Why do oligopoly firms find it difficult to cooperate and not cheat on a cartel agreement?
What will be an ideal response?
Firms in an oligopoly have large market shares. When they change their output or price, the firm affects not only its own revenue and profit but also the revenue and profit of other firms. For example, if a firm cheats on a cartel agreement by lowering its price, it will capture a larger market share. The competitors will see a decrease in their total revenue and their profit but the cheating firm's profit increases. If the firms cooperate, they could act like a monopoly and have the maximum joint profit but each firm has the temptation to cheat and produce more than its share. This temptation is strong because cheating will increase the cheater's revenue and profit substantially.
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To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the inflation rate must:
A. not change. B. increase. C. decrease. D. either increase or decrease depending on the relative shifts of AD and AS.
When a firm doubles its inputs, its output:
A. will double. B. will less than double. C. will more than double. D. All of these are possible.
Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed would not have paid $3,000 for their tickets, and (b) 92 percent of those surveyed
would not have sold their tickets for $3,000. These results are an example of A) rational consumer behavior. B) the endowment effect. C) the fallacy of composition. D) the failure to ignore sunk costs.
Refer to the given information. Zippo has a:
The plus items below are “export-type” entries and the minus items are “import-type” entries in the balance of payments for the hypothetical country of Zippo.
A. current account surplus.
B. financial account deficit.
C. financial account surplus.
D. surplus on goods and services.