Question 1

If antitrust laws did not prohibit efforts to restrict competition in markets:

Accepted Answer

Even if antitrust laws did not prohibit efforts to restrict competition in markets, attempts at collusion with rival firms on price and/or quantity would probably fail more often than not because each firm would have the incentive to cheat and increase production to capture a larger market share and earn higher profits. This would lead to a breakdown of the collusion and ultimately more competition in the market.

Question 2

The accompanying table shows a small community's demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm's marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer thequestions. $\begin{array}{lrr}\text { Price/Month(P) }&\text { Number of Customers (Q) }&\text { Total Revenus/Month (TR) }\
\$ 10 & 0 & \$ 0 \
\$ 9 & 100 & \$ 900 \
\$ 8 & 200 & \$ 1,600 \
\$ 7 & 300 & \$ 2,100 \
\$ 6 & 400 & \$ 2,400 \
\$ 5 & 500 & \$ 2,500 \
\$ 4 & 600 & \$ 2,400 \
\$ 3 & 700 & \$ 2,100 \
\$ 2 & 800 & \$ 1,600 \
\$ 1 & 900 & \$ 900 \
\$ 0 & 1000 & \$ 0
\end{array}$
-An agreement between Nextflix and Flixbuster to each supply 250 subscriptions is an example of:

Accepted Answer

The answer of The accompanying table shows a small community's...

Question 3

The accompanying table shows a small community's demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm's marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer thequestions. $\begin{array}{lrr}\text { Price/Month(P) }&\text { Number of Customers (Q) }&\text { Total Revenus/Month (TR) }\
\$ 10 & 0 & \$ 0 \
\$ 9 & 100 & \$ 900 \
\$ 8 & 200 & \$ 1,600 \
\$ 7 & 300 & \$ 2,100 \
\$ 6 & 400 & \$ 2,400 \
\$ 5 & 500 & \$ 2,500 \
\$ 4 & 600 & \$ 2,400 \
\$ 3 & 700 & \$ 2,100 \
\$ 2 & 800 & \$ 1,600 \
\$ 1 & 900 & \$ 900 \
\$ 0 & 1000 & \$ 0
\end{array}$
-If this market were a monopoly instead of a duopoly, the market price would be __________ and the quantity of streaming movie subscriptions purchased each month would be __________.

Accepted Answer

In a monopoly, the firm would set a higher price and produce a lower quantity compared to a competitive market or duopoly to maximize profits. Option C ($5; 500) reflects a higher price and lower quantity scenario typical of monopolistic behavior.

Question 4

Assume all markets are in long-run equilibrium. The market quantity supplied in an oligopoly would be _________ the market quantity supplied in a monopoly and _________ the market quantity supplied in a competitive market.

Accepted Answer

The answer of Assume all markets are in long-run equilibrium....

Question 5

When a market is characterized by mutual interdependence:

Accepted Answer

Mutual interdependence means that the actions of one firm have an impact on the price and output decisions of its competitors, which is consistent with option D. Therefore, the best choice is D.

Question 6

An agreement between Nike and Adidas to raise prices of the track shoes that each company produces by 50% is an example of a collusive agreement, and economists generally agree that:

Accepted Answer

Collusive agreements, such as price-fixing agreements, are generally considered harmful to society because it reduces consumer surplus and creates deadweight loss by artificially raising prices above the competitive equilibrium price. The fact that the price increase is significantly above marginal cost supports this argument. Hence, it is not in the best interest of society.

Question 7

Firm A and Firm B are duopolists. They are choosing the price for which they will sell their products and the quantity they will sell. Both firms make their decisions simultaneously. The _________ in this situation occurs when Firm B chooses a pricing strategy given the strategy that Firm A chooses, and Firm A chooses a pricing strategy given the strategy that Firm B chooses.

Accepted Answer

The situation described is a classic example of a Nash equilibrium, which occurs when both firms choose their best strategy given the other firm's choice, and neither has an incentive to change their strategy unilaterally. This is the most likely outcome in a duopoly situation. Antitrust equilibrium, Von Neumann equilibrium, Morgenstern equilibrium, and cartel equilibrium are not typically used to describe duopoly pricing strategies.

Question 8

Six firms are currently producing and selling in a market. When two of the six firms exit the market, economists expect that the equilibrium price:

Accepted Answer

When two firms exit the market, the supply decreases, leading to a higher equilibrium price and a lower equilibrium quantity.

