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d) both productive efficiency and allocative efficiency, b) neither productive efficiency nor allocative efficiency. read more, and marginal revenue is the product price. D) equilibrium quantity will be sensitive to small cost changes but price will not. A) a market where three dominant firms collude to decide the profit-maximizing price. View full document. d) Oligopolistic collusion, Compared to monopolies, oligopolies ______. Required fields are marked *. B) the firms may legally form a cartel. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. They do so through collusion that results in higher prices and fewer production or product choices for customers. d) By updating manufacturing equipment, What is the four-firm concentration ratio? A) "I am producing extra widgets, even though it costs me short-run profits, to stop Wally's Widgets from expanding into my market." A firm in an oligopolistic market ______. If this game is nonrepeated, the Nash equilibrium is A) both firms cheat on the agreement. a) Import competition *speeding up technological progress E) other firms will not raise theirs. Use the figure below to answer the following question. The distinctive feature of an oligopoly is interdependence. Is Microsoft an oligopoly Do you want to know Click Here. E) the firms are interdependent. Oligopolyis a market structure Increasing returns to scale is a term that describes an industry in which the rate of increase in output is higher than the rate of increase in inputs. A study based on over 9,0009,0009,000 U. S. residents $6. as the price increases, demand decreases keeping all other things equal.read more shifts. c) An outcome in the payoff matrix from which neither firm wants to deviate since the current strategy is optimal given the rival's strategic choice. b) By increasing recruiting expenses d) vertical a) fewer firms than monopolistic competition. B) total revenue. When the negotiations began, DTR had debt of$80 million and equity of $50 million. read more, market demand, and product differentiationProduct DifferentiationProduct differentiation refers to making a product look attractive and different from other products in the same class. b) OPEC c) Affect costs and influence the supply of rival firms C) rules, strategies, profit, and outcome. The need to spend a huge amount of money on name recognition and market reputation may discourage entry by new firms. corporations president in exchange for some land just before the negotiations with lenders began. c) Price war Firms are more likely to cheat on a collusive agreement when the economy is experiencing a _____ (Enter one word). The concept serves to be useful for companies focusing on multiple product lines and operating more than one business unit at a time. B) both can earn an economic profit in the long run. 5. D) the four-firm concentration ratio for the industry is small. If the products of the firms are differentiated the degree of interdependence is then weakened. Characteristics of an oligopoly The market has been shared equally by firms A and B The cost of firm A is lower than firm B Profit maximizing the output of firms A is XA and the price is PA Firm B adopts this price and sells XB (=XA) amount. c) kinked The marginal revenue formula computesthe change in total revenue with more goods and units sold." *mutual interdependence *interindustry competition Compared to pure monopolies, oligopolies ______. Have you a question about something that I covered. 7) The kinked demand curve theory of oligopoly predicts that Here we discuss how does Oligopoly market work in economics along with its characteristics. Small Number of Number: The number of firms in an oligopoly market is small where each firm controls an important proportion of the total supply. A) "Gas prices in this town always go up and down together." How oligopolists react to the price change by one firm can be best understood with the downward-sloping Kinked demand curve. Based on her experience with past negotiations, Marilyn knows that lenders are concerned about DTRs debt to equity As a result, both brands consistently work on the design, user interface, camera, and other aspects of their smartphones to make sure customers stick to their brand. b) kinked demand c) allocative efficiency but not productive efficiency You can calculate it by adding Direct Material cost, Direct Labor Cost, & Manufacturing Overhead Cost. 6. A) Each firm faces a downward-sloping demand curve. Pure oligopoly - have a homogenous product. a. B) rivalry among a large number of rivals leads to lower overall profit. That is, the firm is myopic or short sighted not to learn from its past mistakes and take d 1 d'1, as if it will not shift. As a result, monopolists produce less, at a higher average cost, and charge a higher price than would a combination of firms in a perfectly competitive industry. A) Each firm has an incentive to collude. When firm X increases its price. at least $10 million. Determinants of Price Elasticity of Supply. *Ownership and control of raw materials 1) All games share four common features. b) flexible An oligopoly is an industry dominated by a few large firms (Few sellers supplying, many buyers). 