Chat with AIExam 9: Oligopoly
Distinguish between the degree of concentration for U.S.sales and the degree of concentration for U.S.production.Give at least two examples of U.S.industries that have significantly different production and sales ratios.
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VerifiedConcentration ratios for domestic sales and domestic production will differ if imports represent a significant portion of the former.For example,the "Big Three" U.S.automobile companies comprise more than 80% of domestic production,but only about 60 to 65% of domestic sales (since imports account for the other 15 to 20%).Industries with a large degree of import penetration include electronics,textiles,wines,and so on.
Antitrust laws in the United States generally forbid tie-in arrangements.What reasons might firms give to justify tying of goods? What reasons might antitrust authorities state to prevent it?
(42) VerifiedFirms seeking to tie-in goods will clearly see the profit potential for the tie-in.It makes demand for the tied product less elastic,permitting a higher price and profit.Price discrimination becomes more likely with tying.In addition,a firm may argue that one product works better when used with another produced by the same firm.An example might be applications software tied-in with a particular operating system software,such as Windows.The firm may be able to offer a group of products at a savings,compared to offering each separately.There may be legitimate quality control issues for requiring a tie-in.
Antitrust regulation is concerned with tying because it may lead to less competition in the tied-in product and serve as an entry barrier.Bundling that serves a legitimate business purpose is generally permitted.Tie-ins that are seen as creating an entry barrier are less likely to pass antitrust scrutiny.
What are the assumptions of the kinked demand curve model? What is its main conclusion about oligopoly behavior? How realistic is the model?
(36) VerifiedThe kinked demand curve model presumes that the firm determines its price behavior based on a prediction about its rivals' reactions to potential price changes.The firm assumes that rivals will match a price cut but ignore a price increase.The result is that demand is much more elastic above the current price (because sales volume will drop off quickly if rivals do not match a price increase),and fairly inelastic below the current price (rivals will cut price to prevent the firm from increasing market share).
The main conclusion of the model is that oligopoly firms will tend to stick to their current prices unless there is a dramatic shift in demand and/or cost.The model is not complete because it does not explain why the kink occurs at a particular price,nor does it justify the price-cutting behavior of rivals.
Which of the following is true of the Cournot model of a duopoly?
(36) An oligopoly firm's effective demand curve will be kinked at the current market price if:
(41) The concentration ratio for an industry with four firms shows the:
(36) The following matrix shows the pricing strategies and resultant profits (in thousands of dollars)for two profit-maximizing firms.
Table 9-1
-Refer to Table 9-1.If Firm A sets a high price,Firm B will _____.
-Refer to Table 9-1.If Firm A sets a high price,Firm B will _____. (41) The following matrix shows the pricing strategies and resultant profits (in thousands of dollars)for two profit-maximizing firms.
Table 9-1
-What is meant by a prisoner's dilemma?
-What is meant by a prisoner's dilemma? (32) Five oligopoly firms have market shares of 40%,20%,18%,12%,and 10%.Compute the four-firm concentration ratio,and the Herfindahl-Hirschman index for the industry.
(29) The demand function in a duopoly is: P = 100 - 2(Q1 + Q2),where P = price,Q1 = output of the firm,and Q2 = output of the second firm.If the first firm decides to sell 10 units while the second firm sells 20 units,which of the following will be true?
(38) Between 1950 and 1956,the three leading aluminum producers in the U.S.changed prices nine times by exactly the same amount each time and usually within one to three days of the initial price increase.This is an example of _____.
(33) Which of the following correctly explains the dominant firm model of an oligopoly?
(35) Which of the following,if true,would be the best example of the Bertrand model of oligopoly?
(30) The following matrix displays the advertising rates and the resultant profits (in thousands of dollars)for two rival newspapers in a major city.
(a)Assume that the newspapers set their advertising rates independently.Determine the optimal strategy for each firm.Explain briefly.
(a)Assume that the newspapers set their advertising rates independently.Determine the optimal strategy for each firm.Explain briefly. (35) How does firm behavior in an oligopoly differ from behavior in other market structures?
(35) Briefly explain the concept of price leadership and why it occurs in oligopolistic markets.
(36) The kinked demand curve model explains _____ in an oligopoly.
(33) An oligopoly firm faces the demand curve P = 50 - Q for Q < 10 units and P = 65 - 2Q for Q > 10 units.What is the marginal cost range within which the firm can operate?
(35) In the Cournot model of duopoly,explain whether the quantities chosen by the firms are strategic complements or strategic substitutes.
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