AP Lesson: Oligopolies, Collusion and Game Theory
Use this diagram for the question below.
The payoff matrix above shows the profits associated with the strategic decisions of two oligopoly firms, Bright Company and Sparkle Company. The first entries in each cell show the profits to Bright and the second the profits to Sparkle. What are the dominant strategies for Bright and Sparkle, respectively?
Bright: Strategy 1 Sparkle: Strategy 1
Bright: Strategy 1 Sparkle: Strategy 2
Bright: Strategy 2 Sparkle: Strategy 1
Bright: Strategy 2 Sparkle: No dominant strategy
Bright: No dominant strategy Sparkle: Strategy 1
What is it called when firms work together to determine quantities and prices in a market?
A & C
The study of how people react in competitive situations is called
An action that makes one player in a competitive situation better off in every circumstance, regardless of what the other players do, is called the
perfectly competitive decision
B & D
When oligopolists collude about the price to charge and the quantity to produce, they are referred to as
In the Kinked Demand Curve theory it is assumed that:
An increase in price by the firm is not followed by others
An increase in price by the firm is followed by others
A decrease in price by the firm is not followed by others
Firms collude to fix the price
The Kinked Demand Curve theory assumes:
Firms act as part of a cartel
Firms are competitive with each other
Firms are not profit maximizers
In Game Theory:
Firms are always assumed to act independently
Firms are always assumed to cooperate with each other
Firms always collude as part of a cartel
Firms consider the actions of others before deciding what to do
The largest four firms are likely to have a small market share
The price is likely to equal marginal revenue
Firms will continue to produce in the long run if price is less than average cost
Firms may collude or compete depending on their assumptions about their competitors
A model of Game Theory of oligopoly is known as the:
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