1. A collusive agreement between two firms is likely to break down when ________
ID: 1223683 • Letter: 1
Question
1. A collusive agreement between two firms is likely to break down when ____________.
A. the market has substantial long minus term valuethe market has substantial longterm value.
B. detection of cheaters is easydetection of cheaters is easy.
C. it is hard to punish cheatersit is hard to punish cheaters.
D. firms value profits less today than in the future.
2. For a market to be characterized as an oligopolyan oligopoly, there must be __________.
A. a possibility of positive economic profits in the long runa possibility of positive economic profits in the long run.
B. few sellersfew sellers.
C. homogeneous or differentiated productshomogeneous or differentiated products.
D. all of the above.
2. For a market to be characterized as an oligopolyan oligopoly, there must be __________.
A. a possibility of positive economic profits in the long runa possibility of positive economic profits in the long run.
B. few sellersfew sellers.
C. homogeneous or differentiated productshomogeneous or differentiated products.
D. all of the above
3. An example of an oligopolyan oligopoly is the __________.
A. cell phone marketcell phone market.
B. patented drug market
C. corn marketcorn market.
D. local electric companylocal electric company.
4. How are the products sold by a monopolistically competitive firm different from the products sold in a competitive market?
Unlike products sold in a competitive market, the products sold in a monopolistically competitive market are ___________.
A.
differentiated.
B.
homogeneous.
C.
expensive.
D.
perfect substitutes.
Explanation / Answer
1. Option C is correct.
A collusive agreement could break if the incentive to cheat does not bring any major repercussions, like the one, that the punishment for cheaters is not harsh.
2. Option D is correct.
Oligopoly is characterised by few sellers selling homogeneous or differentiated products in a market where there are entry barriers because of which the oligopoly can sustain positive economic or abnormal profits in the long run.
3. Option A is correct.
In the market for cell phones, there are only few sellers selling the differentiated products. The reason of few sellers in themarket is that the cost of entering into the industry is high, that is, setting up a production process for cell phones is expensive, which creates an entry barrier. Patent drug market would be categorised as monopoly, corn market as perfect competition and local electric company as monopolistic market.
4. Option A is correct.
One of the major difference between the perfect competition and monopolistic competition is that the products sold are differentiated in the latter.
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