Question 1

In a Stackelberg oligopoly, the follower second firm determines its production from its Cournot best- response function.

Accepted Answer

In a Stackelberg model, the first firm (leader) sets its output level to maximize its profits, and then the second firm (follower) determines its production level based on its Cournot best-response function. This allows the leader to have an advantage in the market and potentially capture more profits.

Question 2

As the number of firms in a Cournot oligopoly increases, the equilibrium quantity gets closer and closer to the monopoly quantity.

Accepted Answer

In a Cournot oligopoly, as the number of firms increases, the equilibrium quantity approaches the competitive market quantity, not the monopoly quantity.

Question 3

If Mario's Pizza and Angelo's Pizza are pizza delivery companies in tacit collusion and Mario's Pizza launches a new advertising campaign that states that it will meet any competitor's price on a comparable pizza, Mario's Pizza might be tacitly signaling to Angelo's Pizza that they are willing to________.

Accepted Answer

The answer of If Mario's Pizza and Angelo's Pizza are...

Question 4

Hotels R Us and Hotel Supply are two hotel toiletry suppliers that are competing with each other. If Hotels R Us announces an upcoming price change next month, it may be signaling to Hotel Supply its intent to engage in _________ .

Accepted Answer

Hotels R Us announcing an upcoming price change could be interpreted as a signal to Hotel Supply that it intends to raise prices, which could suggest an attempt at tacit collusion. Tacit collusion occurs when firms coordinate their behavior without explicitly communicating or entering into a formal agreement.

Question 5

If Best Lights, Lights R Us, and Bright Lights are all competing in the light bulb market and Best Lights consistently is the first to change prices, Best Lights might be________ .

Accepted Answer

By consistently changing prices first, Best Lights is indicating to the other firms that it is willing to be the price leader in the market. This could lead to the other firms following suit and adjusting their own prices accordingly.

Question 6

If Luxury Spas, Renew Spas, and Relax Spas are all competing in the spa market and Relax Spas consistently is the first to change prices, Relax Spas might be _________.

Accepted Answer

By consistently being the first to change prices, Relax Spas is likely signaling to the market that it is willing to be the price leader, suggesting that it wants to offer lower prices than its competitors.

Question 7

In a Cournot oligopoly, if a firm's marginal cost is not constant, its best- response curve will not be linear.

Accepted Answer

The best-response curve in a Cournot oligopoly represents the output level that maximizes a firm's profit given the output levels of other firms in the market. When a firm's marginal cost is not constant, the firm's profit-maximizing output level will change based on the output levels of other firms. Therefore, the best-response curve will not be linear, as it will not have a constant slope.

Question 8

Frozen Treats and Dairy Treats are two ice cream firms that are competing with each other. If Frozen Treats announces an upcoming price change next month, it may be signaling to Dairy Treats its intent to engage in________ .

Accepted Answer

A price change announcement could be interpreted as a signal of intent to engage in tacit collusion, where the firms coordinate their pricing strategies without explicit communication. The other options (A, C, D) involve specific models of oligopoly behavior that may not apply in this situation.

Question 9

If Best Paints and Paint with Us are paint suppliers in tacit collusion and Best Paints launches a new advertising campaign that states that it will meet any competitor's price on comparable paint, Best Paints might be tacitly signaling to Paint with Us that they are willing to _________.

Accepted Answer

The answer of If Best Paints and Paint with Us...

Question 10

Firms in a cartel or engaged in tacit collusion should set equal to to maximize profit.

Accepted Answer

In a cartel or tacit collusion, firms set their output levels to maximize joint profit. To do this, they must set their marginal revenue equal to the marginal cost of the cartel as a whole, which is equal to the market marginal revenue.

Question 11

If Best Beds, Bedding R Us, and Sleepy Beds are all competing in the bedding market and Best Beds consistently is the first to change prices, Best Beds might be________.

Accepted Answer

By consistently being the first to change prices, Best Beds is signaling that they are willing to lead the market in terms of pricing. This could be a strategy to gain a competitive advantage over their rivals by attracting price-sensitive customers.

Question 12

Best Paper and Copies R Us are two paper suppliers that are competing with each other. If Best Paper announces an upcoming price change next month, it may be signaling to Copies R Us its intent to engage in________ .

Accepted Answer

Best Paper's announcement of a price change may indicate to Copies R Us that it intends to coordinate pricing decisions, which is a form of tacit collusion. This is a behavior commonly seen in oligopolistic markets, where a few large firms dominate the industry. While Chamberlin, Cournot, and Stackelberg oligopolies are also forms of market structures seen in oligopolistic markets, they do not necessarily require or involve collusion between firms.

Question 13

The more firms in a Cournot oligopoly, the greater the profits for each firm.

Accepted Answer

The more firms in a Cournot oligopoly, the greater the competition among the firms, leading to a decrease in profits for each firm. This is because each firm produces less than it would in a perfectly competitive market, resulting in a suboptimal output level and higher prices.

Question 14

If Happy Campers and Camping R Us are camper suppliers in tacit collusion and Happy Campers launches a new advertising campaign that states that it will meet any competitor's price on a comparable camper, Happy Campers might be tacitly signaling to Campers R Us that they are willing to ________.

Accepted Answer

The answer of If Happy Campers and Camping R Us...

Question 15

If Mario's Pizza, Angelo's Pizza, and Bella's Pizza are all competing in the pizza delivery market and Bella's Pizza consistently is the first to change prices, Bella's Pizza might be ________.

Accepted Answer

By consistently changing prices first, Bella's Pizza is indicating a willingness to be the price leader in the market. This can potentially lead to the other firms following their lead or differentiating themselves by offering either lower-priced or higher-quality pizzas.

Question 16

If Happy Campers, Camping R Us, and Camp with Us are all competing in the camping market and Happy Campers consistently is the first to change prices, Best Beds might be________.

Accepted Answer

Happy Campers, by being the first to change prices, is acting as the price leader in the market, indicating the direction of price changes that competitors may follow.

Question 17

Best Lights and Bright Lights are two light bulb suppliers that are competing with each other. If Best Lights announces an upcoming price change next month, it may be signaling to Bright Lights its intent to engage in _________.

Accepted Answer

If Best Lights announces an upcoming price change next month, it may be signaling to Bright Lights its intent to engage in tacit collusion, which is a form of non-explicit collusion where firms coordinate their behavior without any formal agreement.

Question 18

Best Ink and Ink Jets are two ink suppliers that are competing with each other. If Best Ink announces an upcoming price change next month, it may be signaling to Ink Jets its intent to engage in_________ .

Accepted Answer

Best Ink's announcement of a price change could be seen as a signal to Ink Jets that they will be raising prices, which could be interpreted as a hint to engage in tacit collusion. Tacit collusion is an informal understanding between firms to coordinate on pricing or output levels without explicit communication or agreement. This behavior is often seen in oligopolistic markets where a few large firms dominate the market.

Question 19

If Cruise with Us and Cruise the World are two luxury cruise lines in tacit collusion and Cruise with Us launches a new advertising campaign that states that it will meet any competitor's price on a comparable cruise, Cruise with Us might be tacitly signaling to Cruise the World that they are willing to ________.

Accepted Answer

The answer of If Cruise with Us and Cruise the...

Question 20

Using the market marginal revenue, firms in a cartel or engaged in tacit collusion should set ________equal to _________ to maximize profit.

Accepted Answer

Firms in a cartel or engaged in tacit collusion aim to maximize profits by setting marginal revenue equal to marginal cost. This principle ensures that the additional revenue from selling one more unit equals the additional cost of producing that unit, optimizing profit.

Quiz 7: Cartels and Oligopoly