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Homework answers / question archive / The profit maximizing rule for an oligopoly is to produce where Price = Marginal Cost Price = Average Total Cost Marginal Revenue = Marginal Cost Marginal Revenue = Average Total Cost Question 8 (2 points) If oligopoly firms begin to act as a cartel, we can expect prices to Increase Decrease Remain the same Question 9 (2 points) Which of the following is an example of an obstacle to collusion among oligopolists? It is difficult to negotiate how to split up the market
The profit maximizing rule for an oligopoly is to produce where Price = Marginal Cost Price = Average Total Cost Marginal Revenue = Marginal Cost Marginal Revenue = Average Total Cost Question 8 (2 points) If oligopoly firms begin to act as a cartel, we can expect prices to Increase Decrease Remain the same
Question 9 (2 points) Which of the following is an example of an obstacle to collusion among oligopolists? It is difficult to negotiate how to split up the market. Collusion is often illegal. There is an economic temptation to cheat. All of the above. Question 10 (2 points) Based on the payoff matrix, if firm X sells tacos, how much profit will it earn? Firm X sells tacos Firm Y sells tacos Firm X: 55000 profit Firm Y:S2000 profit Firm X: 53000 profit Firm Y: $6000 profit Firm Y sells pancakes Firm X: $8000 profit Firm Y: $3000 profit Firm X: $1000 profit Firm Y: $4000 profit Firm X sells pancakes $3000 $5000 $8000 Impossible to determine.
Question 11 (2 points) Based on the payoff matrix, does firm X have a dominant strategy? If so, what is it? Firm X sells tacos Firm Y sells tacos Firm X: $5000 profit Firm Y:S2000 profit Firm X: $3000 profit Firm Y: $6000 profit Firm Y sells pancakes Firm X: $8000 profit Firm Y: $3000 profit Firm X: $1000 profit Firm Y: $4000 profit Firm X sells pancakes Sell tacos. Sell pancakes. Firm X has no dominant strategy. Question 12 (2 points) Based on the payoff matrix, is there a Nash equilibrium? If so, what is it? Firm X sells tacos Firm Y sells tacos Firm X: 55000 profit Firm Y:S2000 profit Firm X: $3000 profit Firm Y: $6000 profit Firm Y sells pancakes Firm X: 58000 profit Firm Y: $3000 profit Firm X: $1000 profit Firm Y: $4000 profit Firm X sells pancakes Both firms sell tacos. Firm X sells tacos, firm Y sells pancakes. Firm X sells pancakes, firm Y sells tacos. There is no Nash equilibrium.
Question 7: Option C
Like any other firm, the profit maximization occurs when marginal revenue equals marginal cost for a oligopoly as well.
Question 8: Option A
The cartel gains control of the output and can easily raise the prices to reap more profits.
Question 9: Option D
All of them are correct. If the splitting of the market isn't optimal, then the members of the cartel might be taken advantage of without their knowledge. Same reason is traced back to the economic temptation to cheat. In some conservative economies, collusion is illegal per se.
Question 10: Option D
Since the profit depends on the move made by Y, we cannot accurately determine the profit made by X.
Question 11: Option A
When X sells Tacos, the profit made by X is always higher than what X would've made by selling pancakes irrespective of the move made by Y (5000>3000 and 8000>1000). Therefore, selling Tacos is a dominant strategy.
Question 12: Option B
When X sells Tacos and Y sells pancakes, you can observe that this is the best payoff combination for them and they don't have an incentive to change their choice after considering their opponent's choice.
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