Econ Ch17 - Oligopoly

The key feature of an oligopolistic market is that

• a single firm chooses a point on the market

  demand curve.

• each firm produces a different product from other

  firms.

• a small number of firms are acting strategically.

• each firm takes the market price as given.

If an oligopolistic industry organizes itself as

a cooperative cartel, it will produce a quantity

of output _________ the competitive level and

_________ the monopoly level.

• less than; more than

• more than; less than

• less than; equal to

• equal to; more than

If an oligopoly does not cooperate and each firm

chooses its own quantity, the industry will produce

a quantity of output _________ the competitive level

and _________ the monopoly level.

• less than; more than

• more than; less than

• less than; equal to

• equal to; more than

As the number of firms in an oligopoly grows, the

industry approaches a level of output _________ the

competitive level and _________ the monopoly level.

• less than; more than

• more than; less than

• less than; equal to

• equal to; more than

The prisoners' dilemma is a two-person game

illustrating that

• rational, self-interested individuals will naturally

  avoid the Nash equilibrium because it is worse

  for both of them.

• even if cooperation is better than the Nash

  equilibrium, each person might have an incentive

  not to cooperate.

• even if the cooperative outcome is better than

  the Nash equilibrium for one person, it might be

  worse for the other.

• the cooperative outcome could be worse for both

  people than the Nash equilibrium.

Two people facing the prisoners' dilemma may

cooperate if

• each realizes that the strategy she chooses is not

  known to the other until the outcome is realized.

• each chooses the strategy that is best for herself,

  given what the other person is doing.

• they will play the game repeatedly and expect

  noncooperation to be met with future retaliation.

• they recognize that the Nash equilibrium is worse

  for both people than the cooperative equilibrium.

The antitrust laws aim to

• facilitate cooperation among firms in oligopolistic

  industries.

• encourage mergers to take advantage of

  economies of scale.

• discourage firms from moving production

  facilities overseas.

• prevent firms from acting in ways that reduce

  competition.