《西方经济学》习题答案—答案16.docVIP

SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes 1. Oligopoly is a market structure in which only a few sellers offer similar or identical products. Examples include the market for tennis balls and the world market for crude oil. Monopolistic competition is a market structure in which many firms sell products that are similar but not identical. Examples include the markets for novels, movies, CDs, and computer games. 2. If the members of an oligopoly could agree on a total quantity to produce, they would choose to produce the monopoly quantity, acting in collusion as if they were a monopoly. If the members of the oligopoly make production decisions individually, they produce a greater quantity than the monopoly quantity because self-interest leads them to produce more than the monopoly quantity. 3. The prisoners’ dilemma is the story of two criminals suspected of committing a crime, in which the sentence that each receives depends both on his or her decision whether to confess or remain silent and on the decision made by the other. The following table shows the prisoners’ choices: Bonnies Decision Confess Remain Silent Clydes Decision Confess Bonnie gets 8 years Clyde gets 8 years Bonnie gets 20 years Clyde goes free Remain Silent Bonnie goes free Clyde gets 20 years Bonnie gets 1 year Clyde gets 1 year The likely outcome is that both will confess, since that’s a dominant strategy for both. The prisoners’ dilemma teaches us that oligopolies have trouble maintaining monopoly profits because each oligopolist has an incentive to cheat. 4. It is illegal for businesses to make an agreement about reducing quantities or raising prices. Antitrust laws are controversial because it isn’t always clear which kinds of behavior these laws should prohibit, such as resale price maintenance, predatory pricing, and tying. Questions for Review 1. If a group of sellers could form a cartel, they would try to set quantity and price like a monopolist.