1. If all the oligopolists in a market collude to form a cartel, total profit fo
ID: 1250822 • Letter: 1
Question
1.
If all the oligopolists in a market collude to form a cartel, total profit for the cartel is less than that of a monopolist.
A) True
B) False
2.
The game that monopolists play in trying to reach the monopoly outcome is similar to the game that the two prisoners play in the prisoners’ dilemma.
A) True
B) False
3.
The prisoners' dilemma is an important game to study because it identifies the fundamental difficulty in maintaining cooperative agreements.
A) True
B) False
4.
When deciding whether the market is an oligopoly or not, there is no magical number of firms that defines an oligopoly.
A) True
B) False
5.
When an oligopolist decreases production it is likely that the output effect is less than the price effect.
A) True
B) False
6.
Total profit for an oligopolist is less than that of a perfectly competitive firm.
A) True
B) False
7.
The Sherman Antitrust Act prohibits competing firms from even talking about fixing prices.
A) True
B) False
8.
In a game, a dominant strategy is, by definition, the best strategy for a player to follow, regardless of the strategies followed by other players.
A) True
B) False
9.
In the case of oligopoly markets, self-interest prevents cooperation and leads to an inferior outcome for the firms that are involved.
A) True
B) False
10.
Oligopolies can end up looking like competitive markets if the number of firms is large and they do not cooperate.
A) True
B) False
Explanation / Answer
Please ask maybe three quick questions at a time. 10 is a bit much. 1. If all the oligopolists in a market collude to form a cartel, total profit for the cartel is less than that of a monopolist. B) False ; Total profit is equal to that of a monopoly. A cartel is a bunch of firms pretending to be a monopoly. 2. The game that monopolists play in trying to reach the monopoly outcome is similar to the game that the two prisoners play in the prisoners’ dilemma. B) False ; If there are two prisoners, then it is not a monopoly, it is a duopoly. Monopoly means there is only one firm. 3. The prisoners' dilemma is an important game to study because it identifies the fundamental difficulty in maintaining cooperative agreements. A) True ; Each firm in a duopoly has an incentive to cheat. 4. When deciding whether the market is an oligopoly or not, there is no magical number of firms that defines an oligopoly. A) True ; It just means "few" firms. Greater than one and less than infinity. 5. When an oligopolist decreases production it is likely that the output effect is less than the price effect. A) True ; The output effect is the positive impact on profit from increasing output. The price effect is the negative impact on profit from increasing output, which lowers price. 6. Total profit for an oligopolist is less than that of a perfectly competitive firm. B) False ; It is greater. The profit for a perfectly competitive firm is zero. 7. The Sherman Antitrust Act prohibits competing firms from even talking about fixing prices. A) True ; This is just a fact. Wikipedia has more info. 8. In a game, a dominant strategy is, by definition, the best strategy for a player to follow, regardless of the strategies followed by other players. A) True ; That is the definition... 9. In the case of oligopoly markets, self-interest prevents cooperation and leads to an inferior outcome for the firms that are involved. A) True ; Kind of... It is inferior for both firms if both firms cheat. You end up in a Cournot equilibrium. But it is superior for the firm that cheats if the other firm doesn't cheat. In either case, self-interest prevents cooperation. 10. Oligopolies can end up looking like competitive markets if the number of firms is large and they do not cooperate. A) True ; With a large enough number of firms, an oligopoly is almost the same as a competitive market. And often this number is smaller than you might think, around 30 or sometimes just 5. It is amazing how close these outcomes can be to the competitive outcome that assumes an infinite number of firms.
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