Exam 8: Oligopoly and Firm Architecture

The marginal revenue curve associated with the kinked demand curve is vertical at the current market price.

Firms in the entertainment and communications industry have grown and globalized by means of mergers.

An industry that can be described by the Cournot model will produce total output that is the same as that produced by a perfectly competitive industry, however they will charge a higher price.

The kinked demand curve model describes a demand curve that is very elastic for price cuts and less elastic for price increases.

The steel industry is comprised of virtual corporations.

A firm's architecture is defined by the buildings and furnishings that it owns.

A differentiated oligopoly is a firm of market organization where several different large firms produce a homogeneous commodity.

A virtual corporation is a temporary network of independent companies.

A market may be organized as an oligopoly if there are many producers of a product, but transportation costs limit the number that compete directly on a local market.

There is no general theory of oligopoly.

Firms described by the Cournot model assume that their rivals will keep their rates of production constant.

Relationship enterprises are more limited and temporary than virtual corporations.

Collusion is illegal in the U.S., but is legal in many other parts of the world.

The Cournot model is defined as a non-oligopolistic model.

Reference to the "Cournot" model is derived by merging "Course" and "not" into a single word and is a response to the question, "Is this firm a monopolist?"

Oligopolist A is considering a price reduction. The payoff from this strategy depends on the behavior of Oligopolist B. If Oligopolist B also reduces price, then Oligopolist A will earn a profit of $50,000. If Oligopolist B does not reduce price, then Oligopolist A will earn a profit of $100,000. The situation is symmetrical; i.e., if Oligopolist B reduces price and Oligopolist A doesn't, then Oligopolist B will earn a profit of $100,000 and, if both oligopolists reduce their prices, then Oligopolist B will earn a profit of $50,000. If neither oligopolist reduces price, then both will continue to earn profits of $75,000. What can Oligopolist A and Oligopolist B be expected to do in the absence of collusion?

Firms A and B operate as a centralized cartel. Their marginal cost functions are defined below: MC_A = 2000 + 25Q_A MC_B = 2000 + 6.25Q_B The firms face the following market demand curve: Q = 1000 - 0.05P Determine the market price that the firms should charge and the quantity of output that should be produced by each firm.

The theory of contestable markets holds that an industry without barriers to entry or exit will operate as if it is perfectly competitive.

The dominant-firm price leadership model describes a market structure in which a dominant firm is the price maker and all other firms are price takers.

Two firms that comprise an industry have decided to engage in collusion. They intend to maximize their total collective profit; i.e., to behave as a single monopolist. How should they behave?