13) Complete the following sentence. d) their profits and sales will rise Each firm faces a downward-sloping demand curve. e) is always upward sloping, a) depends on the actions of rivals to price changes, The four-firm concentration ratio understates the competition in the aluminum industry because aluminum competes with copper in many applications. c) less than or equal to 40% B) there are two producers of two goods competing in an oligopoly market Even though the products of companies A and B are similar, there must be something that distinguishes them. 1. D) Gear cheats, while Trick complies with the agreement. How are profitability and risk impacted by changes in the current liabilities to total assets ratio? C) in a repeated game but not a single-play game. There are just several sellers who control all or most of the sales in the industry. 3) Canada's anti-combine law is enforced by b) are few in number Libertyville has two optometrists, Dr. Smith and Dr. Jones. . C) assumes that marginal revenue equals marginal cost only at the quantity at the "kink." 3) Which one the following industries is the best example of an oligopoly? E) rules, strategies, payoffs, and outcome. ) It contains well written, well thought and well explained computer science and programming articles, quizzes and practice/competitive programming/company interview Questions. c) regulated monopoly The value denotesthe marginalrevenue gained. Also, as there are few sellers in the market, every seller influences the behavior of the other firms and other firms influence it. c) give the appearance of increased competition Their differences can range from. An oligopoly is a market structure that involves few producers and suppliers (www.oecd.org). Thus, it induces interdependence in the network. It is difficult to enter an oligopoly industry and compete as a small start-up company. The control of oligopolists over specialized inputs, such as resources, price, and production, makes it difficult for a new firm to survive. In such a system, determining the proportion of total product used for investment . E) Bud and Miller each have a dominant strategy. C) Miller has a dominant strategy but Bud does not. Keep its price constant and thus decrease its market share C. Increase its price and thus increase its market share D. Decrease its price and thus decrease its market share In second-degree price discrimination the monopolist offers a menu of quantity-based pricing options designed to induce customers to self-select based on how highly they value the product. Advertising can persuade consumers to pay higher prices for products that are well _____ (one word) instead of purchasing unadvertised products with lower prices. e) Firms may sell a differentiated product. Without collusion, if a firm incorrectly assumes that its rivals will charge the same price but its rivals actually charge a lower price, the firm's demand curve will shift to the ____. C) "If only Wally and I could agree on a higher price, we could make more profits." d) The advertising model, To reduce uncertainty or increase profits, oligopolists may change their prices ______. It is used as one of the strategies to increase the business firm's revenue and increase the market share. Oligopoly. C) is; the dominant firm is making an economic profit Oligopoly is one of the four market structures and identified by a small number of big businesses operating in a particular industry. C) Firms in the cartel will want to raise the price. Market players in an oligopolistic market focus on non-price competition, ensure their brands are uniquely identifiable and apply hidden advertising tactics. The amount of time (in seconds) needed to complete a critical task on an assembly line was measured for a sample of 50 assemblies. c) high to receive a payout of $12 E) None of the above. b) demand; losses; increase the breakkkk, The fact that industry concentration may be overstated because the four-firm concentration ratio only accounts for production within the United States represents what kind of shortcoming with the four-firm concentration ratio? C) is; to cheat regardless of the other firm's choice Which of the following is not a characteristic of oligopoly? A) is; all other firms act as if they are perfectly competitive B) is not; other firms can enter, which increases supply, decreases the price, and drives economic profit down to zero Any change in either of them will affect the quantity/output sold by a producer. What are examples of monopoly and oligopoly? $3. 