WEEK 9

Question 1

Are business cartels usually legal

Answer 1

No

Question 2

Whats the biggest cartel

Answer 2

OPEC - Petroleum producers who also are policy setters

Question 3

Tit-for-tat is weakened when what

Answer 3

more than 2 players in a game

Question 4

Why is there instability in cartels

Answer 4

News firms can enter and cut a price below the cartel and gain all the customers, can produce more than the cartel too

Question 5

The cournot model is when firms

Answer 5

Choose output levels

Question 6

the bertrand model is when firms

Answer 6

Decide on price

Question 7

How many firms can be modeled in the cournot model

Answer 7

2 or more

Question 8

What assumptions are made in the cournot model

Answer 8

Highly sustainable products

Firms have same tech and input costs

Constant unit costs

straight demand curve

Question 9

Whats the reaction function

Answer 9

The best response of a player

Question 10

If firms maximize profits what the best response in the cournot model

Answer 10

The best response is the response that yeilds the highest profit

Question 11

In the cournot model with 2 firms, if a firms output is P=AC and Profit = 0, the other firm should

Answer 11

The other firms best choice is not to produce anything

Question 12

In the cournot model with 2 firms, if one firm chooses to produce nothing the best choice for the other firms output is

Answer 12

The monopoly output

Question 13

The closer its output is to the monopoly output on its own axis means what

Answer 13

The higher its profits are

Question 14

In the cournot model with 2 firms, what are the axis labeled on the reaction function

Answer 14

Firm 1 output = x
Firm 2 output = y

Question 15

What are the 3 things in cournot equilibrium

Answer 15

Firms simultaneously decide output
Profit maximisation
No further changes

Question 16

Under cournot equilibrium, Each firm is setting MC equal to what

Answer 16

MR

Question 17

Under cournot equilibrium, On the reaction curve where is production happening

Answer 17

Left of the point at which AC reaches a minimum

Question 18

Under cournot equilibrium, Industry output is below what

Answer 18

What a perfectly competitive industry would provide, but above what a monopolist would provide

Question 19

Under cournot equilibrium, firms earn what profit

Answer 19

Super normal profit, but not as much as if they colluded in a cartel

Question 20

What is the Bertrand competition

Answer 20

The name given to oligopolistic strategies based around price-setting

Question 21

In the bertrand competition, firms compete on what

Answer 21

Price

Question 22

In the bertrand competition, what is assumed

Answer 22

Others will charge the current price

Question 23

In the bertrand competition, who can undercut

Answer 23

Any firm if the price doesn’t drop beneath the MC

Question 24

What is the bertrand paradox

Answer 24

That when the prices are undercut they can converge to the competitive level equal to MC or be higher

Question 25

3 Reasons the bertrand paradox wouldn’t hold in terms of constraints

Answer 25

Firms have capacity constraints, and output cannot increase sufficiently for price to be driven down so low

Question 26

3 Reasons the bertrand paradox wouldn’t hold in terms of differentiation

Answer 26

Product differentiation means that the firms’ products are not highly substitutable

Question 27

3 Reasons the bertrand paradox wouldn’t hold in terms of short-term

Answer 27

Firms know that the short-term gain of undercutting leads to less profit in the future

Question 28

When does monopolistic competition arise

Answer 28

When there are many buyers and sellers, and sellers can differentiate their products

Question 29

What slope is in monopolistic competition

Answer 29

Downwards slope

Question 30

What are the profits like in monopolistic competition

Answer 30

Profits in short-run, but these are competed away by entry of new fimrs so that in the long run supernormal profits are 0

Question 31

The monopolistic competition equilibrium involves

Answer 31

Lower output and a higher price than under perfect competition