The authors of this text argue that oligopolies are interdependent firms. What do they mean by this? Give three examples of the types of interdependence which might occur.
What will be an ideal response?
Oligopolists are few in number, and they can closely watch each other. In this case, strategic behavior can be expected. When considering oligopolies, competition tends to resemble military campaigns, rather than the impersonal perfect competition considered earlier.The several types of oligopoly models are an indication of the types of interaction between firms. Specifically, firms will observe the price of rivals—they may match price (such as price leadership), or only some price changes (kinked demand curve). Second, they will watch the quality of rivals’ goods (differentiated oligopoly). Third, they will observe rivals’ advertising and may counter with their own (differentiated oligopoly).
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A firm using a two-part tariff can produce the economically efficient outcome by
A) making the fixed-fee portion of the price as low as possible. B) setting the fixed-fee portion of the price at some proportion to the fixed cost of production. C) setting the per-unit portion of the price equal to the average cost of production. D) setting the per-unit portion of the price equal to the marginal cost of production.
If faced with the same cost conditions as a perfectly competitive firm, a monopoly will
a. charge a lower price than the perfectly competitive firm. b. charge a higher price than the perfectly competitive firm. c. charge the same price as the perfectly competitive firm. d. refuse to operate in the short run unless an economic profit can be made.
Other things equal, the higher the interest rate paid on term deposits, the ________ funds that are available in banks' reserve accounts and the ________ the potential for expanding the money supply
A) more; greater B) more; lower C) fewer; greater D) fewer; lower
When an economist states that a firm is earning zero economic profit, this statement implies that the firm
a. will be forced out of business unless market conditions change. b. is doing as well as it could in any other line of business. c. is earning a zero rate of return on its assets. d. could earn a higher rate of return in other industries.