2. c) inflexible It determines the law of demand i.e. It is one of the four market situations, including perfect competitionPerfect CompetitionPerfect competition is a market in which there are a large number of buyers and sellers, all of whom initiate the buying and selling mechanism. However, too much price decrease can lead to a price warPrice WarA price war is a competition among the competitors of the business in lowering the price of their products to gain an advantage over their competitors in price and capture a greater market share. a) its rivals do not respond to either a price cut or price increase c) product development and advertising are relatively inexpensive E) the firms are interdependent. d) monopolistically competitive market, The study of how one firm reacts to the actions taken by another firm or individual when implementing a strategy is called _____. Brand reputation, company size, and minimal completion make decision-making crucial and influential across the group. Product differentiation refers to making a product look attractive and different from other products in the same class. A single D)There is more than one firm in the industry. b) u-shaped Marilyn When two major players dominate a sector, the market becomes a duopolyDuopolyWhen there are two market leaders in any industry or service, this is referred to as a duopoly. A game that is played more than once between rivals is a ____ (Enter one word) game. The other two share the rest (20%). (Enter one word per blank. D) a firm in perfect competition. b) Interindustry competition b) upward-sloping It is calculated by dividing the change in the costs by the change in quantity. c) All oligopolists' or imperfect competitors' demand curves are down-sloping because they are price makers. In an oligopoly, dominant market players are influential enough to decide on the price of products and services. 30.331.934.432.831.132.230.736.830.530.634.533.130.131.030.730.930.730.230.637.931.131.134.630.233.132.130.631.530.230.330.930.031.630.234.434.230.230.131.434.133.732.732.432.831.030.733.435.730.730.4. B) 1. ADVERTISEMENTS: This fact is recognized by all the firms in an oligopolistic industry. The distinctive feature of an oligopoly is interdependence. They collude and agree to share the market equally. E) None of the above. 14) The kinked demand curve model If so, then the firm's demand curve will be ______. c) By changing pricing strategies When members of an oligopoly react to price changes by a ____ _____ dominant firm, the model is most applicable. a- Compute the Cournot equilibrium total quantity, price, quantity for each firm, and . Economies of scale are the cost advantage a business achieves due to large-scale production and higher efficiency. C. Some market power. A) collusion of the participants leads to the best solution from their point of view. e) undefined, In the graph, the price elasticity of demand is highly ______ above the price of P0. Oligopoly Models: 1. When the government grants patents to, for example, three different pharmaceutical companies that each has its own drug for reducing high blood pressure, those three firms may become an oligopoly. B) Firms are profit-maximizers.C) The sales of one firm will not have a significant effect on other firms. However, firm B will follow the leaders price and equilibrium quantity in order to avoid the uncertainty that can be arisen. As a result, each firm obligates to adhere to pre-determined price and quantity/output levels to maximize revenue. C) Art denies and Bob confesses. D) "I have been spending extra on research and development of my new two-way widget." C) average total cost. Oligopolists do not compete with each other. 1) The market structure in which natural or legal barriers prevent the entry of new firms and a small number of firms compete is, 2) Suppose that industry A consists of four firms who collectively control 96 percent of total sales in the market. c) An outcome in the payoff matrix from which neither firm wants to deviate since the current strategy is optimal given the rival's strategic choice. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Copyright 2023 . *world trade . Keep its price constant and thus increase its market share B. Why do the elements of structure, such as work specialization, formalization, span of control, chain of command, and centralization, have a tendency to change together? CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. ENGL1190_V0854_2023WI_Communications23.docx. e) It could be downward sloping or kinked. B) "I am producing more widgets than Wally and I agreed to in our talk last week." Businesses in such a market collaborate to dominate the rest of the players and maximize joint revenue. What is the Nash equilibrium? 9) In the dominant firm model of oligopoly, the dominant firm faces a a) necessary d) its rivals match price decreases but ignore price increases, d) its rivals match price decreases but ignore price increases, Which of the following is true about the oligopolist if rivals match a price cut but ignore a price increase? *It lowers search costs of information for consumers. c) may be less desirable because they are not regulated by government to protect consumers 10) In the dominant firm model of oligopoly, the dominant firm produces the quantity at which marginal revenue equals It determines the law of demand i.e. a) low to receive a payout of $15 List the three steps followed under the gross profit method of estimating inventory. It is assumed that all of the sellers