Chapter
14 - 1-3-9-12
This
is a guidance answer ... your actual answer during the exam should be longer
than this answer ...
1. (a) and (d) are probably oligopolies dominated
by a few firms: (b), (c), and (e) are clearly monopolistically competitive
because there is lots of product differentiation, many firms, and lots of entry
and exit.
3. Shipbuilding
and wine production: not contestable. Both require large investments of land
and capital that cannot easily be moved to another location or another
industry. Trucking is contestable because it’s easy to move trucks to new
locations. Housecleaning services are contestable because they require a very
small initial investment.
9. (a) Disagree. In contestable markets,
oligopolies will be charging competitive prices. Even when oligopolies charge
prices above competitive levels, they will sometimes deliver a more innovative
stream of products and/or allow scale economies to be realized.
(b) Disagree. The existence of a fringe of small
firms is relatively common in oligopolies and does not vitiate the market power
of the larger firms.
12. You should
agree with this statement. Collusion occurs when price- and quantity-fixing
agreements among producers are explicit. If all firms in the industry
explicitly agree on fixing the price and quantity in the industry, they will
produce where the industry marginal revenue is equal to the marginal cost. In
essence, they will be acting as one monopolistic firm.
Courtesy
of Case/Fair/Oster, 11th edition, 2014
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