Micro: Collusion in Oligopoly

What is collusion in an oligopoly?

• When the firms of an oligopoly band together and behave as a monopoly
• When firms compete aggressively with each other
• When firms reduce prices to attract more customers
• When firms collaborate on research and development

What do firms do when they collude?

• Agree to a specified price and quantity of product
• Increase production to gain market share
• Engage in aggressive marketing tactics
• Lower prices to drive competitors out of business

Why do firms have an incentive to cheat in a cartel?

• Because after collusion, their marginal revenue is greater than their marginal cost
• Because they want to increase production efficiency
• Because they want to avoid government intervention
• Because they want to maintain stable prices

What happens when an individual firm cheats in a cartel?

• It leads to the cartel usually falling apart
• It results in the firm being fined by the government
• It forces the other firms to increase production
• It causes the firm to lose market share

What is another way competition can be reduced besides cartels?

• Through government intervention and antitrust laws
• Through technological advancements
• Through increased marketing efforts
• Through international trade agreements

What is collusion in an oligopoly?

• When firms band together and behave as a monopoly
• When firms collaborate on research projects
• When firms compete aggressively
• When firms merge to form a single entity

What do firms in a collusion agreement agree on?

• Specified price and quantity of the product
• Advertising budgets
• Market share percentages
• Employee salaries

What happens when firms collude to reduce output?

• They can charge a higher monopoly price
• They go out of business
• They increase production to maximize profits
• They lower prices to attract more customers

What term is used to describe firms that collude in an oligopoly?

• Cartel
• Cooperative
• Union
• Syndicate

Why do individual firms in a collusion agreement have an incentive to cheat?

• MR > MC after collusion
• MC > MR after collusion
• MR < MC after collusion
• MR = MC after collusion