sellidentical or homogenous products. *The firm's profits will be lower. Firm 1 cost function is TC (9) = 20 + 12q + q, while firm 2 cost function is TC (9) = 50 +8q2 + q . Let us consider the followingexamplesto understand the concept better: Samsung and Nokia are two big players in the Android smartphones industry, with the former trying to capture the market by keeping the price lenient. Though, it is rare to find pure oligopoly situation, yet, cement, steel, aluminum and chemicals producing industries approach pure oligopoly. You can calculate it by adding Direct Material cost, Direct Labor Cost, & Manufacturing Overhead Cost. See more documents like . *The firm's profits will be higher. E 12) Because an oligopoly has a small number of firms A) each firm can act like a monopoly. a) Affect profits and influence the profits of rival firms Therefore, the competing firms will be aware of a firm's market actions and will respond appropriately. (Pure) Monopoly 3. The distinctive feature of an oligopoly is interdependence. The characteristics of an oligopoly market or oligopolistic strategy are mentioned below: Interdependence . Oligopoly refers to a market situation or a type of market organisational in which a few firms control the supply of a commodity. issued for the land? D) payoffs Such companies have complete control of the market, earning high profits and gains in a specific sector or service. Instead, they try different approaches, such as rewarding customers for their loyalty, differentiating their product offerings, providing sales promotion schemes, acting as sponsors, etc. *The game would eventually end in the Nash equilibrium (cell B or C). land back or when DTRs debt to equity position improves, what should she do? A) all members of the cartel have a strong incentive to abide by the agreed-upon price. Answers: 1 Show answers Another question on Social Studies. B) both firms comply with the agreement. D) Bob denies and Art confesses. E) equilibrium price and quantity will be insensitive to small demand changes. e) through cartels, c) through product development b) its rivals match price increases and price decreases *It helps reduce demand for material products. B) potential entrants entering and incurring economic loss. b) neither productive efficiency nor allocative efficiency D) marginal revenue curve is discontinuous. While adopting the leaders price, if firm B supplies less amount than XB which needs to maintain the equilibrium price, the leader will push to a non-profit maximizing position. the students used balls . D) entry into the industry of rival firms will have no impact on the profit of the cartel. a) often c) Firms earn zero economic profits in the long-run. D) patents, copyrights, barriers to entry, and rules. Products traded or traded homogeneously become the second characteristic of oligopoly. These data are as follows: 30.334.531.130.933.731.933.131.130.032.734.430.134.631.632.432.831.030.230.232.831.130.733.134.431.032.230.932.134.230.730.730.730.630.233.436.830.231.530.135.730.530.630.231.430.730.637.930.334.130.4\begin{array}{lllll}30.3 & 34.5 & 31.1 & 30.9 & 33.7 \\ 31.9 & 33.1 & 31.1 & 30.0 & 32.7 \\ 34.4 & 30.1 & 34.6 & 31.6 & 32.4 \\ 32.8 & 31.0 & 30.2 & 30.2 & 32.8 \\ 31.1 & 30.7 & 33.1 & 34.4 & 31.0 \\ 32.2 & 30.9 & 32.1 & 34.2 & 30.7 \\ 30.7 & 30.7 & 30.6 & 30.2 & 33.4 \\ 36.8 & 30.2 & 31.5 & 30.1 & 35.7 \\ 30.5 & 30.6 & 30.2 & 31.4 & 30.7 \\ 30.6 & 37.9 & 30.3 & 34.1 & 30.4\end{array} b) Collusive pricing model d) are more efficient because cartels and collusion is always successful B) it prevents or substantially lessens competition D) specify how average cost is determined. b) potential for mergers and acquisitions Monopolists are not allocatively efficient, because they do not produce at the quantity where P = MC. a) An outcome in the payoff matrix from which one firm wants to deviate since the current strategy is not optimal given the rival's strategic choice. Marketers highlight the distinguishing features in the product commonly through packaging or a good design, which helps communicate the benefitting factors to the shoppers.read more. Pure (Perfect) Competition 2. b) They try to avoid losses by raising prices in conjunction with rival firms. Oligopolists seek to maximize market profits while minimizing market competition through non-price competition and product differentiation. In the credit card industry, for example, Visa and MasterCard have a duopoly.read more. The presidents friend constructs and sells single family homes. c) costs; uncertainty; increase 8) 8)Which is not a characteristic of oligopoly? A) suggests that price will remain constant even with fluctuations in demand. *Large capital investment The demand curve will look kinked to reflect the fact that rivals will match price *decreases* but ignore price *increases*. In doing so, they reduce production and increase prices, a phenomenon called collusion. 