Question 9

The accompanying table shows a small community's demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm's marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer thequestions. $\begin{array}{lrr}\text { Price/Month(P) }&\text { Number of Customers (Q) }&\text { Total Revenus/Month (TR) }\
\$ 10 & 0 & \$ 0 \
\$ 9 & 100 & \$ 900 \
\$ 8 & 200 & \$ 1,600 \
\$ 7 & 300 & \$ 2,100 \
\$ 6 & 400 & \$ 2,400 \
\$ 5 & 500 & \$ 2,500 \
\$ 4 & 600 & \$ 2,400 \
\$ 3 & 700 & \$ 2,100 \
\$ 2 & 800 & \$ 1,600 \
\$ 1 & 900 & \$ 900 \
\$ 0 & 1000 & \$ 0
\end{array}$
-Listed below are four different collusive agreements that Nextflix and Flixbuster are considering. Assuming both firms will abide by the terms, which collusive agreement(s) would maximize total profit in the market? I. Nextflix supplies 400 subscriptions and Flixbuster supplies 500 subscriptions.
II) Nextflix supplies 500 subsciptions and Flixbuster supplies 300 subscriptions.
III) Nextflix supplies 250 subscriptions and Flixbuster supplies 250 subscriptions.
IV) Nextflix supplies 100 subscriptions and Flixbuster supplies 400 subscriptions.

Accepted Answer

The answer of The accompanying table shows a small community's...

Question 10

When more firms enter into a market that was previously characterized as a duopoly, it will:

Accepted Answer

With more firms in the market, it becomes more difficult to form a successful cartel because there are more competitors to monitor and enforce agreement with. As the number of firms in the market increases, the incentive for each firm to cheat on the agreement also increases. Therefore, it is more difficult for firms to reach and maintain a collusive agreement as the market becomes more competitive.

Question 11

Airline A and Airline B are the two largest airlines in the country. The chief executive officer of Airline A calls the chief executive officer of Airline B and says, "Why don't we both raise prices 25% across the board next week?" This is an example of:

Accepted Answer

The chief executive officer of Airline A is proposing a collusive behavior, which is an illegal agreement between two or more companies to restrain competition. Therefore, the best choice is B.

Question 12

When a third firm enters a market that was previously categorized as a duopoly, the equilibrium price:

Accepted Answer

When a third firm enters a market, competition increases, which typically leads to a decrease in the equilibrium price and an increase in the equilibrium quantity as firms compete for market share.

Question 13

Assume all markets are in long-run equilibrium. Market price in an oligopoly would be _________ the market price in a monopoly, and _________ the market price in a competitive market.

Accepted Answer

In an oligopoly, there are a few firms dominating the market, leading to higher prices than in a perfectly competitive market. However, since there are still multiple firms competing for market share, the price is generally lower than in a monopoly where there is only one dominant firm. Therefore, the market price in an oligopoly is less than the market price in a monopoly and greater than the market price in a competitive market.

Question 14

In 2011, three firms were selling cellular phone service for a price of $40 per month in Pittsburgh, Pennsylvania. In 2012, five firms were selling cellular phone service for a price of $30 per month. Which effect best describes the likely decrease in profits experienced by each of the three original firms due only to the lower market price?

Accepted Answer

The likely decrease in profits experienced by each of the three original firms is due only to the lower market price, which is a price effect. As more firms entered the market and offered lower prices, the original firms had to lower their prices to remain competitive, leading to a decrease in profits. This is not an oligopoly effect as it involves an increase in the number of competitors rather than a decrease. It is also not an output effect as there is no change in the quantity of the output. The market effect is too broad and does not specifically address the impact on profits. Therefore, the best choice is B, the price effect.

Question 15

The accompanying table shows a small community's demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm's marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer thequestions. $\begin{array}{lrr}\text { Price/Month(P) }&\text { Number of Customers (Q) }&\text { Total Revenus/Month (TR) }\
\$ 10 & 0 & \$ 0 \
\$ 9 & 100 & \$ 900 \
\$ 8 & 200 & \$ 1,600 \
\$ 7 & 300 & \$ 2,100 \
\$ 6 & 400 & \$ 2,400 \
\$ 5 & 500 & \$ 2,500 \
\$ 4 & 600 & \$ 2,400 \
\$ 3 & 700 & \$ 2,100 \
\$ 2 & 800 & \$ 1,600 \
\$ 1 & 900 & \$ 900 \
\$ 0 & 1000 & \$ 0
\end{array}$
-If this market were highly competitive instead of a duopoly, the market price would be __________ and the quantity of streaming movie subscriptions purchased each month would be __________.

Accepted Answer

The answer of The accompanying table shows a small community's...

Question 16

Five firms are currently producing and selling in a market. When two more firms enter the market, economists expect that the equilibrium price:

Accepted Answer

When more firms enter the market, the supply increases, leading to a lower equilibrium price and a higher equilibrium quantity.

