Econ 4.4 Reading Questions, 2025-26

Imagine your local community only had two internet providers, making it a duopoly.
a. Define a duopoly based on the reading.
b. Describe how interdependence between the two firms might influence their pricing or service decisions.
c. Explain how this situation differs from both perfect competition and monopoly.

Consider the reading’s description of the incentive to cheat in a collusive agreement.
a. Define collusion and explain how it relates to joint profit maximization.
b. Analyze why even when collusion is beneficial, firms might choose to cheat.
c. Evaluate whether legal restrictions on cartels help or harm consumers, using reasoning from the reading.

Suppose you are trying to explain oligopoly behavior to a friend who believes all businesses act independently.
a. Use the concept of interdependence to challenge your friend’s assumption.
b. Provide a real-world or hypothetical example of how one firm’s actions can impact its rival in an oligopoly.
c. Reflect on whether this makes markets more or less predictable, and why.

Evaluate the argument that firms in an oligopoly are trapped between cooperation and competition.
a. Define noncooperative behavior and contrast it with collusion.
b. Describe how this tension played out in the lysine duopoly example.
c. Conclude with your judgment: Which behavior—cooperative or noncooperative—do you believe is more sustainable long-term, and why?

Using the reading’s lysine example, analyze the cause-and-effect relationship between output decisions and market price.
a. Identify what happened to price when both firms increased their output.
b. Explain the role of the negative price effect in determining marginal revenue.
c. Analyze why individual profit incentives may lead to lower joint profits in a duopoly.

The reading distinguishes between marginal cost and marginal revenue in different market structures.
a. Define marginal revenue and marginal cost using context from the reading.
b. Explain why it’s easier to determine a firm’s output in monopoly or perfect competition than in oligopoly.
c. Analyze why this complexity matters for policymakers or economists studying market behavior.

Imagine a new tech industry is forming with only three major players.
a. Based on what you’ve learned, predict whether these firms will more likely engage in collusion or noncooperative behavior, and justify your reasoning.
b. Use the concept of interdependence to support your prediction.
c. Suggest one possible government action to ensure fair pricing in this emerging oligopoly and explain its potential impact.

Place yourself in the position of one of the lysine producers described in the reading.
a. Explain the reasoning you would use to decide whether to stick to or cheat on the agreement to produce 30 million pounds.
b. Analyze the short- and long-term consequences of cheating, both for your firm and the industry.
c. Reflect on what this decision reveals about the challenges of maintaining cooperation in oligopolies.