A group of firms that formally agree to produce the monopoly output and sell at the monopoly price is called a cartel.
Missing Word
cartel
A cartel is an explicit arrangement among firms to act jointly like a single monopoly, restricting output to raise price and profit.
Category: Collusion and Cartels
Question 2
When competing firms cooperate to hold down output and keep prices high, whether through a formal agreement or an unspoken understanding, they are engaging in collusion.
Missing Word
collusion
Collusion is cooperation among competing firms to limit output and raise prices so that together they act much like a monopoly. It can be explicit, as in a cartel, or tacit, with no written agreement at all.
Category: Collusion and Cartels
Question 3
A good such as bagged ice, which buyers see as exactly the same whichever firm sells it, is called a commodity.
Missing Word
commodity
A commodity is a standardized good with no meaningful difference between sellers, so buyers choose purely on price. It is the opposite of the differentiated products sold in monopolistic competition.
Category: Oligopoly Basics
Question 4
In game theory, a player's complete plan for which choice to make in each situation of the game is called a strategy.
Missing Word
strategy
A strategy is the course of action a player chooses in a game. Game theory compares the payoffs that result from each combination of the players' strategies, which is how it models interdependent oligopoly firms.
Category: Game Theory
Question 5
A market in which exactly two firms supply all of the output is called a duopoly.
Missing Word
duopoly
A duopoly is the special case of an oligopoly with only two firms, so each firm's choices depend heavily on the other's.
Category: Oligopoly Basics
Question 6
An oligopoly is a market in which a few large firms account for all or most of the sales.
Missing Word
oligopoly
Oligopoly describes an industry dominated by a small number of large firms whose pricing and output decisions are interdependent.
Category: Oligopoly Basics
Question 7
In the prisoner's dilemma, when each player does what is best for itself no matter what the other does, both end up worse off than if they had cooperated.
Missing Word
worse
Each prisoner gains by confessing whatever the other does, so both confess and each gets a longer sentence than if both had stayed silent. Oligopolists face the same problem: each gains by producing more than its agreed share, so cooperation tends to break down.
Category: Game Theory
Question 8
New firms keep entering a monopolistically competitive market until each firm's economic profit falls to 0.
Missing Word
0
Economic profit draws in entrants, and entry continues until price equals average cost and economic profit is 0, the long-run equilibrium.
Category: Monopolistic Competition
Question 9
As new firms enter a monopolistically competitive market, the demand curve facing each existing firm shifts to the left.
Missing Word
left
Entrants take some customers from existing firms, so each existing firm can sell less at any given price, which shifts its demand curve to the left.
Category: Monopolistic Competition
Question 10
If sellers of differentiated products are losing money and some close down, the demand curve of every surviving seller moves to the right.
Missing Word
right
The customers of exiting firms move to the remaining firms, increasing the quantity each can sell at any price, which shifts their demand curves to the right.
Category: Monopolistic Competition
Question 11
In long-run equilibrium, a monopolistically competitive firm's demand curve is tangent to its average cost curve at the output it produces.
Missing Word
tangent
Tangent means the two curves just touch without crossing; at that point price equals average cost, so the firm earns zero economic profit and cannot do better at any other output.
Category: Monopolistic Competition
Question 12
Goods that buyers use in place of one another, so that a rise in the price of one raises demand for the other, are called substitutes, and a monopolistically competitive firm's product has many close ones.
Missing Word
substitutes
Substitutes are goods that can replace each other in use. Because a monopolistically competitive firm's product has many close substitutes, buyers switch to rivals when its price rises, so its demand curve is more elastic than a monopolist's.
Category: Monopolistic Competition
Question 13
A firm that produces at the lowest point of its average cost curve is productively efficient, a standard that a monopolistically competitive firm in long-run equilibrium fails to meet.
Missing Word
productively
Productive efficiency means producing at the lowest possible average cost. In long-run equilibrium a monopolistically competitive firm's demand curve touches its average cost curve on the downward-sloping part, so it produces less than the cost-minimizing output.
Category: Monopolistic Competition
Question 14
In the kinked demand curve model, a firm's demand is very elastic at prices above the kink, because rivals do not follow its price increases.
Missing Word
above
The kink sits at the current price. If the firm raises its price, rivals keep theirs unchanged, so it loses many customers and demand at higher prices is very elastic; below the kink rivals match its cuts, so demand there is much less elastic.
Category: Kinked Demand
Question 15
A successful advertising campaign can make demand for a firm's product more inelastic, letting the firm raise its price without losing many customers.
Missing Word
inelastic
Inelastic demand means quantity demanded responds little to price; advertising that builds brand loyalty makes buyers less willing to switch when the price rises.
Category: Product Differentiation