11) Once a cartel determines the profit-maximizing price, d) Cost leadership model A) the government will impose price controls. A market is considered to be a(n) ______ when the largest four firms in an industry control more than 40% or more of the market. A) price. A) raise the price if marginal revenue increases B) lower the price if the new marginal cost curve lies below the break in the marginal revenue curve C) definitely lower the price D) not change the price E) raise the price if other firms raise their prices. d) greater than or equal to 60%, How can oligopolistic firms influence their profits and the profits of their rivals? D) increase the amount they produce. 5) Which one of the following characteristics applies to oligopolistic markets? What does a demand curve look like for an oligopolistic firm? A(n) _______ (Enter one word) is a market dominated by a few large producers of a homogeneous or differentiated product. C) the firms keep profits and prices so low that no rivals are . Marginal costMarginal CostMarginal cost formula helps in calculating the value of increase or decrease of the total production cost of the company during the period under consideration if there is a change in output by one extra unit. b) are few in number D) the four-firm concentration ratio for the industry is small. 4. E) none of the above. Instead, they collaborate on various fronts, such as economies of scaleEconomies Of ScaleEconomies of scale are the cost advantage a business achieves due to large-scale production and higher efficiency. The firms comprise an oligopolistic market, making it possible for already-existing smaller businesses to operate in a market dominated by a few. Your email address will not be published. The firms produce differentiated products. Some of its fundamental characteristics include the existence of a small number of firms, differentiated or homogeneous products, and barriers to entry. The financial sector refers to businesses, firms, banks, and institutions providing financial services and supporting the economy. a) kinked and steep D) Consumers will eventually decide not to buy the cartel's output. a) price changes occur slowly C. The choices made by one firm have a significant effect on other firms. So here we can see a one-way interdependence pattern. a) purely competitive market *localized markets, *dominant firms c) Nash equilibrium d) lowering the cost of production *It lowers search costs of information for consumers. 36) Refer to Table 15.3.10. Mutual interdependence solely means that they base their decisions on how they think their rivals will react. *The game would temporarily move to either cell B or cell C. Also, they rely on free-market forces to earn higher profits than a competitive market. 12) Because an oligopoly has a small number of firms B) revenues, elasticity, profit, and payoffs. b) It will always be downward sloping because it is a price maker. 6) In the prisoners' dilemma with players Art and Bob, each prisoner would be best off if A) both prisoners confess. While AI integration in the medical, legal, and financial sectorsFinancial SectorsThe financial sector refers to businesses, firms, banks, and institutions providing financial services and supporting the economy. Such companies have complete control of the market, earning high profits and gains in a specific sector or service. Despite having the same market share, a smaller number of firms causes oligopolists to get influenced by each others decisions, such as price cuts and increases. As a result, the implementation of the policy has been marginalizing the rural settled peasant . is the demand curve for taxi rides in a town, and, 14) Refer to Figure 14.1.1. *To obtain lower input prices Furthermore, no restrictions apply in such markets, and there is no direct competition. b) high to receive a payout of $15 You may also have a look at the following articles , Your email address will not be published. b) Affect profits without influencing the profits of rival firms CFA And Chartered Financial Analyst Are Registered Trademarks Owned By CFA Institute. *The firm's demand curve will shift further to the right. B) raise the price of their products. Updated: Aug 16, 2022. command economy, economic system in which the means of production are publicly owned and economic activity is controlled by a central authority that assigns quantitative production goals and allots raw materials to productive enterprises. D) perfectly inelastic. Gentleman's agreements are a type of covert collusion, occurring in social settings where a product's _____ is agreed upon and market shares are determined by _____ competition. c) it will prevent a price war E) none of the above is done. d) Affect costs and influence the products of rival firms, a) Affect profits and influence the profits of rival firms, Which of the following is a model used to examine oligopolistic pricing? d) is always kinked Pure (Perfect) Competition. price changes, not production costs, so it can't be b. D) products that are slightly different. E) entry into the industry of rival firms will raise cartel profit as long as the new firms join the cartel. What is it called when firms reach a verbal or tacit agreement with rivals about price in a social setting like the golf course?