a market structure in which there are only a few firms, each of which is large relative to the total industry
question
Sweezy oligopoly
answer
a. firms produce differentiated products
b. each firm believes rivals will respond to a price reduction but will not follow a price increase
c. barriers to entry exist
-there will be a range over which changes in marginal cost do not affect the profit masimizing level of output
b. each firm believes rivals will respond to a price reduction but will not follow a price increase
c. barriers to entry exist
-there will be a range over which changes in marginal cost do not affect the profit masimizing level of output
question
Cournot Oligopoly
answer
a. firms produce either differentiated or homogeneous products
b. each firm believes rivals will hold their output constant if it changes its output
c. barriers to entry exist
-managers do not believe their decisions affect other firms decisions
-when marginal cost is reduced, managers should produce more
b. each firm believes rivals will hold their output constant if it changes its output
c. barriers to entry exist
-managers do not believe their decisions affect other firms decisions
-when marginal cost is reduced, managers should produce more
question
best response (reaction) function
answer
a function that defines the profit maximizing level of output for a firm for given output levels of another firm
question
Cournot Equilibrium
answer
A situation in which neither firm has an incentive to change its output given the other firm's output
-equilibrium price exceeds marginal cost = deadweight loss
-equilibrium price exceeds marginal cost = deadweight loss
question
isoprofit curve
answer
a function that defines the combinations of outputs produced by all firms that yield a given firm the same level of profits
question
collusion
answer
firms agree to restrict output or, equivalently, to charge higher prices
question
Stackelberg oligopoly
answer
a. firms produce either differentiated or homogeneous products
b. a single firm (the leader) chooses an output before rivals select their outputs
c. all other firms (the followers) take the leader's output as given and select outputs that maximize profits given the leader's output
d. barriers to entry exist
b. a single firm (the leader) chooses an output before rivals select their outputs
c. all other firms (the followers) take the leader's output as given and select outputs that maximize profits given the leader's output
d. barriers to entry exist
question
Bertrand Oligopoly
answer
a. firms produce identical products at a constant marginal cost
b. firms compete in price and react optimally to competitors' prices
c. consumers have perfect information and there are no transaction costs
d. barriers to entry exist
-leads to zero economic profits
-the same outcomes as perfect competition
b. firms compete in price and react optimally to competitors' prices
c. consumers have perfect information and there are no transaction costs
d. barriers to entry exist
-leads to zero economic profits
-the same outcomes as perfect competition
question
contestable market
answer
a. all firms have access to the smae technology
b. consumers respond quicly to price changes
c. existing firms cannot respond quickly to entry by lowering their prices
d. there are no sunk costs
b. consumers respond quicly to price changes
c. existing firms cannot respond quickly to entry by lowering their prices
d. there are no sunk costs
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