Question 17

The accompanying table shows a small community's demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm's marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer thequestions. $\begin{array}{lrr}\text { Price/Month(P) }&\text { Number of Customers (Q) }&\text { Total Revenus/Month (TR) }\
\$ 10 & 0 & \$ 0 \
\$ 9 & 100 & \$ 900 \
\$ 8 & 200 & \$ 1,600 \
\$ 7 & 300 & \$ 2,100 \
\$ 6 & 400 & \$ 2,400 \
\$ 5 & 500 & \$ 2,500 \
\$ 4 & 600 & \$ 2,400 \
\$ 3 & 700 & \$ 2,100 \
\$ 2 & 800 & \$ 1,600 \
\$ 1 & 900 & \$ 900 \
\$ 0 & 1000 & \$ 0
\end{array}$
-Listed below are four different collusive agreements that Nextflix and Flixbuster are considering. Assuming both firms will abide by the terms, which collusive agreement(s) would maximize total profit in the market? I. Nextflix supplies 50 subscriptions and Flixbuster supplies 450 subscriptions.
II) Nextflix supplies 450 subscriptions and Flixbuster supplies 50 subscriptions.
III) Nextflix supplies 300 subscriptions and Flixbuster supplies 100 subscriptions.
IV) Nextflix supplies 100 subscriptions and Flixbuster supplies 100 subscriptions.

Accepted Answer

The answer of The accompanying table shows a small community's...

Question 18

Three firms are currently producing and selling in a market. When one of the three firms exits the market, economists expect that the equilibrium price:

Accepted Answer

When one firm exits the market, the supply curve will shift to the left, resulting in a decrease in equilibrium quantity. At the same time, the demand curve remains unchanged, resulting in an increase in equilibrium price. Therefore, the correct answer is B, which states that the equilibrium price will be higher and the equilibrium quantity will be lower.

Question 19

The _________ effect occurs when the market price either decreases or increases by the respective entrance or exit of a rival firm in the market.

Accepted Answer

The answer of The _________ effect occurs when the market...

Question 20

The accompanying table shows a small community's demand for monthly subscriptions to a streaming movie service. Assume that only two firms (Nextflix and Flixbuster) sell in this market, that each firm offers the same quality of service and movie selection, and that each firm's marginal cost is constant and equal to 0 (zero) due to excess capacity. Use this information to answer thequestions. $\begin{array}{lrr}\text { Price/Month(P) }&\text { Number of Customers (Q) }&\text { Total Revenus/Month (TR) }\
\$ 10 & 0 & \$ 0 \
\$ 9 & 100 & \$ 900 \
\$ 8 & 200 & \$ 1,600 \
\$ 7 & 300 & \$ 2,100 \
\$ 6 & 400 & \$ 2,400 \
\$ 5 & 500 & \$ 2,500 \
\$ 4 & 600 & \$ 2,400 \
\$ 3 & 700 & \$ 2,100 \
\$ 2 & 800 & \$ 1,600 \
\$ 1 & 900 & \$ 900 \
\$ 0 & 1000 & \$ 0
\end{array}$
-If the two firms operating in this market agreed to each supply one-half of the quantity a monopolist would supply, the contract would specify that:

Accepted Answer

To find the quantity a monopolist would supply, we need to add the quantities demanded at each price level, which gives us a total quantity of 500 subscriptions. If the two firms each supply one-half of this quantity, they would each supply 250 subscriptions, which is option E. The other options either give one firm more than half the quantity or none of the quantity, which would not be profitable for both firms.

Quiz 13: Oligopoly and Strategic Behavior

If antitrust laws did not prohibit efforts to restrict competition in markets:

Assume all markets are in long-run equilibrium. The market quantity supplied in an oligopoly would be _ the market quantity supplied in a monopoly and _ the market quantity supplied in a competitive market.

When a market is characterized by mutual interdependence:

An agreement between Nike and Adidas to raise prices of the track shoes that each company produces by 50% is an example of a collusive agreement, and economists generally agree that:

Six firms are currently producing and selling in a market. When two of the six firms exit the market, economists expect that the equilibrium price:

When more firms enter into a market that was previously characterized as a duopoly, it will:

Airline A and Airline B are the two largest airlines in the country. The chief executive officer of Airline A calls the chief executive officer of Airline B and says, "Why don't we both raise prices 25% across the board next week?" This is an example of:

When a third firm enters a market that was previously categorized as a duopoly, the equilibrium price:

Assume all markets are in long-run equilibrium. Market price in an oligopoly would be _ the market price in a monopoly, and _ the market price in a competitive market.

Five firms are currently producing and selling in a market. When two more firms enter the market, economists expect that the equilibrium price:

Three firms are currently producing and selling in a market. When one of the three firms exits the market, economists expect that the equilibrium price:

The _________ effect occurs when the market price either decreases or increases by the respective entrance or exit of a rival firm in the market.