Oligopoly

2. 18 Oligopoly CLICKER QUESTIONS

3. Checkpoint 18.3 Checkpoint 18.4 Checkpoint 18.1 Question 6 Question 9 Question 1 Question 7 Question 10 Question 2 Question 8 Checkpoint 18.2 Question 3 Question 4 Question 5

4. CHECKPOINT 18.1 Question 1 Because firms in oligopoly are interdependent, _______. • barriers to entry do not exist • one firm’s profits are affected by other firms’ actions • firms can produce either identical or differentiated goods • there are too many firms for any one firm to influence the price • they compete with each other and in the long run, the price equals the monopoly profit-maximizing price

5. CHECKPOINT 18.1 Question 2 A cartel is a group of firms that _______. • acts separately to limit output, fix the price, and to use advertising to compete with each other • agrees to erect barriers to entry • legally fixes prices • agrees to limit the quantity produced so as to raise the price and increase economic profit • agrees to produce an identical good

6. CHECKPOINT 18.2 Question 3 If a cartel achieves the monopoly outcome, one firm can increase its profit if it and only it ____ its price and ____ its output. • raises; increases • raises; decreases • lowers; increases • lowers; decreases • raises; does not change

7. CHECKPOINT 18.2 Question 4 The figure shows the market for shampoo when all firms producing shampoo operate as a cartel. If the cartel breaks down, the price ____. • remains unchanged • falls from $4 to $2 a bottle • falls from $6 to $2 a bottle • falls from $6 to $4 a bottle • rises from $2 to $4 a bottle

8. CHECKPOINT 18.2 Question 5 Suppose that a duopoly had achieved the monopoly outcome when firm A increased its output. If firm B responds by increasing its output, firm B's profit ____ and firm A's profit ____. • increases; increases • increases; does not change • decreases; increases • decreases; decreases • increases; decreases

9. CHECKPOINT 18.3 Question 6 The prisoners’ dilemma game ______. • results in a bad outcome for both prisoners • shows it is easy to cooperate • has an equilibrium in which both prisoners are made as well off as possible • would have the same outcome even if the prisoners could communicate and cooperate • has an equilibrium in which one prisoner is made as well off as possible and the other prisoner is made as worse off as possible

10. CHECKPOINT 18.3 Question 7 Katie and Kris have a collusive agreement. If Kris cheats on the agreement, then Kris makes ______. • $9 million if Katie cheats • $0 if Katie doesn’t cheat • –$1 million if Katie doesn’t cheat • $5 million if Katie cheats • either $9 million or $0 depending on what Katie does The payoff matrix: Economic profit in millions of dollars

11. CHECKPOINT 18.3 Question 8 A collusive agreement to form a cartel is difficult to maintain because _______ • each firm can increase its profits by cutting its price and selling more • forming a cartel is legal but frowned upon throughout the world • the high cartel price will decrease supply • consumers will boycott the cartel • each firm can increase its profit by producing less than the output set by the cartel

12. CHECKPOINT 18.4 Question 9 Which of the following is always illegal? • possessing a very large market share • selling at a price below other producers to achieve efficiency • price fixing • attempting to merge with a competitor • price discrimination

13. CHECKPOINT 18.4 Question 10 In the case against Microsoft, it was claimed that combining Internet Explorer and Windows was ____. • predatory pricing • an illegal tying agreement • creating one product that is convenient for the consumers • illegal territorial confinement • an inefficient resale maintenance agreement