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oligopolies typically are not desirable because they
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do not achieve allocative efficiency because their price exceeds marginal cost
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by changing their advertising and _pricing_ strategies, firms competing in an oligopoly can affect profits and influence the profits of rivals
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pricing
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price leaders make price adjustments
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infrequently, due tot he uncertainty in rivals' response to these price changes
by communicating impending price adjustments to the industry
by establishing a price that discourages new entrants into the industry
by communicating impending price adjustments to the industry
by establishing a price that discourages new entrants into the industry
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in the graph, the price elasticity of demand is highly _elastic_ above the price of P0
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elastic
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which of the following are shortcomings of the kinked-demand analysis of oligopoly?
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the kinked-demanded curve explains price inflexibility but not the price itself
during macroeconomic instability. oligopoly prices are not as rigid as the kinked-demand theory implies
during macroeconomic instability. oligopoly prices are not as rigid as the kinked-demand theory implies
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compared to the outcome with collusion in the figure provided, if one firm cheats it can increase its payoff by
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$3
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compared pure monopolies, oligopolies:
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may be less desirable because they are not regulated by government to protect consumers
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suppose RareAir honors an agreement to price high with Uptown If Uptown cheats and prices low instead of high, then Uptown can increase its payout by $_3_ million
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3
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three models used to study pricing and output by oligopolies are
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the kinked-demand curve model
price leadership model
collusive pricing model
price leadership model
collusive pricing model
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which of the following is true about the oligopolist if rivals match a price cut but ignore a price increase?
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its marginal revenue curve would consist of two segments
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when firms in an oligopoly _collude_, their payoffs are greater than if they did not
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collude
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oligopolistic behavior implies that oligopolists prefer competition
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through product development
through advertising
through advertising
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advertising may decrease economic efficiency if it
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increases monopoly power
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the study of how people behave in strategic situations is called _game theory_.
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game theory
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the benefits to oligopolists from collusion are:
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it increases profits
it possibly prohibits the entry of new rivals
it reduces price uncertainty
it possibly prohibits the entry of new rivals
it reduces price uncertainty
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advertising increases efficiency by
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lowering search costs for consumers
facilitating the introduction of new products
facilitating the introduction of new products
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a type of implicit understanding used by oligopolists to coordinate prices without engaging in outright collusion is known as _price leadership_.
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price leadership
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if RareAir honors an agreement with Uptown to price high, and Uptown needs ti increase profits due to stockholder press, Uptown will price
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low to receive a payout of $15
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it is reasonable to assume that the demand for a non-colluding oligopolist facing a kinked-demand curve s highly _elastic_ above the going price.
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elastic
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_collusion_ means illegal cooperation with rivals.
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collusion
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according to the payoff matrix, if Uptown and RareAir both follow a strategy to dominate market share by using a low price strategy, the RareAir's payoff will be
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$8
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multiple models are used to study oligopolies because oligopolies
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cannot estimate both their demand and marginal revenue curves due to rivals' reactions
encompass a greater range and diversity of market situations
encompass a greater range and diversity of market situations
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when the _economy_ is stable, oligopoly prices tend to be stable
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economy
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in general, oligopolies are:
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productively and allocatively inefficient
(an oligopoly, like other imperfect markets, is neither productively or allocatively efficient. In order to be allocatively and productively efficient, it must charge a price equal to marginal cost, as well as to the lowest average total cost of production, respectively.)
(an oligopoly, like other imperfect markets, is neither productively or allocatively efficient. In order to be allocatively and productively efficient, it must charge a price equal to marginal cost, as well as to the lowest average total cost of production, respectively.)
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what are the positive effects of large oligopolists not advertising?
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a reduction in advertising would help lower prices and possibly increase product output
the lack of manipulative information would reduce the chance of a firm becoming a monopoly
the lack of manipulative information would reduce the chance of a firm becoming a monopoly
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in a non-collusive oligopolistic industry, prices are generally stable for the following?
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cost reasons
demand reasons
demand reasons
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compared to our competition, oligopolistic industries may result in
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more technological advances because oligopolies have assurances of rewards caused by barriers to entry
more technological advances because oligopoly firms earn economic profits to fund research and development
more technological advances because oligopoly firms earn economic profits to fund research and development
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when members of an oligopoly react to price changes by a dominant firm, the _price leadership_ model is most applicable
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price leadership
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one qualification to why an oligopoly may not act like a monopoly is
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due to foreign in competition that may increase efficient through increased rivalry
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suppose the rivals of an oligopolistic firm match either a price increase or decrease. if this occurs, the the firm's demand curve will look:
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straight and steep
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what are the negative effects if large oligopolists do not advertise?
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consumers would be snare of important new products
consumers might purchase less efficient products that cost more
consumers might purchase less efficient products that cost more
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according to the kinked-demand model of oligopoly, if two three firms ignore a price decrease by the third firm:
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the third firm will gain sales because the other two firms' demand curves become more inelastic, relative to the third firm's demand curve
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advertising can reduce efficiency by
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providing misleading information
manipulating consumer preferences
manipulating consumer preferences
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in the _kinked-demand_ model of oligopoly, firms react to the price decreases but ignore price increases by other firms
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kinked-demand
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a two-firm payoff matrix shows
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firm profit from alternative combinations of strategies
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the use of advertising by oligopolists
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may increase or decrease prices
may increase or decrease competition
may increase or decrease competition
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which of the following are shortcomings of the kinked-demand analysis of oligopoly?
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during macroeconomic instability, oligopoly prices are not as rigid as the kinked-demand theory implies
the kinked-demand curve explains price inflexibility but not price itself
the kinked-demand curve explains price inflexibility but not price itself
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the oligopolistic firm's marginal revenue curve exhibits a gap or vertical segment because:
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of the sharp difference in elasticity of demand above and below the going price
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suppose the rivals of an oligopolistic firm ignore both a price increase and decrease. If so, then the firm's demand curve will be:
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straight
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to reduce uncertainty or increase profits, oligopolistic may change their prices
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collusively
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an oligopoly firm's demand curve will be kinked if:
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its rival match price decreases but ignore price increases
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which of the following is the reason for the demand curve segment e to D1?
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rivals match a price decrease
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which of the following industries is an example of price leadership by one oligopolistic member?
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beer
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in the game illustrated in the figure tot he right, if both follow a no-collusion strategy, the equilibrium outcome will be such that RareAir uses a _low_ price and Uptown uses a _low_ price strategy
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low; low
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advertising benefits society by
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conveying information to consumers
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a possible effect of limit pricing by oligopolies is that it
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may increase efficiency by setting the price closer to marginal cost and minimum average total cost
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when members of an oligopoly met to set prices to maximize profits this applies mainly to the _collusion_and/or the _cartel_ model
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collusion; cartel
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during macroeconomic instability, the lack of determination of price and price rigidity is best described by:
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the shortcomings of kinked-demand curve of oligopolistic firms
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the oligopolistic firm's marginal revenue curve exhibits a gap or vertical segment because:
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of the sharp difference in elasticity of demand above and below the going price
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