ch.11 - ch.12

Question 1

3 characteristics of oligopoly

Answer 1

• few sellers, big firms
• Homogeneous or identical products
• Interdependent firms (firm’s decision affects another firm)

Question 2

Duopoly

Answer 2

oligopoly with only 2 members

Question 3

collusion

Answer 3

an agreement among firms in a market about quantities to produce or prices to charge

Question 4

Cartel

Answer 4

A group of firms acting in unison

Question 5

Suboptimal outcome

Answer 5

Because there is temptation to cheat, each acts in his own best interest and ends up that amount

Question 6

Nash equilibrium

Answer 6

economic actors interacting with one another each choose their best strategy. Always results in a suboptimal outcome.

Question 7

_________ products are sold on oligopoly and perfect competition

Answer 7

Homogenous

Question 8

T or False: firm’s decisions affect other firms in Oligopoly and perfect competition

Answer 8

False: only in Oligopoly

Question 9

If duopoly agreed on best price like monopoly, where would it be?

Answer 9

When price and quantity has a total profit which is maximized ( so TR also)

Question 10

Game theory:

Answer 10

the study of how people behave in strategic situations.

Question 11

prisoners’ dilemma

Answer 11

particular “game” between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial.

Question 12

T or F: A dominant strategy is the best strategy for a player to follow regardless of the strategies chosen by the other players.

Answer 12

T

Question 13

as the number of sellers in an oligopoly grows larger, an oligopolistic market looks more like ______

Answer 13

a competitive market.

Question 14

How is oligopolistic market become similar to the competition market?

Answer 14

The price approaches MC , and the quantity produced approaches the competitive equilibrium level

Question 15

Increasing output has two effects

Answer 15

Output Effect and Price Effect

Question 16

Output Effect

Answer 16

If P > MC, selling more output raises profits.

Question 17

Price Effect

Answer 17

Raising production increases market quantity, which reduces market price and reduces profit on all units sold

Question 18

If output effect > price effect, what happens?

Answer 18

the firm increases production.

Question 19

If price effect > output effect, what happens?

Answer 19

the firm reduces production.

Question 20

Canada’s Competition Act makes it illegal to ______

Answer 20

collude.

Question 21

Canada’s Competition Act makes it illegal to ______

Answer 21

collude.

Question 22

Cooperation among oligopolists is undesirable because

Answer 22

it leads to production that is too low and prices that are too high.

Question 23

tacit collusion

Answer 23

No formal agreements (paper trails).

Just an “understanding” among firms

Question 24

Resale Price Maintenance

Answer 24

requiring a retailer to sell a good at a certain price determined by the wholesaler.

Question 25

Why is Resale Price Maintenance controversial

Answer 25

• prevents retailers from competing in price.

- a consistent higher price may signal high quality, brand name products

Question 26

what is Predatory Pricing?

Answer 26

charging too low prices, hoping to drive out competitors.

Can lead to price wars which benefit consumers.

Question 27

Tying

Answer 27

in order to purchase a monopoly good, you must purchase another “competitive” good at the same time. Give you a deal on the monopoly good and overcharge you on the competitive good.

Question 28

Are labour markets price-takers or price-makers?

Answer 28

Price takers. The firm has no control over wage

Question 29

What is workers contribution to TR in a labour market?

Answer 29

Her MP (what she adds to total output) times the addition to total revenue of her output, MR.
                    MRP = MR*MPL

Question 30

When will a firm hire a worker?

Answer 30

As long as the contribution of a worker outweighs her cost, the firm will hire that worker.
where

Question 31

To maximize profit, the competitive, profit-maximizing firm hires workers up to the point where

Answer 31

W = MRP = P*MPL

Effectively, a firm hires labour where MRL = MCL to maximize profit

Question 32

What is MRP

Answer 32

The MR of the last worker hired is their addition to TR, their MRP
The MRPL curve is the labour demand curve for a competitive, profit-maximizing firm.

Question 33

What is W

Answer 33

The MC of the last worker hired is their addition to TC, their wage

Question 34

A change in W: leads to ________ demand curve

Answer 34

a movement along the labour demand curve.

Question 35

Since D = MRP = P* MPL

if P goes up what happens do the demand curve?

Answer 35

Demand curve goes up so it shifts to the right

Question 36

Since D = MRP = P* MPL

if P goes down what happens?

Answer 36

Demand curve goes down, so shifts to the left

Question 37

If something changes MP, what happens?

Answer 37

the curve will shift

ex: increase the MP of labour will shift demand right.

Question 38

labour supply curve reflects

Answer 38

how workers’ decisions about the labour-leisure tradeoff respond to changes in opportunity cost.

Question 39

The higher the wage, the ________ leisure becomes and the more ________ an individual is willing to supply.

Answer 39

more expensive

work hours/less leisure

Question 40

A change in W: is a ________labour supply curve

Answer 40

movement along the

Question 41

Shift factors of supply curve in labour market

Answer 41

• Changes in attitudes
• Changes in alternative opportunities
• Immigration

Question 42

A firm will hire capital at the point where

Answer 42

r = MR*MPK = MRPK
where r = rental price of capital
K = amount of capital
P = selling price of the good

Question 43

Present Value

Answer 43

is the amount of money needed today to produce a given amount of money at a specified future date, accounting for the prevailing interest rate.

Question 44

The annual payment is called a _____ payment, denoted C.

Answer 44

coupon